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https://www.courtlistener.com/api/rest/v3/opinions/1549238/ | 275 Md. 495 (1975)
341 A.2d 388
JOURDAN
v.
STATE OF MARYLAND
[No. 187, September Term, 1974.]
Court of Appeals of Maryland.
Decided July 9, 1975.
*496 The cause was argued before SINGLEY, SMITH, DIGGES, LEVINE, ELDRIDGE and O'DONNELL, JJ.
Barry J. Renbaum, with whom was Alfred J. O'Ferrall, III, Deputy Public Defender, on the brief, for appellant.
David B. Allen, Assistant Attorney General, with whom were Francis B. Burch, Attorney General, Clarence W. Sharp, Assistant Attorney General, Arthur A. Marshall, Jr., State's Attorney for Prince George's County, and David K. Rumsey, Assistant State's Attorney for Prince George's County, on the brief, for appellee.
ELDRIDGE, J., delivered the opinion of the Court. SMITH, J., dissents and filed a dissenting opinion at page 512 infra.
In the course of petitioner's trial on charges of storehouse breaking and forgery, the prosecuting attorney became ill and could not carry on. Shortly thereafter, another attorney in the State's Attorney's office appeared and requested a continuance or, if the defendant would consent, a mistrial. The trial judge, sua sponte, declared a mistrial. The question presented is whether, under all of the circumstances of the case, the later retrial of petitioner on the same charges violated the double jeopardy clause of the Fifth Amendment to the United States Constitution.
Petitioner James Mitchell Jourdan, Jr., was arrested in January 1971 and indicted by the Prince George's County grand jury in March 1971, on charges of storehouse breaking. Jourdan, being detained in the disciplinary wing of *497 the State penitentiary prior to trial, was anxious to be tried as expeditiously as possible, and during the pre-trial period he sent motions and several letters to judges of the Circuit Court for Prince George's County, to federal courts and to other agencies, seeking a speedy trial. The storehouse breaking charge as well as three other cases against Jourdan, were then scheduled to be tried on May 21, 1971.
The various cases were called for trial as scheduled on Friday, May 21, 1971, at 1:20 p.m. The prosecuting attorney was the Deputy State's Attorney for Prince George's County, and the cases had been transferred to him from another attorney in the State's Attorney's office just a short time before, after the conclusion of a criminal case which the Deputy State's Attorney had been handling that morning. He later stated that he had spent about ten or fifteen minutes reviewing the files, but that this was sufficient time to familiarize himself, and that more preparation was not required for this particular trial. Jourdan was represented by an attorney appointed by the court.[1]
At the beginning of the proceedings, the Deputy State's Attorney moved that the court continue the cases, other than case 11,137 (the storehouse breaking charges), which had been scheduled for trial that day. Jourdan's attorney objected, stating: "In all of these cases there has been filed a motion for speedy trial. The matters have been continued at prior times and the defendant is here ready to be tried today and he is ready to proceed to trial today, so I would object to a continuance or a motion for continuance." In light of the objection the prosecuting attorney withdrew the motion for continuance.
The State then moved to consolidate case number 11,137 (storehouse breaking) with case number 11,147 (forgery and uttering of a check taken during the storehouse breaking); the defense concurred in the motion; and the motion was granted. Next, the State nolle prossed case number 10,634 (a *498 charge of housebreaking). The remaining case was number 11,073 (attempted escape), which was unrelated to numbers 11,137 and 11,147 (the storehouse breaking and forgery charges), and which the State again suggested should be continued. The defense again objected to a continuance, indicating that while the attempted escape case should not be consolidated with the others, it should be tried at the conclusion of the trial of the storehouse breaking and forgery charges. The court took the State's motion for a continuance under advisement, stating that it would be disposed of after the first trial.[2]
Jourdan pleaded "not guilty" to the storehouse breaking and forgery charges; the jury was selected and sworn; the witnesses were sequestered; the State's opening statement was made; and the State's first witness was called and began to testify. After a few minutes of direct examination of the first witness, the Deputy State's Attorney asked if counsel could approach the bench, and, out of the hearing of the jury, indicated that he was ill. The court took a recess, and the Deputy State's Attorney left the courtroom. This was at 2:10 p.m.
Fifteen minutes later the proceedings resumed with a bench conference out of the hearing of Jourdan. The State was represented by an Assistant State's Attorney, who stated to the court:
"Yes, Your Honor, so that we can continue with the case at a later date, so as not to pose a problem of double jeopardy we would ask that if the defendant at this time would consent to a mistrial then if the Court could recess the case, continue this case until next week when Mr. Femia [the Deputy State's Attorney] would be free to return and then try the case; continue with the case as it would recess the matter."
*499 The court then asked the defense attorney to comment, and Jourdan's attorney responded, "The only comment I have, I do not think that it would be appropriate for the case to be continued...." The court then declared a mistrial, saying:
"Very well. The court understands your motion and you request a consent and the court can understand why ... [the defense attorney] does not comment on that because of the complexity of this defendant with the various names and various cases. There is no indication he voluntarily consents, but the court is going to declare a mistrial for the simple reasons it is very obvious. You do not have the background Mr. Muskus [the Assistant State's Attorney]. It took us a considerable amount of time to get the whole situation into the appropriate complexion for its disposition and this is the last day for this jury for some substantial period of time. If I recess the case it would necessitate them coming back in when they were not assigned as jurors. They cannot be used in any other jury case while this was recessed. The court under the circumstances would declare a mistrial in this case and the reason is the State's Attorney's office cannot proceed further and Mr. Femia, the assigned State's Attorney for this trial having become physically incapacitated at 2:30 in the afternoon, the last day this jury panel is here, thus I declare a mistrial in the trial of Criminal Trials Nos. 11,137 and 11,147." (Emphasis supplied.)
The Assistant State's Attorney again raised the question that the defendant "would contend there would be no grounds for a mistrial" and "would claim at a later date ... a problem of double jeopardy." In reply the following colloquy took place at the bench:
"THE COURT: Mr. Muskus, I would like you to tell me how it is trouble. The court has the right to declare mistrial when it does not appropriately call for the continuance of a trial. I am exercising that *500 discretion under the circumstances and as I understand there is no opposition to the court declaring a mistrial under the circumstances.
"THE DEFENSE ATTORNEY: Under the circumstances.
"THE ASSISTANT STATE'S ATTORNEY: So as far as the defendant is concerned there is no problem declaring a mistrial, is that correct?
"THE DEFENSE ATTORNEY: That is correct."
The court directed the prosecuting attorney and the defense attorney to proceed to the State's Attorney's office and arrange for a new trial date.
Because the above proceedings were out of Jourdan's hearing, the prosecuting attorney raised again the matter of the defendant's consent, but his consent was not obtained. The record reveals the following:
"THE ASSISTANT STATE'S ATTORNEY: Your Honor, just for one additional precaution could we also have the defendant himself state that he would
"THE COURT: ... the court has disposed it as mistrial.
"THE ASSISTANT STATE'S ATTORNEY: We just want to make sure there is no problem at a later date.
"THE COURT: I am telling you gentlemen to bring it back down to me. Go back and list your calendars, and reschedule this case as soon as possible. If you gentlemen cannot resolve it within sensibility I will be back in my office very shortly. I will be available.
(Whereupon, counsel returned to the trial table and the following proceedings were had within the hearing of the jury:)
"THE COURT: Madam Reporter, for the record, when Mr. Muskus came up to the bench the record *501 will show, after the recess, Mr. Muskus came in representing the State's case, and you also will make a docket entry, Madam Clerk.
"Very well, Mr. Foreman, ladies and gentlemen of the jury, now that you will not be sitting in judgment on this case the Court will make one observation. Today has been a real rough day all the way around. What happened, you all observed. Mr. Femia has been taken to the lounge in the State's Attorney's office and the court has determined this case cannot be proceeded today and I have declared what we identify as a mistrial." (Emphasis supplied.)
The proceedings on May 21, 1971, were concluded at 2:30 p.m.
Jourdan's second trial on cases 11,137 and 11,147 commenced on September 7, 1971. The State nolle prossed all counts of number 11,137 (storehouse breaking) except for the first count. The jury found Jourdan guilty on the first count of number 11,137, which was storehouse breaking with intent to steal goods with a value exceeding one hundred dollars. The jury acquitted him of all counts in number 11,147. Subsequently, Jourdan was sentenced to six years' imprisonment, commencing as of January 19, 1971. At no time between the first and the second trial, or during the second trial, did Jourdan's attorney move to dismiss on the ground of double jeopardy or raise the double jeopardy issue. An appeal was taken, although the double jeopardy question was not raised on appeal. The Court of Special Appeals affirmed the storehouse breaking conviction in an unreported opinion, and this Court denied a petition for a writ of certiorari, 266 Md. 738.
On June 5, 1973, Jourdan, in proper person, filed a petition for post conviction relief. Shortly thereafter Jourdan, represented by a new attorney assigned by the Public Defender's office, filed an amended petition. The principal contentions in the amended petition were that Jourdan had been denied the right to a speedy trial and that his second *502 trial, following the declaration of a mistrial, was in violation of his constitutional right not to be twice put in jeopardy for the same offense. As amended again later, the petition for post conviction relief also set forth the claim that the failure of Jourdan's attorney to raise the double jeopardy defense amounted to a denial of the effective assistance of counsel guaranteed by the Sixth Amendment to the United States Constitution.
A hearing on the post conviction petition was held by the Circuit Court for Prince George's County (Taylor, J.) on November 26, 1973. At the hearing, testimony was heard from the Deputy State's Attorney who initially handled the prosecution at Jourdan's first trial and who became ill, by the Assistant State's Attorney who represented the State after the recess at the first trial, by the attorney who represented Jourdan at the first and second trials as well as on the appeal, and by Jourdan himself.
The Deputy State's Attorney testified that Jourdan's was his sixth trial that week, and that the matter was assigned to him shortly before the trial began, as he had concluded the case he was handling that morning. He further testified that the presence of the State's witnesses had already been arranged, and that ten or fifteen minutes' preparation was all that he needed for the trial. Finally, he explained that he had become faint during his questioning of the first witness, that he approached the bench, and that he did not remember what happened between that time and when he found himself on a couch in the State's Attorney's office. He stated that his physician diagnosed his illness as exhaustion, and that he returned to work about a week later.
The Assistant State's Attorney, who represented the State at the first trial after the illness of the Deputy State's Attorney, testified at the post conviction hearing that at the time of the first trial he was experienced in prosecuting storehouse breaking cases and that he had prosecuted "just about every major felony case." He testified that when the Deputy State's Attorney became ill during Jourdan's trial, he was instructed by the State's Attorney to request a *503 continuance. He said that as soon as the proceedings resumed following the Deputy State's Attorney's illness, he and the defense counsel approached the bench, that he did not request a mistrial because he would not request one without the consent of defense counsel, and that the judge "on his own motion declared a mistrial in the case." He further testified that, after the judge declared a mistrial, he requested that the defense agree to the mistrial, but "[t]he defendant would not consent." He went on to testify that the defense attorney "was reluctant" to consent to a mistrial. The Assistant State's Attorney concluded his testimony by stating that he was "very persistent" in his "effort to have the defendant personally consent to the mistrial because [he was]... concerned with the issue of double jeopardy" but that "the court had informed me that it had already ruled ... in the matter that a mistrial would be granted, that there was no need for my insistence or persistence in the matter to get the defendant's request or consent...."
The attorney who represented Jourdan at his first and second trial, as well as on the appeal from his conviction, testified at the post conviction hearing that the judge at the first trial declared a mistrial on his own motion, that Jourdan did not "personally concur" with the declaration of a mistrial, and that "[h]e wanted to know why we weren't going to trial. I tried to explain to him why we weren't." He confirmed that the proceedings after the recess relating to the declaration of a mistrial took place at the bench, out of the hearing of Jourdan.
The last witness at the post conviction hearing was Jourdan. Initially, Jourdan testified concerning the numerous letters and motions which, before his trial, he had sent to judges, courts, the Legal Aid Bureau and attorneys, seeking a speedy trial because "I was being held in the south wing of the Maryland Penitentiary without a conviction." He stated that, for the same reason, he did not on May 21, 1971, want a continuance or a mistrial. All of his witnesses were present, and he wanted to be tried. As to whether he understood what was going on and objected, the following appears:
*504 "A. The Honorable Judge called the jury back and told them they could go home.
"Q. I see. Did you fully understand what was going on, on the 21st of May?
"A. Yes, sir, I knew that I had to go back to the south wing of the penitentiary because they wouldn't hear my case.
"Q. Did you object to that?
"A. I made numerous objections to my lawyer, telling him I didn't want no continuance. I was tired of being continued. I had been continued for ... months."
Later in the hearing, Jourdan reiterated that he at no time consented to a mistrial.[3]
At the conclusion of the post conviction hearing, Judge Taylor delivered an oral opinion, holding that Jourdan had not been denied his right to a speedy trial. With respect to the question of double jeopardy, Judge Taylor found that Jourdan "did not consent to the granting of the mistrial" and that the court on May 21, 1971, granted the mistrial on its own.
Judge Taylor further found, based upon the testimony of the Deputy State's Attorney and the Assistant State's Attorney, that the practice in the State's Attorney's office at the time of Jourdan's first trial was that if a judge became available to try a case scheduled for that day, and if the member of the State's Attorney's staff who was assigned the case was engaged in another matter, and if another member of the State's Attorney's staff became available to prosecute the case, the case "will be pulled from the person originally assigned it, and then it would be tried by the [member of the] State's Attorney['s staff] that is free and available." Judge Taylor found that in accordance with this practice, the *505 Deputy State's Attorney on May 21, 1971, received Jourdan's cases from another member of the State's Attorney's staff to whom the cases had been assigned, that he ascertained that all witnesses were present, and that he took ten minutes to review the matter and then proceeded to trial. Judge Taylor went on to find that when the Deputy State's Attorney became ill, another Assistant State's Attorney, Mr. Muskus, was available and could have similarly handled the trial that day. He further found that it was not too late in the day to have proceeded with the trial. Judge Taylor concluded "that the court committed error in granting a mistrial sua sponte." Consequently, he held that Jourdan's retrial violated the prohibition against double jeopardy.
While finding that there was no consent to a mistrial, and that there was no "evidence to indicate that he [Jourdan] was personally and individually aware of the right to raise the issue of [double] jeopardy," Judge Taylor indicated that he was concerned about granting relief to Jourdan on double jeopardy grounds because of the failure of Jourdan's court appointed attorney to raise the double jeopardy issue after the first trial. However, he held that the failure of Jourdan's attorney to raise the double jeopardy issue in connection with the second trial, particularly after being alerted to the issue by the Assistant State's Attorney at the first trial, constituted inadequate representation by counsel.
In a subsequent written opinion and order, filed December 17, 1973, Judge Taylor stated that the attorney's "failure to raise the [double jeopardy] issue leads this court to conclude that Mr. Jourdan was denied the effective assistance of counsel." It was ordered that the conviction and sentence in number 11,137 be set aside.
The State applied to the Court of Special Appeals for leave to appeal from the order setting aside Jourdan's conviction. In an unreported per curiam opinion, the court granted the application and transferred the case to its regular appeal docket. Thereafter, the Court of Special Appeals, holding that the declaration of a mistrial during Jourdan's first trial was "manifestly necessary," and that, therefore, his retrial *506 did not twice place him in jeopardy, reversed the order of December 17, 1973, setting aside Jourdan's conviction. State v. Jourdan, 22 Md. App. 648, 325 A.2d 164 (1974). This Court then granted a writ of certiorari to review the reversal of the order setting aside Jourdan's conviction.[4]
As we have pointed out on many recent occasions, since the Supreme Court's decision in Benton v. Maryland, 395 U.S. 784, 89 S. Ct. 2056, 23 L. Ed. 2d 707 (1969), the prohibition against twice placing a criminal defendant in jeopardy is applicable in this State as a constitutional matter, by virtue of the Fifth and Fourteenth Amendments to the United States Constitution, whereas prior to Benton it was held applicable in Maryland only as a common law principle. See Blondes v. State, 273 Md. 435, 442-443, 330 A.2d 169 (1975); Neal v. State, 272 Md. 323, 327, 322 A.2d 887 (1974); Cornish v. State, 272 Md. 312, 316, 322 A.2d 880 (1974); Matter of Anderson, 272 Md. 85, 92-93, 321 A.2d 516, appeal dismissed, 419 U.S. 809, 95 S. Ct. 21, 42 L. Ed. 2d 35 (1974); Pugh v. State, 271 Md. 701, 704-705, 319 A.2d 542 (1974). Being a constitutional question, the contention that a defendant's rights under the Fifth Amendment's double jeopardy clause were violated may now be raised under the Post Conviction Procedure Act, Code (1957, 1971 Repl. Vol., 1974 Cum. Supp.), Art. 27, § 645A. See Jordan v. Warden, 9 Md. App. 485, 265 A.2d 568 (1970).
In its appeal to the Court of Special Appeals, the State made no claim that Jourdan waived his double jeopardy contention because his attorney failed to raise the issue before or at the beginning of the second trial, and the Court of Special Appeals stated that "we shall assume, but do not specifically so decide," that the issue was not waived (22 Md. App. at 656). And in this Court the State does not contend that the double jeopardy question was waived. The Post *507 Conviction Procedure Act, as amended by Ch. 442 of the Acts of 1965, adopts the definition of waiver of a constitutional right set forth in Johnson v. Zerbst, 304 U.S. 458, 464, 58 S. Ct. 1019, 1023, 82 L. Ed. 1461, 146 A.L.R. 357 (1938), and Fay v. Noia, 372 U.S. 391, 439, 83 S. Ct. 822, 849, 9 L. Ed. 2d 837 (1963), namely that the petitioner himself "intelligently and knowingly" failed to raise the issue before or at his trial, Art. 27, § 645A (c). See Bristow v. State, 242 Md. 283, 289, 219 A.2d 33 (1966). There is no support in the record in this case for holding that Jourdan before or at the time of his second trial was aware of and understood the possible defense of double jeopardy; the evidence is all to the contrary. Consequently, we shall proceed on the basis that there was no waiver because of the failure to raise the double jeopardy issue prior to or at the beginning of Jourdan's second trial.[5]
It is clear that at the time the mistrial was declared on May 21, 1971, jeopardy had attached to Jourdan, as the jury had been empaneled and sworn. In fact, the first witness had begun to testify.[6] However, as Mr. Justice Rehnquist stated for the Court in Illinois v. Somerville, supra, 410 U.S. at 467-468:
"... in cases in which a mistrial has been declared prior to verdict, the conclusion that jeopardy has *508 attached begins, rather than ends, the inquiry as to whether the Double Jeopardy Clause bars retrial. That, indeed, was precisely the rationale of [United States v.] Perez [9 Wheat. 579, 6 L. Ed. 165 (1824)] and subsequent cases. Only if jeopardy has attached is a court called upon to determine whether the declaration of a mistrial was required by `manifest necessity' or the `ends of public justice.'"
Thus, where jeopardy has attached to a criminal defendant and a mistrial is thereafter declared, the determination of whether the Fifth Amendment's prohibition against double jeopardy bars a retrial depends upon the reasons for and circumstances surrounding the mistrial declaration.
One circumstance where a retrial is normally permitted after a mistrial, without further examination into the reasons for the mistrial, is where the defendant sought or consented to the mistrial. United States v. Jorn, supra, 400 U.S. at 484-485; Cornish v. State, supra, 272 Md. at 318-319; United States v. Beasley, 479 F.2d 1124 (5th Cir.), cert. denied, 414 U.S. 924, 94 S. Ct. 252, 38 L. Ed. 2d 158, reh. denied, 414 U.S. 1052, 94 S. Ct. 557, 38 L. Ed. 2d 340 (1973); United States v. Goldstein, 479 F.2d 1061, 1066 (2d Cir.), cert. denied, 414 U.S. 873, 94 S. Ct. 151, 38 L. Ed. 2d 113 (1973). Although not the ground for the Court of Special Appeals' decision, in argument before us the question of whether Jourdan consented to the mistrial on May 21, 1971, appeared to be the principal issue.
Our review of the proceedings convinces us that Judge Taylor's finding, that Jourdan did not consent to the mistrial, is firmly supported by the record. There is some indication that Jourdan's attorney consented to a mistrial during the bench conference on May 21, 1971. When the court stated that it understood that "there is no opposition to the court declaring a mistrial under the circumstances," the defense attorney responded, "Under the circumstances." The Assistant State's Attorney then stated, "So far as the defendant is concerned there is no problem declaring a *509 mistrial, is that correct?" The defense attorney replied, "That is correct." However, it should be remembered that these comments by the defense attorney were made after the defense attorney had refused to take a position or even comment on declaring a mistrial, were made after the court stated for the record that there was no indication that the defendant "voluntarily consents," and were made after the determination that "the court is going to declare a mistrial."
Assuming arguendo that Jourdan's attorney consented to the mistrial, the evidence clearly shows that Jourdan himself did not consent and, in fact, opposed the mistrial. Jourdan's pretrial activities seeking a speedy trial, and his opposition to continuances sought by the State at the beginning of the May 21, 1971, trial, reveal that he wanted a final resolution of the charges against him as quickly as possible. The discussion at the bench conference concerning a mistrial, and any indication at that conference that his attorney was consenting to a mistrial, were out of Jourdan's hearing. The effort by the Assistant State's Attorney to determine whether Jourdan consented to the mistrial was frustrated by the trial judge who indicated that Jourdan's consent was not needed as the court itself "has disposed [of] it as [a] mistrial." At the post conviction hearing, the Assistant State's Attorney representing the State on May 21, 1971, the attorney representing Jourdan on that date, and Jourdan himself, all testified that Jourdan did not consent to a mistrial. The defense attorney further testified that after the mistrial was declared and the bench conference was over, Jourdan "wanted to know why we weren't going to trial." Jourdan stated that he "made numerous objections to my lawyer" concerning the failure to complete the trial on May 21, 1971. All of this evidence demonstrates that Judge Taylor was fully warranted in finding that Jourdan did not consent to a mistrial. Under other circumstances, where a defendant's attorney consents to a mistrial, the defendant himself might be deemed to have consented or to be bound by his attorney's action. But under the circumstances of this case, the declaration of the *510 mistrial must be regarded as an unconsented to sua sponte declaration by the court.
Recently in Cornish v. State, supra, 272 Md. at 316-320, this Court reviewed the standards to be applied in determining whether the double jeopardy clause would prohibit a retrial of a criminal defendant following an unconsented to declaration of a mistrial, reviewed the numerous Supreme Court cases on the subject, and reviewed some of the situations where retrials have been permitted and some of the situations where they have not. We pointed out that since the opinion of Mr. Justice Story in United States v. Perez, 9 Wheat. 579, 580, 6 L. Ed. 165 (1824), it has been settled that the constitutional prohibition against double jeopardy permitted a retrial following a mistrial only if there was "manifest necessity" for the mistrial, and that the discretionary power of a court to declare a mistrial "ought to be used with the greatest caution, under urgent circumstances, and for very plain and obvious causes." We also pointed out in Cornish, quoting from United States v. Jorn, supra, 400 U.S. at 480, that while the Supreme Court has not prescribed strict "`categories of circumstances which will permit or preclude retrial,'" nevertheless the cases do set forth principles for determining whether mistrials should be declared in various types of circumstances.
Turning to the instant case, there was no "manifest necessity" for the sua sponte declaration of a mistrial. As Judge Taylor found, the Assistant State's Attorney who took over after the Deputy State's Attorney became ill could have handled the prosecution of the cases against Jourdan. The uncontroverted testimony was that the Deputy State's Attorney had taken only ten or fifteen minutes to prepare for trial after having been assigned the cases shortly before the trial was scheduled to begin, and that the Assistant State's Attorney was experienced in cases of this nature. There is nothing in the subject record to indicate that the Assistant State's Attorney, after a brief recess, could not have been as prepared as was the Deputy State's Attorney. Long ago it was stated in United States v. Watson, 3 Ben. 1, *511 28 Fed. Cas. 499, 500-501, Fed. Case No. 16,651 (S.D.N.Y. 1868):
"The illness of the district attorney, it not appearing by the minutes ... that it was impossible for the assistant district attorney to conduct the trial, ... cannot be regarded as creating a manifest necessity for withdrawing a juror.... The mere illness of the district attorney ... is no ground upon which, in the exercise of a sound discretion, a court can, on the trial of an indictment, properly discharge a jury, without the consent of the defendant, after the jury has been sworn and the trial has thus commenced."
Moreover, even if the Assistant State's Attorney could not have taken over the prosecution on May 21, 1971, we would not under the circumstances here conclude that a mistrial was necessary. This Court in Cornish v. State, supra, 272 Md. at 320, pointed out that "a retrial is barred by the Fifth Amendment where reasonable alternatives to a mistrial, such as a continuance, are feasible and could cure the problem." See also United States v. Jorn, supra, 400 U.S. at 487; Thomas v. Beasley, 491 F.2d 507, 509-510 (6th Cir.), cert. denied, 417 U.S. 955, 94 S. Ct. 3083, 41 L. Ed. 2d 674 (1974); United States v. Kin Ping Cheung, 485 F.2d 689, 691 (5th Cir.1973); United States v. Tinney, 473 F.2d 1085, 1089 (3d Cir.), cert. denied, 412 U.S. 928, 93 S. Ct. 2752, 37 L. Ed. 2d 156 (1973). In the present case, no reason has been suggested why the alternate remedy of a continuance was not feasible. If it would have taken the Assistant State's Attorney until the next morning to get ready for the trial, a continuance until that time could have been granted. Or, if there were some reason (not apparent on this record) why the Assistant State's Attorney could not handle the prosecution the next day or shortly thereafter, the case could have been continued for a reasonable time until the Deputy State's Attorney was able to resume his duties. As the six month jury term of this jury was far from over, the jury *512 could have been called back as soon as the Deputy State's Attorney was ready to resume his duties.
Judge Taylor, at the conclusion of the post conviction hearing, correctly concluded that there was no "manifest necessity" for the sua sponte declaration of a mistrial on May 21, 1973, and that, therefore, Jourdan's retrial violated the constitutional prohibition against double jeopardy.
Judgment of the Court of Special Appeals reversed.
Costs to be paid by Prince George's County.
Smith, J., dissenting:
I would affirm the decision of the Court of Special Appeals and reverse the order entered by the Circuit Court for Prince George's County. My reasons were cogently set forth by Chief Judge Orth for the Court of Special Appeals in State v. Jourdan, 22 Md. App. 648, 325 A.2d 164 (1974), which opinion I adopt. I would add only a few additional words.
As stated by the Court of Special Appeals and the majority opinion here, the standard in this regard since the opinion of Mr. Justice Story in United States v. Perez, 22 U.S. (9 Wheat.) 579, 6 L. Ed. 165 (1824), has been whether the trial court "exercise[d] a sound discretion on the subject...." It is easy in any given situation, particularly in the isolation of the chambers of an appellate judge, to say that a certain course of action should or should not have been taken. I note that in a recent game involving the Baltimore Orioles a sportswriter questioned the wisdom of the manager in removing his starting pitcher in the ninth inning and his various moves thereafter, Baltimore having been ahead at the time of the removal and having ultimately lost the game by one run in the twelfth inning. The manager, however, was on the spot where he was obliged to make his determinations quickly upon the basis of his best judgment at the time. So was the trial judge in this instance. It is to be noted in this regard that the trial judge was no neophyte. He *513 is a distinguished, conscientious, able judge with six years of service prior to this trial, one who is willing to work.
It is all very well now for us to say that it only took the prosecutor 15 or 20 minutes to review the file and be ready for trial and that thus the trial could have continued on that Friday afternoon. There is nothing in the record to show that the trial judge was aware of the fact that the State thought it could be ready in such a brief period of time.[1] Moreover, I have seen entirely too many cases in my short time on the Court of Appeals where I thought prosecutors had done just that, taking 15 or 20 minutes to prepare their cases when the interest of the public would have been better served by more adequate preparation.
No doubt the fact that the normal tour of duty for the jury panel was intended to expire that day, with the thought that some of the good citizens serving on the jury might have made good faith commitments for the following week based upon the normal expiration of their time for jury service, went through the judge's mind and entered into his decision. Moreover, he did direct that an assistant state's attorney and defense counsel "proceed to the State's Attorney's Office and set [the case] at the earliest practical date," adding, "Go back and list your calendars, and reschedule this case as soon as possible. If you gentlemen cannot resolve it within sensibility I will be back in my office very shortly. I will be available."
Paraphrasing slightly the opinion of the Court of Special Appeals in its quotation from Baker, Whitfield & Wilson v. State, 15 Md. App. 73, 89, 289 A.2d 348 (1972), cert. denied, 266 Md. 733, 744, 411 U.S. 951 (1973), I do not believe here "there was an abuse of the trial process resulting in prejudice to the accused, by way of harassment or the like, such as to outweigh society's interest in the punishment of crime."
NOTES
[1] This was seven months prior to the effective date of the Maryland Public Defender Act, Maryland Code (1957, 1971 Repl. Vol., 1974 Supp.), Art. 27A, and therefore attorneys to represent indigent criminal defendants were still being appointed by the court in Prince George's County.
[2] Later, however, while the jury for numbers 11,137 and 11,147 was being selected, the court indicated to the clerk that it would not be necessary to have any jurors available for the disposition of the attempted escape case "because I am not going to start any additional trials today. We do not have any time or inclination to do it at this time."
[3] Although repeatedly answering in the negative whenever he was asked whether he consented to a continuance or to a mistrial, Jourdan's testimony suggested that he did not appreciate the difference between the two. He was merely aware that either would result in his not being tried on May 21, and he wanted the trial to go forward on that date.
[4] Under Maryland Code (1974), § 12-202(1) of the Courts and Judicial Proceedings Article, this Court has no jurisdiction to review a decision of the Court of Special Appeals granting or denying leave to appeal in a post conviction proceeding. However, once the Court of Special Appeals grants leave to appeal in such a case and transfers the case to its appeal docket, the matter takes the posture of a regular appeal, and we do have jurisdiction under § 12-201 of the Courts and Judicial Proceedings Article to review the Court of Special Appeals' decision on the appeal itself.
[5] Of course, a holding of waiver would only present the question, decided by Judge Taylor, of whether the attorney's failure to raise the double jeopardy issue, after being alerted to it by the Assistant State's Attorney at the first trial, amounted to a denial to Jourdan of the effective assistance of counsel in violation of the Sixth Amendment.
[6] "In the case of a jury trial, jeopardy attaches when a jury is empaneled and sworn." Serfass v. United States, 420 U.S. 377, 388, 95 S. Ct. 1055, 1062, 43 L. Ed. 2d 265 (1975). See also Illinois v. Somerville, 410 U.S. 458, 467, 93 S. Ct. 1066, 1072, 35 L. Ed. 2d 425 (1973); United States v. Jorn, 400 U.S. 470, 474-478, 91 S. Ct. 547, 552-553, 27 L. Ed. 2d 543, 550-552 (1971); United States v. Sisson, 399 U.S. 267, 303-305, 90 S. Ct. 2117, 2137-2138, 26 L. Ed. 2d 608, 631-632 (1970); Blondes v. State, supra, 273 Md. at 444.
With respect to a non-jury trial, most cases had held that jeopardy attaches when the judge begins to hear evidence, although there was a minority view that jeopardy attaches when the first witness is sworn. See the discussion in Blondes v. State, supra, 273 Md. at 444-446, and the cases therein cited. The Supreme Court has now endorsed the majority view, stating: "In a nonjury trial, jeopardy attaches when the court begins to hear evidence." Serfass v. United States, supra, 420 U.S. at 388.
[1] I daresay if defense counsel were shown to have spent only 15 or 20 minutes in preparing a case such as this there would be a strong contention that this amounted to inadequate representation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549262/ | 140 B.R. 634 (1992)
In re Ray W. NEAL, Debtor.
Bankruptcy No. 91-31295-C.
United States Bankruptcy Court, W.D. Texas, El Paso Division.
March 8, 1992.
*635 Jerry Tanzy, El Paso, Tex., for debtor.
E.P. Bud Kirk, El Paso, Tex., for Sunwest Bank of El Paso.
ORDER ON MOTION OF RAY W. NEAL TO AVOID LIEN OF SUNWEST BANK OF EL PASO IMPAIRING DEBTOR'S EXEMPTIONS
LEIF M. CLARK, Bankruptcy Judge.
CAME ON for hearing the Motion of Ray W. Neal, Debtor, to Avoid Lien of Sunwest Bank of El Paso Impairing Debtor's Exemptions. Upon consideration thereof, the court finds and concludes that the Motion is well taken, and that the relief requested therein should be granted. The following Decision and Order constitutes the court's findings of fact and conclusions of law.
JURISDICTION
This court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 157 and 1334. This matter is a core proceeding. 28 U.S.C. § 157(b); 11 U.S.C. § 522(f).
FACTUAL BACKGROUND
Ray Neal ("debtor") is the sole proprietor of Diversified Design Services, a computer-aided drafting and scanning service; for the past two years, he has worked out of his home, using sophisticated computer equipment and software to generate engineering drawings and schematics. The drawings produced by the Debtor could be produced by hand, but time limitations and industry standards necessitate the use of computer technology to remain competitive. Specifically, Debtor's clients require *636 not only hard copies of the drawings, but a computer disk containing the information as well. Debtor would also be unable to generate drawings for clients quickly enough to compete using traditional drafting techniques.
In June 1991, Debtor borrowed approximately $10,060.30 from Sunwest Bank of El Paso. As security for the loan, Debtor gave Sunwest a security interest in various pieces of computer equipment used by the debtor in his business.[1] As of December 1991, Sunwest estimated the value of the collateral to be approximately $12,000.
Debtor filed for relief under Chapter 13 of the Bankruptcy Code on November 5, 1991. Subsequently, he filed this motion, seeking to avoid Sunwest's lien against the computer equipment under § 522(f)(2)(B), to the extent that it impairs an exemption to which he may be entitled. At the hearing, all parties agreed to stipulate that Sunwest's security interest is non-purchase money and non-possessory; the sole issue to be decided by the court is whether the computer equipment at issue qualifies as a "tool of the trade" for the avoidance purposes of § 522(f)(2)(B).
Sunwest Bank contends that the computer equipment at issue is not a "tool of the trade" within the plain meaning of those terms of federal law as contained in § 522(f)(2)(B). Sunwest urges the court to establish a narrow federal definition of the terms for purposes of lien avoidance, rather than relying on state law definitions developed under the rubric of broadly-construed exemption statutes. Sunwest also argues that the equipment is not of the "inconsequential value" contemplated by Congress in the enactment of § 522(f)(2). Finally, Sunwest argues that allowing the Debtor to avoid the lien on the computer equipment will severely limit, if not eliminate, the ability of sole proprietorships to obtain non-purchase money working capital financing.
Debtor argues that the equipment fits squarely within the definition of tools of the trade, as it has been applied under both federal and state exemption statutes and the lien avoidance statutes. Debtor further argues that, although the "inconsequential value" requirement is consistent with the purpose underlying subsection (f)(2)(A) (involving household goods), it is entirely inconsistent with the purpose underlying subsection (f)(2)(B), involving "books, implements, and tools, of the debtor's trade," and should not be applied so as to deprive Debtor of the tools essential to his fresh start.
ANALYSIS
A debtor who files for relief under the Bankruptcy Code must surrender all of his property for the benefit of his creditors; the property so surrendered comprises the bankruptcy estate. See 11 U.S.C. § 541; see also In re Lucas, 924 F.2d 597, 599 (6th Cir.1991). However, 11 U.S.C. § 522 provides debtors with several exemptions which may be used to prevent certain property from being distributed to unsecured creditors. See Augustine v. United States, 675 F.2d 582, 584 (3d Cir. 1982) (citing H.Rep. No. 595, 95th Cong., 1st Sess. 126 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5963, 6087. The purpose of the exemption provisions is to secure the debtor's fresh start, so as to prevent his becoming "a public charge". See In re Taylor, 861 F.2d 550, 552 (9th Cir.1988) (citing H.Rep. No. 595, 95th Cong., 2d Sess. 126 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 6087.
*637 In furtherance of the fresh start policy, Congress also provided debtors the ability to place certain of their property beyond the reach of secured creditors. See In re Taylor, 861 F.2d at 552. To the extent that a debtor is entitled to an exemption, be it under federal or state law, he may avoid certain liens in particular types of property. 11 U.S.C. § 522(f); see also In re Heape, 886 F.2d 280, 282 (10th Cir.1989); In re Patterson, 825 F.2d 1140, 1146 (7th Cir.1987); Augustine v. United States, 675 F.2d at 584. 11 U.S.C. § 522(f) provides in pertinent part:
(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled to under subsection (b) of this section, if such lien is . . .
(2) a nonpossessory, nonpurchase-money security interest in any
(A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;
(B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor . . .
11 U.S.C. § 522(f)(2)(A), (B). Thus, liens may only be avoided to the extent that they impair an exemption to which the debtor would be entitled under § 522(b). Under that section, a debtor may elect either the federal exemptions found in § 522(d), the federal exemptions as modified by the states, or state exemptions. See 11 U.S.C. § 522(b), (d); see also In re Taylor, 861 F.2d 550, 552 (9th Cir.1988) (reviewing exemptions available under § 522(b)).
Texas created its own classes of exempt property, an exemption scheme with a long pedigree. In re Leva, 96 B.R. 723, 733 n. 14 (Bankr.W.D.Tex.1989) (first exemption statutes enacted during the Republic, six years before Texas' admission into the Union). The Texas Property Code was amended most recently in 1991, to provide that personal property constituting "tools, equipment, books and apparatus, including boats and motor vehicles used in a trade or profession" may be claimed as exempt. Tex.Prop.Code Ann. § 42.002(a)(4) (West 1991). Families may now exempt up to $60,000, while single adults may exempt up to $30,000. Tex.Prop.Code Ann. § 42.001 (West 1991).
The Texas exemption for tools, equipment, books, and apparatus used in a trade or profession has been limited to those items that are peculiarly adapted to the trade or profession. See In re Weiss, 92 B.R. 677, 679 (Bankr.N.D.Tex.1988) (construing predecessor statute, § 42.002(3)(B)); see also In re Swift, 124 B.R. 475, 481 (Bankr.W.D.Tex.1991) (insurance agent not allowed to exempt typewriter). The exemption must be of items "fairly belonging to" the trade; those items which have a "merely general value and use" in a business are not included within the scope of the exemption. See In re Swift, 124 B.R. at 481 (citing Weiss, supra, and Meritz v. Palmer, 266 F.2d 265, 268 (5th Cir. 1959)); see also In re Leva, 96 B.R. at 739 (citing McMillan v. Dean, 174 S.W.2d 737, 739 (Tex.Civ.App. Austin 1943, writ ref'd w.o.m.). Further, the only limitation on the value of the tools, equipment, books or apparatus is the general limitation found in § 42.001; there is no longer a requirement that tools of the trade be small hand or mechanical tools. See Tex.Prop.Code Ann. § 42.001 (West 1991); see also Meritz v. Palmer, 266 F.2d at 268-9; In re Hernandez, 131 B.R. 61, 5 T.B.C.R. 387 (Bankr. W.D.Tex.1991) (Monroe, B.J.).
The computer equipment in the case sub judice is well within the scope of the Texas exemption for tools of the trade; it belongs just as fairly to Debtor's trade today as would a T-square and drafting table forty years ago, and it is of considerably more than "merely general value" to the business. Indeed, Debtor testified that the equipment, both hardware and software, is designed specifically for computeraided drafting and that without the equipment, *638 he would be unable to provide the work-product required by his clients. It is true that some pieces of the equipment are generic in nature (e.g., the IBM-compatible 386SX computer, with 1MB of RAM and a 40MB hard drive), but it is the system's use as a unit which renders the system itself, in essence, a tool of the debtor's trade. Take away the computer, for example, and the specialized software becomes nothing more than an otherwise useless "circular plate coated with ferromagnetic particles," Webster's New Universal Unabridged Dictionary, 2d ed. (Dorset & Baber 1983). Removing the computer itself from the otherwise specialized equipment would be like removing the engine from a tow truck. See Hernandez, supra. The court concludes that the Debtor is entitled to claim the system as exempt under the Texas statute.[2]
Having concluded that the Debtor is entitled to an exemption under § 522(b), the court now turns to § 522(f)(2)(B) to determine whether the Debtor is entitled to avoid Sunwest's lien on the equipment. While state law determines the availability of exemptions, it is federal law that determines avoidability of liens. See In re Heape, 886 F.2d 280, 282 (10th Cir.1989); In re Thompson, 750 F.2d 628, 630 (8th Cir.1984); cf. In re Thompson, 867 F.2d 416, 420-21 (7th Cir.1989) (using state law definition for § 522(f)(2)(B) purposes). A considerable number of courts have addressed lien avoidance under § 522(f)(2)(B), and a split of authority has developed over the phrase "tools, of the trade of the debtor".
Many cases have applied an "inconsequential value" test to § 522(f)(2)(B) actions (involving items relating to a debtor's continuing in his or her line of work), without differentiating such actions from those brought under subsection (f)(2)(A) (involving household goods used for personal use), where that test is more easily justified by the legislative history's express discussion. Compare In re Sweeney, 7 B.R. 814, 818-19 (Bankr.E.D.Wisc.1980) (lien avoidance subject to value limitations) and In re Yparrea, 16 B.R. 33, 34 (Bankr. D.N.M.1981) (same); with In re Liming, 797 F.2d 895, 899-901 (10th Cir.1986) ("implement" worth $30,000 subject to lien avoidance), Augustine v. United States, 675 F.2d 582, 586 (3d Cir.1982) (lien avoidance limited only by extent of exemption) and In re Seacord, 7 B.R. 121, 123-4 (Bankr.W.D.Mo.1980) ("implement" subject to lien avoidance under state exemption statute without limit as to value). In so doing, many of these cases have thereby limited the avoidance power to small hand and mechanical tools, or tools of relatively little resale value. See e.g., In re Harrell, 72 B.R. 107, 111 (Bankr.N.D.Ala.1987) (lien avoidance provisions apply to property of relatively insignificant value); In re Trainer, 56 B.R. 21, 23 (Bankr.S.D.Tex.1985) (tools and implements exemption limited to small resale value); In re O'Neal, 20 B.R. 13, 15-17 (Bankr.E.D.Mo.1982) ("implements" limited to small implements). These courts have drawn further support for this restrictive definition from the $750 limitation on the federal exemption for tools of the trade found in § 522(d)(6), reading the monetary limitation into the lien avoidance statute. See 11 U.S.C. § 522(d)(6); see also In re Harrell, 72 B.R. at 111; In re Trainer, 56 B.R. at 23. In addition, a few courts have argued that to allow debtors to avoid liens on any property other than that of little resale value would virtually eliminate nonpurchase-money financing for sole proprietorships (especially farmers). See In re Trainer, 56 B.R. at 23 (legislative history of § 522(f) does not support conclusion that Congress intended to severely restrict nonpurchase-money financing).
Most of the circuit courts which have examined the issue have reached a different result, however. See In re Heape, 886 F.2d 280, 282 (10th Cir.1989); In re Thompson, 867 F.2d 416, 420 (7th Cir.1989); In re LaFond, 791 F.2d 623, 627 (8th Cir.1986); *639 Augustine v. United States, 675 F.2d 582, 586 (3d Cir.1982). These courts point out that § 522(f)(2)(B) was enacted to provide debtors with the means to facilitate the fresh start promised by the Bankruptcy Code, by preserving for them the tools, implements, or professional books of their trade they are presumed to need to continue earning a livelihood after bankruptcy. "A fresh start cannot be attained by returning a debtor to point zero; subsection (f)(2)(B) encompasses property which is necessary to give substance to the concept of a fresh start." In re LaFond, 791 F.2d 623, 627 (8th Cir.1986) (citing In re Pommerer, 10 B.R. 935, 942 (Bankr.Minn.1981)). A construction restricting § 522(f)(2)(B) to property of little resale value overlooks the principal purpose of this provision (in contradistinction to subsection (f)(2)(A)), leaving debtors fresh, but without a start. See In re LaFond, 791 F.2d at 627; In re Pommerer, 10 B.R. at 946; In re Sugarek, 117 B.R. 271, 273 (Bankr.S.D.Tex.1990). Regardless of the value of a given tool of the trade, it is nonetheless a tool of the trade, the lack of which could threaten the debtor's ability to make a living after bankruptcy.
Some courts which have engrafted the "of little resale value" gloss onto the language of § 522(b)(2)(B) have justified the gloss by trying to extend to tools of the trade the discussion of household goods found in the legislative history to § 522(f)(2), even though tools of the trade are clearly distinct in kind and purpose from personal items held for household use.[3]Harrell, 72 B.R. at 111; Trainer, 56 B.R. at 23; O'Neal, 20 B.R. at 15-17. Unlike the consumer situation, in which the lender's presumed motivation in taking the security interest is solely the leverage that the threat of repossessing the family sofa (as opposed to the intrinsic value of the sofa as collateral for the loan), the lender's motivations in the business lending setting are likely to include both the leverage that comes from the threat of repossession and the intrinsic resale value of the collateral. The very fact that the statute provides a separate subsection for tools of the trade suggests that Congress too appreciated this distinction. The rationale spelled out in the legislative history for subsection (A) simply does not apply with equal force to subsection (B).
Courts which have insisted on glossing over the difference in kind between the kinds of things covered by subsections (A) and (B) have also had to ignore the common sense plain meaning of the term "tools of the trade," in derogation of a basic principle of statutory construction. See United States v. Apfelbaum, 445 U.S. 115, 121, 100 S. Ct. 948, 952, 63 L. Ed. 2d 250 (1980) (courts must gave words in a statute their plain meaning, absent statutory definitions). Modern dictionary definitions of the terms "tool" and "trade" encompass nearly any object or implement used in carrying on work of any kind, or any apparatus necessary to a person in the practice of a vocation or profession. See In re Bulger, 91 B.R. 129, 131 (Bankr.M.D.Ala. *640 1988) (emphasis added) (citing Webster's Third Int'l Dictionary of the English Language Unabridged (1976)); see also The American Heritage Dictionary of the English Language 1353 (Houghton Miflin 1970) ("anything regarded as necessary to the carrying out of one's occupation or profession").[4] Restricting the phrase "tools of the trade" to small hand tools or tools of inconsequential resale value departs from the common understanding of the phrase likely employed by Congress.[5]
While we are at it, we might also look at the plain meaning suggested by the comma after the word "tools." (". . . implements, professional books, or tools, of the trade of the debtor . . .") See In re Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S. Ct. 1026, 1031, 103 L. Ed. 2d 290 (1989). Sunwest argues that the comma means that, instead of the expression "tools of the trade," we have simply "tools," a term much more likely to suggest small hand tools as opposed to a computer setup.[6] As enticing as the argument (and the example) might appear, they are illusory. The comma leads one to read the statutory sentence this way: implements of the trade of the debtor, professional books of the trade of the debtor, or tools of the trade of the debtor. Spread out that way, it is more obvious what Congress had in mind that what the debtor needed to continue practicing her trade (one might say whatever is "reasonably necessary," a term found elsewhere in both the state and federal exemption statutes), to the extent otherwise exempt, could be freed of nonpurchase money liens which by their operation tended to frustrate the debtor's fresh start. Again, we note the spin placed on the word "trade" in common parlance: "an occupation, especially one requiring skilled labor", American Heritage, at 1360; "a means of earning one's living; occupation; work; especially, skilled work, as distinguished from unskilled work or from a profession or business; a craft", Webster's New Universal Unabridged Dictionary, 2d ed., p. 1934 (Dorset & Baber 1983); "the business or work in which one engages regularly", Webster's Ninth New Collegiate Dictionary, p. 1250 (Merriam-Webster 1984). In common usage, the term "trade" (certainly in the context of a statute discussing the future of self-employed debtors after bankruptcy) carries with it so broad a meaning that Congress had no trouble with the notion of a trade involving "professional books," clearly reaching to protect the libraries *641 of doctors and lawyers. Under Sunwest's narrow read of "trade," doctors and lawyers do not have a trade, and presumably could not exempt their professional books, despite the fairly clear thrust of the statute to the contrary.
Nor is this court persuaded that the $750 limitation on the federal exemption for tools of the trade should apply to cases in which debtors have elected to proceed under state exemption statutes. See 11 U.S.C. § 522(d)(6). The dollar cap is really just another way to restrict the term "tools." The plain language of § 522(f)(2)(B) contains no reference to a dollar limitation on the avoidability of liens. 11 U.S.C. § 522(f)(2)(B). Indeed, the two subsections are identical with the exception of the $750 limitation in subsection (d)(6), suggesting that the failure to set a limit on the lien avoidance provision was deliberate. See In re Thompson, 867 F.2d 416, 420 (7th Cir.1989) (Bankruptcy Code is carefully, though not infallibly, drafted provision). So long as the tools otherwise qualify for exemption under subsection (b), which includes both state and federal exemptions, they are eligible for lien avoidance as well. 11 U.S.C. § 522(f).
In the instant case, the debtor is entitled to an exemption of at least $30,000 in personalty under the Texas exemption statute, and the value of this property does not cause the debtor to breach that limit. It is clear that the Debtor's equipment comes within the definition of "tools, of the trade of the debtor" as envisioned by subsection (f)(2)(B). Therefore, to the extent that the lien of Sunwest Bank impairs that exemption, the lien can be avoided.
The court of course appreciates the potential adverse impact on nonpurchase-money financing if the "little resale value" limitation is not applied to lien avoidance under § 522(f)(2)(B). However, as noted by those courts which have refused to graft a limitation onto (f)(2)(B), it is not the function of this court to question why Congress has chosen to permit debtors to avoid the particular liens enumerated in subsection (f), nor can this court repair the provision by fashioning a "federal definition" of the term "tools, of the trade of the debtor" simply to avoid an unfortunate economic result. See e.g., In re Thompson, 867 F.2d at 421; In re LaFond, 791 F.2d at 627; Augustine, 675 F.2d at 586.[7] Whether or not the effect on lending institutions is so severe as to outweigh the value of providing a fresh start to the debtor is not for this court to decide. See In re LaFond, 791 F.2d at 627. This court agrees with Judge Posner's observation in In re Thompson that, while lending institutions "may be right to grouse about section 522(f) . . . [they are] grousing to the wrong body." See In re Thompson, 867 F.2d at 421.
CONCLUSION
The computer equipment is exempt under the Texas exemption statute (including the various peripherals and software). The debtor may avoid Sunwest Bank's lien thereon. There is no doubt that the Bank did not contemplate such a construction of the Bankruptcy Code at the time the loan was made, so this result is indeed unfortunate. However, this court declines to follow those cases which artificially define "tools, of the trade of the debtor" under (f)(2)(B) solely to avoid such unfortunate results. The plain language and legislative history of the Bankruptcy Code dictate the outcome of this case.
The motion of the debtor is GRANTED.
So ORDERED.
NOTES
[1] Sunwest claims a security interest in the following equipment: a DTK computer (Keen 2000) SN:G9020331; Calcomp 1025 Plotter SN:906YO7748; Hewlett Packard Laserjet II Printer Model 33471A SN:2940J26748; 101 Keyboard SN:XXXXXXXXXXX; Digitizer Board SN:XXXXXXXXXXXXXXXXXXX; Houston Instrument LDS 4000 Scanner SN:XXXXXX-XXXXX. The documentation on the loan and the security interest reflect that Sunwest regarded the loan as purchase money, although the Debtor contends that the equipment was purchased before the funds were received. For the purposes of this motion, and in order to have the court reach the lien-avoidance issue, Debtor and Sunwest have stipulated that the security interest is non-purchase money and non-possessory.
[2] Obviously, the court is not crafting a generalized exemption for personal computers, nor should one be inferred.
[3] In fact, if they were not, there would be little reason for Congress' providing a separate subsection for each kind of item.
An examination of the legislative history reveals that Congress did indeed intend the lienavoidance provision contained in § 522(f)(2)(A) to apply only to those items of little or no resale value. H.R.Rep. No. 595, 95th Cong., 2d Sess. 126-27 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 6087-88; see In re Thompson, 750 F.2d 628, 630 (8th Cir.1984). Subsection (f)(2)(A) refers directly to household goods, and reflects Congress' concern with creditors who, in loaning money, would take a security interest in all of a debtor's personal property, and then use the threat of foreclosure to force the debtors into making payments. See id.; United States v. Security Industrial Bank, 459 U.S. 70, 84, 103 S. Ct. 407, 415-16, 74 L. Ed. 2d 235 (1982). The "of little resale value" requirement arises from the Congressional assumption that the goods in which the creditors were taking security interests were really of little value to anyone but the debtors, and that the creditors took the security interests with no intention of foreclosing, for the sole purpose of coercing repayment. Id. The application of the "of little resale" requirement to the lien avoidance provision in (f)(2)(A) is entirely consistent with the purpose of the provision. Id. Its force is considerably diminished when one gets outside the consumer lending situation and moves into the business lending situation to which subsection (f)(2)(B) is addressed, though of course the motive of the creditor is the same.
[4] Sunwest relies on the Oxford English Dictionary for authority that "tool" refers to hand tools and devices which directly "work" something (such as lathe). It further points out that "trade" suggests an artisan or craftsman, someone who works with one's hands, as distinguished from the "professions," again finding support in the OED. With the highest regard for this venerable work, the court is more persuaded by the general use dictionaries, because they tend to reflect general usage. As the editors of the American Heritage dictionary observed in their introduction,
To furnish the guidance which we believe to be an essential responsibility of a good dictionary, we have frequently employed usage-context indicators. . . . But going beyond that, we asked a panel of 100 outstanding speakers and writers a wide range of questions about how the language is used today. . . . After careful tabulation and analysis of their replies, we have prepared several hundred usage notes to guide readers. . . . As a consequence, this Dictionary can claim to be more precisely descriptive, in terms of current usage levels, than any heretofore published especially in offering the reader the lexical opinions of a large group of highly sophisticated fellow citizens.
The American Heritage Dictionary of the English Language (W. Morris, ed.), Introduction, at vii (Houghton Miflin 1970). The OED, by contrast, tends to be more proscriptive in its approach, and also drags along with it usages from years, even centuries, past. When the task is to figure out the plain meaning of a term in a statute, a dictionary which attempts to describe common current usage will probably come closer to describing the sense given to a given term by a member of Congress.
[5] That common understanding is further bolstered by what else is included in subsection (B) "implements" (which are usually related to farming or construction, and which are often expensive) and "professional books" (which by designation relate to the practice of a profession as opposed to a "trade").
[6] Sunwest's example is worth repeating. Imagine a table on which sit a computer, a screwdriver and a power drill. Were someone to ask, "Hand me those tools on the table," she would be surprised indeed were she handed the computer.
[7] This court has rejected such "well-meaning foray[s] into judicial legislation" before, noting that the role of a bankruptcy judge is to interpret and apply the statute, not to rewrite it or abandon it in favor of equitable policy arguments. In re Houston, 96 B.R. 717 (Bankr. W.D.Tex.1989) (citing Central Trust Co. v. Official Creditor's Committee of Geiger Enterprises, 454 U.S. 354, 359-60, 102 S. Ct. 695, 697-98, 70 L. Ed. 2d 542 (1982) (per curiam) ("the meaning of a statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain, and if the law is within the constitutional authority of the law-making body which passed it, the sole function of the courts is to enforce it according to its terms"). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549293/ | 140 B.R. 1 (1992)
In re Harold PRUNER.
No. 91-266-Civ-J-16.
United States District Court, M.D. Florida, Jacksonville Division.
March 18, 1992.
James A. Fischette, Fischette, Parrish, Owen & Held, Fred H. Steffey, Jacksonville, Fla., for appellant.
Robert Lee Young, Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Orlando, Fla., for appellee.
Gregory K. Crews, Jacksonville, Fla., for trustee.
ORDER ON APPEAL
JOHN H. MOORE, II, District Judge.
This cause is before the Court on appeal from the United States Bankruptcy Court for the Middle District of Florida. In the proceedings below, Bankruptcy Judge George L. Proctor sustained the objection of the Federal Deposit Insurance Corporation ("FDIC"). See In re Pruner, 122 B.R. 459 (Bkrtcy.M.D.Fla.1990). The Debtor, HAROLD PRUNER, appeals.
I. Background
From January 1, 1984 to the present date, the Debtor has engaged in the oil and gas consulting business as a self-employed individual. During this time period, Debtor did not employ any other individuals. On December 27, 1984, Debtor adopted a self-employed defined benefit pension plan ("Plan"), effective as of January 1, 1984. Debtor's Plan was one qualified pursuant to Section 401 of the Internal Revenue Code, and was approved by the Internal Revenue Service by letter dated April 1, 1986. The Plan was established in the form of a trust of which Debtor was the employer, settler, trustee, administrator and sole beneficiary. Three separate amendments to the Plan were adopted between 1986 and 1988. From the time of its *2 inception to the present date, the Debtor has been the only participant in the Plan.
An involuntary petition in bankruptcy was filed against the Debtor on September 13, 1989; an order for relief was entered on October 17, 1989. In the proceedings below, FDIC objected to the claim of exemption by the Debtor in the following contributions of the Plan:
(1) August 15, 1985 $89,246 for the year 1984.
(2) September 13, 1986 $89,246 for the year 1985.
(3) September 15, 1987 $89,246 for the year 1986.[1]
The Bankruptcy Court did not hear oral argument or conduct an evidentiary hearing. Instead, the parties filed a stipulation detailing the facts surrounding this action, and presented arguments in writing based on those stipulated facts. On December 3, 1990, Judge Proctor issued a memorandum opinion and order sustaining the objections of the FDIC. In so doing, Judge Proctor found that the Debtor's contentions that his Plan was exempt under Florida Statute Section 222.21 or as a spendthrift trust were without merit.
On appeal, Debtor presents three grounds for reversal of the decision below. First, Debtor contends that because he is self-employed and has no other employees, that his plan is not subject to Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. Second, Debtor contends that even if his plan is subject to Title I of ERISA, it is nevertheless exempt under Florida Statute Section 222.21(2). Finally, Debtor alternatively argues that his interest in the Plan is exempt as an annuity under Florida Statute Section 222.14.
II. Discussion
Appellant is entitled to a de novo review of all conclusions of law and the legal significance accorded to the facts. In re Smith, 129 B.R. 262, 263 (M.D.Fla.1991). The factual findings of the Bankruptcy Court are reviewed under a clearly erroneous standard. In re Club Associates, 951 F.2d 1223 (11th Cir.1992).
ERISA applies only if there is an employee benefit plan that would be subject to ERISA. 29 U.S.C. § 1003(a); 29 U.S.C. § 1144(a); Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 738 (7th Cir.1986). Thus, the threshold issue is whether the Debtor's Plan is one which is subject to the regulations and provisions of ERISA. The Bankruptcy Court reviewed the statutory definition under ERISA of an employee pension benefit plan, 29 U.S.C. § 1002(2)(A)[2], and summarily concluded, without explanation, that the Debtor's Pension Plan fit within that definition. In re Pruner, 122 B.R. at 460.
This Court finds that based on the statutory language of Title I of ERISA, together with the regulations promulgated thereto, the Debtor's Plan is not subject to the regulations and provisions of ERISA. As such, the decision of the Bankruptcy Court below must be reversed.
ERISA recognizes two types of plans: "Employee Welfare Benefit Plans"[3] and "Employee Pension Benefit Plans." Title I of ERISA contains a lengthy list of definitions developed specifically for use within the subchapter. See 29 U.S.C. § 1002. *3 The more pertinent definitions to this appeal include the following:
(5) The term "employer" means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.
(6) The term "employee" means any individual employed by an employer.
(7) The term "participant" means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees or such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit.
29 U.S.C. §§ 1002(5), (6), (7).
As noted above, the parties stipulated to certain facts in the proceedings below. Two pertinent stipulations were that the Debtor was the only participant in the Plan, and that the Debtor has not employed any other individuals since the inception of the Plan. Nevertheless, the FDIC contends that the Debtor's Plan is subject to ERISA because the terms and definitions within the Plan contemplate coverage extending to future employees. In other words, the FDIC asks this Court to ignore the reality that the Debtor is the only participant in a plan where he is also the employer, trustee, administrator and sole beneficiary, and instead to make a ruling based on the terms of a plan which envision potential, future participants.
In Donovan v. Dillingham, 688 F.2d 1367 (11th Cir.1982) (en banc), the Eleventh Circuit held, "In determining whether a plan, fund or program . . . is a reality, a Court must determine whether from the surrounding circumstances a reasonable person could ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits." Id. at 1373. Although Donovan was concerned with an "employee welfare benefit plan" a portion of its holding is applicable and significant to the present case:
The gist of ERISA's definitions of employer, employee organization, participant, and beneficiary is that a plan, fund, or program falls within the ambit of ERISA only if the plan, fund, or program covers ERISA participants because of their employee status in an employment relationship, and an employer or employee organization is the person that establishes or maintains the plan, fund, or program. Thus, plans, funds, or programs under which no union members, employees or former employees participate are not employee welfare benefit plans under Title I of ERISA. See 29 C.F.R. 2510.3-3(b), (c).
Donovan, 688 F.2d at 1371 (footnotes omitted) (emphasis added).
Consistent with Donovan, this Court cannot view the terms of the Debtor's Plan, as applied to the definitions of ERISA, within a vacuum. Such an approach would ignore the plain reality in this case that the Debtor is the only person remotely connected to the Plan. If the Debtor hired even a single employee, then his Plan would convert to one subject to ERISA. See Williams v. Wright, 927 F.2d 1540, 1545 (11th Cir.1991); 29 C.F.R. § 2510.3-3(b). However, the parties stipulated below that the Debtor is, and always has been, the only participant in the Plan. Under these facts and circumstances, the Debtor's Plan cannot be subject to the provisions and regulations of ERISA. Accord Kwatcher v. Massachusetts Service Emp. Pension Fund, 879 F.2d 957, 960 (1st Cir.1989) (once person is found to be "employer," ERISA prohibits payments from a qualified plan pursuant to statute's "anti-inurement" provision, 29 U.S.C. § 1103(c)(1)); Giardono v. Jones, 867 F.2d 409 (7th Cir.1989) (employer cannot ordinarily be employee or participant under ERISA pursuant to fundamental requirement preventing inurement mandated in 29 U.S.C. § 1103(c)(1)); Schwartz v. Gordon, 761 F.2d 864, 867-69 (2d Cir.1985) (plan whose sole beneficiaries are the company's owners cannot qualify as a plan under ERISA); Peckham v. Board of Trustees, Etc., 653 F.2d 424 (10th *4 Cir.1981) (sole proprietors are not eligible for inclusion in employee pension benefit plans pursuant to 29 U.S.C. § 1103(c)(1).
Any doubt regarding the status of the Debtor's Plan dissipates when one looks to the regulations adopted by the Secretary of Labor ("Secretary") pursuant to the granted authority to prescribe regulations "necessary or appropriate to carry out the provisions" of Title I. 29 U.S.C. § 1135; see also 40 Fed.Reg. 34526 (Aug. 15, 1975). These regulations clarify several statutory definitions, and provide in pertinent part:
(b) Plans without employees. For purposes of title I of the Act and this chapter, the term "employee benefit plan" shall not include any plan, fund or program, other than an apprenticeship or other training program, under which no employees are participants covered under the plan, as defined in paragraph (d) of this section. For example, a so-called "Keogh" or "H.R. 10" plan under which only partners or only a sole proprietor are participants covered under the plan will not be covered under title I. However, a Keogh plan under which one or more common law employees, in addition to the self-employed individuals, are participants covered under the plan, will be covered under title I.
(c) Employees. For purposes of this section:
(1) An individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse.
29 C.F.R. §§ 2510.3-3(b), (c)(1).
Absent evidence that a regulation issued by an agency pursuant to Congressional authority bears no reasonable relationship to the provisions of the statute being administered by the agency, its interpretation of the statute is entitled to considerable deference. Sure-Tan, Inc. v. N.L.R.B., 467 U.S. 883, 891, 104 S. Ct. 2803, 2808, 81 L. Ed. 2d 732 (1984). Because the Secretary is vested with policy-making power, the Secretary is authorized to fill in gaps that may have been left by Congress in a statute, and this Court may not substitute its interpretation for that of the Secretary, Chevron U.S.A., Inc. v. Natural Resources Def. Council, Inc., 467 U.S. 837, 842, 104 S. Ct. 2778, 2781, 81 L. Ed. 2d 694 (1984), so long as that interpretation is "reasonably defensible." Sure-Tan, Inc, 467 U.S. at 891, 104 S.Ct. at 2808.
III. Conclusion
The parties stipulated below to three critical facts: first, that the Debtor was the employer, settlor, trustee, administrator and sole beneficiary of the Plan; second, that since the inception of the Plan, the Debtor has not employed any other individuals; and third, that since the inception of the Plan, the Debtor has been the only participant in the Plan. Under these facts and circumstances, and consistent with the law of this Circuit, this Court concludes that the Debtor's Plan does not fit within the definition of an "employee pension benefit plan" as defined in 29 U.S.C. § 1002(2)(A). Consequently, the Debtor's Plan is not subject to the provisions and regulations of ERISA.
Accordingly, it is
ORDERED:
That the decision below of the Bankruptcy Court, rendered on December 3, 1990, be and the same is hereby REVERSED, and this Cause is hereby REMANDED to the Bankruptcy Court for proceedings not inconsistent with this opinion.
DONE AND ORDERED.
NOTES
[1] This figure is based on the Bankruptcy Court's findings. See In re Pruner, 122 B.R. 459. However, the facts stipulated to by the parties indicate that the debtor made contributions for the year 1986 in the amount of $79,660.
[2] 29 U.S.C. § 1002(2)(A) provides: Except as provided in subparagraph (B), the terms "Employee Pension Benefit Plan" and "Pension Plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that by its express terms or as a result of surrounding circumstances, such plan, fund, or program
(i) provides retirement income to employees, or
(ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond,
regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.
[3] 29 U.S.C. § 1002(1). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549121/ | 140 B.R. 713 (1992)
In re CREEKSIDE LANDING, LTD., Debtor.
Bankruptcy No. 390-03614.
United States Bankruptcy Court, M.D. Tennessee.
April 30, 1992.
*714 G. Rhea Bucy, Thomas H. Forrester, Gullett, Sanford, Robinson & Martin, Nashville, Tenn., for debtor.
John L. Ryder, Apperson, Crump, Duzane & Maxwell, Memphis, Tenn., for Resolution Trust Corp.
MEMORANDUM
KEITH M. LUNDIN, Bankruptcy Judge.
Confirmation of this Chapter 11 plan is denied because the amended plan unfairly discriminates against the unsecured claim of the Resolution Trust Corporation and violates the absolute priority rule. The following constitute findings of fact and conclusions of law. Bankr.R. 7052.
I.
The debtor is a limited partnership that owns and operates Creekside Landing Apartments in Memphis, Tennessee. The debtor's general partner is Beuerlein, Wunderlich and Company. Beuerlein, Wunderlich and Company is a general partnership whose general partners are Walter Wunderlich, Jr. and James Beuerlein. The apartment complex is managed by Dennison Management Co., Inc. Dennison is owned by James Beuerlein and Walter Wunderlich, Jr.
In 1988, the apartment complex was refinanced with a nonrecourse mortgage in favor of Gibraltar Savings. The Resolution Trust Corporation is conservator for Gibraltar Savings.
The debtor filed Chapter 11 on April 24, 1990. After a hearing, the value of the apartment complex was determined to be $4,320,000. The RTC's claim is $5,150,417.27. The debtor's first plan was denied confirmation in April, 1991.
This amended plan creates four classes of non-priority, unsecured claims:
CLASS 6 contains the RTC's unsecured deficiency of approximately $830,000. The plan proposes to pay 20% on the effective date of the plan in full satisfaction of the Class 6 claim.
CLASS 7A contains 69 trade claims totalling approximately $35,000 and the claims of Dominion Bank and Security Federal Savings and Loan. The Class 7A trade claims are to be paid 75% on the effective date of the plan. Security Federal has a "disputed" $600,000 claim. Beuerlein and Wunderlich are personally liable to Security Federal. Security Federal has agreed to accept $58,000 on the effective date of the plan in full satisfaction of its claim and to release the personal liability of Beuerlein and Wunderlich. Dominion Bank has a claim of approximately $323,000. This claim is partially secured by "pledge notes" or "contribution notes" from the debtor's limited partners and is guaranteed by James Beuerlein and Walter Wunderlich. The *715 plan proposes to allow Dominion to collect the notes held as collateral. Dominion would be left with an unsecured claim of approximately $250,000. Dominion has agreed to accept $100,000 on the effective date of the plan in full satisfaction of this claim.
CLASS 7B contains four insiders with claims totalling approximately $19,420. The plan proposes to pay 20% of the Class 7B claims on the effective date.
CLASS 8 contains the $80,000 claim of James Beuerlein and Associates (a sole proprietorship) and the $333,000 claim of Beuerlein, Wunderlich and Company. The plan proposes to pay 5% of the Class 8 claims on the effective date.
The plan calls for contribution of "new capital" of $250,000. Fifteen new limited partnership interests will be sold for $237,500. Existing limited partners can purchase new interests for $15,833.33 each. Partners who fail to purchase new units will retain no interest in the debtor. If an existing limited partner declines to reinvest, the general partner can designate any entity to purchase the nonsubscribed new units. The general partner can acquire a five percent interest in the reorganized debtor for $12,500. Sixty percent of the "new capital," or $150,000, must be contributed in cash on the effective date of the plan. The remainder may be deferred to the first anniversary of the effective date if the purchaser secures the balance with an irrevocable letter of credit acceptable to the general partner.
The RTC opposes confirmation, arguing that the separate classification of its deficiency claim is improper, that the plan unfairly discriminates against the RTC, and that the plan is not fair and equitable because it fails the absolute priority rule.
II.
Classification of unsecured claims is measured by a flexible standard in the Sixth Circuit. Teamsters Nat'l Freight Indus. Negotiating Comm. v. U.S. Truck Co. (In re U.S. Truck), 800 F.2d 581, 586-87 (6th Cir.1986); In re Aztec, 107 B.R. 585, 587 (Bankr.M.D.Tenn.1989). See also In re Jersey City Medical Ctr., 817 F.2d 1055, 1061 (3rd Cir.1987); Hanson v. First Bank of South Dakota, 828 F.2d 1310, 1313 (8th Cir.1987); In re Mortgage Inv. Co. of El Paso, 111 B.R. 604, 613 (Bankr.W.D.Tex. 1990). But see Phoenix Mut. Life Ins. Co. v. Greystone III Joint Venture (In re Greystone III Joint Venture), 948 F.2d 134, 137-41 (5th Cir.1991), vacated in part on reh'g per curiam (1992). Although abuse of the voting process through "creative" classification is prohibited, separate classification of unsecured claims with dissimilar attributes or interests is allowed. U.S. Truck, 800 F.2d at 586-87. Evidence that the separately classified claim holder has "a different stake in the future viability of the reorganized company," has interests that differ substantially from those of other impaired creditors, or has other means for protecting its claim in the reorganization will support separate classification. Id. at 587.
For the reasons stated in Aztec, 107 B.R. at 587, the RTC's unsecured deficiency claim can be separately classified. The RTC could not pursue its deficiency against the debtor or its general partner outside of Chapter 11. The unsecured claim of the RTC exists only by operation of § 1111(b) and only in a Chapter 11 case. The RTC has a substantial "other interest" that is not shared by other unsecured claim holders: it has every incentive to vote its large unsecured deficiency claim to affect the treatment of its secured claim by defeating confirmation of any plan. Id. at 587.
III.
That the debtor may separately classify the unsecured deficiency claim of the RTC does not resolve whether the plan unfairly discriminates against the RTC's claim. Aztec, 107 B.R. at 587. Section 1129(b)(1) prohibits unfair discrimination against an impaired dissenting class of claims. Discrimination against the RTC is not automatically "fair" simply because its claim exists only by operation of § 1111(b). Aztec, 107 B.R. at 592.
*716 In Aztec, this court approved a four factor test for fairness of discrimination at cram down in Chapter 11 cases:
(1) Whether the discrimination is supported by a reasonable basis;
(2) Whether the debtor can confirm and consummate a plan without the discrimination;
(3) Whether the discrimination is proposed in good faith; and
(4) The treatment of the classes discriminated against.
Id. at 590. See In re Mortgage Inv. Co. of El Paso, 111 B.R. 604, 614-15 (Bankr. W.D.Tex.1990); In re 11, 111, Inc., 117 B.R. 471, 478 (Bankr.D.Minn.1990); In re Buttonwood Partners, Ltd., 111 B.R. 57, 63 (Bankr.S.D.N.Y.1990).
The debtor failed to demonstrate that it cannot confirm and consummate a plan without the proposed discrimination and the (unspoken) basis for this discrimination is not reasonable. The 75% payment to trade creditors and the $100,000 "settlement" with Dominion Bank unfairly discriminate against the RTC. There is no evidence that a 75% payment to the 69 trade creditors is necessary to protect relationships the debtor needs to reorganize. Aztec, 107 B.R. at 590; Mortgage Inv. Co. of El Paso, 111 B.R. at 615. There is no evidence that it would be "administratively inconvenient" to pay the trade creditors the same percentage to be paid to the RTC. Cf. In re South Aiken, Ltd., 121 B.R. 7, 9 (Bankr.W.D.Pa.1990). The debtor offered no explanation why Dominion Bank will receive 40% of its $250,000 unsecured claim while the RTC is paid only 20% of its unsecured claim. Dominion Bank "settled" its $250,000 unsecured claim for an immediate payment of $100,000; however, consent by the debtor and a creditor to discrimination in favor of the creditor, especially where the principles of the debtor are personally liable to the creditor, reveals very little about the debtor's prospects to confirm and consummate a plan without the discrimination. After liquidation of the partners' notes, Dominion has an ordinary unsecured claim. "Level" payment of the RTC, the trade claims and Dominion's unsecured claim would pay approximately 26% of these claims.
The "unspoken" basis for discrimination in favor of the trade creditors and Dominion Bank is that Beuerlein and Wunderlich are personally liable to trade creditors and to Dominion Bank. Beuerlein and Wunderlich are not personally liable to the RTC. That the debtor's owners have personal liability to some unsecured creditors and not to others cannot alone satisfy the test for fairness of discrimination under § 1129(b)(1). In re 222 Liberty Assocs., 108 B.R. 971, 991-93 (Bankr.E.D.Pa.1990). But cf. Travelers Ins. Co. v. Bryson Properties XVIII (In re Bryson Properties XVIII), 129 B.R. 440, 445 (M.D.N.C.1991), rev'd, 961 F.2d 496 (4th Cir.1992). The proposed discrimination primarily benefits the owners of the debtor with no corresponding benefit for general creditors. Aztec, 107 B.R. at 590.
IV.
Whether a Chapter 11 plan is "fair and equitable" is a mixed question of fact and law which must be determined on a case-by-case basis. Great Western Bank v. Sierra Woods Group, 953 F.2d 1174 (9th Cir.1992). Section 1129(b)(2) states the minimum requirements of a fair and equitable plan. Federal Sav. & Loan Ins. Corp. v. D & F Constr., Inc. (In re D & F Constr., Inc.), 865 F.2d 673, 675 (5th Cir. 1989); In re Apple Tree Partners, L.P., 131 B.R. 380, 395 (Bankr.W.D.Tenn.1991); In re Outlook/Century, 127 B.R. 650, 656 (Bankr.N.D.Cal.1991); In re Triple R Holdings, L.P., 134 B.R. 382, 389 (Bankr. N.D.Cal.1991); In re Pullman Constr. Ind., Inc., 107 B.R. 909, 939 (Bankr.N.D.Ill. 1989).
One element of the statutory "fair and equitable" test is the "absolute priority rule" in 11 U.S.C. § 1129(b)(2)(B)(ii): A plan cannot be confirmed over the objection of a class of impaired unsecured claim holders that do not receive payment in full if a junior class of claims or interests receives or retains any property under the plan "on account of such junior claim or interest."
*717 Citing In re U.S. Truck Co., 800 F.2d 581 (6th Cir.1986), the debtor argues that the amended plan satisfies the "new value exception" to the absolute priority rule. The "new value exception" permits existing interest holders to own and control a reorganized business without paying impaired senior classes in full. Although the interest holders may not retain ownership "on account of" pre-bankruptcy ownership rights, existing owners may exchange "new value" to acquire ownership and control of the reorganized debtor. The new value "exception" is thus really an "exclusion" from application of the absolute priority rule.
This circuit has aggressively embraced the "new value exception" to the absolute priority rule. In U.S. Truck, for a modest new investment of $100,000, the pre-bankruptcy owners of a trucking company "reacquired" ownership of a business reporting monthly profits in excess of $100,000. 800 F.2d at 588. This favorable inclination to the "new value exception" is evidenced in Sixth Circuit cases prior to U.S. Truck. See In re Van Sweringen Corp., 155 F.2d 1009 (6th Cir.), cert. denied sub nom. Cleveland Hotel Protective Comm. v. Nat'l Bank of Cleveland, 329 U.S. 766, 67 S.Ct. 122, 91 L.Ed. 659 (1946); Metropolitan Holding Co. v. Weadock, 113 F.2d 207 (6th Cir.1940); Whitmore Plaza Corp. v. Smith, 113 F.2d 210 (6th Cir.1940); In re Wilton Realty Corp., 106 F.2d 1022 (6th Cir.1939), cert. denied, 308 U.S. 626, 60 S.Ct. 386, 84 L.Ed. 523 (1940), aff'g per curiam 30 F.Supp. 486 (E.D.Mich.1938).
To satisfy the "new value exception," the contribution of new value must be substantial and essential. U.S. Truck, 800 F.2d at 588. The debtor probably has to prove that it cannot reorganize without new capital. Some courts have said that reorganization must be impossible without the new contribution. In re Jartran Inc., 44 B.R. 331, 379 (Bankr.N.D.Ill.1984). See also In re Potter Material Serv., Inc., 781 F.2d 99, 102 (7th Cir.1986). It has been held that the new money must be unavailable from any other source or that the old equity holders must be the most feasible source. See In re Jartran, 44 B.R. at 379. See also Potter Material Serv., 781 F.2d at 102.
To be substantial, new value must be a present contribution rather than a promise to pay in the future; it must be freely tradeable in the market by the debtor; and it must be an asset in the accounting sense. The contributor must be bearing a new economic risk it is not enough that the contributor of "new" capital is simply continuing an existing risk, satisfying an existing risk, or only changing the form of an existing risk. Forgiveness of debt by itself is not sufficient. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 205-206, 108 S.Ct. 963, 968, 99 L.Ed.2d 169 (1988) (experience, expertise, and promise of future labor not new value); Metropolitan Holding Co. v. Weadock, 113 F.2d 207, 209 (6th Cir.1940) ("the reasonable equivalent in money or money's worth"); In re Van Sweringen Corp., 155 F.2d 1009, 1012-13 (6th Cir.), cert. denied sub nom. Cleveland Hotel Protective Comm. v. Nat'l Bank of Cleveland, 329 U.S. 766, 67 S.Ct. 122, 91 L.Ed. 659 (1946) ("a contribution in money or money's worth...."); Whitmore Plaza Corp. v. Smith, 113 F.2d 210, 211 (6th Cir.1940); Kham and Nate's Shoes No. 2, Inc. v. First Bank, 908 F.2d 1351, 1362 (7th Cir. 1990) (equity holders' guarantees of the debtor's debts are "intangible, inalienable, and unenforceable" and not substantial new value); In re Yasparro, 100 B.R. 91, 98 (Bankr.M.D.Fla.1989) (promissory notes not new value); In re Future Energy Corp., 83 B.R. 470, 499 (Bankr.S.D.Ohio 1988) (promise to pay in future not new value); In re Snyder, 99 B.R. 885, 889-90 (Bankr.C.D.Ill.1989) (forgiveness of debt affects only liability side of balance sheet and fails as new value). The Seventh Circuit has held that promises "inadequate to support the issuance of shares under state law are also inadequate to support the issuance of shares by a bankruptcy judge over the protest of the creditors, the real owners of the firm." Kham & Nate's Shoes, 908 F.2d at 1362.
*718 New value must be "reasonably equivalent" to what the contributor receives in exchange. In re Van Sweringen Corp., 155 F.2d 1009, 1012 (6th Cir.), cert. denied sub nom. Cleveland Hotel Protective Comm. v. Nat'l Bank of Cleveland, 329 U.S. 766, 67 S.Ct. 122, 91 L.Ed. 659 (1946) ("reasonably equivalent in view of all of the circumstances"); Metropolitan Holding Co. v. Weadock, 113 F.2d 207, 209 (6th Cir.1940) ("the reasonable equivalent in money or money's worth of the participation accorded"); Whitmore Plaza Corp. v. Smith, 113 F.2d 210, 211 (6th Cir.1940); Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 121, 60 S.Ct. 1, 10, 84 L.Ed. 110 (1939); In re Pullman Constr. Ind., Inc., 107 B.R. 909, 949 (Bankr.N.D.Ill. 1989); In re Future Energy Corp., 83 B.R. 470, 499 (Bankr.S.D.Ohio 1988). Ownership has value independent of the market value of the debtor's assets. Ahlers, 485 U.S. at 207-208, 108 S.Ct. at 969 (rejecting argument that ownership of entity with no net worth and minimal going concern is worthless); Pullman Constr., 107 B.R. at 949. Control and the right of management must be valued as consideration received by those who contribute new capital. Capitalization of future earnings is the starting point for calculation of the value received by the contributor. Muskegon Motor Stockholders Protective Comm. v. Davis (In re Muskegon Motor Specialties), 366 F.2d 522 (6th Cir.1966) ("earning capacity, the capitalization of future profits, is the appropriate method of valuation"); In re Frank Fehr Brewing Co., 268 F.2d 170 (6th Cir.1959), cert. denied sub nom. Kremer v. Clarke, 363 U.S. 817, 80 S.Ct. 1250, 4 L.Ed.2d 1157 (1960); Future Energy, 83 B.R. at 500. The likelihood of return on the new investment and probable future risks must be considered. Ahlers, 485 U.S. at 207-208, 108 S.Ct. at 969; U.S. Truck, 800 F.2d at 588. The likelihood of future increases in the value of assets also is relevant.
Benefits that are personal to an investor are a factor bearing on the value received by that investor. Dividends, distributions or even a future salary from the debtor appropriately are considered. That an interest holder will protect tax benefits or receive new tax benefits enhances the value of the investment to the interest holder. Pullman Constr., 107 B.R. at 949. But see In re Jartran, 44 B.R. 331, 380-81 (Bankr.N.D.Ill.1984). Plan payments to creditors that release the investor from liability such as guaranties confer a benefit on the investor that must be valued. Pullman Constr., 107 B.R. at 949-50.
The amount of debt discharged under the plan has been considered an element of the fairness of the exchange. In re Snyder, 105 B.R. 898, 901-902 (Bankr.C.D.Ill.1989); Travelers Ins. Co. v. Olson (In re Olson), 80 B.R. 935, 937 (Bankr.C.D.Ill.1987); Pullman Constr., 107 B.R. at 950 (rejecting a new value payment of $450,000 when the amount of debt discharged exceeded $12,428,000). Other courts question this factor. See, e.g., In re Yasparro, 100 B.R. at 98, 99.
The presence of new investors also has been considered. See In re Outlook/Century, Ltd., 127 B.R. 650, 654 (Bankr. N.D.Cal.1991) (rejecting purchase of interests in reorganized debtor by pre-petition equity holders because no one but the pre-petition equity holders was given an opportunity to purchase). Evidence of the value of an interest in the debtor in the marketplace might be considered. See In re U.S. Truck Co., 47 B.R. 932, 942-43 (E.D.Mich. 1985), aff'd, 800 F.2d 581 (6th Cir.1986).
This debtor's proposed "new value" is neither substantial nor reasonably equivalent to what re-investing interest holders will receive. Under the amended plan, existing interest holders may acquire ownership of the reorganized debtor by paying $150,000 in money or money's worth at confirmation. The $100,000 balance of "new capital" is deferred for one year in the form of notes from the investors. That the deferred portion must be secured enhances somewhat its "money's worth" characteristics; however, even a note with security is not a current payment of money. The $100,000 must at least be discounted to reflect the time value of money. That the investors are not contributing the full $250,000 at confirmation suggests other *719 advantages are to be realized by deferring 40% of the new investment for one year. During that year, management might forgive the additional investment, discount that investment, or otherwise reduce the economic value of those promises to pay. The $250,000 proposed "new value" is worth substantially less than $250,000 to creditors of the debtor.
By the debtor's projections, the net operating income of the debtor will be approximately $460,000 a year after confirmation. There is no evidence that the property is depreciating in value, that rents will decrease in the future or that there is any substantial risk of loss of these projected net operating incomes. Control of these net operating incomes has substantial economic value to the interest holders and to existing management.
All of the "new value" to be contributed by existing interest holders will be used to retire the claims of insiders or will benefit, directly or indirectly, insiders of the debtor. The $4,000 proposed payment to Class 7B will be paid to four insiders, including the management company owned by Beuerlein and Wunderlich. The $21,000 to be paid to Class 8 claim holders will be paid directly to Beuerlein and Associates and to Beuerlein and Wunderlich. The $58,000 settlement with Security Federal will release the guaranty of Beuerlein and Wunderlich. The $100,000 settlement with Dominion will satisfy a claim that is guaranteed by Beuerlein and Wunderlich. The $26,000 payment to the trade creditors will relieve Beuerlein and Wunderlich of their personal liability as general partners of the debtor. Existing interest holders will contribute $150,000 on the effective date of the plan and the reorganized debtor will immediately disburse $209,000 directly to insiders or to the holders of claims that are guaranteed by Beuerlein and Wunderlich. The plan does not use the "new capital" to pay the unsecured claim of the RTC. Rather, the plan proposes to use net rents accumulated by the debtor during the administrative period to pay 20% of the unsecured deficiency claim of the RTC.
Beuerlein and Wunderlich will receive more cash from the debtor on the effective date of the plan than they must pay to remain owners. Under the amended plan, Beuerlein and Wunderlich reacquire the general partner's interest in the debtor for $12,500 and immediately receive a distribution of approximately $17,000.
For purposes of the absolute priority rule, it could be said that the value of what existing interest holders will receive on account of their new investments is "greater" than the new money invested because of payments to insiders and to claim holders with guaranties by insiders; or it could be said that it is inappropriate to include as "new value" a contribution by an existing interest holder that will be used to satisfy an obligation of that interest holder or simply to change the form of an existing risk of the interest holder. By either approach, Beuerlein and Wunderlich in particular are revealed to be making no substantial new economic commitment to the reorganization of this debtor they are reacquiring their ownership rights in exchange for a small contribution of cash that will be immediately returned to them or used to retire obligations that they are already personally obligated to pay. The proposed plan is not fair and equitable to the RTC.
An appropriate order will be entered.
ORDER
For the reasons stated in the memorandum filed contemporaneously herewith, IT IS ORDERED, ADJUDGED AND DECREED that confirmation of the debtor's amended plan is denied.
The debtor having twice failed at confirmation of a plan and the stay having been continued in effect only to permit the debtor to attempt this amended plan, IT IS FURTHER ORDERED that the motion of the RTC for relief from the stay is granted.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549123/ | 992 A.2d 208 (2010)
BORO CONSTRUCTION, INC.
v.
RIDLEY SCHOOL DISTRICT
v.
Boro Construction, Inc.
Appeal of: Boro Construction, Inc.
Boro Construction, Inc.
v.
Ridley School District
v.
Boro Construction, Inc.
Appeal of: Ridley School District.
No. 16 C.D. 2009, No. 17 C.D. 2009.
Commonwealth Court of Pennsylvania.
Argued September 17, 2009.
Decided March 8, 2010.
*210 Philip A. Yampolsky, Narberth, for appellant, Boro Construction, Inc.
John F.X. Reilly, Media, for appellee, Ridley School District.
BEFORE: PELLEGRINI, Judge, SIMPSON, Judge, and KELLEY, Senior Judge.
OPINION BY Senior Judge KELLEY.
Boro Construction, Inc. (Boro) and Ridley School District (District) have filed cross appeals from the orders entered in the Court of Common Pleas of Delaware County (trial court) denying their motions for post-trial relief and entering judgment in favor of the District and against Boro on the complaint, and in favor of Boro and against the District on the District's counterclaims. We affirm.
On June 7, 1999, Boro and the District entered into contracts for general construction and electrical construction of a new high school building. See Reproduced Record (RR) at 836a-841a, 858a-863a. The sum due for completion under the General Construction Contract totaled $5,411,800.00, and the sum due for completion under the Electrical Contract totaled $4,599,000.00. Id. at 837a, 859a. Both contracts indicated that Boro would achieve substantial completion of the entire work under the contracts by August 15, 2002. Id.[1]
*211 On May 12, 2004, Boro filed a complaint in the Court of Common Pleas of Montgomery County alleging that the District had breached the contracts by failing to *212 pay the final sums due under both the General Construction Contract and the Electrical Contract. In particular, Boro alleged that although the District had paid approximately $10,000,000.00 under the contracts, the District owed Boro the following additional sums: (1) a remaining balance due on the General Construction Contract totaling $44,237.06; (2) a remaining balance due on the Electrical Contract totaling $13,295.20; (3) approved change orders under the Electrical Contract totaling $6,444.60; (4) monies lost due to the improper disposal and use of dumpsters on site by other contractors totaling $64,157.92[2]; (5) damages for delay in completion of the project totaling $40,026.83[3]; (6) costs for cellular telephone usage on site totaling $2,890.05[4]; (7) costs for revising the building locator maps due to changes in the high school's room numbers totaling $4,751.25; and (8) costs for the installation of theatrical wiring outside the scope of the contract work totaling $72,026.89. The case was transferred to the trial court at the District's request.
On May 19, 2005, the District filed an answer to the complaint with new matter and counterclaims. In the counterclaims, *213 the District sought damages totaling $27,736.02 for the costs of reinstalling doors and door hardware that had been improperly installed by Boro. The District also sought credit change orders owed by Boro totaling $10,981.02. In addition, the District sought attorney fees pursuant to the "no damages for delay" clause of Section 8.3.4 of the Supplementary Conditions which provided that they could be recovered based on Boro's claim for delay damages. See RR at 947a.[5]
A non-jury trial was conducted before the trial court on July 5 through July 7, 2006. On November 6, 2006, the trial court entered a verdict in favor of the District and against Boro on the complaint, and in favor of Boro and against the District on the District's counterclaims.
On May 24, 2007, the trial court issued orders denying the parties' motions for post-trial relief.[6] Boro and the District then filed the instant appeal and cross-appeal *214 from the trial court's orders.[7],[8]
The sole claim raised by Boro in its appeal is that the trial court erred in determining that it was not entitled to recover its claims for the remaining balances due under the General Construction Contract and the Electrical Contract because it failed to submit applications for final payment. In contrast, in its appeal, the District claims that the trial court erred in determining that the District was not entitled to attorney fees because they are specifically provided for in a "no damages for delay" clause of the contract.
Boro claims that the trial court erred in determining that it was not entitled to recover its claims for final payment due under the General Construction Contract or the Electrical Contract because it failed to submit applications for final payment. We do not agree.[9]
With respect to Boro's claim for final payment under the contracts, it is well settled that the fundamental rule in construing the provisions of a contract is to ascertain and to give effect to the intention of the parties. Empire Sanitary Landfill v. Riverside School District, 739 A.2d 651 (Pa.Cmwlth.1999). If the contract terms are clear and unambiguous, the intention of the parties must be ascertained from the document itself. Id. This Court's inquiry should focus on what the agreement itself expressed, and not on what the parties may have silently intended. Id. It is not appropriate, under the guise of contract construction, to alter the terms to which the parties expressly agreed, whether in wisdom or folly. Id.
In addition, "[t]he public contract here is subject to the Procurement Code, specifically Chapter 39. 62 Pa.C.S. § 102(a); 3901-3942. Section 3931 entitles a contractor who performs in accordance with the contract to prompt payment by the government agency. 62 Pa.C.S. § 3931[[10]] *215...." James Corporation v. North Allegheny School District, 938 A.2d 474, 488 (Pa.Cmwlth.2007) (footnote added). Nevertheless, Section 3932(a) of the Procurement Code provides, in pertinent part, that "[t]he government agency shall pay the contractor ... strictly in accordance with the contract." 62 Pa.C.S. § 3932(a).[11]
Moreover, as this Court has previously noted, a "condition precedent" may be defined as a condition that must occur before a duty to perform under a contract arises. Beaver Dam Outdoors Club v. Hazleton City Authority, 944 A.2d 97 (Pa. Cmwlth.2008). While the parties to a contract do not need to use any particular words to create a condition precedent, an event or act enumerated in a contract will not be construed as a condition precedent unless it clearly appears to have been the parties' intention. Id. In determining the purpose of conditions precedent, the general rules of contract interpretation are applied and the intention of the parties is controlling. Id. If a contract contains condition precedent, that condition must be met before a duty to perform under the contract arises. Id. Thus, where a condition precedent has not been fulfilled, the duty to perform under the contract lays dormant and no damages are due for non-performance. Shovel Transfer and Storage, Inc. v. Pennsylvania Liquor Control Board, 559 Pa. 56, 739 A.2d 133 (1999).
As noted above, in this case, both the General Construction Contract and the Electrical Contract contained specific provisions regarding final payment which required "[a] final Project Certificate for Payment [that] has been issued by the Construction Manager and Architect; such final payment shall be made by the Owner not more than 30 days after the issuance of the final Project Certificate for Payment, or as follows ... [i]n accord with Document 00700, Article 9. ..." RR at 838a, 839a, 860a, 861a (emphasis in original). In turn, the General Conditions incorporated thereby required Boro, upon completion of the work under the contracts, to forward to the Construction Manager a written notice that the work was ready for final inspection and acceptance along with a final application for payment. Id. at 907a. Upon receipt, the Construction Manager was to forward the notice and application to the Architect who would promptly make the inspection. Id. When the Architect, based on the recommendation of the Construction Manager, found the work to be acceptable and that the contracts were fully performed, the Construction Manager and Architect would promptly issue the final certificate for payment. Id. The General Conditions specifically provided that "[t]he Construction Manager's and Architect's final Certificate for Payment will constitute a further *216 representation that conditions listed in Subparagraph 9.10.2[[12]] as precedent to the Contractor's being entitled to final payment have been fulfilled." Id.
Such conditions that are precedent to the tender of final payment under construction contracts have long been recognized by the courts of this Commonwealth. See, e.g., John Conti Co., Inc. v. Donovan, 358 Pa. 566, 571-572, 57 A.2d 872, 874-875 (1948) ("`[W]here the contract provides... the work be performed subject to the approval of an architect, ... before the builder has a right to recover compensation on his contract, such provision is binding on the parties, and, either expressly or impliedly, makes a ... decision ... of an architect a condition precedent to the right of the builder to recover compensation on his contract, his employer being under no liability to pay unless this is done, or unless the obtaining of such approval ... is excused or waived ....'") (citation omitted); Payne v. Roberts, 214 Pa. 568, 580, 64 A. 86, 90 (1906) ("Such a provision as this, requiring the work and materials to meet the satisfaction of the architects, is neither unusual nor unreasonable. True, it confides much in the judgment, impartiality, and integrity of the architect; but it has long been a feature in building contracts, and that it obtains to-day as largely as ever shows that experience has approved it....").[13]
Thus, it is clear that Boro was required to establish that it strictly complied with the final payment provisions of the contracts by submitting a final application for payment to the Construction Manager and the Architect as a condition precedent to the District's duty to tender final payment under those contracts. See, e.g., Sections 3932(a) and 3941(a) of the Procurement Code, 62 Pa.C.S. §§ 3932(a), 3941(a); John Conti Co., Inc., 358 Pa. at 572, 57 A.2d at 875 ("In the absence of proof of waiver of the stipulated condition precedent to payment or of collusion between the defendant and the architect, plaintiff is bound by the decision of the architect.... [N]o `collusion' between the defendant and the architect is alleged and for plaintiff to succeed in its action against defendant it is incumbent that it meet the burden of proof *217 resting upon it; to wit, it must duly establish a waiver by the defendant of the condition precedent. No such waiver is alleged.").[14]
Although it is not disputed that Boro failed to comply with these express provisions, Boro contends that the condition precedent to the District's duty to tender final payment was excused in this case. More specifically, Boro asserts that the District committed an anticipatory breach of the contracts thereby relieving Boro of its duty to submit the applications for final payment. In support of this assertion, Boro relies upon the testimony of its Chief Operating Officer at trial in which he stated that some unnamed representative of the District indicated to him that the District would not tender final payment under the contracts unless he dropped his claims regarding payment for extra work outside of the contracts. See Brief for Appellant at 13-16.
It is true that an anticipatory repudiation by an obligor will discharge an obligee's duty to perform a condition precedent. Jonnet Development Corporation v. Dietrich Industries, Inc., 316 Pa.Super. 533, 463 A.2d 1026 (1983). However, with respect to the essential elements demonstrating an anticipatory breach, the Pennsylvania Supreme Court has noted:
"The requisite elements of an anticipatory breach were established by this Court in McClelland v. New Amsterdam Casualty Co., 322 Pa. 429, 185 A. 198 (1936). This Court, following the standards set out by the U.S. Supreme Court in Dingley v. Oler, 117 U.S. 490 [6 S.Ct. 850, 29 L.Ed. 984 (1886)], stated that to constitute anticipatory breach under Pennsylvania law there must be `an absolute and unequivocal refusal to perform or a distinct and positive statement of an inability to do so.' [McClelland], 322 Pa. at 433, 185 A. [at 200]. The McClelland standard is still the rule of law in Pennsylvania...."
2401 Pennsylvania Avenue Corporation v. Federation of Jewish Agencies of Greater Philadelphia, 507 Pa. 166, 172, 489 A.2d 733, 736 (1985).[15] Thus, "Pennsylvania law is well-settled that more than a threat of non-performance is needed before conduct can amount to an anticipatory breach of contract. The conduct must manifest an absolute and unequivocal refusal to perform...." McAlpine v. AAMCO Automatic Transmissions, Inc., 461 F.Supp. 1232, *218 1253 (E.D.Mich.1978) (citations omitted). See also Jonnet Development Corporation, 463 A.2d at 1031 ("`An anticipatory breach of a contract occurs whenever there has been a definite and unconditional repudiation of a contract by one party communicated to another. A statement by a party that he will not or cannot perform in accordance with [an] agreement creates such a breach.'") (citations omitted).
Based on the foregoing, it is clear that the Chief Operating Officer's testimony, even if deemed to be credible[16], does not establish the essential elements demonstrating an anticipatory breach of the contracts by the District. The conditional threat purportedly expressed by an unnamed representative of the District does not objectively constitute the required "absolute and unequivocal refusal to perform or a distinct and positive statement of an inability to do so." See, e.g., 2401 Pennsylvania Avenue Corporation, 507 Pa. at 173-174, 489 A.2d at 737 ("[A]ppellee's statement that it had no use for the space and would not consider approving the extension without a release from its obligations under the lease indicates that appellee did recognize at the very least a possible obligation under the contract. The fact that a party seeks to preserve what it deems to be a legal defense to the required performance does not reflect an intention to deliberately breach the agreement. To the contrary, it reflects an intention to avoid performance only if there is a legal basis for the refusal of performance.").[17],[18]
Based on the foregoing, it is clear that Boro's assertion that it was relieved of its duty to submit an application for final payment to the Construction Manager and the Architect as a condition precedent to the District's duty to tender final payment under the contracts is patently without merit. It is equally clear that the trial court did not err in determining that Boro was not entitled to recover its claims *219 for the remaining balances due under the General Construction Contract and the Electrical Contract because it failed to submit applications for final payment as required by the express terms of those contracts.[19] In short, Boro's allegation of error in this regard is patently without merit.[20]
Finally, the District claims that the trial court erred in determining that it was not entitled to attorney fees where they are specifically provided for in a "no damages for delay" clauses of Section 8.3.4 of the Supplementary Conditions to the General Construction Contract and the Electrical Contract. More specifically, the District asserts that because Boro both pleaded and litigated a claim for delay damages in contravention of Section 8.3.4, and did not prevail on this claim, the trial court erred in failing to award attorney fees under that section.
As the Pennsylvania Supreme Court has recently noted:
*220 "[T]he general rule within this Commonwealth is that each side is responsible for the payment of its own costs and counsel fees absent bad faith or vexatious conduct." This so-called "American Rule" holds true "unless there is express statutory authorization, a clear agreement of the parties, or some other established exception."
McMullen v. Kutz, ___ Pa. ___, ___, 985 A.2d 769, 775 (2009) (citations omitted). The burden of proving entitlement to attorney fees is on the party claiming such entitlement. Department of Transportation v. Smith, 145 Pa.Cmwlth. 164, 602 A.2d 499, petition for allowance of appeal denied, 531 Pa. 657, 613 A.2d 561 (1992). In addition, where, as here, the fee-shifting provisions are contained in a contract, an appellate court will construe the contractual provisions in accordance with their plain and ordinary meaning. Profit Wize Marketing v. Wiest, 812 A.2d 1270 (Pa.Super.2002). Moreover, "[t]he trial court may consider whether the fees claimed to have been incurred are reasonable, and to reduce the fees claimed if appropriate." McMullen, ___ Pa. at ___, 985 A.2d at 777.
As noted above, Section 8.3.4 of the Supplementary Conditions provides, in pertinent part, that "[n]o payment or compensation or claim for damages shall be made to the Contractor as compensation for damages for any delays or hindrances from any cause whatsoever in the progress of the Work, [... and t]he Contractor's sole remedy for delays shall be an EXTENSION OF TIME ONLY...." RR at 947a (emphasis in original). In addition, Section 8.3.4 provides that "[i]n the event the Contractor shall choose to litigate this clause or issue and loses said litigation, the Contractor shall reimburse the Owner, Construction Manager, and the Architect for their reasonable attorney's and expert witness fees and all other costs and expenses incurred by them in the litigation." Id. Thus, in order to be awarded attorney fees pursuant to the foregoing contractual provisions, the District was required to demonstrate to the trial court's satisfaction that Boro had "los[t] said litigation".
In refusing to award attorney fees in this case, the trial court stated the following in the opinion filed in support of its order:
After hearing all the evidence presented on Defendant's counterclaim, the trial court found that [the District] failed to meet its burden of proof that Boro allegedly was responsible for the improper installation of the doors and hardware. Since the Court found in favor of Boro on Ridley's claim regarding the door installation, the court found that [the District] was not entitled to attorney's fees as a substantially prevailing party under the terms and provisions of the contract.
Trial Court Opinion at 6.
We discern no error in the trial court's determination in this regard. The word "lose" is defined, in pertinent part, as "[t]o fail to win, gain, or obtain ...." Merriam-Webster's Collegiate Dictionary 736 (11th ed. 2008). In turn, "litigate" is defined, in pertinent part, as "[t]o carry on a legal contest by judicial process...." Id. at 727. Likewise, "litigation" is defined as "[t]he process of carrying on a lawsuit [or a] lawsuit itself...." Black's Law Dictionary 1017 (9th ed. 2009).
Thus, in light of the specific language of the contracts in this case, the trial court quite properly determined that the District was not entitled to an award of attorney fees based upon its determination that Boro had prevailed with respect to the District's counterclaims in the instant lawsuit. See, e.g., Profit Wize Marketing, 812 *221 A.2d at 1275 ("By entering into a stipulation for the entry of a permanent injunction both Executrain and Appellant managed to preserve certain legal rights and willingly relinquished others.... Such a resolution, in keeping with the nature of most settlement agreements, evidences a compromise. Neither party in this case emerges as the clear-cut winner. As the plain and unambiguous meaning of `prevail' requires Executrain to `triumph' or `win' in the underlying action, we do not find that Executrain is entitled to an award of attorney fees and costs.... Additionally, we are not willing, nor are we permitted, to fashion an equitable remedy in the instant case because Executrain `partially prevailed'. Although the lower court attempted to craft such a remedy, the language of the contract does not so provide."). In short, the District's allegation of error in this regard is without merit.
Accordingly, the orders of the trial court are affirmed.
ORDER
AND NOW, this 8th of March, 2010, the orders of the Court of Common Pleas of Delaware County, dated May 24, 2007 at No. 05-3046, are AFFIRMED.
NOTES
[1] Both contracts contained the following provisions regarding payments to be made under the contracts:
5.1 Based upon Applications for Payment submitted by the Contractor to the Construction Manager, and upon Project Applications and Certificates for Payment issued by the Construction Manager and Architect, the Owner shall make progress payments on account of the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents.
* * *
ARTICLE 6
FINAL PAYMENT
Final Payment, constituting the entire unpaid balance of the Contract Sum, shall be made by the Owner to the Contractor when the Contract has been fully performed by the Contractor except for the Contractor's responsibility to correct nonconforming Work ... and to satisfy other requirements, if any, which necessarily survive final payment; and (2) a final Project Certificate for Payment has been issued by the Construction Manager and Architect; such final payment shall be made by the Owner not more than 30 days after the issuance of the final Project Certificate for Payment, or as follows... [i]n accord with Document 00700, Article 9, as modified by Document 00800, Article 9, Paragraphs 9.3.8 and 9.3.9.
RR at 838a, 839a, 860a, 861a (emphasis in original).
In turn, Article 9 of the General Conditions provided, in pertinent part:
9.3.1 At least fifteen days before the date established for each progress payment, the Contractor shall submit to the Construction Manager an itemized Application for Payment for Work completed in accordance with the schedule of values....
9.3.1.1 Such applications may include requests for payment on account of changes in the Work which have been properly authorized by Construction Change Directives but not yet included in Change Orders.
* * *
9.6.1 After the Construction Manager and Architect have issued a Project Certificate for Payment, the Owner shall make payment in the manner and within the time provided in the Contract Documents....
* * *
9.10.1 Upon completion of the Work, the Contractor shall forward to the Construction Manager a written notice that the Work is ready for final inspection and acceptance and shall also forward to the Construction Manager a final Contractor's Application for Payment. Upon receipt, the Construction Manager will forward the notice and Application to the Architect who will promptly make such inspection. When the Architect, based on the recommendation of the Construction Manager, finds the Work acceptable under the Contract Documents and the Contract fully performed, the Construction Manager and Architect will promptly issue a final Certificate for Payment stating that to the best of their knowledge, information and belief, and on the basis of their observations and inspections, the Work has been completed in accordance with terms and conditions of the Contract Documents and that the entire balance found to be due the Contractor and noted in said final Certificate is due and payable. The Construction Manager's and Architect's final Certificate for Payment will constitute a further representation that conditions listed in Subparagraph 9.10.2 as precedent to the Contractor's being entitled to final payment have been fulfilled.
9.10.2 Neither final payment nor any remaining retained percentage shall become due until the Contractor submits to the Architect through the Construction Manager (1) an affidavit that payrolls, bills for materials and equipment, and other indebtedness connected with the Work for which the Owner ... might be responsible ... have been paid or otherwise satisfied, (2) a certificate evidencing that insurance required by the Contract Documents to remain in force after final payment is currently in effect and will not be canceled or allowed to expire until at least 30 days' prior written notice has been given to the Owner, (3) a written statement that the Contractor knows of no substantial reason that the insurance will not be renewable to cover the period required by the Contract Documents, (4) consent of surety, if any, to final payment, and (5), if required by the Owner, other data establishing payment or satisfaction of obligations, such as receipts, releases and waivers of liens, claims, security interests or encumbrances arising out of the Contract, to the extent and in such form as may be designated by the Owner....
9.10.3 If, after Substantial Completion of the Work, final completion thereof is materially delayed through no fault of the Contractor or by issuance of Change Orders affecting final completion, and the Construction Manager and Architect so confirm, the Owner shall, upon application by the Contractor and certification by the Construction Manager and Architect, and without terminating the Contract, make payment of the balance due for that portion of the Work fully completed and accepted. If the remaining balance for Work not fully completed or corrected is less than retainage stipulated in the Contract Documents, and if bonds have been furnished, the written consent of surety to payment of the balance due for that portion of the Work fully completed and accepted shall be submitted by the Contractor to the Architect through the Construction Manager prior to certification of such payment. Such payment shall be made under terms and conditions governing final payment, except that it shall not constitute a waiver of Claims. The making of final payment shall constitute a waiver of Claims by the Owner as provided in Subparagraph 4.4.5.
RR at 905a, 906a, 907a.
[2] Article 3 of the General Conditions provided, in pertinent part:
3.15.1 The Contractor shall keep the premises and surrounding area free from accumulation of waste materials or rubbish caused by operations under the Contract. At completion of the Work the Contractor shall remove from and about the Project waste materials, rubbish, the Contractor's tools, construction equipment, machinery and surplus materials.
RR at 897a.
In addition, Section 01500 1.16A.2. of the General Construction Contract provided:
2. General Contractor will be responsible for the removal of all such trash from the jobsite and the overall cleanliness of the entire jobsite. Those Prime Contractors who do not comply with the General Contractor's overall procedure and standards shall be reported to the Construction Manager and the Owner for possible reduction of their Contract Sum in order to have that Prime Contractor's trash picked up by another separate contractor.
RR at 1068a.
[3] Section 8.3.4 of the Supplementary Conditions provided:
8.3.4 No payment or compensation or claim for damages shall be made to the Contractor as compensation for damages for any delays or hindrances from any cause whatsoever in the progress of the Work, notwithstanding whether such delays be avoidable or unavoidable. The Contractor's sole remedy for delays shall be an EXTENSION OF TIME ONLY, pursuant to and only in accordance with this Paragraph 8.3, such extension to be a period equivalent to the time lost by reason of and all of the aforesaid causes, as determined by the Construction Manager. In consideration for this grant of a time extension, the Owner, the Construction Manager and/or Architect shall not be held responsible for any loss or damage or increased costs sustained by the Contractor through any delays cause by the Owner, Construction Manager or Architect or any other Contractor or on account of the aforesaid causes or any other cause of delay. In the event the Contractor shall choose to litigate this clause or issue and loses said litigation, the Contractor shall reimburse the Owner, Construction Manager, and the Architect for their reasonable attorney's and expert witness fees and all other costs and expenses incurred by them in the litigation.
RR at 947a.
[4] Section 01500 1.05 of the General Construction Contract provided, in pertinent part:
A. General Contractor shall provide, maintain and pay all fees for an on-site communication service for himself, the Construction Manager, and the Owner's Representative. The on-site communication service shall incorporate digital phones to standardize contractor communications during construction of the project....
* * *
D. Each Prime Contractor is responsible to provide their own equipment that is compatible with General Contractor's communication service....
RR at 1063a.
[5] More specifically, Section 8.3.4 provides, in pertinent part, that "[i]n the event the Contractor shall choose to litigate this clause or issue and loses said litigation, the Contractor shall reimburse the Owner, Construction Manager, and the Architect for their reasonable attorney's and expert witness fees and all other costs and expenses incurred by them in the litigation." Id.
[6] In the opinion filed in support of the verdict, the trial court stated the following, in pertinent part:
[Article 5 of t]he contracts between Boro and [the District] require that in order for Boro to be paid, it had to submit a payment application as a prerequisite for receiving payment....
This provision could not be waived by [the District]. Boro was well aware of the formal process. Boro has conceded that it received approximately $10,000,000 in payments for the work performed under the contract by submitting formal payment applications. Boro was clearly aware during the bidding and contract awarding process that it was bidding on a contract with a public entity. As a matter of law in Pennsylvania, contractors are particularly on notice that with regard to public entities and public funds, contractors must comply strictly with the payment procedures before they can receive payment.
&z3
Pennsylvania Courts have held that contractors cannot recover against public entities where the contractors have failed to submit the proper paperwork, even if the actions of the public entity suggest that such a submission would be unnecessary. Morgan v. City of Johnstown, [306 Pa. 456, 160 A. 696 (1932)]; Emporium Area Joint School Authority v. Anundson, [191 Pa.Super. 372] 156 A.2d 554 (Pa.Super.[1959), rev'd on other grounds, 402 Pa. 81, 166 A.2d 269 (1960)]. While both of these cases deal with contract revisions regarding work order changes, these cases represent the general concept in Pennsylvania that municipal contract provisions are to be strictly construed. Moreover, if the contractor fails to submit a final application for payment, then the public entity, such as [the District], cannot evaluate the payment requested. If the public entity is not given the opportunity to inspect the charges, there may be reckless disbursement of public funds. Therefore, strict adherence is necessary for dealing with municipal and/or quasi-municipal contracts.
* * *
Accordingly, the trial court properly found that Boro admitted that it knowingly failed to submit a final payment application as required under the general construction contract, which prevented [the District] from evaluating the requested payment. That failure by Boro violated the express terms of the contract and, therefore, barred Boro's claim.
Trial Court Opinion at 3, 4-5.
With respect to the District's counterclaims and request for attorney fees, the trial court stated the following, in pertinent part:
After hearing all the evidence presented on [the District]'s counterclaim, the trial court found that [the District] failed to meet its burden of proof that Boro allegedly was responsible for the improper installation of the doors and hardware. Since the Court found in favor of Boro on [the District]'s claim regarding the door installation, the court found that [the District] was not entitled to attorney's fees as a substantially prevailing party under the terms and provisions of the contract.
Id. at 6.
[7] Initially, both Boro and the District filed the instant appeals to the Superior Court. However, by order dated November 14, 2008, the Superior Court transferred the appeals to this Court. In addition, by order dated January 7, 2009, this Court sua sponte consolidated the appeals for disposition.
[8] This Court's scope of review of an order of a trial court denying a motion for post-trial relief is limited to a determination of whether the trial court abused its discretion or committed an error of law. Wrazien v. Easton Area School District, 926 A.2d 585 (Pa. Cmwlth.), petition for allowance of appeal denied, 594 Pa. 718, 937 A.2d 448 (2007).
[9] It is well settled that this Court may affirm the decision of the trial court on any basis without regard to the basis upon which the trial court relied. Shearer v. Naftzinger, 560 Pa. 634, 747 A.2d 859 (2000); Braxton v. Department of Transportation, 160 Pa.Cmwlth. 32, 634 A.2d 1150 (1993), petition for allowance of appeal denied, 539 Pa. 682, 652 A.2d 1326 (1994).
[10] More specifically, Section 3931(a) of the Procurement Code states:
(a) Entitlement of contractor to payment.Performance by a contractor in accordance with the provisions of a contract shall entitle the contractor to payment by the government agency.
62 Pa.C.S. § 3931(a).
In addition, Section 3941(a) provides:
(a) Contract containing provision for retainage.A contract containing a provision for retainage as provided in section 3921 (relating to retainage) shall contain a provision requiring the architect or engineer to make final inspection within 30 days of receipt of the request of the contractor for final inspection and application for final payment. If the work is substantially completed, the architect or engineer shall issue a certificate of completion and a final certificate for payment, and the government agency shall make payment in full within 45 days except as provided in section 3921, less only one and one-half times the amount required to complete any then-remaining uncompleted minor items, which amount shall be certified by the architect or engineer and, upon receipt by government agency of any guarantee bonds which may be required, in accordance with the contract, to insure proper workmanship for a designated period of time. The certificate given by the architect or engineer shall list in detail each uncompleted item and a reasonable cost of completion. Final payment of any amount withheld for the completion of the minor items shall be paid upon completion of the items in the certificate of the engineer or architect.
62 Pa.C.S. § 3941(a). See also Section 9 of the Contractor and Subcontractor Payment Act, Act of February 17, 1994, P.L. 73, 73 P.S. § 509(a) ("(a) Time for payment.If payments under a construction contract are subject to retainage, any amounts which have been retained during the performance of the contract and which are due to be released to the contractor upon final completion shall be paid within 30 days after final acceptance of the work.").
[11] See also Section 5 of the Contractor and Subcontractor Payment Act, 73 P.S. § 505(a) ("(a) Construction contract.The owner shall pay the contractor strictly in accordance with the terms of the construction contract.").
[12] As noted above, Subparagraph 9.10.2 also conditioned Boro's receipt of final payment upon its providing the architect with: (1) an affidavit that payrolls, bills for materials and equipment, and other indebtedness connected with the project for which the District might be responsible have been paid or otherwise satisfied; (2) a certificate showing that insurance required by the contracts to remain in force after final payment was in effect and would not be canceled or allowed to expire until written notice has been given to the District; (3) a written statement that Boro knew of no substantial reason that the insurance will not be renewable to cover the period required by the contracts; (4) the consent of the surety to final payment; and (5) if required by the District, other information showing the payment or satisfaction of any further obligations, such as receipts, releases and waivers of liens, claims, security interests or encumbrances arising out of the contracts. See RR at 907a.
[13] See also 8 Corbin on Contracts § 31.12 (1999) ("By the express terms of the agreement, however, the parties can make small and otherwise immaterial performances `conditions' of a promisor's duty. Often, in construction contracts, the party for whom the work is being done makes a promise to pay expressly conditional upon a supervising architect's or engineer's presentation of a certificate. This may be a certificate that the work, or that a stated portion of the work, has been completed in accordance with the plans and specifications, or performed to the satisfaction of the engineer. The certificate may be made a condition of the promisor's duty to pay the entire contract price; but it is more likely to be a condition of the duty to pay a final balance of the price, or to the duty to pay an intermediate installment of the price....") (footnote omitted).
[14] See also Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 63, 104 S.Ct. 2218, 81 L.Ed.2d 42 (1984) ("Justice Holmes wrote: `Men must turn square corners when they deal with the Government.' Rock Island A. & L.R. Co. v. United States, 254 U.S. 141, 143, 41 S.Ct. 55, 65 L.Ed. 188 [(1920)]. This observation has its greatest force when a private party seeks to spend the Government's money. Protection of the public fisc requires that those who seek public funds act with scrupulous regard for the requirements of law; respondent could expect no less than to be held to the most demanding standards in its quest for public funds. This is consistent with the general rule that those who deal with the Government are expected to know the law and may not rely on the conduct of Government agents contrary to the law.") (footnote omitted).
[15] As the Supreme Court explained:
The rationale behind the rule of anticipatory repudiation is the prevention of economic waste. An obligee/plaintiff should not be required to perform a useless act as a condition of his right to recover for a breach when the obligor has demonstrated an absolute and unequivocal refusal to perform. However, we reject any argument suggesting a dilution of our long recognized standard of an "absolute and unequivocal refusal to perform." Our efforts to avoid economic waste must not be allowed to encourage precipitous breaches of contract. Such an approach undermines the stability of contracts and encourages unnecessary litigation.
Id. at 174, 489 A.2d at 737 (citations and footnote omitted).
[16] It is well settled that the trial court, sitting as fact finder, is free to believe all, part, or none of the evidence presented, to make all of the credibility determinations, and to resolve any conflicts in the evidence. Commonwealth v. Holtzapfel, 895 A.2d 1284 (Pa.Cmwlth.2006). Thus, when acting as a fact finder, the trial court is free to reject even uncontradicted evidence that it finds lacking in credibility. D'Emilio v. Board of Supervisors of the Township of Bensalem, 157 Pa.Cmwlth. 64, 628 A.2d 1230 (1993). As a result, when presented with conflicting evidence, the trial court does not abuse its discretion nor commit an error of law by choosing to accept one party's evidence over the other party's evidence. DeBald v. McCarthy, 87 Pa.Cmwlth. 408, 487 A.2d 460 (1985).
[17] See also Oak Ridge Construction Company v. Tolley, 351 Pa.Super. 32, 504 A.2d 1343, 1347 (1985) ("In the instant case, we cannot say that the language in Mr. Tolley's letter constituted a `definite and unconditional repudiation' of the contract which `amounts to a statement of intention not to perform except on conditions which go beyond the contract.' The letter merely stated that the charges for work performed under item twenty of the contractor's specifications were `in dispute or disagreement' and requested resolution of the dispute under the arbitration clause of the contract. The letter did not contain an unequivocal refusal to pay the drilling charges or a repudiation of the entire contract. Thus, when Oak Ridge gave the Tolleys ten days notice that it was terminating the contract, the Tolleys had not committed an anticipatory breach.").
[18] As a corollary to this allegation of error, Boro also claims that the District should be equitably estopped from denying compensation based upon the conditional threat purportedly expressed by the unnamed representative of the District. However, Boro did not raise this claim in its Concise Statement of Matters Complained of on Appeal that was filed pursuant to Pa.R.A.P. 1925(b). As a result, this claim has been waived for purposes of appeal. Pa.R.A.P. 1925(b)(4)(vii); Colombari v. Port Authority of Allegheny County, 951 A.2d 409 (Pa.Cmwlth.2008).
[19] In this appeal, the District also claims that the trial court's judgment could be affirmed on the alternate basis that Boro failed to pursue mandatory arbitration to resolve the instant disputes as provided for in Sections 4.7 through 4.9 of Article 4 of the General Conditions of the General Construction Contract and the Electrical Contract. However, this was not a basis upon which the trial court relied in entering judgment in this matter and, as outlined above, there is another alternative basis upon which we will affirm the trial court's judgment in this regard. As a result, we will not accede to the District's request to consider yet another alternative basis upon which to affirm the trial court in this case.
[20] As a corollary to this allegation of error, Boro also argues that the trial court erred in failing to address its claims for additional compensation. However, such a claim is not fairly comprised within the Statement of Questions Involved portion of Boro's appellate brief. See Brief for Appellant at 3. As a result, any allegation of error in this regard has been waived for purposes of appeal. See Pa.R.A.P. 2116(a) ("[N]o question will be considered unless it is stated in the statement of questions involved or is fairly suggested thereby...."); G.M. v. Department of Public Welfare, 954 A.2d 91, 93 (Pa.Cmwlth.2008) ("[H]owever, because Petitioner failed to include this issue in the Statement of Questions Involved portion of his brief, this issue is waived ....") (citations omitted).
Moreover, to the extent that any claim of error in this regard has been preserved for our review, it is without merit. In the Concise Statement of Matters Complained of on Appeal, Boro alleged that the trial court's determination that it is not entitled to the claims for additional compensation was "contrary to the weight of the evidence". It is well settled that a claim that the verdict is against the weight of the evidence concedes that there is sufficient evidence to sustain the verdict, but that the verdict was against the weight of the evidence. Fanning v. Davne, 795 A.2d 388 (Pa.Super.2002), petition for allowance of appeal denied, 573 Pa. 697, 825 A.2d 1261 (2003). Thus, an appellate court's review of a weight of the evidence claim is a review of the trial court's exercise of discretion, and not a review of the underlying question of whether the appellate court believes that the verdict is against the weight of the evidence. Alwine v. Sugar Creek Rest, Inc., 883 A.2d 605 (Pa.Super.2005). As the Pennsylvania Supreme Court has noted, "[g]iven the unique nature of the power reposed in the trial court concerning a weight claim, this Court has emphasized on a number of occasions that, `[o]ne of the least assailable reasons for granting [or denying] a new trial is the lower court's conviction that the verdict was [or was not] against the weight of the evidence and that new process was [or was not] dictated by the interests of justice.'" Armbruster v. Horowitz, 572 Pa. 1, 10, 813 A.2d 698, 703 (2002) (citations omitted). As a result, a new trial will only be granted on the basis that the verdict is against the weight of the evidence where the verdict is so contrary to the evidence that it shocks one's sense of justice. Id.; Fanning.
Our review of the certified record in this case does not demonstrate the requisite shock to this Court's sense of justice. As a result, Boro's allegation of error in this regard is likewise without merit. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549138/ | 992 A.2d 956 (2010)
TUNKHANNOCK AREA SCHOOL DISTRICT, Appellant
v.
TUNKHANNOCK AREA EDUCATION ASSOCIATION.
No. 1119 C.D. 2009
Commonwealth Court of Pennsylvania.
Argued March 16, 2010.
Decided April 13, 2010.
Frank J. Tunis, Jr., Scranton, for appellant.
*957 William A. Hebe, Wellsboro, for appellee.
BEFORE: PELLEGRINI, Judge, and BROBSON, Judge, and KELLEY, Senior Judge.
OPINION BY Judge PELLEGRINI.
Tunkhannock Area School District (School District) appeals from an order of the Court of Common Pleas of the 44th Judicial District (Wyoming County Branch) (trial court) denying the School District's petition to vacate an arbitration award in favor of the Tunkhannock Area Education Association (Teachers Association) that found that four School District teachers hired as "special teachers" were covered by the terms of the Collective Bargaining Agreement (CBA).
The facts of this case are not in dispute. The School District received federal grant funds and used those funds to hire four "special teachers"[1] for programs initiated as a result of the receipt of the federal funds. Two of the "special teachers" were hired as Title II teachers, and the other two were hired as Title II Class Size Reduction Teachers. Before commencing their employment, each "special teacher" signed an Agreement of Understanding with the School District that included, inter alia, the following terms:
"special TEACHERS may be terminated at any time by the DISTRICT;"
"employment of the [special] TEACHERS is directly contingent upon the receipt of Federal Grant monies and that should the Federal Grant monies be discontinued, the DISTRICT may terminate employment;" and
"[s]hould the monies be withdrawn for any reason or should the DISTRICT unilaterally determine to terminate the employment, all parties agree that the SUBSTITUTES [that is, special teachers] have no additional employment rights within the DISTRICT. The parties agree that the SUBSTITUTES are not protected by the terms of the collective bargaining agreement or by any Pennsylvania statutory law dealing with tenured employment rights."
(Reproduced Record at 20a-22a, 32a-34a, 42a-44a, 47a-49a, 59a-61a.) (Emphasis added.) Each Agreement of Understanding also stated that the "special teachers" were hired pursuant to Section 1107 of the Public School Code of 1949, 24 P.S. § 11-1107.[2]
Upon learning of the terms of these individual Agreement of Understanding, the Teachers Association filed a grievance seeking to have the "special teachers" retroactively hired as either temporary professional employees or professional employees receiving all the rights and benefits of other members of the collective bargaining unit and made whole from their original date of hire. After the grievance was denied, the matter proceeded to arbitration.
Finding that the School District violated the CBA when it hired the four "special teachers" and failed to provide them with any of the contractual benefits of the CBA, *958 the arbitrator decided in favor of the Teachers Association. According to the arbitrator, Section 1101 of the Public School Code[3] provides for only three categories of teachers: professional employees, temporary special employees and substitutes. The arbitrator determined that the "special teachers" in this case clearly were either professional employees or temporary professional employees and must, therefore, have been treated as such. He further determined that they were protected by the CBA, and that any contract that purported otherwise was void. The School District appealed to the trial court.
Applying the "essence test" enumerated in State System of Higher Education (Cheyney University) v. State College University Professional Association (PSEA-NEA), 560 Pa. 135, 743 A.2d 405 (1999), the trial court affirmed, finding that the arbitration award was rationally derived from the contract because the "special teachers" were professional employees covered by the CBA, and the CBA trumped the individual Agreement of Understanding. This appeal followed.
On appeal, the School District contends that the trial court erred by using the wrong standard of review when it employed the essence test rather than the "contrary to law" test found in Section 7302(d)(2) of the Uniform Arbitration Act, 42 Pa.C.S. § 7302(d)(2). Section 7302(d)(2) provides:
Where this paragraph is applicable a court in reviewing an arbitration award pursuant to this subchapter shall, notwithstanding any other provision of this subchapter, modify or correct the award where the award is contrary to law and is such that had it been a verdict of a jury the court would have entered a different judgment or a judgment notwithstanding the verdict.
The School District argues that in pure matters of law, such as the instant case, the Section 7302(d)(2) test must be applied, while in cases where there are factual disputes, the essence test would apply.
However, our Supreme Court has repeatedly held that only the essence test applies in appeals from public sector grievance arbitration awards. See, e.g., Westmoreland Intermediate Unit # 7 v. Westmoreland Intermediate Unit # 7 Classroom Assistants Educational Support Personnel Association, PSEA/NEA, 595 Pa. 648, 939 A.2d 855 (2007); Cheyney University; Community College of Beaver County v. Community College of Beaver County, Society of the Faculty (PSEA/NEA), 473 Pa. 576, 375 A.2d 1267 (1977). Moreover, our Supreme Court has held that the judgment n.o.v./error of law concept set forth in Section 7301(d)(2) is the same as the "essence test." In Community College of Beaver County, 473 Pa. at 589-90, 375 A.2d at 1273, it held that the judgment n.o.v./error of law standard and the essence test are essentially the same, stating that "the `n.o.v.' concept ... is hardly a radical change, nor does it dictate that a much closer or different scrutiny of an arbitration award will be available than under the [essence test]." While that case was decided under the Arbitration Act of 1927, which had a judgment n.o.v. standard but did not expressly apply to public sector collective bargaining agreements as does the Uniform Arbitration Act,[4] our Supreme Court reiterated *959 that the essence test and the judgment n.o.v. test were the same in Pennsylvania State Education Assoc. v. Appalachia Intermediate Unit 08, 505 Pa. 1, 476 A.2d 360 (1984).
Even if the essence test applies, the School District then contends that the arbitrator's decision was not rationally derived from the CBA because it was legally incorrect in holding that the teachers must be hired as regular teachers.[5] It argues that Section 1107 of the Public School Code specifically allows school districts to hire "special teachers" and that these special teachers are outside the bargaining unit and exempt from the provisions of collective bargaining agreements. In other words, the issue is not within the terms of the CBA.
The School District's position is untenable for several reasons. First, the School District argues that "special teachers" are not just those teachers hired to ease the transition of immigrants but, in effect, can be any teacher that it labels as "special" when hired. It argues that before the language regarding immigrants was added in 1970, Section 1107 read:
The board of school directors in every school district in this Commonwealth may employ such special teachers, qualified as herein provided, as they may deem necessary for any of the public schools or departments in the district.
However, what the term "special teacher" meant was not a teacher whom a school district designated as special but a teacher who taught "special classes." See Marcovitz v. The School District of Philadelphia, 334 Pa. 206, 5 A.2d 540 (1939) (special teacher taught special class of mentally retarded students). The effect of the 1970 amendment was to include classes of immigrant children as a type of special class, so that teachers who catered to those immigrant children are now also categorized as special teachers. Because the four "special teachers" hired by the School District perform the same functions as the other teachers in the School District, rather than catering specifically to immigrants or teaching some other type of special class, they cannot as a matter of law be special teachers.
However, even assuming that the four teachers are "special teachers," they would still be part of the bargaining unit. Any certified teacher who has been employed to perform the duties of a newly created position immediately becomes a "temporary professional employee." Section 1101 of the Public School Code;[6]Department of Education v. Jersey Shore Area School District, 481 Pa. 356, 362, 392 A.2d 1331, 1334 (1978). Even though those positions were created as a result of the federal grant monies, the teachers filling them are still part of the bargaining unit and cannot be treated differently because their hire was the result of the receipt *960 of federal funds. Id.; Platko v. Laurel Highlands School District, 49 Pa. Cmwlth. 210, 410 A.2d 960 (1980). A school district cannot circumvent these requirements merely by dubbing a teacher a "special teacher."[7]
In addition, the School District's argument that the collective bargaining agreement does not apply because the teachers signed an Agreement of Understanding providing that they agreed that they were "substitute teachers and not protected by the terms of the collective bargaining agreement or by any Pennsylvania statutory law dealing with tenured employment rights" is not controlling as a CBA trumps separate individual teacher contracts. As our Supreme Court held over 30 years ago:
Were appellee's view to prevail, a school district could effectively emasculate any salary scales contained in collective bargaining agreements by entering into individual agreements with each teacher. This is exactly the evil intended to be eliminated by the recognition of exclusive bargaining agents, agents who act for all employees the moment they are hired. As the United States Supreme Court recognized over thirty years ago, to allow individual contracts to interfere with the functioning of the collective bargaining agreement would reduce laws providing for collective bargaining to a futility. J.I. Case Co. v. NLRB, 321 U.S. 332, 337 [64 S.Ct. 576, 88 L.Ed. 762] (1944).... A collective bargaining agreement would eventually become ineffective if a district could, over a period of years, hire new teachers, without adhering to the wage salary scale in the collective bargaining agreement.
Leechburg Area School District v. Leechburg Education Association, 475 Pa. 413, 419-20, 380 A.2d 1203, 1205-06 (1977). As such, the Agreements of Understanding entered into between the School District and the "special teachers" are null and void.
Because the teachers whose status is the subject of this suit are not special teachers, would be members of the bargaining unit governed by the CBA even if they were, and cannot enter into individual "Agreements of Understanding" contracting away their rights under the CBA, the relationship between these teachers and the School District is within the scope of the CBA. Accordingly, the order of the trial court is affirmed.
ORDER
AND NOW, this 13th day of April, 2010, the order of the Court of Common Pleas of the 44th Judicial District (Wyoming County Branch), dated June 9, 2009, is affirmed.
NOTES
[1] The "special teachers" are Ashley Robinson, Marc Marini, Joanne Yanchick and Katina Brown.
[2] Act of March 10, 1949, P.L. 30, as amended by Act of March 19, 1970, P.L. 189. Section 1107 provides:
The board of school directors in every school district may employ such special teachers, including special teachers who speak the idiomatic or colloquial language of immigrants residing in the school district, for the purpose of easing the transition period of such immigrants, qualified as herein provided, as they may deem necessary for any of the public schools or departments thereof in the district.
[3] 24 P.S. § 11-1101.
[4] 42 Pa.C.S. § 7302(d)(1) provides that this standard of judicial review should apply where (1) the Commonwealth submits a controversy to arbitration; (2) a political subdivision submits a controversy with an employee or a representative of employees to arbitration; or (3) any person has been required by law to submit or to agree to submit a controversy to arbitration pursuant to the statutory arbitration provisions.
[5] Under the essence test, the court makes an initial determination as to whether the issue is embraced by the agreement giving the arbitrator the authority to hear the matter. If so, the award is upheld if it can be rationally derived from the agreement, allowing reversal only where the award, genuinely and indisputably, is without foundation in or fails to logically flow from the agreement. The essence test requires a determination of whether the agreement encompasses the subject matter of the dispute. Cheyney. In this case, only the first prong of the essence test is at issue because if the "special teachers" are members of the bargaining unit covered by the CBA, a decision that they are entitled to the protections of that CBA is prima facie rational.
[6] 24 P.S. § 11-1101.
[7] This analysis is the same as the Pennsylvania Attorney General's Official Opinion No. 40 of 1971, which held that special teachers are professional employees who are to be treated exactly the same as other professional employees. In that opinion, the Attorney General concluded, "Special teachers, as referred to in Section 1107 of the School Code, 24 P.S. § 11-1107, refers specifically to teachers qualified, and any contract is governed by Section 1101 of the Code, as amended, 24 P.S. § 11-1101, relative to professional employees." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549163/ | 992 A.2d 1237 (2010)
NEAL
v.
STATE.
No. 7, 2010.
Supreme Court of Delaware.
March 17, 2010.
Decision Without Published Opinion Appeal Dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549168/ | 140 B.R. 25 (1992)
In re ARLENE'S SPORTSWEAR, INC., Debtor.
Bankruptcy No. 92-14409-JNG.
United States Bankruptcy Court, D. Massachusetts, Eastern Division (Boston).
May 27, 1992.
Peter J. Antoszyk, Kaye, Fialkow, Richmond & Rothstein, Boston, Mass., for debtor.
John McMahon, Angoff, Goldman, Manning, Pyle, Wanger & Hiatt, P.C., Boston, Mass., for Union.
DECISION
WILLIAM C. HILLMAN, Bankruptcy Judge.
Debtor is a clothing manufacturer. A number of Debtor's employees are covered by a collective bargaining agreement ("the Agreement") with the Cloak, Skirt and Dressmakers Union and the International Ladies' Garment Workers Union (collectively "the Union").
Debtor filed its voluntary petition under Chapter 11 on April 30, 1992, at which time it owed wages for the week ending May 1, 1992, which would have been paid May 8, 1992, had these proceedings not intervened. It also was obligated under the Agreement to make payments into a holiday trust fund ("the Fund") for the benefit of its union employees. Under the terms of the Agreement, the Union makes the payments to its *26 members and is reimbursed by the employer, Debtor.
The amounts involved were $20,663.80 in wages and $4,390.00 due to the Fund. It was represented that the wages to be paid to any one employee did not exceed the priority claim available to that employee under 11 U.S.C. § 507(a)(3).
An expedited hearing was requested and granted, and, on May 3, 1992, the Court authorized the payment of the wages, reserving the question of payment to the Fund for a hearing on May 26, 1992.
At that hearing, Debtor supported its motion as being filed out of an abundance of caution, as Debtor believes that payment of both the wages and the Fund's reimbursement to be mandated by 11 U.S.C. § 1113(f). Counsel for the Union supported that assertion and raised the related issue of the status of the payment as a prepetition or post-petition claim. However, based upon the assertion of Debtor that the sum was due to the Fund "as of the filing of the Chapter 11 petition," the Court finds that the Fund's claim is a prepetition claim. Even if it were not, the vacation time certainly accrued prior to the filing and
it is now well established that the accrual of a claim for bankruptcy purposes must be determined with reference to bankruptcy law and not state law, and if the right to payment, which is an indispensable element of a claim under § 104(4)(A) of the Bankruptcy Code, matured and became vested prior to the commencement of a case, the fact that the time of payment is triggered by an event which occurred postpetition does not render such a claim a postpetition claim. . . .
Shipwrights, Joiners & Caulkers Local 2071 v. Uniflite, Inc. (In re Murray Inds., Inc.), 110 B.R. 585 (Bankr.M.D.Fla.1990).
The motion raises an issue of first impression in this Court and Circuit, to wit: Does 11 U.S.C. § 1113(f) override all of the provisions of the Bankruptcy Code which would otherwise determine the priority of claims and the manner in which they are paid? Other courts have addressed the issue, with varying results.
DISCUSSION
As a result of the Supreme Court's decision in National Labor Relations Bd. v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984), Congress added § 1113 to the Bankruptcy Code. Bankruptcy Amendments and Federal Judgeship Act of 1984, P.L. 98-353, 98 Stat. 333, 390 (1984).
The new statute regulates the manner in which a debtor may deal with collective bargaining agreements. Two provisions in particular, §§ 1113(a) and 1113(f), are relevant:
(a) The debtor in possession . . . may assume or reject a collective bargaining agreement only in accordance with the provisions of this section.
(f) No provisions of this title shall be construed to permit a trustee to unilaterally terminate or alter any provisions of a collective bargaining agreement prior to compliance with the provisions of this section.
The other provisions of the section establish the structure whereby the debtor may affect an existing collective bargaining agreement.
The Agreement would require Debtor to pay a prepetition debt, for the Court has found the Fund's claim to be such. It would share the same priority as the prepetition wages previously ordered paid, if it satisfies the time and amount requirements of 11 U.S.C. § 507(a)(3), but the Court does not have evidence on that issue. In any event, absent any effect of § 1113, payment of the prepetition claim would be subject to the automatic stay of 11 U.S.C. § 362.
The first decision on the issue appears to be United Steelworkers v. Unimet Corp. (In re Unimet Corp.), 842 F.2d 879 (6th Cir.1988), cert. denied, 488 U.S. 828, 109 S.Ct. 81, 102 L.Ed.2d 57 (1989). The ultimate conclusion of the circuit court was that
Congress intended to give broad protection to collectively bargained for rights which are threatened by a corporate reorganization *27 under Chapter 11 of the Bankruptcy Code. Our conclusion that 11 U.S.C. § 1113 applies to all provisions of a collective bargaining agreement does no violence to the plain language of the statute or the legislative history as we perceive it.
Id. at 885.
The sixth circuit held that the debtor was required to pay prepetition accruing retiree benefits until it had prevailed in an action to reject those benefits under 11 U.S.C. § 1113(c). Accord, In re Canton Castings, Inc., 103 B.R. 874 (Bankr.N.D.Ohio 1989) (accrued vacation pay).
The second circuit examined § 1113 in another context in Shugrue v. Air Line Pilots Ass'n (In re Ionosphere Clubs, Inc.), 922 F.2d 984 (2d Cir.1990), cert. denied, ___ U.S. ___, 112 S.Ct. 50, 116 L.Ed.2d 28 (1991). It held that § 1113.
was meant to prohibit the application of any other provision of the Bankruptcy Code when such application would permit a debtor to achieve a unilateral termination or modification of a collective bargaining agreement without meeting the requirements of § 1113.
922 F.2d at 990.
Judge Schwartzberg correctly points out that the Shugrue position results in a situation where
claims arising out of a collective bargaining agreement may be granted priority status regardless of whether they meet the requirements of 11 U.S.C. §§ 503(b) and 507(a). Thus, 11 U.S.C. § 1113(f) creates a super-priority for all pre-petition as well as post-petition payments due under a collective bargaining agreement which, in effect trumps 11 U.S.C. § 507.
In re Golden Distributors, Ltd, 134 B.R. 760 (Bankr.S.D.N.Y.1991). Contra, In re Roth American, Inc., 120 B.R. 356 (Bankr. M.D.Pa.1990).
In a sense, this view parallels the treatment of continuing contracts not involving labor relations which this Court adopted in Bob Brest Buick, Inc. v. Nissan Motor Corporation (In re Bob Brest Buick, Inc.), 136 B.R. 322 (Bankr.D.Mass.1991).
To the contrary is Shipwrights, Joiners & Caulkers Local 2071 v. Uniflite, Inc. (In re Murray Inds., Inc.), supra. Chief Judge Paskay found a direct conflict between § 1113(f) and the priority provisions of §§ 507 and 1129(9)(B). To reconcile the problem, he looked to 11 U.S.C. § 1114, which deals with retiree benefits.
First, §§ 1113 and 1114 are similar in their operation in that both establish procedures to allow a debtor-in-possession to alter certain contractual obligations. Secondly, retirement benefits, like prepetition vacation benefits, are not executory in nature but represent benefits to be paid from the bankruptcy estate for services rendered prior to the filing of the bankruptcy petition.
In § 1114 . . . there is explicit language exempting payment of retirements benefits from other provisions of Title 11 which otherwise might prohibit such payments. The Section also affirmatively mandates the payment of these benefits. The explicit language and the legislative history of § 1114 stand in stark contrast to the absence of any such language in § 1113, which would have created an exemption for immediate payment of any wages or benefits due under a collective bargaining agreement, is evidence that Congress did not intend § 1113 to be exempt from the operation of other sections of the Code, including the priorities set forth in § 507(a).
Id. at 587.
He concluded that
the better view is one which reconciles § 507 with § 1113 and that § 1113 governs only the conditions under which a Debtor-in-Possession may modify or reject a collective bargaining agreement, but that payment of employment-related prepetition obligations is governed exclusively by § 507. Even accepting, without conceding, that the failure to pay the vacation pay benefits at this time, in fact, modifies or alters the terms of the Agreement in order to preserve the rehabilitative aims of Chapter 11, then § 507 must prevail. *28 Id. at 588. Accord, In re Armstrong Store Fixtures Corp., 135 B.R. 18, reh'g. denied 139 B.R. 347 (Bankr.W.D.Pa.1992).
The Court believes that the better view is that adopted by the sixth and second circuits. While this approach does dilute the power of the automatic stay in the area of collective bargaining agreements, and may at times lead to odd results, Congress certainly intended to do something when it adopted § 1113. The Shipwrights and Armstrong position virtually deletes § 1113 from the Bankruptcy Code.
Debtor's motion to make the requested payments to the holiday trust fund is granted. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549184/ | 50 F.2d 681 (1931)
COMMISSIONER OF INTERNAL REVENUE
v.
AMERICAN SEATING CO.
No. 4257.
Circuit Court of Appeals, Seventh Circuit.
June 27, 1931.
G. A. Youngquist, Asst. Atty. Gen., and J. Louis Monarch and Andrew D. Sharpe, Sp. Assts. to Atty. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Allin H. Pierce, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for petitioner.
Laurence Graves, of Washington, D. C., for respondent.
Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
ALSCHULER, Circuit Judge.
The Commissioner of Internal Revenue brings this proceeding, wherein he complains of the action of the Board of Tax Appeals in determining the deficiency in respondent's federal income and profits taxes for the year 1921 at $9,117.03, instead of $21,467.50 as determined by the Commissioner. The difference arises out of the amount of taxpayer's invested capital for that year, the Commissioner denying the propriety of several items which taxpayer claimed, and which the board allowed, as taxpayer's invested capital.
*682 The Board found as facts (14 B. T. A. 328) that since 1906 taxpayer had been in the business of manufacturing and selling desks and seats for schools and other places of public assembly; that the framework of their product had been made of cast iron, and that in about 1909 taxpayer concluded it was advisable to substitute steel for cast iron, and in 1910 began work to this end, incurring expense in changing equipment and in experimentation of $55,296.55 in 1911 and $110,180.05 in 1912, all of which it then charged to its capital investment account; that in 1915 taxpayer purchased for $25,000 certain inventions deemed necessary in the successful production of the steel parts of its products, which amount was likewise charged to invested capital; that its first contract for its steel product was with the St. Louis school board, to which it shipped a large consignment of school equipment, which after installation proved so defective that it was returned to taxpayer and replaced at loss to taxpayer of $33,239.77, and this loss it also then charged to invested capital.
The Commissioner allowed as invested capital a portion of the expense items of 1911 and 1912, but disallowed the items of purchase of inventions, and of loss on defective St. Louis equipment. The Board allowed further so much of the 1911 and 1912 expense items as the Commissioner had disallowed, and allowed also the items of invention purchase and St. Louis contract loss.
Respecting the 1911 and 1912 expense items, we perceive no substantial objection to their inclusion in invested capital. It was deemed advisable to substitute steel for cast iron, which involved a new venture, at least for this concern. The innovation evidently required very substantial structural changes, which in turn involved engineering assistance and experimental operations before ultimate success was achieved. The cost as reported by taxpayer does not appear to be challenged, nor its good faith in including this in its invested capital. In such matters no inflexible rule can be laid down for determining how much of the cost of experimenting and changing may properly be included in the item of invested capital, and we would not be warranted in setting aside the judgment of the Board respecting what is essentially this question of fact.
Respecting the item of loss on the St. Louis contract, we are inclined to the belief that under the facts it should not have been allowed as invested capital. When taxpayer entered into this large contract presumably the experimental stage had been passed. If before making and shipping this large amount of product it was not satisfied that the experimental period had in fact passed, it was at least improvident to make the shipment. If the experimental stage had been passed, the defects in the product shipped would indicate faulty workmanship or materials rather than immaturity in the plan and scheme for perfecting the change from cast iron to steel. In such case loss attributable to defective workmanship or materials would be a business loss for the year in which it occurred, rather than an augmentation of taxpayer's invested capital.
Respecting the item of $25,000 for purchase of inventions, the facts are not so clear as might be desirable to sustain its inclusion in invested capital for the year 1921. If in the prosecution of taxpayer's business it was deemed advisable to purchase these inventions, and they were accordingly purchased in good faith, it is not for the government to substitute its judgment for that of the taxpayer in determining the wisdom thereof.
It is not clear that any patents were in fact acquired. If patent grants were acquired, their capital value in 1921 would be substantially less than at the time of acquirement. Patents are issued for seventeen years, and the capital value of investment therein diminishes as the term passes. If the inventions purchased were secret processes which the purchaser might ever after exclusively employ, the price paid therefor might properly be considered continuing invested capital, at least until the process or invention becomes public property. Taxpayer did expend $25,000 therefor, and the Board found that at the time of payment no patents had been granted, or even applied for. There was evidence that taxpayer still uses the invention or process thus acquired, and it is fair to conclude that taxpayer still has the benefit of that investment. In our judgment the Board's conclusion upon this item should remain undisturbed.
For respondent it is contended that there was no evidence before the Board upon which it could redetermine this tax. The question arises thus: The same questions as above considered arose before the Board upon its redetermination of taxpayer's income and profits taxes for the year 1920. In that case the Board first reached the conclusions as announced upon its redetermination of the tax of 1921. 4 B. T. A. 649. Upon the hearing of the instant case before the Board, taxpayer *683 offered in evidence the findings of fact and opinion of the Board as reached upon the 1920 tax. To its admission the Commissioner objected, upon the ground that the finding of the Board upon the tax for 1920 afforded no evidence admissible upon the hearing for determining the tax for 1921, but the Board admitted them.
The situation here is quite peculiar, from the fact that under the law as applicable to the Board's determination of the 1920 tax there was no means provided for judicial review of the Board's findings and conclusions. Then, either party aggrieved by the decision of the board could begin an action in the District Court, where the questions respecting the tax would be heard and determined anew, Revenue Act of 1924, 43 Stat. 253, §§ 274, 279; and, indeed, it happens that as to taxpayer's 1920 tax the Commissioner, after redetermination by the Board, did begin suit in the District Court, which suit is still pending.
In strictness it may be said that the Board's finding upon taxpayer's invested capital in the controversy respecting the 1920 tax does not afford evidence of what taxpayer's invested capital was for the year 1921. The logic of this might be tested by placing a longer period between the two taxes, say, ten years instead of only one. While it is not probable that there was any substantial difference in taxpayer's invested capital between 1920 and 1921, such improbability would not alone rise to the dignity of a definite legal presumption that this was so.
But the situation is not dominated alone by the fact that the issue was the 1921 tax, and the evidence related to the 1920 tax. At the hearing before the Board there was some testimony offered by taxpayer to indicate that the conditions in 1921 were the same as in 1920; and while this evidence was not as full and complete as might be desired, yet, taken in connection with the strong likelihood of no material change, we feel warranted in concluding that the findings of fact on the prior hearing in connection with the evidence of similarity of conditions, and the absence of evidence by either party to the contrary, sufficiently showed the situation as to invested capital for 1921.
One ground of objection by the Commissioner to admitting in evidence the 1920 findings was that the offer was not accompanied by a transcript of the evidence upon which the 1920 findings were based. We must assume that this transcript was equally available to both parties, and either might have offered it. In absence of such offer by either party we may assume that the Board's findings of fact upon the 1920 tax were warranted by the evidence then before the board.
The Commissioner makes the further contention that taxpayer's invested capital for 1921 should be reduced by the amount of its taxes for 1920 of $207,708.50, as determined by the Commissioner, rather than by the amount of $196,407.99, as determined by the Board. To sustain this view the Commissioner contends that, since that question is now pending in the District Court, the Commissioner's determination should be adopted until it is definitely changed. We think the Board was correct in concluding that the prima facie effect of its finding remains until a different conclusion is reached in the manner pointed out by law. We therefore sustain the action of the Board on this proposition.
Our conclusion is that the judgment of the Board be affirmed in all respects save in its inclusion in taxpayer's invested capital of the loss incurred on the St. Louis contract. We hold that this item should be excluded from taxpayer's invested capital, and accordingly the cause is remanded to the Board of Tax Appeals with direction to determine respondent's deficiency for 1921 in accordance with these views. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549187/ | 50 F.2d 740 (1931)
COMMISSIONER OF INTERNAL REVENUE
v.
ATHERTON et al.
No. 6412.
Circuit Court of Appeals, Ninth Circuit.
June 15, 1931.
G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, Wm. Cutler Thompson, and Norman D. Keller, Sp. Asst. to the Atty. Gen. (C. M. Charest, Gen. Counsel, and J. K. Polk, Jr., Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for petitioner.
Bernhard Knollenberg, of New York City (Robertson & Castle, of Honolulu, Hawaii, and Lord, Day & Lord, of New York City, of counsel), for respondents.
Before WILBUR, and SAWTELLE, Circuit Judges, and NETERER, District Judge.
NETERER, District Judge.
This is a petition to review a decision of the Board of Tax Appeals (19 B. T. A. 1172), which held that the respondents were not taxable under the Revenue Acts of 1921 and 1926 for income taxes for the years 1922, 1923, and 1925. The respondents are trustees under a deed of trust dated May 1, 1922, by which the Honolulu Rapid Transit Company, Limited, an Hawaiian corporation, conveyed to them certain lands for the benefit of the stockholders of the company.
By its original charter the Honolulu Rapid Transit Company, Limited, was authorized to purchase, hold, sell, and deal in lands, etc. In 1921 the company was granted a new charter, the purpose of which was to confine the company to a fair return on its property actually used for public utility purposes. Thereupon the properties of the *741 company which could not be utilized for public utility or railway purposes were transferred to the respondents, as trustees, to be sold when favorable terms could be arranged; in the meantime the trustees to pay taxes and expenses, collect rents, and distribute the proceeds to the stockholders of the company, who were the beneficiaries of the trust. This method of disposal of the nonutility properties was approved by the stockholders of the company, and they were issued certificates of interest in the trust in proportion to their stock holdings in the company. The property so transferred consisted of seven parcels, three of which were sold in 1922, one in 1923, and one in 1925, and the money distributed to the certificate holders. The question for consideration is, Was the trust referred to an association taxable as a corporation under the Revenue Acts of 1921 and 1926?
The purpose for which the trust was formed was liquidation and distribution of the real estate holdings of the Honolulu Rapid Transit Company, Limited, which could not be utilized by the company for transit purposes. With the conveyance of the property to the trustees, the grantor lost all control thereover. There was and is nothing that required the time, attention, or labor of any one for profit or for livelihood. The beneficiaries had and have a common interest, but no immediate right to voice any authority, directly or indirectly, in the management of the property. Crocker v. Malley, 249 U. S. 223, 225, 39 S. Ct. 270, 63 L. Ed. 573, 2 A. L. R. 1601. And no obligation rested on them for any liability for debts. The land was listed with land agents for sale and sold by others than the trustees for cash in hand, or "within a short time." No mortgages were taken and no papers discounted. No office or place of business was maintained. Sales were kept track of by one Davis, and the money deposited in bank and later distributed to the beneficiaries, on instructions given by the trustees. Such activities as the trustees exercised were in furtherance of liquidation and distribution. It is conceded by the record that the trustees did no business except to collect rent on the parcels involved, pay taxes and expenses thereon until sold, and distribute the net proceeds to the certificate holders as proceeds became available.
Regulation 69 of article 1504 provides: "Where trustees merely hold property for the collection of the income and its distribution among the beneficiaries of the trust and are not engaged, either by themselves or in connection with the beneficiaries in the carrying on of any business, and the beneficiaries have no control over the trust, although their consent may be required for the filling of a vacancy among the trustees or for a modification of the terms of the trust, no association exists, and the trust and the beneficiaries will be subject to tax as provided by section 219. * * *"
Section 219 (a) of the Revenue Act of 1921 (42 Stat. 246) provides:
"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: * * *
"(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."
Section 219 (a) (4) of the Revenue Act of 1926 (44 Stat. 32) provides: "Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated."
In White v. Hornblower (C. C. A.) 27 F. (2d) 777, 778, a real estate development company was organized to develop tracts of land in New Mexico and Colorado. It was unsuccessful. The security holders were widely scattered. The trustees were given full power to take "such steps and measures as will insure the most prompt and efficient realization upon the values in the Costilla property and a winding-up of its affairs and the affairs of this trust. * * * The provisions of the trust deed might be modified by the trustees, if assented to by a majority of the certificate holders." The court held it to be a strict trust, and not an association within the revenue laws.
In United States v. Emery, 237 U. S. 28, 35 S. Ct. 499, 59 L. Ed. 825, certain land was occupied for dry goods business by Emery & Co. Some of the lands were leased. Before enactment of the tax laws, some members of Emery & Co. organized the claimant to acquire the lands occupied by the dry goods company and lease them to the company; it taking the management and assuming responsibility in respect thereto. The only business the claimant did was to collect and distribute rents received. The charter powers of the claimant included performance, and enforcing performance, of the respective covenants in the lease taken over, and the sale of the property or any part of it, upon the vote of not less than two-thirds of the stockholders, who were very nearly the *742 same as those of the company. It was also covenanted to rebuild in case the buildings were destroyed. There was no occasion to perform any of these undertakings. The court held it a trust, saying, at page 32 of 237 U. S., 35 S. Ct. 499, 501: "The claimants' characteristic charter function, and the only one that it was carrying on, was the bare receipt and distribution to its stockholders of rent from a specified parcel of land."
In Zonne v. Minneapolis Syndicate, 220 U. S. 187, 31 S. Ct. 361, 55 L. Ed. 428, it was held that an organization formed as a holding concern of real estate for distribution and liquidation, and incidental activity, as collection of rents, sale of property, payment of taxes, etc., and distribution of the accumulated proceeds, is not doing business. This was indorsed in United States v. Emery, supra.
The controlling feature of a trust is an association of individuals for administration of an estate for liquidation and equitable distribution, and the controlling distinction of an association is an association of individuals for administration of an estate for convenience and profit. In Hecht v. Malley, 265 U. S. 144, 44 S. Ct. 462, 68 L. Ed. 949, the trustee was conducting business. In the instant case the trustees are holding parcels of land for an opportunity to sell, collecting rents and paying taxes and distributing available funds, and it is a strict trust. Crocker v. Malley, 249 U. S. 223, 39 S. Ct. 270, 63 L. Ed. 573, 2 A. L. R. 1601; White v. Hornblower (C. C. A.) 27 F.(2d) 777; Blair v. Wilson Syndicate Trust (C. C. A.) 39 F.(2d) 43; Lucas v. Extension Oil Co. (5th C. C. A. Feb. 18, 1931) 47 F.(2d) 65, par. 663, Prentice-Hall, 1931 Federal Tax Service; Allen v. Commissioner (2d C. C. A. May 11, 1931), 49 F.(2d) 716, par. 1209, Prentice-Hall, 1931 Federal Tax Service.
The appellant moves, in the event the court holds the land trust to be a strict trust, that this court reverse the order of the Board of Tax Appeals denying a rehearing, and that the case be remanded to the Board of Tax Appeals to determine the tax due from the trust by reason of the increased value of the land at the date of sale over the value on March 1, 1913. The record discloses that the proceeds of the sales were immediately distributed, and it is stipulated that the trustees did no business except to collect and distribute the net proceeds available, and the payment of any income fell within section 219 (a) (4), supra, and accordingly the certificate holders were subject to a tax.
The decision of the Board of Tax Appeals is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549216/ | 140 B.R. 889 (1992)
In re Christine A. RAGAR, Debtor.
Bankruptcy No. 91-41490M.
United States Bankruptcy Court, E.D. Arkansas, W.D.
April 15, 1992.
Robert J. Brown, former Atty., Little Rock, Ark., for debtor.
A.L. Tenney, N. Little Rock, Ark., Chapter 13 Trustee.
ORDER
JAMES G. MIXON, Bankruptcy Judge.
On June 19, 1991, Christine A. Ragar (the debtor) filed a voluntary petition for relief under the provisions of chapter 13 of the United States Bankruptcy Code. The law firm of Crockett & Brown, P.A., was listed on the petition as the debtor's attorney of record. The debtor's chapter 13 plan disclosed a prepetition transfer of property from the debtor to Crockett & Brown, P.A., as follows:
The debtor transferred property she owned in trust to Crockett & Brown, P.A., undersigned counsel, in February of 1991 on condition that counsel's fees on general retainer be paid therefrom and the balance held to the use and benefit of her general creditors. The interest of Crockett & Brown, P.A., is preserved in this plan.
The property transferred to Crockett & Brown, P.A. is valued in the schedules at $100,000.00. The schedules prepared by Crockett & Brown, P.A., list Crockett & Brown, P.A., as a prepetition secured creditor with a claim of $10,771.39.
On August 6, 1991, A.L. Tenney, the standing chapter 13 trustee, filed a motion to remove Crockett and Brown, P.A., as attorneys in this case because of alleged conflicts of interest. On August 19, 1991, the Court issued an order to show cause why Crockett & Brown, P.A., should not be disqualified from representing the debtor because of alleged conflicts of interest and to show cause why the case should not be converted to a case under chapter 7.
On September 11, 1991, after notice and a hearing, the Court granted the motion to remove Crockett & Brown, P.A., as attorney for the debtor and converted this case to chapter 7. The order disqualifying Crockett & Brown, P.A., from representing the debtor was entered on September 11, 1991, and provided as follows:
ORDER
On September 9, 1991, a hearing was held pursuant to the Court's order to show cause why Crockett & Brown, P.A., *890 should not be disqualified from representing the debtor in this case. For the reasons stated in open court, the Court finds that Crockett & Brown, P.A., are disqualified from representing the debtor in this case.
IT IS SO ORDERED.
The Court's oral ruling was as follows:
Let me address first on the issue of whether or not Mr. Brown or Crockett & Brown should be removed as attorneys. I think without question that they were ineligible from the very start to be attorneys for this Chapter 13 debtor.
The duties of a Chapter 13 debtor are not clearly set out in the Bankruptcy Code nor are the duties of the Chapter 13 trustee. The debtor is specifically granted duties authority to sell under the sections dealing with the sale and lease of property exclusive of the trustee. The trustee is given duties of administration except duties to reduce the property of the estate to cash, which would include all the avoiding powers. The practice around here is whatever avoiding power actions are brought by the debtor who remains in possession rather than the Chapter 13 trustee. The Chapter 13 trustee acts as administrator of the plan. And the case law upholds that. That that [sic] is a duty authorized by Chapter 13.
Any time an attorney representing a debtor I don't care if it's a chapter 7, 13, 11, 12 ends up with title to property of the estate, I don't care if it's a straight-out deed, quitclaim deed or trust deed, but where it is admittedly property of the estate, my judgment is you're just disqualified from representing the debtor. You're involved in the case, you're a potential defendant, you're a potential defendant by your client's husband's trustee. You're a potential defendant by a non-disinterested attorney representing your own client to set that trust aside for the benefit of all the creditors.
Secondly, you're claiming a secured claim or interest in this trust res, which I have grave reservations whether your secured claim could stand up or any equitable claim could stand up against the powers of a debtor in possession under Section 544. And you also have the conflict of being require[d] to sue to try to set aside under 544 the claim of the debtor's mother, the debtor's sister, all of which is just impossible to do.
So Crockett & Brown should never have been part of this case from the beginning. In my judgment, should never have become the trustee of this Shackelford property.
(Record at 18-20). No motion for stay of the order disqualifying Crockett & Brown, P.A., has been filed nor has a stay been entered.
Notwithstanding this Court's disqualification order, Robert J. Brown, Esq., (Brown) an attorney with the law firm of Crockett & Brown, P.A., continued to represent the debtor. The following pleadings were filed by Brown on behalf of the debtor after the entry of the disqualification order:
September 23, 1991: Notice of Appeal from order converting case to chapter 7 in Case No. 91-41490M
October 3, 1991: Designation of record regarding order converting case to chapter 7 in Case No. 91-41490M
October 21, 1991: Rule 12 motion to dismiss on behalf of debtor in AP 91-4167
October 30, 1991: Demand for jury trial on behalf of debtor in AP 91-4167
October 31, 1991: Motion to alter or amend judgment in CMS 91-1292 and supporting brief
On November 14, 1991, Brown was ordered to appear and show cause why he should not be held in civil and/or criminal contempt for representing and continuing to represent the debtor notwithstanding this Court's order of disqualification. The Court took the matter under advisement.
DISCUSSION
When ordered to show cause why he should not be held in contempt, Brown offered the following testimony:
MR. BROWN: Your Honor, your order of September the 11th, 1990 1991 recites that I'm not to represent Mrs. *891 Ragar any further in a Chapter 13 proceeding. You then proceeded to convert that to a Chapter 7 proceeding. And that's the order to which you make reference, is it not?
THE COURT: Yes, sir. That order.
MR. BROWN: I will decline to further respond, based upon your allegations of criminal contempt, my belief of the lack of jurisdiction of the Court, and my right to remain silent in the face of an accusation of criminal misconduct which could lead to a period of confinement under the laws of the United States. Invoking my rights under the Fifth Amendment.
THE COURT: All right. Anything else?
(No response.)
You may stand down.
(Witness excused.)
MR. BROWN: Thank you.
(Record at 8.)
Brown offers no explanation for his actions except his opinion that the order of disqualification did not apply to his subsequent representation of the debtor in a proceeding under a chapter different from chapter 13. Neither the written order nor the Court's oral ruling provides a basis for this opinion.
Crockett & Brown, P.A., was disqualified because it claimed to be a secured creditor of the debtor and placed itself in a position of becoming a defendant in a fraudulent conveyance suit along with its client.[1] By continuing to act as attorney on behalf of the debtor, Brown exhibited a contemptuous determination not to comply with this Court's order. If Brown believed the order of disqualification was erroneous, his remedy was by appeal, not deliberate disobedience. Until the court held the show cause hearing, Brown showed no indication that he would obey the court's order disqualifying him from representing the debtor.[2] Inappropriate conduct by this attorney has been the subject of other proceedings against him in the Eighth Circuit.[3] For his unwarranted refusal to obey the Court's order of disqualification, Brown is found in criminal contempt and is assessed a fine in the sum of $950.00.
The Bankruptcy Clerk shall forthwith serve a copy of this order of contempt on Brown. This order of contempt shall become effective as a final order ten days after service of the order on Brown unless, within the ten-day period, Brown serves and files with the bankruptcy clerk an objection to this order of contempt as provided by Federal Rule of Bankruptcy Procedure 9033(b).
If an objection is filed this Order shall be subject to review by the District Court pursuant to Federal Rule of Bankruptcy Procedure 9033.
IT IS SO ORDERED.
NOTES
[1] Brown is now a defendant in AP 91-4167 along with the debtor and her husband Don Ragar.
[2] Brown has not appeared in the case as attorney since the show cause hearing. Crockett & Brown, P.A., has appeared as a creditor of the estate.
[3] See Brown v. Mitchell (In re Arkansas Communities, Inc.), 827 F.2d 1219 (8th Cir.1987), (affirmed Rule 11 sanctions for filing frivolous pleadings) and Buffington v. First Service Corp., 672 F.2d 687 (8th Cir.1982), (assessed double costs for filing frivolous appeal). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549506/ | 115 N.H. 331 (1975)
STATE OF NEW HAMPSHIRE
v.
LAWRENCE D. CONKLIN
No. 6552.
Supreme Court of New Hampshire.
June 30, 1975.
*333 Warren B. Rudman, attorney general, and David W. Hess, assistant attorney general (Mr. Hess orally), for the State.
Alvin E. Taylor and Seth M. Junkins, by brief and orally, for the defendant.
DUNCAN, J.
Defendant was indicted for murder in the first degree (RSA 585:1 (1955), Laws 1937, 20:1), for the stabbing of a security guard at the Rockingham County Jail, in Brentwood, on September 12, 1971. The defendant was then an inmate of the jail awaiting disposition of an unrelated offense. After arraignment but prior to trial, the State elected to forego a first-degree prosecution and to try the defendant only for the lesser included offense of murder in the second degree. RSA 585:1 (1955). By order of the Trial Court (Perkins, J.) the defendant was then arraigned on the reduced charge. Trial by jury resulted in a verdict of guilty of second-degree murder. Sentence was imposed for a term of not less than forty-five years and not more than life.
During the course of the proceedings, the defendant excepted to the arraignment on the second-degree charge without a new indictment, to rulings on certain pretrial motions, and the admission and exclusion of certain evidence, to certain instructions to the jury and to the denial of motions to set aside the verdict and to modify the sentence. These exceptions and the questions of law arising therefrom were reserved and transferred by Perkins, J.
Evidence to the following effect was introduced at trial. While awaiting grand jury action on another offense, the defendant was being retained in the "bound-over" section of the Rockingham County Jail. On September 12, 1971, the defendant requested cleaning supplies of the sole inside guard, Robert Prescott. Prescott, an experienced police officer, had been working at the jail for less than a month. Before passing a mop and bucket into defendant's cell row, Prescott secured the inmates in their individual cells, which were at times left open to permit communication among prisoners within a locked tier. However, when he later reopened the tier to furnish a broom, he neglected to lock the interior cells. The defendant slipped *334 out of the tier onto an open landing and refused to reenter. Prescott withdrew, but returned shortly with his privately owned German Shepherd police dog, which he kept at the jail during work hours. The dog apparently was to be used to coerce the defendant back into the tier. A struggle ensued; the dog was slashed about the throat, and Prescott was stabbed repeatedly in the chest and upper body. With keys removed from the guard, the defendant released inmates from other tiers. Medical help was sought for Prescott, who was carried into the visitors' cage of the jail. He had, however, died within five or ten minutes of the infliction of the wounds. The defendant was later apprehended while still within the confines of the jail.
The challenged indictment charged that the defendant "with force and arms, did commit a murder in the first degree, in that he deliberately and with premeditation, without justifiable cause, kill [sic] Robert Prescott ... by stabbing him in the chest with a knife."
Defendant contends that the preliminary procedure followed by the trial court was defective in three principal respects: the indictment contained no allegation of malice to apply to the reduced charge; neither the State nor the court possessed the authority to try the defendant for a crime on which no indictment had been returned; even were such a procedure authorized, the defendant was prejudiced by having the indictment for the greater charge read to the jury.
It is established law that malice aforethought is an essential element of the crime of murder, and that an allegation to that effect must appear in the indictment. RSA 601:6; State v. Millette, 112 N.H. 458, 460-61, 299 A.2d 150, 152 (1972); State v. Nelson, 103 N.H. 478, 489, 175 A.2d 814, 822, cert. denied, 369 U.S. 879 (1961). The defendant concedes that the words "deliberately and with premeditation" satisfied that requirement for the indictment for first-degree murder. He argues however that the State's decision not to try him on the first-degree charge in effect amended the indictment by obviating those essential words, which under the statute in effect at that time were elements of first, but not of second-degree, murder. RSA 585:1 (Repealed; Laws 1974, 34:12 eff. April 15, 1974). So amended, the argument continues, the indictment alleged no malice which would support a charge of second-degree murder.
This "constructive amendment" theory misses the mark. RSA 585:1 defined murder in the first degree as "deliberate and premeditated killing", and second-degree murder as "all murder not of the first degree." Thus, in a prosecution for first-degree murder, *335 even upon a failure to establish premeditation and deliberation, the evidence could suffice for a jury to find murder of the second degree. In this respect, second-degree murder as defined by RSA 585:1, like manslaughter, constituted a lesser included offense of the crime of first-degree murder. Nichols v. Vitek, 114 N.H. 453, 321 A.2d 570 (1974); In re Murray, 131 Vt. 4, 8, 298 A.2d 835, 837-38 (1972); Commonwealth v. Penn, 444 Pa. 526, 282 A.2d 233 (1971). Where such a relationship exists, a defendant may properly be convicted of the lesser charge, on the basis of an indictment for the greater. See A.L.I. Model Penal Code § 1.07 (4) (1962); Federal Rules of Criminal Procedure, 18 U.S.C.A. Rule 31 (c) (1969); Barnett, The Lesser-Included Offense Doctrine: A Present Day Analysis for Practitioners, 5 Conn. L. Rev. 255 (1972). Since the defendant concedes the adequacy of the indictment of the greater offense, he cannot now complain of insufficiency as to the included offense. State v. Doucet, 106 N.H. 225, 208 A.2d 456 (1965). The indictment for the greater charge was legally sufficient to notify the defendant that he might be called upon to defend the lesser included charge. Walker v. United States, 418 F.2d 1116, 1119 (D.C. Cir. 1969); People v. Ostrand, 35 Ill. 2d 520, 530, 221 N.E.2d 499, 505 (1966).
Nor could the defendant suffer prejudice by the State's election to proceed only on the lesser offense of second-degree murder. The State's election benefited the defendant, by removing any possibility of a death sentence. Under such circumstances, it is held that the State may of its own accord abandon the charge of the greater crime and proceed with the prosecution of the lesser, and that no formal amendment of the indictment is required. State v. Edwards, 287 So. 2d 518, 525 (La. 1973); Cox v. State, 205 Kan. 867, 875, 473 P.2d 106, 113 (1970); 42 C.J.S. Indictments and Informations § 278 (1944). Twice arraigned, and fully aware of the State's decision in advance of trial, the defendant was not in doubt as to the offense with which he was charged and was sufficiently apprised of the factual basis for the indictment to prepare a competent defense. State v. Greenwood, 113 N.H. 625, 626, 312 A.2d 695, 696 (1973); State v. Story, 97 N.H. 141, 146, 83 A.2d 142, 147 (1951).
While the indictment for first-degree murder, including the words "deliberately and with premeditation", was read to the jury, the court expressly made it clear at that time that the jury was to consider only whether the defendant was guilty of second-degree murder. This was again emphasized in the charge to the jury, which was instructed only on the elements of second-degree murder and the lesser included offense of manslaughter. A review of the trial *336 record suggests no prejudice which could have resulted from the reading of the indictment.
The defendant alleges error in the admission in evidence of his statements made under the following circumstances. During the general securing of the jail after the stabbing, the defendant was approached by an armed State police trooper and told to enter a nearby cell. Without any questioning by the officer, he blurted out, "I had to do it. He was going to put the dog on me. I had to kill him." Subsequently, the defendant requested to speak to the deputy sheriff who was acting superintendent of the jail. As the defendant was being escorted to a separate room for that purpose, without any conversation from the deputy, he said, "Joe, I don't know why I killed him. Why did I?" Once inside the room, the defendant was for the first time advised of his constitutional rights. Miranda v. Arizona, 384 U.S. 436 (1966). He then proceeded to give a complete statement of the incident, without questioning or interruption, which was recorded in a police notebook and read at trial.
Under Miranda v. Arizona, 384 U.S. 436 (1966), it is clear that the prosecution may not use statements stemming from custodial interrogation unless safeguards to secure the privilege against self-incrimination were provided. However, since "[t]he fundamental import of the privilege while an individual is in custody is not whether he is allowed to talk to the police without the benefit of warnings and counsel, but whether he can be interrogated", a statement given freely and without any compelling influence is admissible in evidence. Miranda v. Arizona, supra at 478; State v. Mitchell, 113 N.H. 542, 543, 311 A.2d 134, 135 (1973). While there is little doubt that the defendant was at all times in custody, his statements were not the product of police interrogation. State v. Collins, 112 N.H. 449, 453, 298 A.2d 742, 745 (1972), cert. denied, 415 U.S. 982 (1974).
The defendant urges that nevertheless they were not voluntarily made, but were induced by fear and the threat of harm, inherent in the charged situation. Although police custody may generate subjective anxiety and pressures, it is not enough of itself to require Miranda warnings. See Kamisar, "Custodial Interrogation" Within the Meaning of Miranda, in Criminal Law and the Constitution 335, at 359 (1968). To determine whether a defendant's will was overborne, the totality of the surrounding circumstances must be examined. "While the state of the accused's mind, and the failure of the police to advise the accused of his rights, [are] . . . certainly factors to be evaluated in assessing the `voluntariness' of an accused's responses, they [are] . . . not in and of themselves determinative". Schneckloth v. *337 Bustamonte, 412 U.S. 218, 227 (1973). In the instant case, there is no evidence of abusive or extraordinary treatment of the defendant while in custody, nor of trickery or cajolery on behalf of his custodians. The trial court did not err in admitting defendant's first two statements as voluntarily given without questioning, even in the absence of any Miranda warnings. Similarly, the record contains no indication that the statement secured after the defendant was advised of and had acknowledged his rights was coerced or rendered involuntarily.
There is likewise no merit in defendant's correlative contention that his blood-stained clothing, seized with that of all inmates during a general shakedown of the jail, was improperly received in evidence. "[T]o say that a public jail is the equivalent of a man's `house' or that it is a place where he can claim constitutional immunity from search or seizure of his person ... or his effects, is at best a novel argument ... it is obvious that a jail shares none of the attributes of privacy of a home ...." Lanza v. New York, 370 U.S. 139, 143 (1962). The right of prisoners to be free from warrantless searches and seizures must be defined in the light of the requirements of official surveillance and security. Palmigiano v. Travisono, 317 F. Supp. 776, 791 (D.R.I. 1970); United States v. Palmateer, 469 F.2d 273, 274 (9th Cir. 1972). In the face of a killing and a possible riot or jail break, the seizure at the Rockingham County Jail on September 12, 1971, violated no constitutional rights of the defendant.
Defendant alleges error in the trial court's voir dire inquiry into possible juror prejudice should the evidence reveal that defendant had a prior criminal record. The defendant himself requested the inquiry but withdrew the request prior to examination. The court, however, chose to read the question on its own initiative, having found it necessary in the light of a proposed voir dire inquiry into jury opinion concerning the rights of prisoners in correctional facilities.
The extent of voir dire in this State, whether conducted by court or counsel, is wholly within the discretion of the trial court. Patterson v. Corliss, 112 N.H. 480, 486, 298 A.2d 586, 590 (1972); Matthews v. Jean's Pastry Shop, Inc., 113 N.H. 546, 549, 311 A.2d 127, 130 (1973). The exercise of that discretion will not be disturbed unless it is manifestly against the law and the evidence. State v. Comery, 78 N.H. 6, 12, 95 A. 670, 673 (1915); State v. Laaman, 114 N.H. 794, 800-01, 331 A.2d 354, 358-59 (1974). Since the purpose and effect of the challenged question was to identify prejudice against the defendant, and defendant can point to no specific harm arising from its use, the court did not err in posing the hypothetical situation. See Annot., *338 Propriety and Effect of Asking Prospective Jurors Hypothetical Questions, on Voir Dire, as to How They Would Decide Issues of the Case, 99 A.L.R.2d 7, 94, 97 (1965).
Although recognizing the trial court's broad discretion in admitting demonstrative evidence, defendant contends that discretion was abused by failure to allow a demonstration of a trained police dog under "attack" conditions. Defendant sought to introduce the evidence on the issues of provocation and self-defense. The dog, however, would not have been Officer Prescott's dog, nor would his training have been the same. Moreover, a courtroom demonstration could not duplicate conditions at the Rockingham County Jail on September 12, 1971. Absent substantial identity of circumstances, the court properly excluded the demonstration. See Comment, Preconditions for Admission of Demonstrative Evidence, 61 Nw. U.L. Rev. 472 (1966). So too, if the trial court found that the prejudicial effect of the proffered evidence might exceed its probative value, the evidence was properly excluded. Shepard v. General Motors Corp., 423 F.2d 406, 408 (1st Cir. 1970).
Error is further assigned to the court's reading of a previously requested jury instruction on reduced responsibility owing to "extreme mental or emotional disturbance". After the court had instructed the jury in some detail that sufficient provocation could negate a finding of malice and so reduce murder to manslaughter, the defendant reiterated his request that the court incorporate the definition of manslaughter contained in Laws 1971, 518:1 (RSA 630:2 II), which was approved by the legislature before trial but had not yet become effective. Although the court complied, the defendant now complains that the failure to apprise him earlier that the request would be granted deprived him of the opportunity to emphasize that defense in closing argument. Since the defendant was not entitled to the instructions as of right, it provided him an advantage not then required by law. He may not now allege error because the advantage was not greater. State v. Kelly, 113 N.H. 222, 306 A.2d 58 (1973); see State v. Warren, 114 N.H. 196, 317 A.2d 566 (1974).
The defendant challenges the propriety of his sentence to "not less than forty-five years nor more than life imprisonment". RSA 585:4 (1955) in effect at the time of sentencing in May 1972, provided in part that "the punishment of murder in the second degree shall be imprisonment for life, or for such term as the court may order". The defendant argues that since this language is in the alternative, the court was required to impose a sentence either of life imprisonment, or of a term of years, and could not combine the two. *339 However this overlooks the provisions of RSA 607:20 (1955) which provided: "When a convict is sentenced to the state prison otherwise than for life, ... the court imposing the sentence shall not fix the term of imprisonment, but shall establish a maximum and minimum term for which said convict may be held in said prison." Thus in fixing a sentence for a term other than that of life imprisonment, the trial court acted within the prescribed statutory ambits with the maximum set precisely at the longest term allowed. See RSA 607:21 (1955).
The defendant charges an abuse of discretion in fixing a minimum sentence for a term which operates to extend the date for parole eligibility beyond that designated for a life term only. He points out that under Laws of 1971, 419:3 a prisoner sentenced to a fixed term of life imprisonment would be eligible for parole after serving eighteen years or less. With a minimum sentence of forty-five years, however, he could not be released until he had served that term less good conduct credit, or after a term of perhaps twice eighteen years at the earliest. Laws 1971, 419:2, :6. Apparently with this in mind the defendant moved that sentence be imposed for a fixed term of life imprisonment only. The statutory distinction with respect to parole eligibility under a sentence for life imprisonment only, as compared with a sentence establishing maximum and minimum terms was not however a matter of legislative oversight, since the same provisions so far as applicable to this case were incorporated in the criminal code which became effective in 1973. RSA 630:1-b II; RSA 651:45, :45-a.
Construing the applicable statutory provisions as a whole, it is evident that the court was authorized to impose a sentence for a fixed term of life imprisonment, but otherwise was required to impose a sentence for no fixed term, but for one with maximum and minimum limits. In electing to follow the latter course as prescribed by RSA 607:20 (1955), the court did not abuse its discretion. The fact that the defendant's eligibility for parole would be governed by the minimum term imposed, rather than the maximum, could not operate to invalidate the sentence. The distinction in this respect between the fixed term of life imprisonment and a minimum term of forty-five years served to furnish greater flexibility in sentencing procedure. However, the statutes relating to parole did not control the sentencing authority of the court under pertinent penal statutes. People v. Dixon, 400 Ill. 449, 81 N.E.2d 257 (1948). On the facts of this case, it cannot be held as a matter of law that the trial judge erred in imposing the sentence of which the defendant complains. See State *340 v. Streeter, 113 N.H. 402, 407, 308 A.2d 535, 538 (1973); ABA Standards Relating to Sentencing Alternatives and Procedures, §§ 2.1 (d), 3.1 (c) (Approved Draft (1968)).
Exceptions overruled.
All concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549231/ | 140 B.R. 761 (1992)
In re James Robert FOX and Donna Joann Fox, Debtors.
Bankruptcy No. 89-40005-PKE.
United States Bankruptcy Court, D. South Dakota, S.D.
May 15, 1992.
J. Bruce Blake, Sioux Falls, S.D., for debtors.
Bruce J. Gering, Sioux Falls, S.D., for U.S. Trustee.
PEDER K. ECKER, Bankruptcy Judge.
On January 6, 1989, Debtors filed a voluntary Chapter 12 bankruptcy petition, and *762 on December 10, 1991, the case was dismissed by the Court. The order of dismissal states, "[T]he Court retains limited jurisdiction, for the sole and only purpose, of hearing a final application for compensation to be brought by debtors' attorney pursuant to § 330(a)." On January 21, 1992, a "Rule 2016(a) Final Application for Compensation and Reimbursement (Blake)" was filed by Sioux Falls Attorney J. Bruce Blake, attorney for Debtors. The application was filed less than 45 days after the case was dismissed and requested compensation and reimbursement for services that occurred between October 4, 1990, and January 15, 1992. Objection was filed on behalf of the United States Trustee by and through Sioux Falls Attorney Bruce J. Gering. An evidentiary hearing was held May 7, 1992, and the Court took the following issue under advisement: whether Debtors' counsel is entitled to seek court approval of fees for services rendered prior and subsequent to case dismissal via application pursuant to Bankruptcy Rule 2016(a) which provides for compensation "from the estate" when an objection to the application asserts that no estate exists after dismissal, rendering the application moot, but when the order of dismissal specifically retains court jurisdiction to resolve matters relating to fee compensation. For the following reasons, the Court concludes that Debtors' counsel is entitled to submit a fee application and obtain court approval for compensation and reimbursement relating to services rendered in this previously dismissed Chapter 12 case.
THE COURT'S BROAD AUTHORITY OVER MATTERS OF FEES
There is considerable support for the proposition that jurisdiction may continue even though an underlying bankruptcy case has been dismissed. Beneficial Trust Deeds v. Franklin, 802 F.2d 324 (9th Cir. 1986); Post v. Ewing, 119 B.R. 566, 567 (S.D.Ohio 1989); In re Pocklington, 21 B.R. 199 (Bankr.S.D.Cal.1982). See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S.Ct. 2447, 2454-57, 110 L.Ed.2d 359 (1990); In re Coones Ranch, Inc., Ch. 11 Case No. 91-40183-PKE, 1992 WL 111110 (Bankr.D.S.D. Mar. 9, 1992) (court has jurisdiction to consider a Rule 11 motion despite case dismissal). In particular, jurisdiction continues to exist to determine the propriety of matters concerning compensation. In re Miranne, 861 F.2d 1278 (5th Cir.1988); Matter of Samford, 125 B.R. 230 (E.D.Mo.1991); In re Fricker, 131 B.R. 932, 937-38 (Bankr.E.D.Pa.1991); In re Lerch, 85 B.R. 491, 493 (Bankr.N.D.Ill. 1988).
"This court's duty of oversight of fee matters embraces a broad supervisory power over any fees charged in contemplation of, or in connection with, a bankruptcy case by both attorneys and lay persons, as provided in the Bankruptcy Code and Rules."
In re Fricker, 131 B.R. at 938, citing In re Fleet, 95 B.R. 319, 338 (E.D.Pa.1989). Bankruptcy Rule 2017 also indicates that a court has control over the payment of attorneys. Therefore, even if the order in this case had not retained jurisdiction over matters involving fees, this Court has jurisdiction over the final application filed by Mr. Blake, notwithstanding case dismissal. Awarding professional fees is as "intrinsically involved" as any other case administration matter. Id. Accordingly, this is a core proceeding as defined by 28 U.S.C. § 157(b)(2).
Counsel may only obtain or retain compensation upon court approval of fee applications which provide detailed information relative to the services provided. 8 L. King, Collier on Bankruptcy ¶ 2016.03 at 2016-15 (15th ed. 1983); In re Fricker, 131 B.R. at 940-41; see also In re Peoples Savings Corp., 114 B.R. 151, 155 (Bankr. E.D.Ill.1990); In re Hargis, 73 B.R. 622, 626 (Bankr.N.D.Tex.1987) (counsel is only entitled to compensation after employment has been approved). Counsel in this case made application pursuant to the requirements set forth in Bankruptcy Rule 2016(a), which provides:
"An entity seeking ... final compensation for services, or reimbursement of necessary expenses, from the estate shall file with the court an application setting forth a detailed statement of (1) the services *763 rendered, time expended and expenses incurred, and (2) the amounts requested."
Bankruptcy Rule 2016(a). In response, the Code provides that after notice and hearing, the court may award compensation for 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 other than in a case under this title." 11 U.S.C. § 330(a)(1). The applicant bears the burden of proof in a request for approval of professional fees. In re Yankton College, 101 B.R. 151, 157-58 (Bankr.D.S.D.1989). In evaluating whether to approve the fees, several other factors may be considered:
1. the time and labor required
2. the novelty and difficulty of the questions
3. the skill required to perform legal services properly
4. the preclusion of employment due to acceptance of the case
5. the customary fee
6. whether the fee is fixed or contingent
7. time limitations imposed by the client or the circumstances
8. the amount involved and the results obtained
9. the experience, reputation, and ability of the attorneys
10. the undesirability of the case
11. the nature and length of the professional relationship with the client
12. awards in similar cases
In re Grimes, 115 B.R. 639 (Bankr.D.S.D. 1990). In this case, no objection was made to implicate any of these substantive factors, and, as such, the Court could approve this fee application "but for" a technical objection made by the United States Trustee.
FILING FEE APPLICATIONS WHEN THE CASE IS DISMISSED
The United States Trustee challenges counsel's fee application based upon the prepositional phrase, "from the estate," contained in Bankruptcy Rule 2016(a). The argument is that since this Chapter 12 case was dismissed more than one month before Mr. Blake's fee application was filed, there is no estate from which to be paid; therefore, the application is moot. This argument requires an application to be filed prior to case dismissal and makes "timing" a critical element. Since a motion to dismiss a Chapter 12 case may be made by a debtor as well as any other party in interest, there may be some practical problems with this conclusion, and the Court is reluctant to hold that this phrase is intended to regulate or eliminate fee applications filed after a case is dismissed.
The Code provides that a Chapter 12 bankruptcy case may be dismissed after notice and hearing at the request of a party in interest. 11 U.S.C. § 1208. If counsel for debtor receives a notice of hearing on a motion to dismiss, counsel would then have to immediately complete and file an application pursuant to Bankruptcy Rule 2016(a), even though the case may not be dismissed, or, in the alternative, wait until the motion is heard and decided and risk the consequences of a "moot application" if the case is dismissed. The Code also states that applications for compensation or reimbursement of expenses may not be filed more than once every 120 days. 11 U.S.C. § 331. If the motion to dismiss is filed during this period of application prohibition and the applicant is unable to obtain an exception to Section 331 before the case is dismissed, the applicant's request for compensation would be rejected. Another scenario could exist as in In re Travis, 1991 WL 331675 (Bankr.D.S.D. Apr. 5, 1991), where an application for fees was objected to as being made prematurely since the objecting party believed the debtor could not "conceivably obtain confirmation" of a plan. Id. at 1. The court in Travis deferred approval of the fee application pending a resolution of a motion to convert. Id. A "moot application" objection could arise if there was a deferral pending resolution of a motion to dismiss. The impractical aspects and inequitable results that would arise if the language of the Rule were to control are troubling. If the Rule was *764 meant to regulate or weed out applications filed after case dismissal via this timing element, it seems there would be more emphasis placed on the phrase and that it would be written more precisely, such as "from the currently existing estate," for example. These are some of the practical problems encountered and inconsistencies found between Bankruptcy Rule 2016(a) and the Code if this phrase is allowed to control.
Bankruptcy Rule 2016(a) provides the procedural requirements necessary for a complete and proper fee application. The application is a means to obtain court approval of requested fees. The approval process does not provide a source of payment nor a guarantee of payment. The application is a tool for the court and is based upon a set of instructions from the Rule. It is the Bankruptcy Code that provides the applicable law used by the court to make a determination of application approval. There are no sections of the Bankruptcy Code that specifically premise the award of professional fees on the existence of an estate at the time the application is filed. No Code provision moots fee applications filed after a case is dismissed. Timing, as it relates to applications filed after case dismissal, is not one of the Code's elements that controls the approval of professional fees. Bankruptcy Rule 2016(a)'s phrase, "from the estate," should not be the bright line for disapproving fee requests. In some districts, local rules eliminate Bankruptcy Rule 2016(a)'s application process when the compensation sought is less than a certain dollar amount. See In re Fricker, 131 B.R. at 936, n. 1. Such a rule is proposed for the District of South Dakota and, if implemented, will state that absent an objection, debtor's counsel may be compensated without filing a fee application required by Bankruptcy Rule 2016(a) provided the total amount of compensation is less than a certain dollar amount.[1] Attorneys subject to such a local rule would avoid the "case dismissed-application moot" objection since "from the estate" only exists in Bankruptcy Rule 2016(a).
This Court believes that the timing of a fee application, in situations similar to the case at hand, is not a controlling factor that should fatally flaw the request. The application is a request for court approval. The court can approve the request for compensation and reimbursement of expenses even though the case was previously dismissed. "There is no definite time established for the submission of an application for compensation. Such an application may, therefore, be submitted after the fact of payment has been accomplished." In re Fricker, 131 B.R. at 940.
EXCEPTION TO 11 U.S.C. § 349 EFFECT OF DISMISSAL
11 U.S.C. § 349 reserves to the court "the power to alter the normal effects" of a dismissed bankruptcy case if cause is shown. In re Pocklington, 21 B.R. 199 (Bankr.S.D.Cal.1982). The Code provides:
"(b) Unless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title
....
(3) revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title."
11 U.S.C. § 349(b)(3). In this case, the Court did, in effect, order otherwise. The order dismissing Debtors' Chapter 12 case invoked the exception of Section 349(b)(3). The language of the order retained the final fee application issue. Retaining jurisdiction did not recreate the bankruptcy estate; rather, it prevented the immediate revesting of the estate, pursuant to 11 U.S.C. § 349(b)(3), for purposes of hearing Mr. Blake's final fee application. The United States Trustee's objection is thwarted with the exception of Section 349(b)(3).[2]
*765 "Section 349 empowers the Court to issue appropriate orders to protect rights acquired in reliance on the bankruptcy case." Id. at 202, citing H.R.Rep. No. 595, 95th Cong., 1st Sess. 338 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 48-49 (1978); 1978 U.S.C.C.A.N. 5787. In this case, the Court entered an order dismissing the Chapter 12 bankruptcy case and ordered that Debtors' counsel was entitled to return to the Court and have a hearing on a final application for compensation pursuant to Section 330(a). Sustaining the United States Trustee's objection for lack of an existing estate at this point would be unfair to counsel who relied on the order to protect his right to obtain an award of compensation for services and reimbursement of expenses.
CONCLUSION
Bankruptcy Rule 2016(a) provides a procedure to obtain court approval of requests for compensation and reimbursement of expenses. An application completed pursuant to the Rule provides the court with information necessary to make a determination, pursuant to the provisions of the Bankruptcy Code, if approval should be granted. Court approval of fee applications does not provide a source of payment nor a guarantee of payment. And since the Bankruptcy Code does not require a fee application to be filed before a case is dismissed, timing is not a controlling factor when making a determination of fee approval. Therefore, the court can approve fee applications filed pursuant to Bankruptcy Rule 2016(a) even though the underlying bankruptcy case has been dismissed.
The Code states that dismissing a case means that the property of the estate immediately revests to the entity in which the property was vested just prior to the commencement of the case, unless the court, for cause, orders otherwise. In situations where the order of dismissal specifically retains jurisdiction to hear matters relating to fee applications, the court has, in effect, found cause to order otherwise, thus preventing the immediate revesting of property at the time of dismissal as to those matters specifically retained.
Mr. Blake shall submit an appropriate order.
NOTES
[1] Local Bankruptcy Rule No. 315 is currently in the drafting stages by the Local Bankruptcy Rules Committee.
[2] This rationale is consistent with the Court's ruling in two companion cases, In re Thomas R. and Carleen M. Bird, Ch. 13 Case No. 90-40007-PKE, and In re Dennis Bird, Ch. 13 Case No. 90-40006-PKE, where the Court approved the disbursement of interim compensation and reimbursement even though the cases were dismissed. The language found in both orders to dismiss retained jurisdiction "to review any applications for approval of attorney fees." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549509/ | 341 A.2d 45 (1975)
STATE ex rel. Robert E. RICCI
v.
Robert G. GOTTSCHALK.
No. 74-293-C.A.
Supreme Court of Rhode Island.
July 2, 1975.
Julius C. Michaelson, Atty. Gen., Judith Romney Wegner, Sp. Asst. Atty. Gen., for plaintiff.
Aram K. Berberian, Cranston, for defendant,
OPINION
KELLEHER, Justice.
The defendant seeks the return of over 50 items of personal property that were seized by the Providence police pursuant to a warrant that had authorized the search of his dwelling place. The property is listed on the warrant's return, and includes such items as a "Chart," a "Self powered electrical circuit tester," a "Kawneer," a "Piece of Paper," a "Radio receiver and transmitter," a "Length with Empty Spool of Thread," and "Lock picking devices." The property was seized in June 1973. Eleven months later, the defendant appeared in Superior Court where he pleaded nolo to a three-count indictment which charged him with breaking and entering, larceny, and conspiracy. He received a 10-year suspended sentence on the breaking and entering charge, and deferred sentences on the other two counts.
Following his Superior Court appearance, defendant filed a motion in the District Court seeking the restoration and return of all the items mentioned on the warrant. His motion was denied. He appealed the denial to the Superior Court. His appeal there was unsuccessful. He is now before us.
The single issue in this appeal is under what circumstances property lawfully seized under a search warrant may be returned after the disposition of the related charges. The answer is to be found by an examination of the relevant portions of G. L.1956 (1969 Reenactment) § 12-5-7:[1]
"12-5-7. Disposition of seized property. The property seized shall be safely *46 kept by the officer seizing the same under the direction of the court so long as may be necessary for the purpose of being used as evidence in any case.
"* * *
"If the property seized was stolen or otherwise unlawfully taken from the owner, or is not found to have been unlawfully used or intended for unlawful use, or is found to have been unlawfully used without the knowledge of the owner, it shall be returned to the person legally entitled to its possession."
The defendant concedes that he is not entitled to any of the items listed in the return if they are contraband, or fruits or instruments of a crime, but apparently[2] he claims that none of the property taken by the detectives fits into any of those three categories and therefore contends that since the indictment against him is no longer pending, all of the items listed on the return should be returned to him.
Such an argument completely overlooks or misconceives the pertinent language of § 12-5-7. The statute makes it clear that property " * * * not found to have been unlawfully used or intended for unlawful use * * * shall be returned to the person legally entitled to its possession." Put another way, a defendant who puts his property to an unlawful use or intends to put it to an unlawful use is barred by the statute from reclaiming the property.
At one point in the Superior Court hearing, defendant conceded that the items taken by the police could be used for "burglary purposes," but he hastened to add that he had no such intent. The defendant portrayed himself as a full-time employee of a machine shop whose part-time occupation was the repair of safes and locks. He also emphasized that the radio transmitter and receiver listed on the return was an empty box that he bought for a dollar at a flea market.
In denying defendant's motion the trial justice made it quite clear that he was not impressed with defendant's assertion that the items taken from his home were devoted to his second job. He found that "much" of defendant's material had been "particularly adapted so that he could further that trade as a break-in artist," and denied the motion to restore.
Once the trial justice found that "much" of the seized property was intended for future breaking and entering escapades, he applied too broad a brush in denying the defendant's motion to return in toto. As noted earlier, some of the items which remain in police custody are a "Length with Empty Spool of Thread," a "Kawneer," a "Piece of Paper," and a "Chart." We cannot make an intelligent determination of just how many of the items listed on the return the trial justice actually believed had been or were going to be used to further the defendant's proclivity for breaking and entering into the homes or business places of others. How do the empty thread spool, the piece of paper, and the chart fall within the ambit of § 12-5-7? Lastly, we are completely at sea as to the purpose of a "Kawneer." We must remand this case.
The defendant's appeal is sustained, and the case is remanded to the Superior Court for further proceedings.
NOTES
[1] This statute relates to property which was properly seized by the police. Super.R.Crim. P. 41(g) deals with the return of illegally seized property.
[2] We say "apparently" because although at one point he argues for a total return of the seized goods, at another point in his brief he seeks the return of only those items that do not come within the reach of the relevant statute. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549344/ | 341 A.2d 53 (1975)
George E. CARTER, Jr.
v.
CITY OF PAWTUCKET et al.
No. 74-302-A.
Supreme Court of Rhode Island.
July 15, 1975.
*54 James L. O'Neill, Providence, for plaintiff.
Gerald J. Pouliot, Asst. City Sol., Pawtucket, for defendants.
OPINION
PAOLINO, Justice.
This case is before us on cross-appeals filed by the plaintiff and the defendant-city of Pawtucket.
The pertinent facts are as follows. On October 27, 1969, plaintiff's eligibility for appointment to the position of firefighter in the city of Pawtucket was confirmed by Mr. George F. Morris, the then personnel director for the city. Mr. Carter's name and the names of 11 other candidates were placed on an eligibility list dated January 29, 1970. During the 7 months which followed the creation of this list, nine of the 12 eligibles on this list were appointed to positions as firefighters. Mr. Carter was one of the three remaining candidates who had not been appointed by the close of the calendar year 1970. In the fall of 1972, upon learning of an expected vacancy in January 1973, the personnel director announced a new examination and the formation of a new eligibility list. He presumed that the January 1970 list on which plaintiff's name appeared became ineffective 1 year after its creation. Thus, plaintiff was notified in May 1972 that his eligibility had terminated in January 1971. To requalify he would have had to submit a new application and take a new examination. He did not do so. When appointments were made in January 1973, Mr. Carter was not among the appointees. Shortly thereafter plaintiff filed in the Superior *55 Court a complaint wherein he alleged that his rights under the city charter and personnel rules had been denied and that he was thereby entitled to injunctive and declaratory relief and money damages.
A preliminary injunction was issued pending the outcome of a trial on the merits by which the city was prohibited from filling the first available position for firefighter. After a jury-waived trial, an order was entered permanently enjoining the city from appointing any person to the position of firefighter until plaintiff would be appointed to said position. The trial judge specifically refused to enjoin further examinations and the creation of new eligibility lists. He also denied plaintiff's prayer for declaratory relief and claim for damages. The defendant-city appealed and plaintiff Carter cross-appealed from that portion of the order denying his prayer for declaratory relief and money damages. Upon motion by the city, this court stayed enforcement of the order but further ordered that one position for firefighter be kept open pending the outcome of this appeal.
As its sole argument for dissolution of the injunction, defendant urges that under the pertinent provisions of the city charter and personnel rules, the list on which Mr. Carter's name appeared had properly expired. It argues further that having failed to reapply upon receiving notice of the termination of his eligibility, Mr. Carter was properly excluded from the new list which became operative in January 1973. In short, the city maintains that at all times it acted properly and in strict accordance with the city charter and personnel rules.
Section 7-104 of the Charter of the City of Pawtucket reads in part:
"The regulations shall provide for:
* * * * * *
"(6) The establishment of eligible lists for appointment and promotion, upon which lists shall be placed the names of successful candidates in the order of their relative excellence in the respective examinations. Such lists shall continue in force for at least one year from the date of their establishment and thereafter until exhausted or replaced by more recently prepared lists." (Emphasis supplied.)
In an attempt to carry out this directive, the city's division of personnel promulgated Rule VII of the Personnel Rules & Regulations. The relevant portion of that rule provides:
"Section 2. The duration of each employment list shall begin with the date on which it is established and shall continue for one year thereafter * * *."
Mr. Morris testified that it was this section of Rule VII which prompted him to terminate plaintiff's eligibility in January 1971.
A simple comparison of Rule VII with the enabling language of the charter quoted above indicates that the rule is, in fact, inconsistent with the directives of the parent provision. While the former specifically requires the termination of any list upon the passage of 1 year, the latter requires the continuation of any list beyond a 1-year minimum until such list is exhausted or replaced. The promulgation of rules such as this one is intended as an exercise of a portion of the state's sovereignty which has been delegated to the municipality by way of the city charter. Such delegated authority may be exercised only to the extent of the power conferred. Andruzewski v. Smith, 105 R.I. 463, 467, 252 A.2d 914, 916 (1969). Insofar as Rule VII of the Personnel Rules & Regulations is inconsistent with the enabling language of § 7-104 of the charter, it exceeds the extent of the power conferred. Therefore, in scrutinizing the actions of the agents of the city of Pawtucket regarding plaintiff's eligibility for the position of firefighter, this court is compelled to look beyond the provisions of Rule VII and apply the bare provisions of the charter quoted above.
*56 It is the accepted rule that the provisions of city charters should be construed so as to give, so far as possible, reasonable meaning and effect to all parts of the section in question. Further, the words used therein should be given their usual and ordinary meaning. Powers ex rel. Davis v. Palmer, 83 R.I. 80, 83-84, 113 A.2d 374, 376 (1955). When we apply these principles to the relevant passage of the Charter of the city of Pawtucket it becomes apparent that what' is intended thereby is that any eligibility list shall exist for at least 1 year. In the event that any such list is exhausted it may be replaced before the expiration of a full year. If such a list is in effect beyond 1 full year it shall remain in effect until actually replaced by a new list. In the latter case, one who has earned a place on an eligibility list is entitled to be considered for appointment as vacancies arise until such time as a new list is created. In the present case, Mr. Carter was one of three persons remaining on the list created in January 1970. Mr. Morris admitted at trial that that list was not actually replaced until January 1973. Mr. Morris also admitted that during this interim a vacancy became available when a member of the department retired. The plaintiff, therefore, being one of three persons on an effective eligibility list at a time in 1972 when a vacancy existed, was entitled to consideration for appointment to that vacancy. That is, pursuant to § 7-104(8) of the city charter,[1] his name and the names of the other two eligibles should have been certified to the appointing authority by the personnel director as the three persons standing highest on the appropriate eligible list.
The plaintiff is not, as he urges and as the Superior Court order seems to indicate, entitled to appointment as firefighter. Rather, for the reasons stated herein, he is entitled only to have his name certified, along with the remaining names on the list prior to January 1973, to the personnel director. Relying on a claim of a right to employment as a firefighter, plaintiff argues that the trial justice should have awarded him damages for loss of wages on the basis of what he might have earned if he had been so employed. Since the final choice of a firefighter from the list of certified names remains with the personnel director, and this choice has not been made, we do not reach the question of plaintiff's claim to lost wages at this time.
The appeal of the plaintiff is denied and dismissed, the appeal of the defendant-city of Pawtucket is denied in part and affirmed in part, and the case is remanded to the Superior Court for the entry of a new order in accordance with this opinion.
NOTES
[1] The Charter of the city of Pawtucket, § 7-104 (8) reads, in pertinent part, as follows:
"Contents of regulations.
"The regulations shall provide for:
* * * * *
"(8) The certification of the three persons standing highest on the appropriate eligible list to fill a vacancy * * * " | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549366/ | 462 Pa. 409 (1975)
341 A.2d 448
COMMONWEALTH of Pennsylvania
v.
Clarence Eugene FIERO, Appellant (two cases).
Supreme Court of Pennsylvania.
Submitted March 10, 1975.
Decided July 7, 1975.
*410 Stephen H. Hutzelman, Erie, for appellant.
Robert H. Chase, Dist. Atty., Erie, for appellee.
Before JONES, C.J., and EAGEN, O'BRIEN, ROBERTS, POMEROY, NIX and MANDERINO, JJ.
*411 OPINION OF THE COURT
NIX, Justice.
This is an appeal from the denial of two petitions filed under the Post-Conviction Hearing Act.[1] This Court consolidated these appeals for argument and disposition. Clarence Fiero was indicted for a murder which occurred on August 19, 1973. Subsequently a plea of guilty was entered to the charge of murder in the second degree[2] and conspiracy to commit armed robbery.[3] Sentence was imposed on February 25, 1974. No post-trial motions were submitted and appellant failed to file a direct appeal.
On March 8, 1974, appellant filed a PCHA petition in propria persona alleging several grounds for relief. Most critical was the absence of any allegation charging that he was denied his right to a direct appeal. See, Douglas v. California, 372 U.S. 353, 83 S. Ct. 814, 9 L. Ed. 2d 811 (1963); Commonwealth v. Norman, 447 Pa. 217, 285 A.2d 523 (1971). This omission would normally *412 preclude review of any ground that was cognizable on direct appeal. Act of January 25, 1966, P.L. (1965) 1580, § 4, eff. March 1, 1966, 19 P.S. § 1180-4 (Supp. 1974-75); Commonwealth v. Via, 455 Pa. 373, 316 A.2d 895 (1974). However, the present procedural posture makes this general rule inapplicable.
We have held that a theory of waiver or finally litigated cannot be predicated upon an uncounseled proceeding. Commonwealth v. Minnick, 436 Pa. 42, 258 A.2d 515 (1969).
Moreover, in this jurisdiction a first post-conviction hearing petition should not be dismissed where the petitioner is indigent and has requested counsel, without affording him representation in that proceeding, Commonwealth v. Blair, 460 Pa. 31, 331 A.2d 213 (1975); Commonwealth v. Mitchell, 427 Pa. 395, 235 A.2d 148 (1967); Commonwealth v. Richardson, 426 Pa. 419, 233 A.2d 183 (1967); Commonwealth v. Hoffman, 426 Pa. 226, 232 A.2d 623 (1967); Pa.R.Crim.P. 1504, 19 P.S. Appendix. These considerations were explored in Commonwealth v. Mitchell, supra, where we stated:
"We pause to note that the mandatory appointment requirement is a salutary one and best comports with efficient judicial administration and serious consideration of a prisoner's claims. Counsel's ability to frame the issues in a legally meaningful fashion insures the trial court that all relevant considerations will be brought to its attention. As recognized by the American Bar Association Project on Minimum Standards for Criminal Justice, Standards Relating to Post-Conviction Remedies § 4.4, at 66 (1967) [approved draft 1968]: `It is a waste of valuable judicial manpower and an inefficient method of seriously treating the substantive merits of applications for post-conviction relief to proceed without counsel for the applicants who have filed pro se. . . . Exploration of the legal grounds for complaint, investigation of the underlying *413 facts, and more articulate statement of claims are functions of an advocate that are inappropriate for a judge, or his staff.'" (Citations omitted). Id. at 148.
Clearly this rule is not limited to the mere naming of an attorney to represent an accused, but also envisions that counsel so appointed shall have the opportunity and in fact discharge the responsibilities required by his representation.
A review of this record reveals that the first petition was filed pro se and that after counsel's appointment there was no attempt to file an amended petition. Further, the petition was dismissed without an evidentiary hearing and the record is barren of any indication of oral argument before that decision was rendered or that counsel filed a brief to set forth the legal principles upon which his client relied. These facts compel the conclusion that the proceeding was in fact uncounseled. Under such circumstances the mandate of section 12 of the Post-Conviction Hearing Act as interpreted by this Court has not been met. See, Commonwealth v. Mitchell, supra; Pa.R.Crim.P. 1503, 1504.
The events surrounding the filing of the second petition are similarly devoid of any evidence of meaningful participation by counsel. Here again the petition was pro se and a decision was rendered without a hearing, the submission of briefs, or oral argument. In neither instance did this appellant have the opportunity of legally trained counsel to advance his position in acceptable legal terms. Unquestionably, this is the type of situation that this Court addressed in Commonwealth v. Mitchell, supra and sought to avoid. The reasoning of that case which we now reaffirm, compels us to vacate the order of the hearing court and remand these causes to the court below for proceedings consistent herewith.
Accordingly, the order of the court below is vacated and the matter is remanded to that court with instructions *414 to appoint counsel to represent appellant in the filing of an amended post-conviction petition and any further proceedings thereon.
It is so ordered.
POMEROY, J., concurs in the result.
NOTES
[1] Act of January 25, 1966, P.L. (1965) 1580, § 1 et seq., eff. March 1, 1966, 19 P.S. § 1180-1 et seq. (Supp. 1974-75).
[2] Act of December 6, 1972, P.L. 1482, No. 334, § 1(b), 18 Pa.C.S. § 2502(b), eff. June 6, 1973. Under former practice we have stated that it was improper to accept a plea to murder in the second degree. See Commonwealth v. Stokes, 426 Pa. 265, n. 1, 232 A.2d 193, n. 1, (1967); Commonwealth ex rel. Kerekes v. Maroney, 423 Pa. 337, 340-41, 223 A.2d 699, 701 (1966). However, we noted that the accused is not prejudiced provided the plea was knowingly entered. Under the former Penal Code, the crimes of murder in the first and second degrees were set forth in the same section, June 24, 1939, P.L. 872, § 701; December 1, 1959, P.L. 1621 § 1, 18 P.S. § 4701 (1964). Under the New Crimes Code as it appeared when the instant act was committed, section 2502 sets forth murder in the first degree in subsection (a) and murder in the second degree in subsection (b). Whether this would justify an altering of former procedure is questionable. In any event, appellant has not raised the issue, thus we need not here consider the wisdom of continuing the former practice of entering the plea to murder generally.
[3] Act of December 6, 1972, supra at § 903, 18 Pa.C.S. § 903. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549241/ | 50 F.2d 238 (1931)
In re ELMSFORD COUNTRY CLUB.
No. 50478.
District Court, S. D. New York.
March 12, 1931.
Arthur Leonard Ross, of New York City, for petitioning creditors.
Samuel Robert Weltz, of New York City (Benjamin M. Franklin, of New York City, of counsel), for judgment creditors Geo. Alexander & Son.
Mark, Allin & Tucker, of New York City, for receiver Irving Trust Co.
PATTERSON, District Judge.
An involuntary petition in bankruptcy was filed against the Elmsford Country Club on January 28, 1931. On January 31, 1931, the club appeared and filed its consent to be adjudged bankrupt. The order of adjudication *239 followed on February 3, 1931. On February 9th George Alexander and Philip Alexander, judgment creditors in whose behalf levy of execution had been made, moved to vacate the adjudication on the ground that the club is a membership corporation not engaged in conducting business for gain or profit, and that the proceedings were therefore jurisdictionally defective. On the argument of the motion, it was conceded that the club is a membership corporation which operated a golf course for the pleasure of its members.
The club is undoubtedly capable of being a voluntary bankrupt. The only exceptions to the generality that all persons may become voluntary bankrupts are municipal, railroad, insurance, and banking corporations. It is equally clear that the club, a membership corporation formed for furnishing recreation to its members, cannot be the object of involuntary proceedings in bankruptcy. Section 4 of the Bankruptcy Act (11 US CA § 22) states that any moneyed, business, or commercial corporation, except a municipal, railroad, insurance, or banking corporation, may be adjudged an involuntary bankrupt. The alleged bankrupt is not within the class of moneyed, business, or commercial corporations. In re Fulton Club (D. C.) 113 F. 997; In re Supreme Lodge of Masons Annuity (D. C.) 286 F. 180. The petition stated that the alleged bankrupt was a membership corporation. A membership corporation is one organized for other purposes than that of pecuniary gain (Membership Corporations Law, § 2, Consolidated Laws of New York, c. 35), and there is nothing to show that the club departed from its original purpose and entered the field of commerce. The petition was thus defective on its face. The defect, moreover, was a jurisdictional one; the pleading showed a lack of jurisdiction over the subject-matter of the proceeding. In re New York Tunnel Co. (C. C. A.) 166 F. 284.
But the club answered the petition, setting forth its willingness to be adjudged bankrupt. This fact raises the question whether the proceeding was changed from an involuntary one to a voluntary one and the jurisdictional defect thus cured; for no one can doubt that the club might have filed a voluntary petition and thus been adjudged bankrupt. There is plausibility in the argument of the petitioning creditors that the answer thus broadened the court's jurisdiction, but the authorities which I have read are against it. It has been decided in several cases that the filing of an answer by an alleged bankrupt, asking that he be adjudged bankrupt, does not convert an involuntary proceeding into a voluntary one. In re Supreme Lodge, supra. See, also, In re Condon (C. C. A.) 209 F. 800; Central State Bank v. Harrington (C. C. A.) 4 F.(2d) 514.
Finally, the petitioning creditors accuse the moving parties of laches, and say that they have no standing to have the adjudication vacated. There is no merit in this argument. The act, in section 18 (11 USCA § 41), accords to creditors, as well as to the alleged bankrupt, the right to oppose the petition within an indicated time, and here the moving parties made their opposition within such time. It is true that the order of adjudication had already been entered, but that was due to the premature answer of the alleged bankrupt. Such an adjudication does not cut off the right of creditors to register their opposition within the time set by section 18 and to ask that the adjudication be vacated. The moving parties are therefore before the court as of right and not as matter of favor, and there is no basis for the charge of laches. In this respect the case differs from cases like In re Urban & Suburban Realty Title Co. (D. C.) 132 F. 140, and In re New England Breeders' Club (C. C. A.) 169 F. 586, where the creditors seeking to vacate the adjudication did not appear until long after the time fixed in section 18.
The motion will accordingly be granted and the adjudication vacated. The club may, of course, file a voluntary petition. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549247/ | 140 B.R. 720 (1992)
In the Matter of Sharon K. & Scott M. STRATTON, Debtors.
SOUTHWEST FINANCIAL BANK & TRUST COMPANY OF ORLAND PARK, Plaintiffs,
v.
Sharon K. & Scott M. STRATTON, Defendants.
Bankruptcy No. 91 B 9129, Adv. No. 91 A 823.
United States Bankruptcy Court, N.D. Illinois, E.D.
May 12, 1992.
*721 John B. Petrulis, Frankfort, Ill., for defendants.
Carol S. McMahan, Carroll, Hartigan & McCauley, Ltd., Chicago, Ill., for plaintiffs.
MEMORANDUM, OPINION AND ORDER
ROBERT E. GINSBERG, Bankruptcy Judge.
FACTS
This matter comes before the court on Southwest Financial Bank & Trust Company of Orland Park's complaint to determine the dischargeability of debts owed to the Bank by Sharon and Scott Stratton under § 523(a)(2)(B).
The Bank claims that the debts the debtors owe it are not dischargeable because the debtors induced the Bank to make the loans by using false financial statements. The Bank presented its evidence at trial. At the close of the plaintiff's case, the debtor moved for judgment under F.R.Civ.P. 52(c), made applicable to these proceedings by F.R.Bkrtcy.P. 7052, on the grounds that the Bank failed to prove all of the elements required for a determination that the debt these debtors owe the Bank is not dischargeable.
The evidence at trial showed that in a series of loan transactions the debtors borrowed a total of $105,844 from the Bank. As part of the loan application and approval process the debtors completed four different personal financial statements and submitted each to the Bank. The forms asked the debtors to supply information regarding their assets and liabilities, including secured and unsecured notes payable to banks and others, accounts and bills due, real estate mortgages, and other debts. The debtors never disclosed in any of the financial statements the fact that Scott Stratton owed some $63,000 in student loans. The Bank approved the various loans to the debtors, ostensibly based on the information contained in the debtors' financial statements, prior payment history, and the need for a chiropractor in the community.
The debtors filed a Chapter 7 petition on April 29, 1991, listing the student loans as a liability. The Bank argues that the debtors' remaining obligation of $100,280 to the Bank should not be discharged under the Bankruptcy Code because the debtors' written financial statements were materially false, the Bank reasonably relied on the financial statements in approving the loans to the debtors, and the debtors intended to deceive the Bank by omitting Scott Stratton's student loan obligations from the financial statements. The debtors, on the other hand, take the position in their pleadings that they omitted the student loan information after discussing the matter with Bank officers, because the loans were in deferral and were thus not current liabilities. Therefore, they did not have the requisite intent to deceive the Bank. The matter came before the court for trial. The Bank put on its evidence and rested. At the close of the Bank's evidence, the debtors moved for judgment in their favor. For the reasons stated below, the court grants the debtors' motion and enters a judgment that the debts the debtors owe the Bank are dischargeable and are discharged in this Chapter 7 case.
JURISDICTION AND PROCEDURE
This court has jurisdiction over this dispute under 28 U.S.C. § 1334(b) as a matter arising under § 523(a) of the Bankruptcy Code. This matter is before the court for determination under Local Rule 2.33 of the United States District Court for the Northern District of Illinois automatically referring bankruptcy cases and proceedings to this court for hearing and determination. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) as a matter concerning the dischargeability of a particular debt.
*722 DISCUSSION
Section 523(a)(2)(B) of the Bankruptcy Code provides that a discharge from a debt will not be granted:
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by
(B) use of a statement in writing
(i) that is materially false;
(ii) respecting the debtor's or an insider's financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive....
It is clear that the burden of proof was on the Bank to prove by a preponderance of the evidence all four elements of § 523(a)(2)(B) in order to have the debts these debtors owed to it found not dischargeable under § 523(a)(2)(B).[1]Grogan v. Garner, ___ U.S. ___, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991).
The Bank proved by the preponderance of the evidence that the personal financial statements the debtors submitted to the Bank were materially false in that they omitted some $63,000 of student loans owed by Scott Stratton. Clearly, a debt of $63,000 is material to the Bank in making a loan decision. Matter of Bogstad, 779 F.2d 370 (7th Cir.1985) (a materially false statement is one that contains an important or substantial untruth. The measuring stick of material falsity is whether the financial institution would have made the loan if the debtor's true financial condition had been known). The testimony of Jeff Vail, the Bank officer the debtors dealt with, was sufficient to establish the materiality of the student loans. The loan documents themselves contained financial statements that on their face were false by failing to disclose the student loans the debtors admitted were owed when the financial statements were prepared and submitted to the Bank.
The Bank also proved the next element by a preponderance of the evidence, i.e., that the personal financial statements concerned the "debtor's or an insider's financial condition." From Scott Stratton's point of view, the financial statements clearly concerned his, i.e., "the debtor's" financial condition. From Sharon Stratton's point of view, it is uncontested that even if she were not personally liable for the student loans, the financial statement she signed related to "an insider's financial condition." Clearly, Scott Stratton was an "insider" as to Sharon Stratton. 11 U.S.C. § 101(31), and the financial statement purports to set out Scott Stratton's financial condition in full.
The Bank proved the third element of the exception to discharge, that the Bank reasonably relied on the debtors' personal financial statement. Jeff Vail, the Bank officer who handled these loans, testified at trial that he had reviewed the debtors' file, including the personal financial statements, before approving the bank's loan to the debtors. Vail also testified that if the Bank had known about the student loans, the Bank officers charged with the decision to make the loan would have been unlikely to approve the loan, since the inclusion of the student loans would have given the debtors a negative net worth and would have strongly indicated that the debtors would be unable to make the payments on an additional loan.[2]
Thus, the Bank has proved the first three elements of the exception to discharge by a preponderance of the evidence. *723 But this is not where the Bank's burden of proof ends. The Bank must also prove by a preponderance of the evidence that in omitting the student loans from the personal financial statements the debtors intended to deceive the bank into making the loan or acted with reckless disregard for the truth of their financial statement. See, North Community Bank v. Boumenot, 106 B.R. 149 (Bankr.N.D.Ill.1989) (showing reckless disregard for the truth can satisfy the intent requirement of § 523(a)(2)(B).). The Bank did not offer any evidence worth noting on this element at trial. The Bank argues it is unnecessary for it to adduce evidence with respect to the debtors' intent because the fact that the debtors intended to deceive the Bank into extending the loan can be inferred from the evidence presented to prove the first three elements of the exception to the discharge. In effect the Bank is saying, "Because we proved the first three elements required by § 523(a)(2)(B), we do not have to prove the fourth element."
This argument is without merit. The element of intent is a separate and distinct statutory requirement that must be proved by the Bank to except the debtors debt to it from discharge. 11 U.S.C. § 523(a)(2)(B)(iv). See, e.g., In re Chapman, 1991 WL 247602 (N.D.Ill.); In re Glen, 115 B.R. 837, 841 (Bankr.E.D.Pa. 1990); In re Burnett, 129 B.R. 299, 301 (Bankr.M.D.Fla.1991).
It is true, as the Bank argues, that intent to deceive can rarely be proved by direct evidence and usually must therefore be inferred from the surrounding circumstances. In re Leger, 34 B.R. 873 (1983). And, it is also true that demonstration of a reckless disregard for the truth will also satisfy the intent requirement. North Community Bank v. Boumenot, 106 B.R. 149 (Bankr.N.D.Ill.1989); In re Masegian, 134 B.R. 402 (Bankr.E.D.Cal.1991). However, the Bank has failed to produce sufficient evidence of the surrounding circumstances to prove to this court by a fair preponderance of the evidence that the debtors intended to deceive the Bank or that the debtors acted with a reckless disregard for the truth. The fact is that there is virtually no evidence of intent or circumstances that would be relevant to a determination of intent that has come out at trial. Instead, the record leaves the court with the conclusion that intent to defraud was no more likely to have motivated the debtors to omit the student loans from their loan application than any other motivation. In fact, after hearing the plaintiff's evidence, the court does not know why the debtors omitted the student loans from their financial disclosure made to the Bank. Certainly it is possible that the debtors intended to deceive the Bank by failing to disclose the student loans. However, it is equally possible that the debtors were confused and genuinely believed that because payments on the student loans were in deferral they were not, therefore, debts for purposes of their financial statements.
In addition, the debtors might not be identical in terms of intent. One debtor might have the requisite intent and the other lack it. For example, Sharon Stratton may have known nothing about Scott Stratton's student loans and thus, could have been unaware of any omission from the financial statements. Alternatively, the debtors, as they claim in their pleadings, see, e.g., Plaintiff's Pretrial Statement, may have been told by a Bank officer to omit the student loans from their financial statements. Certainly, the testimony of the Bank's witnesses in this regard was insufficient to exclude the possibility of this having occurred. The Bank's evidence as a whole fails to permit this court to conclude that intent to defraud was a more probable reason for the omission of the student loans than the other possibilities discussed in this opinion.
In the cases where a court has inferred an intent to deceive a creditor, the debtor did more than simply supply false information. For example, in In re Masegian, 134 B.R. 402 (Bankr.E.D.Cal.1991), the court inferred an intent to deceive the creditor where the debtor, an attorney and experienced entrepreneur, failed to disclose, when asked, a lawsuit in which he was the sole defendant. The court considered the *724 debtor's background and concluded that it was not credible to believe that the debtor's failure to disclose the lawsuit was a mistake. Further, given the debtor's background, his failure to carefully review his answers to the questions and his resultant failure to disclose the lawsuit, demonstrated a reckless indifference or disregard for the truth of the information such that the discharge should not be granted. By the same token, the court was able to infer intent in In re Myers, 124 B.R. 735 (Bankr. S.D.Ohio 1991). In Myers, it was clear from the totality of the circumstances that the debtor intended to deceive his creditors by submitting a false financial statement. In Myers, the debtor filed for protection under the Bankruptcy Code nine days after submitting the false statement. The creditor was able to show that the debtor knew the information contained in the financial statement was false because the debtor knew his asset valuations were inaccurate, and also probably knew that he was insolvent and would have to file a bankruptcy petition.
In the present situation there are no circumstances from which the court can infer intent. The Bank seems to argue that because the financial statements were false and that the debtors knew about the student loans and omitted them, the court should infer an intent to deceive the Bank. However, there is no adequate proof as to why the debtors did not include the student loan obligations on their financial statements. There are no circumstances like those in Myers, supra, that would logically lead the court to infer intent to defraud. The Bank can point to no circumstances surrounding the loan transaction that would lead the court to infer from a fair preponderance of the evidence that it was intent to defraud, rather than any other motivation, that caused the debtors to omit the student loans from the financial statements.
The debtors had no significant experience in commercial matters. Their bankruptcy filing did not come immediately on the heels of the loan from the Bank. There is no evidence that the debtors had any idea they would be unable to repay the Bank and would wind up in bankruptcy when they submitted their financial statements to the Bank. In sum, the evidence of the surrounding circumstances offered by the Bank leads the court to conclude that it cannot determine what motivated the debtors to omit the student loans from their financial disclosure, and thus the Bank has failed to satisfy its burden of proof with regard to the debtors' fraudulent intent.[3]
In that regard, the Bank failed to call either debtor as a witness to testify. Thus, there is no evidence to show that Sharon Stratton was aware of her husband's student loans, or that she behaved with intent to deceive or with a reckless disregard for the truth when she prepared and/or signed the financial statements. By the same token, there is no evidence, circumstantial or otherwise, showing that Scott Stratton acted with intent to deceive or reckless disregard for the truth in preparing and submitting the financial statements to the Bank.
The burden of proof always remains with the Bank. In re Schraw, 136 B.R. 301 (Bankr.S.D.Fla.1992). If the Bank establishes a prima facie case by a fair preponderance of the evidence at the close of its evidence, the burden of going forward shifts to the debtor to refute the Bank's evidence. In re Colvin, 117 B.R. 484, 487 *725 (Bankr.E.D.Mo.1990). However, the burden of going forward only shifts to the debtor if the Bank proves the nondischargeability of the debt in question by a fair preponderance of the evidence. This the Bank failed to do. Without proof of the debtors' state of mind in submitting the financial statements to the Bank, the debt the debtors owe the Bank cannot be found to be nondischargeable and the burden of going forward does not shift to the debtors. The debtors do not have to prove they did not have the requisite intent. Instead the Bank must prove the debtors acted intentionally or with reckless disregard. The Bank having failed to do so, the debtors' motion under F.R.Bkrtcy.P. 7052 must be granted.
CONCLUSION
For the foregoing reasons, judgment will be entered in favor of the debtors Sharon and Scott Stratton.
NOTES
[1] There is no dispute here that the loan applications are written financial statements for purposes of § 523(a)(2)(B).
[2] Of course, this finding, like all of the other findings in this opinion, is only made for purposes of the motion for judgment now before the court. If the court were to deny the motion, the debtors could adduce evidence attacking Vail's credibility, with respect to either his actual reliance or the reasonableness of that reliance. It may well be in this day and age that the fact the Bank knew the debtor was a recent graduate of chiropractic school was sufficient notice to require inquiry, at least from the debtor, about the existence of student loans.
[3] The debtors, in their pleadings, allege that Bank officials knew about the student loans and advised them not to include the student loans on the financial statement. Jeff Vail, chief credit officer at the Bank, provided only vague testimony about his discussions concerning the student loans. He could not remember discussing the financial statements with the debtors and thinks he may have discussed student loans with the debtors since he knew Scott Stratton had just finished chiropractic school. Thus, Vail's testimony is insufficient to prove, by a preponderance of the evidence, that the debtors omitted the student loan information with the intent to deceive the Bank because Vail's testimony concerning student loan discussions is too vague to show that the debtors knew that they were obligated to disclose information about the student loans or that the debtors' failure to include the student loans was done with intent to defraud the Bank or even with reckless disregard for the truth. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549250/ | 140 B.R. 313 (1992)
In re John T. CARROLL, Debtor.
Charles J. HOFF, Plaintiff,
v.
John T. CARROLL, Defendant.
Bankruptcy No. 91-10109-WCH, Adv. No. 91-1306.
United States Bankruptcy Court, D. Massachusetts.
May 14, 1992.
*314 David C. McBride, Madigan & McBride, Danvers, Mass., for plaintiff.
James C. Gross, Klieman, Lyons, Schindler, Gross & Pabian, Boston, Mass., for defendant/debtor.
MEMORANDUM DECISION REGARDING DISCHARGEABILITY OF A DEBT PURSUANT TO 11 U.S.C. § 523(a)(4)
WILLIAM C. HILLMAN, Bankruptcy Judge.
The Plaintiff, Charles J. Hoff ("Hoff") requests that this Court except from discharge a debt that allegedly arose from the fraud or defalcation of the Defendant, John F. Carroll ("Carroll") while he was acting in a fiduciary capacity. Carroll disputes the existence of either a debt or a fiduciary relationship between the parties.
Background
In 1989, Carroll was an partner at the law firm of Rackemann, Sawyer & Brewster, P.C. ("RSB"). Carroll and RSB represented the Whitty Group and in January of 1989, negotiated and executed a settlement agreement ("Agreement") between the Whitty Group and Hoff. As part of the Agreement, Carroll signed an Acknowledgement stating that RSB was holding $675,000.00 for the purpose of satisfying certain obligations under the Settlement Agreement. See Agreement, Exhibit I.[1]*315 Carroll signed the acknowledgement as the "Duly Authorized Representative" of RSB.
Pursuant to the Agreement, in April of 1989 Hoff requested that Carroll release the $675,000. Carroll refused. Hoff continued to request the money for the next six months and Carroll continued to refuse. In October of 1989, Carroll informed Hoff that the money was not being held pursuant to Exhibit I and, in fact, had never been so held. According to Carroll, the Whitty Group periodically directed Carroll to disburse funds from the client account to satisfy certain mechanics' liens asserted against property owned by the Whitty Group.
Discussion
For a debt to be exempt from discharge under 11 U.S.C. § 523(a)(4), Hoff must show that the debt at issue was incurred through "fraud or defalcation while acting in a fiduciary capacity." Id. Hoff must show this by a preponderance of the evidence. Grogan v. Garner, ___ U.S. ___, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991).
The threshold question for the Court is whether Carroll was acting in a fiduciary capacity. Fiduciary is generally defined according to federal law. Bybee v. Geer (In re Geer), 137 B.R. 37, 40 (Bankr. W.D.Mo.1991). State law may, however, be relevant. In re Synder, 101 B.R. 822, 831 (Bankr.D.Mass.1989). In the context of § 523(a)(4), fiduciary capacity is generally applicable only to express and technical trusts as opposed to ones created due to inequitable conduct. Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S. Ct. 151, 79 L. Ed. 393 (1934).
Exhibit I of the Agreement, signed by Carroll, acknowledged that RSB was holding funds of the Whitty Group for a particular purpose and that such funds were to be released only upon the happening of a certain event. The First Circuit Court of Appeals has held that such an arrangement constitutes an escrow agreement. Gulf Petroleum S.A. v. Collazo, 316 F.2d 257, 261 (1st Cir.1963). The Supreme Judicial Court similarly holds. Childs v. Harbor Lounge of Lynn Inc., 357 Mass. 33, 255 N.E.2d 606, 608 (1970). The first circuit has also held that the escrow agent, the recipient of funds, assumes a fiduciary duty. Gulf Petroleum, 316 F.2d at 261. Accord, Research-Planning Inc. v. Segal (In re First Capital Mortg. Loan Corp.), 917 F.2d 424, 427 (10th Cir.1990); Stone v. Feldman (In re Feldman), 111 B.R. 481, 486 (Bankr. E.D.Pa.1990).
Based on the aforementioned authorities, this Court finds that Exhibit I of the Agreement constitutes an escrow agreement and that the recipients of the money owed a fiduciary duty to the parties to the escrow. Schoepe v. Zions First National Bank, 750 F. Supp. 1084 (D.Utah 1990); Arzt v. Rozzie Liquors (In re 2903 Wines & Spirit Inc.), 45 B.R. 1003 (Bankr. S.D.N.Y.1984). The escrow agreement creates an express trust and the Court finds that RSB was acting in a fiduciary capacity for the purposes of 11 U.S.C. § 523(a)(4).
The question that flows from this conclusion is whether Carroll ever acted in a fiduciary capacity. There is not a wealth of authority on the issue of derivative fiduciary status. In American Savings & Loan Ass'n v. Weber (In re Weber), 99 B.R. 1001 (Bankr.C.D.Utah 1989), the Court found such a status. The court held that a debtor-in-possession owes a fiduciary duty to all of the estate's claimholders. Id. at 1009. The debtor-in-possession was a closed corporation controlled entirely by the 100% shareholder, Jack Weber. Id. at 1011. The court held that, because the actions of the debtor-in-possession were the actions of the individual, the fiduciary responsibility ran from the corporation to the principal. Id., 99 B.R. at 1012.
In this case, Carroll, a partner at RSB, was RSB for the purpose of this transaction. He represented the Whitty Group in the negotiation and execution of the Agreement. He signed the escrow agreement as the duly authorized representative of RSB. *316 He asserted in the escrow agreement that the funds were placed in an account, knowing at the time that this was an incorrect representation. For six months after demand was made, Carroll refused to release the escrowed funds. In October of 1989, he revealed that there were no escrowed funds. In the stipulated facts, Carroll states that he made disbursements from the funds held in the account to satisfy certain mechanics' lien asserted against property of the Whitty Group.
On these facts, the Court that finds that Carroll was solely responsible for creation and maintenance of the escrow agreement. This control is substantially similar to that which the principal had in Weber. The Court concludes that based on Weber the facts warrant a finding of derivative fiduciary status. The Court therefore finds that Carroll owed the parties to the escrow agreement a fiduciary duty.
The Court must then turn to the issue of whether the acts of Carroll constituted fraud or defalcation. This district has adopted the following definition of defalcation offered by Judge Hand in Central Hanover Bank & Trust Co. v. Herbst, 93 F.2d 510, 512 (2d Cir.1937):
All we decide is that when a fiduciary takes money upon a conditional authority which may be invoked and knows at the time it may, he is guilty of a "defalcation" though it may not be a "fraud," or an "embezzlement," or perhaps not even a "misappropriation."
Kwiat v. Doucette (In re Kwiat), 81 B.R. 184 (D.C.Mass.1987).
Essentially, defalcation involves the failure to account for money or property held in a fiduciary capacity. Weber, supra. at 1012. It does not require the showing of an intentional wrongdoing. Compugraphic Corp. v. Golden (In re Golden), 54 B.R. 957, 964 (Bankr.D.Mass.1985); Bellity v. Wolfington (In re Wolfington), 48 B.R. 920, 923 (Bankr.E.D.Pa.1985). It may be the result of negligence or ignorance. LaPointe v. Brown (In re Brown), 131 B.R. 900 (Bankr.D.Me.1991).
Exhibit I states that RSB was holding money in an escrow agreement. When Hoff requested the money, Carroll stated that the money was not in the account and had never been held in an account. Carroll, in fact, applied the money contrary to the terms of the escrow agreement. Carroll failed to account for money that he held in a fiduciary capacity. The Court finds that Carroll is liable for his defalcation while acting in a fiduciary capacity.[2] Accordingly, the Court concludes that the debt of Hoff should be excepted from Carroll's discharge under 11 U.S.C. § 523(a)(4).
NOTES
[1] The Agreement further states that "such funds shall be released only in performance of the Settlement Agreement, except that such funds may be released in order to pay back the Fleet Line . . . upon demand by Fleet National Bank of the Whitty Group."
[2] Based on this finding, it is unnecessary for the Court to examine the issue of fraud under 11 U.S.C. § 523(a)(4). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549498/ | 146 F.2d 849 (1945)
GRICE
v.
UNITED STATES (two cases).
Nos. 5320, 5323.
Circuit Court of Appeals, Fourth Circuit.
January 15, 1945.
Robert H. Dye and R. Glenn Cobb, both of Fayetteville, N. C. (Martin B. Simpson, of Elizabeth City, N. C., on the brief), for appellant.
Charles F. Rouse, Asst. U. S. Atty., of Kingston, N. C. (J. O. Carr, U. S. Atty., of Wilmington, N. C., and Norman C. Shepard, District Enforcement Atty., Office of Price Administration, of Smithfield, N. C., on the brief), for appellee.
Before PARKER, SOPER, and DOBIE, Circuit Judges.
PER CURIAM.
These are appeals by one Roscoe Grice, convicted in two separate cases in the United States District Court for the Eastern District of North Carolina of possession of counterfeit ration coupons. The point presented by the appeal in each case is whether coupons found in his possession were properly admitted in evidence against him over his objection that they were obtained as the result of an unlawful search.
One case arose out of a seizure of coupons made at or near Fayetteville, N. C., when the car in which defendant was riding was stopped by state officers, who were engaged in checking automobiles for motor vehicle violations. In the course of a search conducted by the state officers the counterfeit coupons were discovered in defendant's pocket book. There is nothing in the record to indicate that the state officers were acting in cooperation with the federal authorities or that the latter had anything whatever to do with the stopping of defendant's car or the search of his pocket book. This being true, there was no error in admitting the coupons in evidence in a federal prosecution. Feldman v. United States, 322 U.S. 487, 492, 64 S. Ct. 1082; Gambino v. United States, 275 U.S. 310, 317, 48 S. Ct. 137, 72 L. Ed. 293, 52 A.L.R. 1381; Byars v. United States, 273 U.S. 28, 33, 47 S. Ct. 248, 71 L. Ed. 520; Burdeau v. McDowell, 256 U.S. 465, 475, 41 S. Ct. 574, 65 L. Ed. 1048, 13 A.L.R. 1159; Silverthorne Lumber Co. v. United States, 251 U.S. 385, 392, 40 S. Ct. 182, 64 L. Ed. 319, 24 A.L.R. 1426.
The other case arose out of a seizure of coupons made at or near Wilson N. C., six months later, when the automobile driven by defendant was stopped and searched by state officers and counterfeit coupons were found concealed behind the upholstery of one of the doors. There is evidence from which it might be inferred that the search of the car was instigated by federal officers; but defendant is not in position to complain of the admission of the coupons in evidence against him for the reason that he consented to the search and voluntarily gave the keys of the car trunk and of his suit case to the officers, in order that a thorough search might be made. He probably did not anticipate that the officers would examine behind the upholstery of the doors; but, having given his consent to the search, he cannot complain of it. Gatterdam v. United States, 6 Cir., 5 F.2d 673, 674; Giacolone v. United States, 9 Cir., 13 F.2d 110; Cantrell v. United States, 5 Cir., 15 F.2d 953, 954; Schutte v. United States, 6 Cir., 21 F.2d 830; United States v. Bianco, 2 Cir., 96 F.2d 97; 47 Am.Jur. 547; De Pater v. United States, 4 Cir., 34 F.2d 275, 74 A.L. R. 1418, 1437.
The two cases above described were separately tried, case No. 5323 at the term of court held in September, 1944 at Fayetteville, and case No. 5320 at the term of court held in October, 1944 at Wilson, *850 North Carolina. The sentences in both cases were imposed on the same day, and the sentence of imprisonment of three years in case No. 5323 was made to run concurrently with the sentence of three years' imprisonment in case No. 5320. We think there was no error in either case, and that the judgment in both cases should be affirmed.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549496/ | 146 F.2d 349 (1945)
UNITED STATES ex rel. BONGIORNO
v.
RAGEN.
No. 8629.
Circuit Court of Appeals, Seventh Circuit.
January 5, 1945.
*350 Charles Liebman, of Chicago, Ill., for appellant.
George F. Barrett and William C. Wines, both of Chicago, Ill., for appellee.
Before SPARKS, MAJOR, and MINTON, Circuit Judges.
MINTON, Circuit Judge.
The petitioner-appellant, John Bongiorno, was convicted of murder. On appeal to the Supreme Court of Illinois, the conviction was affirmed. People v. John Bongiorno, 358 Ill. 171, 192 N.E. 856. Under the mittimus issued out of the Criminal Court of Cook County, Illinois, where he had been convicted, Bongiorno was placed in the custody of the respondent-appellee, the warden of the Illinois penitentiary.
Seeking relief from this judgment, the petitioner filed in the District Court for the Northern District of Illinois, Eastern Division, a petition for habeas corpus. Mr. Charles Liebman of the Chicago bar was appointed counsel for the petitioner to serve without compensation and he has devoted himself to his responsibility in a manner which this court highly commends. An amended petition was filed, and the matter was heard on the merits by the District Court, which denied the petition. The petitioner obtained a certificate of probable cause from the District Court and gave notice of appeal from the judgment dismissing his petition.
The petitioner first challenges his conviction on the ground that there was no evidence to support it, that it was a mere fiat judgment, the product of a sham trial, citing Moore v. Dempsey, 261 U.S. 86, 43 S. Ct. 265, 67 L. Ed. 543. In that case five negroes were indicted, tried, and convicted of murder and were sentenced to death by a state court in Arkansas. In a petition in the federal court for habeas corpus, it was shown that their trial had been one in form only and that the defendants had been hurriedly convicted under pressure of a mob, who had agreed to accept a speedy legal execution in place of a lynching. The whole trial was carried on without any regard to the defendants' constitutional rights of due process. Because there had been in fact no trial, the parties having merely gone through the motions, the Supreme Court ordered that the writ should be granted and a hearing had.
Consider the contrast here. On July 8, 1933, Ross King and the petitioner conspired to commit robbery. It was about noon when they drove up before 9 South Kedzie Building in Chicago and entered an office on the third floor. Armed with a gun, they forced the several occupants of the small office to face the wall and then proceeded to rifle their pockets, the desks, and the safe. They were thus engaged when a rap sounded at the door accompanied by a shout, "Police officer. Open up!" Smashing a screen in one of the windows, King jumped to a nearby roof. The petitioner stepped into the hall and attempted to persuade the police officer that he was merely engaged in selling some insurance. While the officer *351 stood in the hall questioning the petitioner, who had backed up against the wall with his hands above his head, King came up the stairway behind the officer and fatally shot him in the back. The petitioner fled and hid in a basement several blocks away, where he was later apprehended. When arrested, he made a voluntary statement, which was introduced as evidence at the trial.
On trial in the Criminal Court of Cook County, Illinois, the petitioner was represented by a paid counsel of his own choosing. The trial was before a jury. On advice of counsel the petitioner did not testify. At the conclusion of the evidence, counsel argued the case to the jury, and the court gave its instructions. The jury retired and after deliberation returned a verdict of guilty. The jury fixed King's punishment at death and the petitioner's at 199 years in prison. Thereafter, motions for a new trial and in arrest of judgment were filed on behalf of the petitioner, were overruled, and judgment was pronounced on October 16, 1933, for a crime committed July 8, 1933.
A writ of error was taken to the Supreme Court of Illinois where paid counsel of petitioner's own choosing, or that of his relatives, represented him. A bill of exceptions including a stenographic report of the evidence was prepared and was approved by petitioner's counsel. It was stipulated that the bill of exceptions should be filed as a part of the record in the Supreme Court. The case was docketed and heard in the Supreme Court of Illinois, and the judgment of the trial court was affirmed on October 19, 1934. 358 Ill. 171, 192 N.E. 856. Petitioner received a copy of this opinion of the Supreme Court of Illinois on November 4, 1934, while he was serving his sentence in the penitentiary.
Petitioner is not a lawyer, but on January 24, 1943, he drafted what he termed a "petition for rehearing" and secured permission of the prison authorities to have it sent to the Illinois Supreme Court. Whether it ever reached that court does not appear.
The recital of these facts shows that this case has not the remotest resemblance to Moore v. Dempsey, supra. Petitioner here was tried and convicted in a court of competent jurisdiction to hear and determine the cause. The court had jurisdiction of the defendant's person. The jurisdiction of the cause and of the defendant's person was never lost. The case went by orderly procedure from the trial court to the Supreme Court under the protection and guidance of the petitioner's own paid counsel. He even had a change of counsel during the appeal. In contrast to sham proceedings under pressure of a mob, as in Moore v. Dempsey, the petitioner had an orderly, leisurely trial in every way conforming to due process.
The petitioner insists, nevertheless, that the evidence was not sufficient to support the jury's verdict, that there was in fact no evidence. We have read the opinion of the Supreme Court of Illinois and the admissions contained in the petitioner's petition for habeas corpus, and we are satisfied that there is an abundance of evidence to support his conviction. Even if we disagreed with the Supreme Court of Illinois over the sufficiency of the evidence, we could give no relief for two reasons: First, we may not review in a habeas corpus proceeding errors of law committed by the courts of Illinois. Frank v. Mangum, 237 U.S. 309, 326, 35 S. Ct. 582, 59 L. Ed. 969; Collins v. Johnston, 237 U.S. 502, 505, 35 S. Ct. 649, 59 L. Ed. 1071; Mooney v. Holohan, 294 U.S. 103, 104, 55 S. Ct. 340, 79 L. Ed. 791, 98 A.L.R. 406; Felts v. Murphy, 201 U.S. 123, 26 S. Ct. 366, 50 L. Ed. 689; Valentina v. Mercer, 201 U.S. 131, 26 S. Ct. 368, 50 L. Ed. 693. Secondly, whether there was evidence to support the verdict involves the guilt or innocence of the appellant, with which on habeas corpus we are not concerned. As Justice Holmes said in Moore v. Dempsey, supra: "* * * what we have to deal with is not the petitioners' innocence or guilt but solely the question whether their constitutional rights have been preserved."
In a court of competent jurisdiction, whose jurisdiction was never lost or disturbed at any stage of the proceedings, the petitioner received a fair and impartial trial. That is due process. He can ask no more.
The petitioner contends that the failure of the Illinois Supreme Court to file and consider his petition for rehearing was a denial of due process. But the petition seems never to have reached that court. The burden is on the petitioner to show that his petition reached there before he can claim a denial of due process. This he has failed to do.
Petitioner also contends that his 199 year sentence is illegal, saying that the intent of the jury was to deprive him of the privilege of a parole after twenty years which a life sentence would have given him. We do not understand that an accused has any voice in what his sentence should be. *352 The 199 year sentence is authorized by the statutes of Illinois[1] and has been held valid by the Supreme Court of Illinois. People v. Pace, 362 Ill. 224, 198 N.E. 319; People v. Rucker, 364 Ill. 371, 4 N.E.2d 492; People v. Hetherington, 379 Ill. 71, 39 N.E.2d 361. The jury gave King, who did the actual shooting, the death penalty, and he was executed. They probably thought petitioner's life should not be forfeited, but that he should be kept in prison as a protection to society, for such a term as would consume all the remaining days of his life. That was not cruel and inhuman punishment. In our opinion, it met the standards of justice.
Furthermore, the petitioner's parole rights are a matter of clemency and grace, relating to prison government and discipline. Farrell v. People, 133 Ill. 244, 24 N.E. 423; People v. Murphy, 276 Ill. 304, 323, 114 N.E. 609. The petitioner is not up for parole. The question of when he shall become eligible for parole is not before us, even if we were competent to consider it. The sentence is authorized by law, and in no sense violates any constitutional right of the petitioner.
Finally, it is contended by the petitioner that his trial took place during a time of public hysteria over crime in Chicago, and that this hysteria deprived him of due process of law. Newspapers published at the time of the petitioner's trial were introduced as evidence. Although they do reflect considerable concern over crimes committed about the time of petitioner's trial, the comments had no particular reference to his case. Not only do they not touch his case, but they do not evidence any such degree of hysteria as to deprive the petitioner of a fair and impartial trial. It never occurred to petitioner to seek a change of venue. In our opinion this proof falls far short of establishing any such extreme situation as existed in Moore v. Dempsey, supra. Frank v. Mangum, supra; Ashe v. United States ex rel. Valotta, 270 U.S. 424, 46 S. Ct. 333, 70 L. Ed. 662; Powell v. Alabama, 287 U.S. 45, 53 S. Ct. 55, 77 L. Ed. 158, 84 A.L.R. 527.
We have only to reflect upon the consequences of sustaining the petitioner's contention to discover that in that direction lies real hysteria. If we were to agree that at the time of the petitioner's trial, public sentiment in Chicago was so strongly prejudiced against any one accused of crime that the petitioner could not have received a fair trial within the meaning of due process, then every other person convicted of crime in Chicago during that period would be clamoring for freedom, and would be entitled to it. We will not be a party to the creation of such a chaotic situation purely upon the feeble proof introduced in this case. Indeed, we think we can take judicial notice of the fact that no such state of hysteria existed in Chicago at that time.
Clearly, the judgment under which the petitioner is held is in accordance with due process, and the constitutional rights of the petitioner have not been violated. The judgment of the District Court is affirmed.
NOTES
[1] "Whoever is guilty of murder, shall suffer the punishment of death, or imprisonment in the penitentiary for his natural life, or for a term of not less than fourteen years." Ill.Anno.Stat. (Smith-Hurd) Ch. 38, § 360. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549559/ | 110 N.J. Super. 406 (1970)
265 A.2d 838
BOULEVARD APARTMENTS, INC., PLAINTIFF-APPELLANT,
v.
MAYOR AND COUNCIL OF THE BOROUGH OF LODI, ETC., ET AL., DEFENDANTS-RESPONDENTS.
Superior Court of New Jersey, Appellate Division.
Argued November 10, 1969.
Decided June 8, 1970.
*408 Before Judges CONFORD, COLLESTER and KOLOVSKY.
Mr. Benedict Krieger argued the cause for appellant (Messrs. Krieger & Klein, attorneys).
Mr. John Di Maria argued the cause for respondents (Messrs. Carbonetti & Di Maria, attorneys).
The opinion of the court was delivered by COLLESTER, J.A.D.
This is an appeal by Boulevard Apartments, Inc. from a judgment of the Law Division upholding the validity of a resolution adopted by the Borough of Lodi which excluded garden-type apartment houses from receiving municipal garbage collection service.
Appellant is the owner of a garden-type apartment house complex consisting of six two-story buildings containing a total of 108 family units. Each building consists of a grouping of four-family units separated by fire walls and sharing a common roof. Prior to January 1, 1969 the garbage from these apartments was collected by a contractor hired by the borough to collect garbage placed in receptacles at the street curb from residential buildings and other specified places, excluding light and heavy industry, warehouses and supermarkets. On December 9, 1968 the Lodi municipal council adopted a resolution which established new classifications of properties which were to be excluded from receiving municipal garbage collection service after January 1, 1969. The resolution contained the following specifications upon which bids for a five-year garbage collection contract were to be based:
*409 Two collections weekly from all residential dwellings, places of business, churches, club houses, lodge rooms, public buildings, public and parochial schools, gasoline stations and all public housing operated by the Housing Authority of the Borough of Lodi (not including garment manufacturing shops, light or heavy industry, warehouses, supermarkets, garden type apartment houses and high rise apartment houses).
On December 23, 1968 the borough awarded a five-year contract to Vito Stamato based on his bid of $940,000.
Boulevard Apartments, Inc. brought an action in lieu of prerogative writs to invalidate that part of the resolution which excluded garden-type apartment houses from receiving garbage collection service, contending that it was unreasonable, capricious and discriminatory. (Grand View Manor, Inc., the owner of a garden-type apartment house containing 24 family units, also joined in the action as a party plaintiff but is not a party to this appeal.)
At the trial it was established that there are 38 garden-type apartment houses listed in the borough containing from 1400 to 1470 family units which, with the exception of appellant and Grand View Manor, Inc., have garbage collected by privately hired contractors. (Stamato, called as a witness by defendants, testified that the quantity of garbage generated at the apartment complexes other than those of plaintiff and Grand View Manor, Inc. was so great that storage pending twice-a-week collections created health problems. As a result, the owners of those apartments arrange for private container services, with daily collections of garbage.) Stamato testified that if the borough was required to collect garbage from all garden-type apartments the additional annual cost to the municipality would be $75,000 to $80,000. There also was evidence that there were numerous other multiple-family dwellings in the borough, ranging from two-family to eight-family houses, all of which have garbage collected by the municipal collection service. A substantial amount of the testimony was devoted to a comparison of the per-acre population density of garden-type *410 apartment houses and that of ordinary residential dwellings, and the difference in quantity of garbage produced.
The court held that the resolution excluding garden-type apartment houses from receiving municipal garbage collection service was valid and the exclusion was not unreasonable or discriminatory. In arriving at this decision the court concluded that garden-type apartment houses were not in the same category or classification as other types of residential dwellings because they were commercial ventures and the quantity of garbage produced from a garden-type apartment house per family unit was three times that of a private dwelling. This appeal followed.
The principal contention urged by appellant for a reversal is that the classifications set up by the resolution are so clearly arbitrary, unreasonable and discriminatory as to render them invalid. It argues that there is no rational basis for differentiating between garden-type apartment houses and other residential dwellings when determining what properties are to be furnished curbside garbage collection.
The removal and disposal of garbage and other refuse matter is recognized as a proper subject for the exercise of the power of a municipality to adopt legislation designed to promote the public health, comfort and safety. N.J.S.A. 40:66-1 provides that a municipality may provide for the collection, removal and disposal of garbage and may establish and operate a system therefor. It may contract with a person to collect the garbage (N.J.S.A. 40:66-4) and provide that the cost of doing the work be paid from its general funds or may fix rates to be charged by the municipality for such service (N.J.S.A. 40:66-5). Municipalities have wide latitude in determining the manner of control of garbage and their pertinent ordinances and resolutions, being entitled to the customary presumption of legislative validity, will not be upset unless palpably unreasonable. Dover Tp. v. Witt, 7 N.J. Super. 259, 262 (App. Div. 1950).
*411 However, municipal legislation relating to garbage collection and disposal must be reasonable and not arbitrary or oppressive. 7 McQuillin, Municipal Corporations (rev. ed. 1968), § 24.245, at 87. Legislation limiting the collection of garbage to certain classifications is not forbidden. However, there can be no invidious discrimination in the establishment of such classifications. There is a denial of equal protection of the laws unless the service is available to all persons in like circumstances upon the same terms and conditions. Persons situated alike shall be treated alike. See Reid Development Corp. v. Parsippany-Troy Hills Tp., 10 N.J. 229, 233 (1952).
Thus, the question involved in the instant case is whether the municipal resolution is invalid as unreasonable and discriminatory because it places garden-type apartment houses in a classification separate and apart from other residential dwellings in order to exclude such properties from receiving the benefits of garbage collection service. The question has apparently not been dealt with by the courts of our State or of other jurisdictions. The cases cited by respondent and relied upon by the trial court are inapposite. For the most part they relate to municipal ordinances which limit the quantity of garbage or ashes to be collected from an apartment house, a subject with which we are not here concerned.
We can discern no rational basis for differentiating between garden-type apartment houses and all other residential dwellings, because apartments are rented to tenants and the owner may realize a profit on his investment. The resolution in question makes no distinction between owner-occupied dwellings and those rented for income. The evidence reveals that there are numerous rented multi-family dwellings containing from two to eight family units which are not precluded from receiving municipal garbage collection service. Moreover, the resolution on its face provides for collection from public housing projects and various places of business.
*412 We also find no reasonable justification for the municipality to classify garden-type apartment houses differently from other residential dwellings on the basis of the quantity of garbage produced and the cost of collection thereof. It is apparent that the trial court misunderstood the testimony in arriving at a conclusion that the quantity of garbage produced from each garden apartment family unit was three times that of a private dwelling. The record clearly shows that the garbage produced by a one-family unit in an apartment house and a one-family dwelling house is substantially the same. Moreover, it is clear that the cost of collection from family units in an apartment house where the accumulated garbage is concentrated in one spot to be picked up at the curb is unquestionably less than the cost of collection from an equal number of family units residing in separate private dwellings.
We conclude that that part of the municipal resolution which classifies garden-type apartment houses separately from other dwelling houses and thereby denies such properties an equal right to garbage collection service is unreasonable, discriminatory and invalid and cannot be enforced.
In view of our decision we deem it unnecessary to pass on the other points raised in appellant's brief, except to note that it was error to refuse to admit into evidence the Lodi ordinance regulating the collection of garbage in effect both when the resolution here under attack was adopted and at the time of the trial. That ordinance provided in section 3 thereof that
No person shall engage in the removal and disposal of garbage, ashes, refuse and trash from any residential premises, school or church within the Borough of Lodi, unless it be pursuant to contract between each person and the Borough of Lodi.
Altogether apart from the issue of illegal classification, the resolution embodying the refusal of the municipality to continue to furnish garbage removal service to garden apartments, which by ordinance were precluded from obtaining *413 that service from other persons, was clearly arbitrary and illegal. However, the problem presented by the garbage collection ordinance no longer exists. The ordinance was amended on March 3, 1969, a month after entry of the judgment in this case, to permit private garbage collection from garden apartments.
The judgment is reversed and the case remanded to the Law Division for the entry of judgment in conformance with this opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549544/ | 341 A.2d 30 (1975)
Russell N. ANDREWS
v.
Joseph H. MASSE et al.
No. 74-251-Appeal.
Supreme Court of Rhode Island.
July 9, 1975.
J. Joseph Nugent, Jr., Providence, for plaintiff.
Bruce G. Tucker, Providence, for defendants.
OPINION
JOSLIN, Justice.
This civil action was brought in the Superior Court to recover damages for injuries allegedly sustained by the plaintiff at about 4 a. m. on July 4, 1968, when the taxicab he was driving on Pine Street in Providence was struck by a vehicle owned and operated, respectively, by the corporate and individual defendants. The case was tried to a jury in May 1974 and resulted in verdicts for the plaintiff of $65,000. It is now here on the defendants' appeal.
The defendants do not contest their liability, but assign errors that may, if their *31 contentions are correct, entitle them to a new trial on the question of damages only. One of the errors asserted is the admission of an affidavit of Dr. Walter C. Cotter, a well-known and highly regarded neurosurgeon, who was plaintiff's attending physician.
Although Dr. Cotter had testified at an earlier hearing which resulted in a mistrial, he was unavailable to testify at the trial that is the subject of this appeal. For that reason, and with defendants' consent, his earlier testimony was read to the jury. For reasons not here material, that testimony did not include an opinion on whether plaintiff's injury was permanent, and in an attempt to establish that fact plaintiff offered the contested affidavit, which the trial justice admitted into evidence. That affidavit was dated several days after the trial began and expressed Dr. Cotter's unqualified opinions that plaintiff had a ruptured or herniated disc and that such an injury is "permanent" irrespective of whether surgery is performed.[1]
The defendants' principal objections to the admission of that affidavit are that the common-law rules of evidence require its exclusion, that the statutory exception to those rules established by G.L.1956 (1969 Reenactment) § 9-19-27 as amended by P. L.1971, ch. 131, § 1,[2] ought not to apply retroactively in this case, which arose in 1968, and, finally, that a construction of § 9-19-27 permitting the admission of that out-of-court statement would effectively violate their constitutional right to be confronted by adverse witnesses.
Certainly, one cannot question the soundness of defendants' position that it is generally unsatisfactory to admit evidence by affidavit. This is true, not only for the reasons they give, but also because to do so denies the factfinder an opportunity to observe the demeanor of witnesses, permits evidence to be presented in a document which ofttimes has been prepared by a person other than the affiant, and cuts off The right to cross-examine, which in this case could have included inquiry on such questions as whether the affidavit merely meant that a herniated or ruptured disc would always leave evidence of scarring or instead intended to convey the opinion that *32 one sustaining that injury, irrespective of how treated, would thereafter suffer permanent impairment of earning power or undergo lasting pain and suffering.[3] 5 Wigmore, Evidence § 1384 at 76-78 (3d ed. 1940); 6 Wigmore, supra § 1709 at 39-40. It is primarily for these reasons that the courts usually reject this kind of evidence. See Reid v. Overland Machined Prods., 55 Cal. 2d 203, 209, 10 Cal. Rptr. 819, 822, 359 P.2d 251, 254 (1961); Henry Cowell Lime & Cement Co. v. Industrial Accident Comm'n, 211 Cal. 154, 158, 294 P. 703, 704 (1930); Gay v. Peoples Hardware Co., 221 A.2d 923, 925 (D.C.App.1966); Goldstein v. Weir, 124 N.J.L. 327, 12 A.2d 126 (1940).
Notwithstanding the common-law exclusionary rule, plaintiff argues that the affidavit in this case qualified for admission as a "report" under § 9-19-27, as amended.[4] But even if we assume that it would so qualify, it would still be inadmissible in this case because of plaintiff's failure to comply with the proviso of that acts.[5] That proviso establishes as a precondition to the admission of any evidence under § 9-19-27 that the offering party first give written notice to his opponent, at least 10 days prior to the commencement of trial, of his intention to introduce that evidence, together with a copy thereof. The plaintiff here, however, delayed informing defendants of Dr. Cotter's affidavit until after the trial had commenced, and that failure to comply with the proviso's notice requirement rendered the doctor's affidavit, even if acceptable in all other respects, inadmissible. True, plaintiff as well as the trial justice may have exerted extraordinary efforts to obtain Dr. Cotter's attendance at the trial, but nothing in the statute makes the exertion of "extraordinary efforts" an excuse for noncompliance with its express precondition.
Although plaintiff concedes that the only record evidence that his back injury was permanent is found in the subject affidavit, he argues nonetheless that even if it was error to admit that affidavit defendants were in no way prejudiced by its admission. This is so, he continues, because the trial justice properly took judicial notice, without objection by defendants, of the permanence of his disc injury. That argument is specious. Though the trial justice may have expressed his willingness properly or not[6] to take judicial notice of the injury's permanent character, he did so only in the jury's absence, and at no time thereafter did he instruct the jury to consider, as conclusively established or otherwise, *33 the fact he had judicially noticed.[7] Without such an instruction the record is barren of evidence, beyond the inadmissible affidavit, that plaintiff suffered a permanent injury. In our opinion, the probability that the jury's award rested, at least in part, on this legally incompetent evidence is too high to warrant plaintiff's conclusions that the erroneous admission was harmless and that a new trial on the issue of damages is unnecessary. Instead, it seems to us that the amount of the award was necessarily influenced by the jury's improperly supported belief that the injury was permanent. That kind of award is speculative and conjectural, and cannot be allowed to stand. Fusaro v. Naccarato, 103 R.I. 324, 325, 237 A.2d 545, 546 (1968); Jackson v. Choquette & Co., 78 R.I. 164, 169-70, 80 A.2d 172, 175 (1951).
Because our resolution of the issue of the admission of Dr. Cotter's affidavit is diapositive, we need not and do not decide the other assignments of error urged by the defendants, none of them being issues that will necessarily arise at the new trial.
The defendants' appeal is sustained in part and denied in part, the judgment appealed from is sustained in part and reversed in part, and the case is remanded to the Superior Court for a new trial on the question of damages only.
ROBERTS, C. J., did not participate.
NOTES
[1] Doctor Cotter's affidavit reads as follows: "Medical Affidavit
"1. It is a matter of medical fact that a ruptured or herniated disc is a permanent injury, whether or not surgery is performed.
"2. Based on my knowledge of the facts and history of the injury to and condition of Mr. Russell N. Andrews of Foster, Rhode Island, it has been and is my diagnosis that he has received and suffers from a ruptured or herniated disc received in an automobile collision in July of 1968, which injury is permanent in nature.
"3. The foregoing statements are supported by the findings made by me at my most recent examination of Mr. Andrews held on May 7, 1974, as well as my own medical knowledge of the nature of the Plaintiff's injury.
"s/ Walter C. Cotter
_________________
Walter C. Cotter, M. D.
339 Angell Street
Providence, Rhode Island"
[2] General Laws 1956 (1969 Reenactment) § 9-19-27, as amended by P.L.1971, ch. 131, § 1, provides in pertinent part:
"In an action of tort for personal injuries, or for consequent damages arising therefrom, an itemized bill and reports * * * relating to medical * * * services, prescriptions * * * rendered to or prescribed for a person injured and/or any report of any examination of said injured person * * * subscribed and sworn to under the penalties of perjury, by the physician * * * rendering such services or by the pharmacist * * * shall be admissible as evidence of the fair and reasonable charge for such services, and/or the necessity of such services or treatment; the diagnosis of said physician * * *; the prognosis of such physician * * *; the opinion of such physician * * * as to proximate cause of the condition so diagnosed; the opinion of such physician * * * as to disability or incapacity, if any proximately resulting from the condition so diagnosed * * *."
[3] It is generally held that a "permanent injury" is one that will continue throughout life and be accompanied by a permanent impairment of earning capacity or lasting irremediable pain. Sedlock v. Trosper, 307 Ky. 369, 373, 211 S.W.2d 147, 149 (1948); Yates v. Bradley, 396 S.W.2d 735, 738 (Mo.App. 1965); Messer v. Beighley, 409 Pa. 551, 187 A.2d 168 (1963). In Morris v. Rogers, 80 N. M. 389, 392-93, 456 P.2d 863, 866 (1969), the court, after reviewing several medical texts, makes clear that under the tests laid down in the cases cited therein it cannot be said to be an indisputable fact, and therefore is not entitled to be judicially noted, that one surgically treated for a spinal injury necessarily suffers from a "permanent injury."
[4] See note 2, supra.
[5] The pertinent proviso of § 9-19-27 states:
" * * * that written notice of the intention to offer such bill or report as such evidence, together with a copy thereof, has been given to the opposing party or parties, or to his or their attorneys, by mailing the same by certified mail, return receipt requested, not less than ten (10) days before the trial * * *."
[6] Whether the plaintiff's injury was properly noticed as "permanent" were that question before us would depend upon the sense in which that term was used by the trial justice. See note 3 and accompanying text, supra.
[7] We do not undertake at this time to resolve the Morgan-Wigmore controversy over whether or not a fact judicially noticed is indisputable, must be accepted as conclusive, and cannot thereafter be supported by corroborative or rebutted by contradictory evidence. See McCormick, Evidence § 332 at 769-70 (2d ed. 1972). Irrespective of that dispute, it seems logical to us to require that a trial judge, whenever he thinks it appropriate to take judicial notice of a certain scientific fact and accordingly intends that a jury properly consider it, at least communicate that fact and those intentions to the jury. That we ought to require that practice in this case is further suggested, in part, by the procedures set forth in Rule 201(g) of the Federal Rules of Evidence, which provides:
"(g) Instructing jury. In a civil action or proceeding, the court shall instruct the jury to accept as conclusive any fact judicially noticed",
and in the American Law Institute's Model ('ode of Evidence (1942) Rule 805(b), which provides:
"If a matter judicially noticed would, in the absence of such notice, be determined by the trier of fact, the judge * * * (b) if not the trier of fact, shall direct the trier to find the matter as so noticed." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549565/ | 265 A.2d 24 (1970)
William F. McGEEHAN and Rae McGeehan, Defendants Below, Appellants,
v.
Donald V. SCHIAVELLO, Plaintiff Below, Appellee.
Supreme Court of Delaware.
March 25, 1970.
Reargument Denied April 8, 1970.
William E. Taylor, Jr., of Taylor & Lindh, Wilmington, for defendants below, appellants.
C. Waggaman Berl, Jr., of Booker, Leshem, Green, Shaffer & Berl, Wilmington, for plaintiff below, appellee.
WOLCOTT, C. J., and CAREY and HERRMANN, JJ., sitting.
*25 CAREY, Justice:
This is an appeal from the denial in Superior Court of a motion by defendants below to dismiss or, alternatively, a motion for summary judgment in a negligence action for damage to personal property. The action results from the demolition of the car of Donald V. Schiavello, appellee, while it was being driven without permission by Alan McGeehan, one of the defendants below, during a high-speed flight from the police. At the time of the accident, Alan McGeehan was a minor under the age of eighteen who lived with his parents, William F. McGeehan and Rae McGeehan, appellants herein, both of whom have been residing in the State since 1946. The issue is whether or not a son's negligence may be imputed to the parents under 21 Del.C. §§ 2710 and 6105, when the mother of the boy signed the son's application for a driver's license, but the father did not.
21 Del.C. § 2710 permits the Motor Vehicle Department to issue a driver's license to a minor under eighteen years of age if his application therefor is signed by his father, if living within the State, and the minor resides with the father; if the father is not living within the State and the minor lives with the mother in the State, the consent may be signed by the mother; if neither the father nor mother is living within the State, it may be signed by a Delaware guardian; if none of the foregoing persons are eligible, it may be signed by the minor's employer, or other suitable person. 21 Del.C. § 6105 imposes joint and several liability upon the signer for any damage caused by the minor's negligence in operating a motor vehicle.
We reverse the denial by the trial Court of the motion for summary judgment in favor of William F. McGeehan, the father. He did not sign the consent to the son's application for a driver's license and there is no indication in the record that he knew *26 of, or consented to, either his son's driving or the mother's signing of the consent, even though they lived in the same household.
With respect to the mother's liability, the argument is made that the Department had no authority to issue the license on the basis of her signature because the father was at the time a resident of Delaware with whom the son lived; that the license was accordingly a nullity; and that her alleged consent is likewise a nullity. This argument would perhaps be very persuasive if the case before us involved merely an attack upon the minor's right to drive a car. The appellee's rights in this case bring other principles into play. The mother, by signing the application, wittingly or unwittingly represented to the Department that she was the proper one to sign it, and thus induced the Department to grant the license; by doing so, she assumed the statutory liability; she should not, and will not, be permitted to evade the consequences of her voluntary act. This is the significant ruling of Bispham v. Mahoney, 7 W.W.Harr. 285, 183 A. 315. We disagree with the suggestion that Bispham was incorrectly decided. In our opinion, it is sound and we decline to reverse it.
Appellant contends also that the Bispham ruling has been altered by a change in the statute made in 1947. 46 Laws of Delaware 356. Prior to that change, a father was permitted to sign the application if he had custody of the minor, even though the father did not live in the State. Under the revised statute, the mother may sign if the father lives out of the State and the minor resides with her in the State. We do not understand how this change affects the reasoning of the Bispham case. The obvious intent of the amendment was to make sure that the person signing the consent is a resident of the State.
Our refusal to exonerate the mother from liability in this case is fortified by an additional fact which apparently did not exist in the Bispham case. In the application immediately above the mother's signature, there appear these words:
"I, the undersigned, am the (mother) of the above applicant and have read the statements and they are correct. In signing this application, I agree to be jointly and severally liable with the applicant for any damages caused by his or her negligence while driving a motor vehicle."
Counsel have not discussed the significance of this additional fact in their arguments before us. It is possible that it alone would create a liability on the mother's part, even if § 6105 did not exist. Whether or not that be true, the existence of this additional fact nevertheless indicates at least that the mother knew, or is charged with knowledge of, liability she was assuming when she signed the application.
Reversed as to the appellant William F. McGeehan and affirmed as to the appellant Rae McGeehan. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549364/ | 146 F.2d 219 (1944)
SHERMAN
v.
COMMISSIONER OF INTERNAL REVENUE (two cases). CENTRAL NAT. BANK OF CLEVELAND
v.
SAME.
No. 9714.
Circuit Court of Appeals, Sixth Circuit.
December 14, 1944.
*220 L. C. Wykoff and Ashley M. Van Duzer, both of Cleveland, Ohio (Ashley M. Van Duzer and Arthur E. Griffith, both of Cleveland, Ohio, on the brief) for petitioners.
Leonard Sarner, of Washington, D. C. (Samuel O. Clark, Jr., Sewall Key, Robert N. Anderson, and S. Dee Hanson, all of Washington, D. C., on the brief), for respondent.
Before ALLEN, MARTIN, and McALLISTER, Circuit Judges.
MARTIN, Circuit Judge.
These three cases involving identical issues, were consolidated for hearing in the United States Tax Court and also in this court on review, sought by the petitioning taxpayers. To avoid unnecessary restatement, we have set forth in a footnote the Tax Court's complete findings of fact, which have been accepted both by the petitioners and by the respondent Commissioner of Internal Revenue.[1] The deficiencies determined by the Commissioner *221 of Internal Revenue and upheld by the Tax Court were in income taxes for 1939.
Two questions of law are presented: (1) Was the trust created by the declaratory indenture of March 16, 1931, between the bank, as trustee, and the parties of the second part as beneficiaries an "association" taxable as a "corporation" within the scope and meaning of Section 3797 of the Internal Revenue Code, 26 U.S.C.A.Int.Rev. Code, § 3797? (2) Did the petitioning taxpayers realize capital gains upon the termination and final liquidation of the trust in 1939 within the meaning and coverage of Section 115(c) of the Internal Revenue Code, 26 U.S.C.A.Int.Rev.Code, § 115(c)?
The Tax Court held that the Commissioner of Internal Revenue had properly *222 characterized the trust of March 16, 1931, as an "association" taxable as a "corporation" under Section 3797; and sustained the Commissioner's affirmative answer to the second question. It is insisted by the petitioners that the tax court erred in both conclusions.
(1) The petitioners contend that the findings of fact demonstrate that the trust was not employed as a substitute for a corporation, but was created by members of a family for the purpose of eliminating the danger of sale for partition of the proceeds of jointly owned real property, not capable of partition in kind, by the conveyance of the legal title to a trustee empowered to collect and distribute rents in proportionate shares; that no operation or management of the property by the trustee was necessary; and that the trustee, in fact, transacted no business pertaining to the property conveyed. They say that, in no aspect, did the trusteeship arrangement constitute a business venture or the doing of business, or a subterfuge to obtain corporate advantages without paying corporate taxes, but was strictly a family affair to assure the consummation of their common desire that family property should remain family property. They point out that under Ohio law land trust certificates are interests in real estate, and are not personal property. Senior v. Braden, 295 U.S. 422, 55 S. Ct. 800, 79 L. Ed. 1520, 100 A.L.R. 794.
The trustee was granted exclusive power and control over the trust estate; was empowered to collect and receive all moneys accruing therefrom, and, in general, to give "such attention to the proper management of the trust estate as may be necessary." The trustee was directed to require the lessees to carry insurance and to pay taxes and assessments on the trust property, and upon forfeiture or termination of leases, to carry the insurance and receive reimbursements from the trust estate. The trust instrument instructed the trustee to "keep the premises in repair," *223 unless the leases required the lessees to do so. In the event of forfeiture or termination of existing or future leases, the trustee was vested with discretion to make new leases. Leases for a term not to exceed ten years could be made without the consent of the certificate holders; existing leases could be modified with the consent of three-fourths in interest of the outstanding certificates; and the trustee was given authority "at any time," with the approval of such three-fourths interest, to lease all or any part of the trust estate for a period of ninety-nine years, "renewable forever, with or without purchase option," upon such terms and conditions and for such rents as it might deem advisable. The trustee was empowered to mortgage and encumber the trust property for the improvement, protection, or preservation thereof, and for the payment of taxes and assessments thereon. Money could be borrowed and the property mortgaged by the trustee for the repair or restoration of any building thereon, partially or totally destroyed during the existence of any lease; and upon the termination of any existing long-time lease, the trustee, at the request of three-fourths in interest of the certificate holders, was directed to demolish existing improvements on the trust property and to erect new buildings thereon. For such purposes, the trustee was authorized to encumber the trust property.
The trustee was required to keep true and complete records and accounts of "all business transacted by it;" to render to each certificate holder annually a complete statement of its receipts and disbursements and an inventory of all assets and property then belonging to the trust estate; and to pay from the rents and other income of the trust estate any and all expenses "incurred in the management of the trust estate, and any charges and expenses incurred by the trustee or for which it shall be liable in connection with its management of the trust estate." [Italics supplied.]
Subject to the provisions of the trust agreement, the trustee was directed to convert the lands received in trust into money, and to disburse the proceeds of sale to the persons owning beneficial interests as evidenced by certificates of interest issued by the trustee; and in its uncontrolled discretion, could postpone such conversion and distribution for any period not more than twenty years after the death of the last survivor of numerous persons named in the declaration of trust.
During the existence of the trust, in addition to collecting rents and distributing the proceeds therefrom to certificate holders after deduction of its fees, the trustee, upon the final decision of the beneficiaries, made with the lessee an adjustment of the rental payable under the fifty-year lease on the West Side property; and also adjusted the rent based upon a reappraisal of the Arcade property, negotiations for which had been carried on by two of the beneficiaries. During the depression, the trustee occasionally called upon the lessees for payment of delinquent rent. Upon appropriate demand and delivery, the trustee reissued one certificate of interest for 300 of the total 1200 parts transferred by Henry S. Sherman to his wife, Edith McBride Sherman. Records and books of account were kept by the trustee. The Commissioner of Internal Revenue contends that these actions of the trustee constituted "doing business" one of the tests to be applied in determining whether the trust was truly an association within the intended scope of the pertinent internal revenue act.
Other provisions of the trust agreement, not heretofore mentioned, assimilate the motivation of the trust to purposes usually accomplished by the organization of a corporation. It was provided that certificate holders could be held to no personal liability by any contract or obligation of the trustee, and that such exemption must be expressed in all documents executed by the trustee. The trust was terminable upon the unanimous request in writing of the certificate holders, but death of any or all of the certificate holders would not terminate the trust. Beneficial interests in the trust consisted of 1200 parts, evidenced by "trustee's certificates of interest," which were transferable in writing. New certificates were to be issued to transferees and every transfer was required to be recorded upon a transfer book to be kept by the trustee. Lost certificates were to be reissued upon evidence satisfactory to the trustee and upon such reasonable terms as to indemnity as the trustee might prescribe.
The trustee was authorized to call meetings of the certificate holders for submission to them of "any question or policy in respect to the trust estate." The trustee was required to call a meeting upon request *224 in writing of not less than twenty-five percent in interest of the outstanding certificates. Any such request must specify the matters or questions to be considered at the meeting. Ten days' notice, specifying the time, place and object of a meeting, was required to be sent by registered mail to each certificate holder. A certificate holder could appoint a proxy to represent him in a meeting. A majority in interest of the certificate holders was necessary to constitute a quorum. Subject to limitations elsewhere provided in respect of the powers of certificate holders, the majority in interest could act upon any question specified in the notice of meeting. In the agregate, these provisions of the trust instrument are most reminiscent of certain standardized sections of corporate by-laws.
Section 3797(a) (3) of the Internal Revenue Code distinctly defines the term "corporation" as inclusive of "associations."
Treasury Regulations 103, promulgated under the Internal Revenue Code (Section 19.3797-1), declare that for taxation purposes the Internal Revenue Code prescribes its own standard of classification; that local law is of no importance in this connection; that a trust may be classed as an association (and, therefore, as a corporation), "depending upon its nature or its activities;" and that the term "corporation" is not limited to the artificial entity usually known as such, but includes also both an association and "a trust classed as an association because of its nature or its activities."
The Regulations, in the next following section (19.3797-2), make it clear that the term "association" is not used in the Revenue Code in a narrow or technical sense, but includes any organization, "which, like a corporation, continues notwithstanding that its members or participants change, and the affairs of which, like corporate affairs, are conducted by a single individual, a committee, a board, or some other group, acting in a representative capacity." It is said to be immaterial whether such organization is created by an agreement, a declaration of trust, a statute, or otherwise; and that "Massachusetts," "common law," "business," and "investment" trusts are included.
The Regulations carefully distinguish an association from a trust (19.3797-3). As differentiated from an ordinary trust for the conservation of property, an association is declared to result from an arrangement whereby the legal title is conveyed to a trustee, who, under a declaration or agreement of trust, holds and manages the property "with a view to income or profit" to the beneficiaries. Such arrangement is designed to afford a medium for carrying on an income or profit-seeking activity through a substitute for a voluntary association, joint-stock company or corporation thus obtaining the advantages minus the disadvantages of those forms of organization. The nature and purpose of a cooperative undertaking will differentiate it from an ordinary trust; and "the purpose will not be considered narrower than that which is formally set forth in the instrument under which the activities of the trust are conducted." If the trust is an undertaking or arrangement conducted for income or profit, "the beneficiaries are to be treated as voluntarily joining or cooperating with each other in the trust, just as do members of an association, and the undertaking or arrangement is deemed to be an association classified by the Internal Revenue Code as a corporation." The Regulations emphasize that the Internal Revenue Code disregards the technical distinction between a trust agreement and ordinary articles of association or a corporate charter, and all other differences in detail, and "treats such a trust according to its essential nature, namely, as an association," regardless of whether the beneficiaries form the trust; or, by purchase or otherwise, acquire an interest in an existing trust.
These regulations of the Treasury Department harmonize with the purposes of the statute; do not constitute an encroachment upon the legislative function; are in consonance with the interpretation of the statute by the highest judicial authority; and should accordingly be applied with forceful effect. When the interpretative regulations are so applied to the facts found by the Tax Court, the correctness of the decision of that tribunal upon the point in issue is manifest.
A trust is characterized as an "association" within the sweep of the statute, not by the actual exercise of, but by the existence of powers under the trust instrument. Morrissey v. Commissioner of Internal Revenue, 296 U.S. 344, 361, 56 S. Ct. 289, 80 L. Ed. 263; Helvering v. Coleman-Gilbert Associates, 296 U.S. 369, 373, 374, 56 S. Ct. 285, 80 L. Ed. 278; Marshall's Heirs v. Commissioner of Internal Revenue, *225 3 Cir., 111 F.2d 935, 938, certiorari denied, 311 U.S. 658, 61 S. Ct. 13, 85 L. Ed. 422.
In the Morrissey case, supra, the Supreme Court declared that the character of the trust was determined by the trust instrument, and pointed to many attributes of a corporation which we find characteristic of the trust in the instant case. Chief Justice Hughes said: "An enterprise carried on by means of a trust may be secured from termination or interruption by the death of owners of beneficial interests and in this respect their interests are distinguished from those of partners and are akin to the interests of members of a corporation. And the trust type of organization facilitates, as does corporate organization, the transfer of beneficial interests without affecting the continuity of the enterprise, and also the introduction of large numbers of participants. The trust method also permits the limitation of the personal liability of participants to the property embarked in the undertaking. It is no answer to say that these advantages flow from the very nature of trusts. For the question has arisen because of the use and adaptation of the trust mechanism" 296 U.S. 344, 359, 56 S. Ct. 296, 80 L. Ed. 263, supra.
In Helvering v. Coleman-Gilbert Associates, supra, the court declared 296 U.S. 369, at page 374, 56 S. Ct. 287, 80 L. Ed. 278: "The parties are not at liberty to say that their purpose was other or narrower than that which they formally set forth in the instrument under which their activities were conducted. Undoubtedly they wished to avoid partition of the property of which they had been co-owners, but their purpose as declared in their agreement was much broader than that." The mere fact that the operations of the "associates" were designedly far more extensive than those intended by the trustors in the instant case does not weaken the binding authority of the clear-cut principle announced.
That the trust with which we are concerned should be classed as an "association" under the pertinent revenue act is indicated also by two other decisions of the Supreme Court. In both Swanson v. Commissioner of Internal Revenue, 296 U.S. 362, 56 S. Ct. 283, 80 L. Ed. 273, and Helvering v. Combs, 296 U.S. 365, 56 S. Ct. 287, 80 L. Ed. 275, the trusts, as in the two cases already discussed, were held to be taxable as "associations" under the revenue acts. In the Swanson case, the trust property consisted of one apartment house. The trustees held no formal meetings, kept no minute book, adopted no by-laws, elected no officers and directors, and took no "formal action with reference to the affairs of the property." [296 U.S. 362, 56 S. Ct. 284, 80 L. Ed. 273] In the Combs case, the common enterprise, under the trust agreement, was the acquisition of an oil lease; the drilling and operation of an oil well thereon; sale of the products and sale of the well; and the distribution of income among the beneficiaries of the trust.
In Hecht v. Malley, 265 U.S. 144, 44 S. Ct. 462, 68 L. Ed. 949, Massachusetts trusts were held to be associations within the meaning of the Revenue Act, where properties were conveyed to trustees and managed by them in business operations; the shares of the beneficiaries being represented by transferable certificates which entitled the holders to share ratably in the income and, upon termination of the respective trusts, in the proceeds of the property.
Expressions in earlier opinions of the Supreme Court must yield to its more recent pronouncements; and so, certain cases upon which petitioners rely have been weakened as applicable authority. Moreover, these cases are plainly distinguishable from a factual viewpoint: Crocker v. Malley, 249 U.S. 223, 39 S. Ct. 270, 63 L. Ed. 573, 2 A.L.R. 1601; Zonne v. Minneapolis Syndicate, 220 U.S. 187, 31 S. Ct. 361, 55 L. Ed. 428; McCoach v. Minehill & S. H. R. Co., 228 U.S. 295, 33 S. Ct. 419, 57 L. Ed. 842; United States v. Emery, Bird, Thayer Realty Co., 237 U.S. 28, 35 S. Ct. 499, 59 L. Ed. 825.
Whether the trust form was employed for "doing business" is one of the tests to be considered. See Solomon v. Commissioner of Internal Revenue, 5 Cir., 89 F.2d 569; Tyson v. Commissioner of Internal Revenue, 7 Cir., 68 F.2d 584; United States v. Rayburn, 8 Cir., 91 F.2d 162; Willis v. Commissioner of Internal Revenue, 9 Cir., 58 F.2d 121. In these cases from other circuits, the trustees were held to have been engaged in sufficient activities to constitute "doing business," so as to render the trusts taxable as associations. In the instant case, the acts of the trustee beyond the collection and distribution of the rents from the trust property have been heretofore enumerated.
*226 In Von Baumbach v. Sargent Land Co., 242 U.S. 503, 516, 517, 37 S. Ct. 201, 61 L. Ed. 460, the Supreme Court held that a corporation which handled a large property, sold lots and saw to it that lessees performed their contracts was "doing business" within the meaning of the Corporation Tax Law; no amount of business being required. It was made clear that what constitutes doing business must depend, in each instance, upon the particular facts of the case. See also United States v. Trust No. B. I. 35, etc., 9 Cir., 107 F.2d 22, where a trust was held to be doing business and, in consequence, liable to taxation as an association under the Internal Revenue Act.
Commissioner of Internal Revenue v. Vandegrift Realty & Inv. Co., 9 Cir., 82 F.2d 387, 390, pointed out that the purpose and the actual operation of a trust should control in the determination of whether the trust should be classified as an association for tax purposes. Slight consideration should be given to the form of organization under which the trust is operated. See Morrissey v. Commissioner of Internal Revenue supra. Compare United States v. Davidson, 6 Cir., 115 F.2d 799, 801; Fidelity-Bankers Trust Co. v. Helvering, 72 App.D.C. 1, 113 F.2d 14, 17, 18, 19; Helvering v. Washburn, 8 Cir. 99 F.2d 478, 481.
The petitioners cite three decisions of this circuit, none of which, in our view, sustains their contention. The trust, held in United States v. Davidson, 6 Cir., 115 F.2d 799, not to create a taxable association, had for its primary purpose the conversion of the trust property into money for distribution of the proceeds among the beneficiaries. The activities of the trustee were merely incidental to liquidation and final distribution. There was no joint enterprise, moreover; the district court had found "upon uncontradicted evidence that the trust was not formed, or continued, by the voluntary act of the beneficiaries."
In Cleveland Trust Co. v. Commissioner of Internal Revenue, 6 Cir., 115 F.2d 481, it was held that the mere receipt of income from leased property and its distribution to cestuis que trustent amounts to no more than receiving the ordinary fruits arising from ownership of property, and does not constitute "doing business" of such character as would typify the trust as an "association" and accordingly render it taxable as a "corporation." The land trust had been created as a method in general use in Cleveland, Ohio, of "financing real estate loans as a substitute for an outright mortgage." The Cleveland Trust Company transferred to itself, as trustee, property upon which it had executed a ninety-nine year lease, and issued and sold to the public land trust certificates. In all the circumstances of the case, the investment land-trust was held not to be carrying on business for profit. As was said in the opinion, 115 F.2d page 483, "the line of separation between trusts and associations is often so vague as to make them almost indistinguishable." Each case must be adjudicated upon its own facts. We regard the powers vested in the trustee in the instrument under present consideration far more extensive than those possessed by the Cleveland Trust Company so extensive, indeed, as to differentiate the cases. In the present litigation, the intent underlying the creation of the trust was obviously more corporate-minded; and the entire set-up of the trust bore greater resemblance to corporate practice and procedure.
The issues in C. A. C. Building Site v. Commissioner of Internal Revenue, 6 Cir., 119 F.2d 420, being substantially identical with those in Cleveland Trust Co. v. Commissioner of Internal Revenue, supra, the parties stipulated that the cause should be remanded for proceedings consistent with the opinion in the earlier case.
Marshall's Heirs v. Commissioner of Internal Revenue, 3 Cir., 111 F.2d 935, 938, certiorari denied 311 U.S. 658, 61 S. Ct. 13, 85 L. Ed. 422, supra, is well worth study as revealing many features of marked similarity to what is faced here. The salient characteristics of the trust involved in that case were held sufficient to constitute a "business trust" and consequently an "association" taxable as a corporation; even though the trustee did not exercise all of the powers conferred. Judge Biggs said: "Many of the indicia of the business trust as referred to by the Supreme Court in the Morrissey case, 296 U.S. [344] at page 359, 56 S. Ct. 289, 80 L. Ed. 263, are present. The trustee holds the title to the property `embarked' in the enterprise. The trustee as a continuing trustee affords uninterrupted management of the property. Management is centralized in the trust and continuity remains uninterrupted except by the death of the last surviving beneficiary or the termination of the lease. The transfer of beneficial interests to minor children of the beneficiaries is contemplated. *227 * * * The trustee possesses the broad powers necessary to carry on a business for profit. For example, with the consent of a majority in interest of the beneficiaries it may borrow money to construct a building upon the premises and sell at public or private sale the whole or any part of the real estate. It is our opinion that these powers transcend those of a trustee under a traditional trust. The broad powers conferred upon the trustee by the indenture were not exercised, but we think this to be immaterial. Such powers may be exercised by the trustee if necessary. We conclude that the trust is a business trust and the trustee is engaged on behalf of the beneficiaries in the handling of their real estate for profit."
Another case, which, in determinative aspects, bears similarity to the case at bar is Title Insurance & Trust Co. v. Commissioner of Internal Revenue, 9 Cir., 100 F.2d 482, 485. There, the court stated: "The fact that there was only one piece of property is unimportant. Swanson v. Commissioner [of Internal Revenue] supra [296 U.S.] pages 363, 365, 56 S. Ct. 283 [80 L. Ed. 273]. So, also, is the fact that, in the taxable year (1933), the trustee's activities were confined to the collection and distribution of rents, payment of taxes, bookkeeping and other incidental duties. The purpose of the trust is found in the instrument which created it. The parties are not at liberty to say that it had a different or narrower purpose. Helvering v. Coleman-Gilbert Associates, [296 U. S.] page 373, 56 S. Ct. 285 [80 L. Ed. 275]; Commissioner [of Internal Revenue] v. Vandegrift Realty & Investment Co., 9 Cir., 82 F.2d 387, 390." The same Circuit Court of Appeals, in a later case, said that in determining whether a trust is an association taxable as a corporation, "it is not alone what the trustees did during the taxable year, but what they were empowered to do." Porter v. Commissioner of Internal Revenue, 9 Cir., 130 F.2d 276, 280.
(2) The petitioners insist that no taxable event has occurred within the meaning of the Revenue Act. Section 115(c) of the Internal Revenue Code. Their argument runs that prior to the creation of the trust, those persons who became cestuis que trustent held the legal title to undivided interests in real estate; that, after the creation of the trust, they owned equitable interests in the same undivided portions in the same real estate; that, upon termination of the trust, their interests were again converted into legal interests; that under Ohio law Senior v. Braden, 295 U.S. 422, 55 S. Ct. 800, 79 L. Ed. 1520, 100 A.L.R. 794, certificates of beneficial interest in a land trust are not personal property, but are real estate; and that, therefore, they have at no time owned anything different from that which they owned at any other time. They say that nothing has been taken from principal and added to income; that, having sold nothing, they have not received a taxable gain; that any increase in the value of their real estate is merely an unrealized capital increment; that when the trust was terminated, no distribution occurred, the beneficiaries merely receiving "a different sort of a piece of paper evidencing the same property interest." They assert that the transaction cannot be likened to "a liquidating distribution of a corporation." They point to the similarity of the principle of decision in Eisner v. Macomber, 252 U.S. 189, 40 S. Ct. 189, 64 L. Ed. 521, 9 A.L.R. 1570, in which common stock dividends were held not to be taxable as income.
The argument is not impressive. Section 115(c) of the Internal Revenue Code provides that amounts received in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock; and that the resultant gain or loss to the distributee shall be recognized. As has been previously stated, the Internal Revenue Code, Section 3797 defines the term "corporation" as inclusive of an association. The statutory definition applies to the entire act. Burk-Waggoner Oil Ass'n v. Hopkins, 269 U.S. 110, 113, 46 S. Ct. 48, 70 L. Ed. 183.
In Tyrrell v. Commissioner of Internal Revenue, 5 Cir., 91 F.2d 500, 502, it was held that the provision of the Internal Revenue Act, Revenue Act 1926, 201 (c), 26 U.S.C.A.Int.Rev.Code, § 115(c), that "amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock" applies to Texas unincorporated joint stock associations, which, under Texas law, are partnerships; and that, upon dissolution, the Tyrrell Trust, a joint stock association, was taxable as a corporation. It is important to observe that a similar argument to that made by petitioners in the instant case, based on local Ohio law, was rejected. The court stated that the authorities had made "it clear that for the *228 purpose of federal taxation the Congress is not limited by the conception of relations entertained under state laws"; and that within its powers, Congress "may determine for itself what taxes to levy, and how and when they shall fall." See Burk-Waggoner Oil Ass'n v. Hopkins, 269 U.S. 110, 114, 46 S. Ct. 48, 70 L. Ed. 183; Burnet v. Harmel, 287 U.S. 103, 110, 53 S. Ct. 74, 77, 77 L. Ed. 199. In the last cited case, the Supreme Court said: "State law may control only when the federal taxing act, by express language or necessary implication, makes its own operation dependent upon state law."
We conclude that the petitioners realized long-term capital gains upon the final liquidation of the trust in 1939, within the intent and meaning of Section 115 (c) of the Internal Revenue Code.
The decision of the Tax Court is affirmed.
NOTES
[1] Findings of Fact, filed by the United States Tax Court.
Henry S. Sherman and Edith McBride Sherman are husband and wife and filed separate income tax returns in the 18th District of Ohio.
Prior to March 1, 1913, Sarah R. Benedict owned two parcels of real estate in the business section of Cleveland, Ohio, one referred to as the Arcade property and the other as the West Side property. In 1886, she executed a 99-year lease covering the Arcade property, at an annual rental of $5,000 payable in quarterly installments, or at such increased rental as may be determined at ten year intervals at the rate of 4 percent upon the appraisal value of the land but not less than $5,000 a year. The building now on the premises was constructed by the lessee. On or about September 19, 1889, Sarah R. Benedict leased the West Side property for 50 years beginning April 1, 1890, at an annual rental of $1,000 for the first two years, $1,250 for the third year, and $1,500 for the remainder of the term, payable in quarterly installments. All taxes were to be paid by the lessees and all repairs were to be made at their expense. At the expiration of each lease the lessor, her heirs, executors, administrators and assigns, was to pay to the lessee the value of the buildings and improvements erected by the lessee.
Sarah R. Benedict died prior to March 1, 1913, and the two parcels descended by inheritance as follows: An undivided one-half interest to Mary B. Crowell, her daughter, and an undivided one-fourth interest to each of her grandchildren, Henry S. Sherman, and his sister, Sarah Sherman Carter, subject to a life estate in their mother, who died in 1929.
On May 7, 1925, Mary B. Crowell conveyed her one-half undivided interest in the Arcade property and the West Side property to Central National Bank Savings and Trust Company of Cleveland, in trust. The net income was to be paid to the grantor for life, and upon her death $35,000 was to be paid to her daughter, Katherine Crowell Cushing, and the residue was to be divided into three parts and the income of each part was to be paid to each of her three children, Benedict Crowell, Katherine Crowell Cushing, and Robert H. Crowell, during life, or to their issue per stirpes. The trust was terminable twenty years after the death of the last survivor of the three children, whereupon the trust principal, and any accumulated income, was to be distributed to the issue of the deceased children in the same proportions as that of the last distribution of income. This trust agreement has been since its execution and is now in full force and effect.
In 1931, the children of the life beneficiaries of the Mary B. Crowell Trust and of Henry S. Sherman and Sarah Sherman Carter numbered about thirteen, and it was feared that partition proceedings might be instituted resulting in a forced sale of the properties. To avoid partition of the properties a trust agreement was made on March 16, 1931, between the Central United National Bank of Cleveland (now Central National Bank), as trustee, and Henry S. Sherman, Sarah Sherman Carter, and Central United National Bank of Cleveland, trustee under the Mary B. Crowell Trust, as second parties. Second parties agreed, contemporaneously with the execution of the trust, to convey their rights in and to the Arcade and West Side properties to the trustee. This agreement provides, inter alia: that the trustee shall convert the property into money and disburse the proceeds to the persons owning beneficial interests as evidenced by certificates of interest issued by the trustee; that the trustee may in its uncontrolled discretion postpone such conversion and distribution but not more than twenty years after the death of the last survivor of eighteen persons named in the agreement; that the trustee shall have exclusive control over the trust estate, including: the right to collect all moneys; to require the lessees to carry fire and liability insurance; to pay taxes and assessments against the trust estate not otherwise payable to the lessees; to give necessary attention to the proper management of the trust estate; to execute, without the consent of certificate holders, leases not exceeding ten years; to execute new leases for all or any part of the trust estate for a period of 99 years, renewable forever, with or without purchase option, and for such rents as it may, with the approval of ¾ths in interest of the certificate holders, deem advisable; to modify any existing lease with the written consent of ¾ths in interest of the certificates outstanding; to mortgage the trust estate or receive advances, upon the security of the trust estate, for its improvement, protection or preservation, including the payment of taxes and assessments; in the event of partial or total destruction of any building on the lands during the existence of any lease, to take such action as it may deem proper with reference to the repair and restoration of the building, and in the event of the termination of the present long term leases, at the request of ¾ths in interest of the certificate holders, to tear down the old buildings and to erect new buildings and for such purpose to borrow money and mortgage the trust estate. The trustee was to keep complete records and accounts of business transacted by it, which should be open to inspection to any certificate holder; to render annually a complete statement of its receipts and disbursements, including an inventory to each certificate holder; to pay out of the income received "any and all expenses incurred in the management of the trust estate and any charges and expenses incurred by the Trustee or for which it shall be liable in connection with its management" of the trust estate; to distribute the balance on the 15th of each January, April, July and October among the certificate holders.
The trust agreement further provides, that until the conversion of the property the certificate holders shall have no legal estate in the property and no right to partition, their interest consisting only of a right to the net income and the net proceeds upon sale or other disposition; that the death of a certificate holder shall not terminate the trust; that the beneficial interest under the trust shall be divided into 1,200 parts and evidenced by "Trustee's certificates of interest;" that contemporaneously with the execution of the agreement the trust shall issue and deliver certificates of interest as follows:
Central United National Bank
of Cleveland, Trustee under
the Mary B. Crowell Trust 600/1200
Sarah Sherman Carter 300/1200
Henry S. Sherman 300/1200
Pursuant thereto such certificates were issued. The certificates were transferable in writing and new certificates were to be issued upon a transfer.
The trustee in its discretion could call meetings of the certificate holders for the purpose of submitting to them any question or policy in respect to the trust estate. Meetings were also to be called upon the written request of 25 per cent or more of the outstanding certificates specifying the matters to be considered at such meeting. Each holder of a certificate, or proxy, was entitled to "act or vote" at such meetings according to the interest represented by the certificate.
The trust was terminable upon the unanimous written request of the certificate holders requiring the trustee to transfer the trust estate to them or their nominee.
The trust agreement further provided that the trustee should have no power or authority to borrow money on the credit or on behalf of the certificate holders or to make any contract on their behalf for the repayment of any money, or to bind or to make any contract or incur any liability on behalf of the certificate holders, or to bind them personally. The trustee was to stipulate in all written contracts or obligations that neither the certificate holders nor the trustee should be held to any personal liability.
In 1933, petitioner Edith McBride Sherman purchased a 200/1200 interest from her husband, Henry S. Sherman, for $97,000.
On June 29, 1939, all of the owners of the certificates of interest terminated the trust, notifying the trustee and requesting it to convey the trust property to them. Shortly thereafter the trustee did so.
Benedict Crowell was president of the Central National Bank of Cleveland. During the existence of the 1931 trust the trustee collected the rents, deducted its fees and distributed the balance to the holders of the certificates in proportion to their interests. The lessees took care of repairs, if any. The trustee in 1937, upon the final decision of the beneficiaries, made an adjustment of the rent of the West Side property with The Ohio Postal Telegraph-Cable Company, to which the original 50-year lease had been assigned in 1920. An adjustment of rent based upon a reappraisal of the Arcade property was also made in 1937 or 1938, the negotiations for which were carried on by Henry S. Sherman and Benedict Crowell. On occasions during the depression the trustee called the lessees with respect to its failure to receive their rent checks on time. The trustee had no occasion to call a formal meeting of the certificate holders. It kept books of account and a record. During the existence of the trust the only transfer of certificates recorded was the one from Henry S. Sherman to Edith McBride Sherman.
In determining the deficiencies the respondent determined that the petitioners in 1939 realized long term capital gains from the liquidation of the March 16, 1931, trust as follows:
Henry S. Sherman $ 5,076.66
Mary B. Crowell Trust 30,458.95
Edith McBride Sherman 10,052.99. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549403/ | 146 F.2d 606 (1944)
UNITED STATES, for Use of SUSI CONTRACTING CO., Inc., et al.
v.
ZARA CONTRACTING CO., Inc., et al.
No. 106.
Circuit Court of Appeals, Second Circuit.
December 18, 1944.
*607 George M. Simon, of Albany, N. Y. (McClung, Peters & Simon, of Albany, N. Y., on the brief), for plaintiffs-appellees-appellants.
Benjamin Machinist, of White Plains, N. Y. (Barrett & Machinist and James H. Barrett, all of White Plains, N. Y., on the brief), for defendant-appellant-appellee Zara Contracting Co., Inc.
Joseph F. Murray, of New York City (Murray, Kissam & Hayden, of New York City, on the brief), for defendant-appellant-appellee American Bonding Co. of Baltimore.
Before L. HAND, CHASE, and CLARK, Circuit Judges.
CLARK, Circuit Judge.
Plaintiffs, Susi Contracting Co., Inc., and D'Agostino & Cuccio, Inc., brought this action under the provisions of the Miller Act, 40 U.S.C.A. § 270a et seq., in the name of the United States against Zara Contracting Co., Inc., and American Bonding Company of Baltimore, the surety on its bond, to recover for work performed for and equipment supplied Zara in the performance of its contract with the United States, dated March 4, 1941, for the extension of Tri-Cities Airport, Endicott, New York. On April 2, 1941, Zara entered into a subcontract with plaintiffs, wherein plaintiffs agreed, except for one $100 item, to perform the entire work called for by the main contract with the United States. This work involved the excavation of material and placing, manipulating, rolling, and compacting it as a base and surface course for landing strips or runways. During the course of the excavation plaintiffs encountered unexpected soil conditions, mostly due to the presence of a great deal of clay material, which made progress of their work extremely difficult, caused the breakdown of their tools, and, according to their allegations, generally required the performance of work not called for by the contract. Consequently on several occasions they made demands on Zara for extra money; and eventually the dispute arose which led to mutual claims of breach of contract and, by easy stages, to the opposing claims for monetary solace of this action. At any rate, defendant Zara took over the completion of the contract about July 12, 1941, or two months after plaintiffs had begun work. It also took possession of and for some three months utilized the equipment furnished by plaintiffs at the contract site.
In this action plaintiffs alleged that Zara wrongfully terminated the subcontract, and sought recovery for the reasonable cost and value of the actual work performed, and the fair and reasonable rental value of the equipment for the period of its retention and use. Defendant Zara put in issue the material allegations of the complaint and also filed a counterclaim wherein it alleged that it was compelled to terminate the contract by plaintiffs' refusal to perform it, and demanded damages for its breach against plaintiffs. Defendant American also put in issue the material allegations of the complaint and asserted further that plaintiffs had failed to state a claim against it upon which relief could be granted. The District Court found generally for the plaintiffs, holding that Zara had wrongfully *608 terminated the contract and that there was due them $39,107.10 for work done at the contract rate, $18,600 for increased cost of excavation due to the soil conditions encountered, and $5,157.75 as rental allowance for plaintiffs' equipment, less $43,345.20, the amount advanced by Zara during the course of the work, or a net of $19,519.65, together with interest from the date of the filing of the suit. All parties have appealed, plaintiffs because the rental allowance was too small, and both defendants because of the holding that Zara was the one who breached the contract and because of the allowance for increased cost of excavation. In addition, Zara claims damages, while American contends that in no event does the bond which it has given pursuant to the statute cover the rental allowance for equipment.
The first issue to be determined on this appeal is whether the court below correctly held that plaintiffs were prevented from continuing their contract by the action of defendant Zara and had not themselves breached their contract so as to bar them from recovering the fair value of labor performed prior to July 12, 1941, and the rental value of their equipment used by defendant Zara in the performance of the contract after that date. The supposed grounds of Zara's termination of the contract are set out in a letter by Zara to plaintiffs, dated July 11, 1941. Some of these allegations are so obviously without substance that no purpose would be served by discussing them here. It does appear that one steam shovel used by plaintiffs was not in accord with the contract specifications, that plaintiffs failed to keep some of the equipment free from liens, so that Zara had to make advancements when installments became due and seizure imminent, and that plaintiffs were excavating 20,000 cubic yards a week, instead of the average of 27,000 cubic yards required by the contract. These grounds were waived by Zara, however, since no protest was made at the time of the alleged incidents of breach, though Zara was well aware of them, and plaintiffs were permitted to continue with the project. See Clark v. West, 193 N.Y. 349, 360, 86 N.E. 1; Hotchkiss v. City of Binghamton, 211 N.Y. 279, 283, 105 N.E. 410; S. & E. Motor Hire Corporation v. New York Indemnity Co., 255 N.Y. 69, 72, 174 N.E. 65, 81 A.L.R. 1318. It is clear that Zara could not in this way reserve the privilege to terminate the contract at any time. Cf. Herkenham v. Hoenzsch, 211 A.D. 224, 207 N.Y.S. 589; Bell v. Fox, 138 A.D. 569, 123 N.Y.S. 310.
There is another reason which supports the court's decision that Zara could not base its termination of the contract on plaintiffs' failure to maintain the excavation schedule. Under the terms of the subcontract Zara could not terminate it because of delays "due to unforeseeable causes beyond the control and without the fault or negligence of the Sub-Contractor," provided plaintiffs gave certain notices to the Government and certain steps were taken by the latter to fix the facts and extent of the delay. There were, however, unforeseen consequences in the nature of the soil encountered, about which fact revolve (as we shall see) the most controverted issues of the case. Sheet 1 of the plans forming part of the main contract set forth test borings showing that the subsoil surface over a considerable portion of the excavation area was of gravel, sand, and silt nature. Actual excavation disclosed, however, that the subsoil area was of a clay material, much more difficult and expensive to remove; and it was in consequence of this unforeseen condition that work was slowed down. Both Zara and the Government officials were thoroughly apprised of the situation; in fact Zara made it the grounds of a claim to the United States for additional compensation and received a substantial additional allowance. Even without this contract provision no termination would have been justified under the circumstances, cf. Lossing v. Cushman, 123 A.D. 693, 108 N.Y.S. 368, reversed on other grounds 195 N.Y. 386, 88 N.E. 649; Gutman v. Crouch, 57 Hun 586, 10 N.Y.S. 275; with the provision it would have been clearly inequitable so to hold.[1]
But Zara makes the further contention that the subcontract was terminated because of plaintiffs' refusal to remove the clay material. The evidence shows that on July 8 and 9, plaintiffs interrupted their work and that on the latter day Joseph Susi, president of the Susi Company, said *609 in some heat that he would not dig any more of that "lousy" material. But the evidence also indicates that work was resumed on July 10 and 11; and in view of the overwhelming testimony to the contrary, we cannot accept Zara's rather farfetched and hypothetical proposition, based on mathematical formulae, that, since the amount of excavation on these days exceeded the daily average, plaintiffs must have failed to excavate the more difficult clay material. The testimony does indicate that on the days in question at least some of the excavation was in the clay area. It also appears that it had rained about the time of the interruption of work. Rain, moreover, in the past had frequently forced the contractors to cease their labors, since clay, once wet, could not be hurled to the surface. Weather conditions thus seem a reasonable explanation of the work stoppage on July 8 and 9. Susi's statement can be easily dismissed as made inadvertently and in anger, or in the alternative, as plaintiffs reasonably contend, can be construed as a declaration that no further digging of clay would be done unless some arrangement were made for additional compensation. Moreover, these issues were primarily of fact and have been settled by the District Court's explicit findings of fact. We find no error, therefore, in the decision that Zara wrongfully prevented plaintiffs from completing the project.
This, of course, disposes of Zara's claim for damages and leaves for consideration the amount of recovery due the plaintiffs. In their complaint originally plaintiffs had a second count claiming an accounting of profits; but this they abandoned, and they have made no claim for damages for breach of contract. Their only claim, therefore, is for the value of the work performed and of the rental of equipment retained by Zara on the job. Taking up, first, the value of the work performed, three theories are suggested to justify the additional award made below in addition to that made at the regular contract rate of $18,600 for the increased cost of excavating the clay material. The first, apparently most favored by the plaintiffs, is that this excavating (as well as the separate mixing of materials to form the airport runways made necessary by the soil condition) was extra work, not covered by the contract figures, and hence was separately compensable. Apparently their complaint was drawn on this theory; but the allegations are of a general nature, and, of course, after trial the judgment must grant the relief to which plaintiffs' case as presented entitle them. Federal Rules of Civil Procedure, rule 54(c), 28 U.S.C.A. following section 723c; Cohen v. Randall, 2 Cir., 137 F.2d 441, 443, certiorari denied 320 U.S. 796, 64 S. Ct. 263; cf. United States v. Pape, 2 Cir., 144 F.2d 778, 791, certiorari denied Pape v. United States, 65 S. Ct. 86. The second, relied on by the trial court, is that, since the subcontract made the provisions of the main contract determinative and applicable to the subparties, except where otherwise provided, the plaintiffs should have the advantage of the provisions of the main contract under which Zara successfully sought additional compensation against the United States. And the third is that, in view of Zara's default, they may waive the contract entirely and sue in quantum meruit for the reasonable value of the work performed.
Defendants contend, however, that under the terms of the subcontract plaintiffs were not entitled to any allowance for extra costs over and above the contract price, even though entailed in consequence of the misrepresentations as to the subsoil conditions. They rely principally on Article 5 of the subcontract, reprinted in the margin,[2] wherein plaintiffs agreed that no representations as to subsurface conditions have been made, nor have they been induced to enter into the contract in reliance upon the drawings or plans, and they promised to make no claim for damages for unknown conditions. In support of their contention *610 they cite such cases as T. J. W. Corporation v. Board of Higher Education of City of New York, 251 A.D. 405, 296 N.Y.S. 693, affirmed 276 N.Y. 644, 12 N.E.2d 800. and Niewenhous Co. v. State, 248 A.D. 658, 288 N.Y.S. 22, affirmed 272 N.Y. 484, 3 N.E.2d 880. But these cases are limited to claims for extra work, where the contract has not been wrongfully terminated by the employer. The situation is quite otherwise where, as here, defendants have breached the agreement. We agree that the definite commitment which the plaintiffs have made in Article 5 is one they must stand by so long as they must rely upon their contract; and hence we find it difficult to see why the first two theories presented above, that particularly pressed by the plaintiffs and that relied on by the trial court, do not conflict directly with this agreement, which seems to contemplate the very situation to which it would then be held inapplicable. No such infirmity attaches to the third theory, however.
For it is an accepted principle of contract law, often applied in the case of construction contracts, that the promisee upon breach has the option to forego any suit on the contract and claim only the reasonable value of his performance. This is well settled in the New York cases. Clark v. New York, 4 N.Y. 338, 53 Am. Dec. 379; Wright v. Reusens, 133 N.Y. 298, 305, 31 N.E. 215; Purdy v. Nova Scotia Midland Ry. & I. Co., 11 Misc. 406, 32 N.Y.S. 157; Simmons v. Ocean Causeway of Lawrence, Long Island, 21 A.D. 30, 47 N.Y.S. 360; O'Dwyer v. Smith, 38 Misc. 136, 77 N.Y.S. 88; Silleck v. Robinson, 60 Misc. 481, 113 N.Y.S. 832; cf. also Majestic Tile Co. v. Nicholls, 161 Misc. 231, 291 N.Y.S. 551, 557.
It also appears to be the general view, save for an occasional case viewed as illogical by the text writers, who are solidly in support of the doctrine. See, for example, Rodemer v. Gonder, 9 Gill, Md., 288; Connolly v. Sullivan, 173 Mass. 1, 53 N.E. 143; City of Philadelphia v. Tripple, 230 Pa. 480, 79 A. 703; Valente v. Weinberg, 80 Conn. 134, 67 A. 369, 13 L.R.A.,N. S., 448; Boomer v. Muir, Cal.App., 24 P.2d 570; Patterson, Builder's Measure of Recovery for Breach of Contract, 31 Col. L.Rev. 1286, 1300-1303; 5 Williston on Contracts, Rev.Ed., § 1485; McCormick on Damages, § 166; Woodward on Quasi-Contracts, §§ 268, 269; Restatement, Contracts, § 347; 34 Col.L.Rev. 365; 7 So. Calif.L.Rev. 338. The rule has been applied by this court. Schwasnick v. Blandin, 2 Cir., 65 F.2d 354; and cf. Knotts v. Clark Const. Co., 7 Cir., 249 F. 181, certiorari denied 246 U.S. 666, 38 S. Ct. 335, 62 L. Ed. 929.
These authorities make it quite clear that under the better rule the contract price or the unit price per cubic yard of a construction or excavation contract does not limit recovery. This, too, is the rule in New York. Clark v. New York, supra; O'Dwyer v. Smith, supra. This doctrine is particularly applicable to unit prices in construction contracts; as Professor Patterson points out, 31 Col.L.Rev. at page 1303, a plaintiff may well have completed the hardest part of a job for which an average cost had been set. But it seems settled now in New York that with the breach fall all the other parts of the contract. Matter of Montgomery's Estate, 246 A.D. 495, 284 N.Y.S. 5; Id., 272 N.Y. 323, 6 N.E.2d 40, 109 A.L.R. 669, affirming 248 A.D. 809, 290 N.Y.S. 556, affirming 158 Misc. 412, 287 N.Y.S. 136; Sterling Motor Truck Co. of New York v. Schuchman, 260 N.Y. 358, 183 N.E. 524.[3] Hence it is clear that plaintiffs are not limited to the contract prices in the situation disclosed here.
As we have noted, the trial court granted recovery for $39,107.10 for the work done at the contract price, together with an additional sum of $18,600 for the extra cost of excavation of the clay, computed as 62,000 cubic yards at the additional expense of 30 cents per cubic yard. The amount of the clay excavation was vigorously disputed by Zara, who offered three mathematical computations each indicating a different amount. But the facts were complicated, and the District Court, having before it not only the estimates of the various witnesses, including engineers *611 on the job, but the claims of Zara made in ed States, reached a reasonable figure, subseeking the extra allowance from the Unit-stantially below the plaintiffs' claims, which we are not disposed to disturb. As to the monetary amounts, these are based on the cost of the work to Zara, as well as expert testimony for plaintiffs, and are not seriously disputed. Indeed, in fixing the additional allowance at 30 cents per cubic yard, the judge relied particularly on Zara's claim to the United States wherein it stated that its records showed an actual cost to it of the extra work, amounting to 28.7 cents per cubic yard for the excavating, and 2½ cents per cubic yard for placing the excavated material in the runways. Professor Williston points out that the measure of recovery by way of restitution, though often confused with recovery on the contract, should not be measured or limited thereby; but he does point out that the contract may be important evidence of the value of the performance to the defendant, as may also the cost of the labor and materials. 5 Williston on Contracts, Rev. Ed., §§ 1482, 1483, 1485. It is therefore appropriate here, particularly in default of any challenging evidence, to base recovery on proper expenditures in performance, United States v. Behan, 110 U.S. 338, 4 S. Ct. 81, 28 L. Ed. 168; Watts v. Board of Education, 9 A.D. 143, 41 N.Y.S. 141, or for extra work, Simmons v. Ocean Causeway of Lawrence, Long Island, supra, and to make use of the contract as fixing the basic price. Ludlow v. Dole, 62 N.Y. 617; Cunningham v. Doyle, 5 Misc. 219, 25 N.Y.S. 476; Purdy v. Nova Scotia Midland Ry. & I. Co., supra.
It is to be noted that, since it is the defendant who is in default, and plaintiffs' performance here is "part of the very performance" for which the defendant had bargained, "it is to be valued, not by the extent to which the defendant's total wealth has been increased thereby, but by the amount for which such services and materials as constituted the part performance could have been purchased from one in the plaintiff's position at the time they were rendered." Restatement, Contracts, § 347, comment c. See also City of Philadelphia v. Tripple, supra, 230 Pa. at page 487, 79 A. 703; Simmons v. Ocean Causeway of Lawrence, Long Island, supra; United States v. Behan, supra, 110 U.S. at pages 344, 345, 4 S. Ct. 81, 28 L. Ed. 168; Patterson, supra, 31 Col.L.Rev. at page 1299. It is to be noted that in fact defendant Zara did receive benefits most substantial from plaintiffs' performance. Plaintiffs had actually excavated 211,390 cubic yards, for which Zara's profit, as determined by the spread between the main and the subcontract of 5½ cents per cubic yard as a minimum, with higher amounts for a part, would be around $12,000; it had already collected $17,115.79 from the United States for the additional cost of removing the "cohesive silt," of which most was done by plaintiffs, and it had pending a claim against the United States for $18,840.10 more; and what is perhaps most important, it had received a performance which it needed to make to ensure recovery of these profits and sums from the United States and avoid the danger of being in default, and which it would have had to do itself or purchase in the market. Hence the allowance made by the District Court is justified on the evidence and the law, and we find no error, therefore, in this item of recovery.
As to the rental value for equipment retained by Zara, the dispute arises upon the issue whether Zara shall be charged for the time retained or only for the hours of use. The respective periods are not in dispute, being agreed to by the parties. The only testimony of rental value came from plaintiffs' expert, Mulvaney, a contractor of many years' experience, who gave only rates for retention on a monthly basis, saying that weekly, daily, or hourly rates would each be proportionately higher, and, in response to a direct question of the court, that it would have been virtually impossible at the time and place to have rented equipment on the basis of hours of actual use. His rentals were based upon the officially established rates of the War Production Board in 1942, which were slightly lower than the 1941 rates. He first gave a monthly rate for the first shift of eight hours and then a monthly rate for a second shift of eight hours at half the first rate. Then he added the two together; and since various items were retained for only two weeks, from July 14th to 28th, he divided this total rate by two for those items to get the over-all rate which he considered reasonable. He explained further that the question whether particular equipment was considered at the one- or two-shift rates depended simply on the hours of use, taking 240 hours as a normal month's use on a single shift. Hence *612 if an item retained for a month was used 240 hours or more, it was entered at the double shift rate; if used for any lesser period, it was entered at the single shift rate, whether or not it may have been used actually 16 hours in a single day or may have been used only for a very limited time or not at all. He did not in terms say that these rates should be divided for shorter periods of retention, as distinguished from use, where they occurred; but, since he did in fact make such division to cover the period from July 14th to 28th, that seems clearly his intent and plaintiffs have accepted it in their computations.
The trial court in its computation accepted the rates which Mulvaney gave as reasonable, but then used them as a basis for computing hourly rates (by dividing them by 240, as the results show) and allowed only for the hours of actual use in the total sum of $5,157.75. But this clearly was not justified on the testimony; there was no evidence of the hourly rate except that it was much higher, and the "virtual" impossibility of securing equipment on that basis ruled it out anyhow. On the other hand, plaintiffs' computation of $10,391.25 is based on the two-shift rate of retention, whereas the number of hours of user shows, in the light of Mulvaney's formula, that this rate can apply only to a single item. Mulvaney's own testimony was based on hypothetical questions, and cannot be used to vary his own formula. We have recomputed these items on this basis, resulting in an increase of this item from $5,157.75 to $7,227.50, as shown in the margin.[4]
The final contention is that of the surety, American, that the bond does not cover breaches of contract, accountings, or torts, and that it is not liable for the rentals, which it contends are really damages for wrongful taking and retention of equipment. It is sufficient to point out, however, that the present action is one in quantum meruit for the fair value of labor and equipment supplied, that the surety by the bond guaranteed that Zara would make prompt payment "to all persons supplying labor and material in the prosecution of the work provided for in said [the main] contract," and that plaintiffs' supply of labor and material was that generally called for by the main contract. The surety, under the terms of the bond, is thus clearly liable. Cf. United States, for Use and Benefit of Farwell, Ozmun, Kirk & Co. v. Shea-Adamson Co., D.C.Minn., 21 F. Supp. 831, 836, 837; Massachusetts Bonding & Insurance Co. v. United States, for Use of Clarksdale Machinery Co., 5 Cir., 88 F.2d 388; United States, to Use of Anniston Pipe & Foundry Co. v. National Surety Co., 8 Cir., 92 F. 549; Hopkins v. Commonwealth, 129 Va. 137, 105 S.E. 673.
The judgment is modified by increasing the allowance for the fair rental value of equipment furnished from $5,157.75 to $7,227.50, and as so modified is affirmed.
NOTES
[1] There is no reason to limit the natural meaning of "unforeseeable causes" because of another provision of the contract in a different article prohibiting claims by the subcontractor for unknown latent or subsurface conditions (note 2, infra). See discussion of this provision below.
[2] "No representations have been made to the Sub-Contractor as to any sub-surface or latent conditions at the site; nor has the Sub-Contractor been induced to enter into this sub-contract in reliance upon any representations shown on the drawings or indicated in the specifications as to any sub-surface or latent conditions at the site. The Sub-Contractor agrees that it will make no claim against the Contractor for damages in the event that, during the progress of the work, the Sub-Contractor encounters sub-surface and/or latent conditions at the site materially differing from those shown on the drawings or indicated in the specifications, or unknown conditions of an unusual nature differing materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the plans and specifications."
[3] There is a statement, not overclear, in Simmons v. Ocean Causeway of Lawrence, Long Island, supra, 47 N.Y.S. at page 363, that the amount chargeable "could not exceed the compensatory sums" provided for by the contract. No precedents were cited. The court may have had in mind one form of the minority view that in any event the total contract price sets an upper maximum, cf. Lehman, J., dissenting in Re Montgomery's Est., supra; but it seems opposed to the late New York cases. Ibid.
[4] Computation of rental value of equipment retained.
Period of Period of
Use Retention Rental Rate
Equipment (hours) (months) 1st shift 2d shift Total
1250
----
Lima Shovel 11 1/2 1/2 2 $ 625.
1100 + 550
---------------------------
Lorain Shovel 134 1/2 2 825.
Cletrac Bulldozer 701 3 920 × 3 2,760.
International Bulldozer 250 3 585 × 3 1,755.
325
----
International Tractor 79 1/2 2 162.50
50
---
Ford Truck 80 1/2 2 25.
Generator none proved 3 25 × 3 75.
Sterling Truck 800
(16 cu. yds.) ---
none proved 1/2 2 400.
3 Sterling Trucks (400) each
(8 cu. yds.) -----
none proved 1/2 ( 2 ) × 3 600.
__________
Total Rental $7,227.50 | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549462/ | 146 F.2d 120 (1944)
STEVENS
v.
UNITED STATES.
No. 2941.
Circuit Court of Appeals, Tenth Circuit.
December 18, 1944.
*121 *122 A. L. Emery, of Okmulgee, Okl., for appellant.
John C. Harrington, of Washington, D. C. (Norman M. Littell, Asst. Atty. Gen., Cleon A. Summers, U. S. Atty., of Muskogee, Okl., and Norman MacDonald, of Washington, D. C., on the brief), for appellee.
Before BRATTON, HUXMAN, and MURRAH, Circuit Judges.
BRATTON, Circuit Judge.
This case presents for determination rival claims to the estate of Stella Sands, deceased. The decedent, enrolled as a full-blood Creek Indian, executed in due form a will and later died, leaving an estate which included certain land previously allotted to her. The instrument was presented to the County Court of Okmulgee County, Oklahoma, for probate. William Stevens, enrolled as a Creek Freedman, filed objections to the probate of the will, pleading that subsequent to its execution he and the testatrix were married, that the marriage revoked the will, and that under the law of the state relating to descent and distribution he was entitled to share in the estate. Pursuant to section 3 of the Act of April 12, 1926, 44 Stat. 239, notice of the pendency of the proceeding was served on the Superintendent of the Five Civilized Tribes; the United States caused the proceeding to be removed to the United States Court for Eastern Oklahoma; and thereafter the United States intervened.
The court found that Stella Sands was a full-blood Creek Indian, and was not of African descent; that William Stevens was of African descent; that prior to November 17, 1936, they were living together and were residents of Oklahoma; that on such date they went to Independence, Kansas, procured a marriage license, entered into a ceremonial marriage, immediately returned to Oklahoma, and continued living together there until the death of Stella Sands. The court concluded that the marriage was invalid and void under the law of Oklahoma; that the will of a single person is revoked by a subsequent valid marriage, but not by a void marriage; and that since the marriage referred to was void, the protestant was not entitled to share in the estate of the decedent. The will was admitted to probate, and the protestant appealed.
By Article XIV of the treaty of March 24, 1832, 7 Stat. 366, 368, it was provided in substance that the Creek Indians should be allowed to govern themselves, subject to the general jurisdiction of Congress. By section 31 of the Act of May 2, 1890, 26 Stat. 81, 94, it was provided that the marriage laws of Arkansas should be effective in the Indian Territory; and by section 38 it was provided among other things that a certain section of the laws of Arkansas should not be construed so as to interfere with the operation of the laws governing marriage enacted by any of the civilized tribes; but by the Act of June 7, 1897, 30 Stat. 62, 83, it was provided that the laws of Arkansas in force in the Indian Territory should apply to all persons irrespective of race. By section 26 of the Act of June 28, 1898, 30 Stat. 495, 504, it was provided that thereafter the laws of the various tribes or nations of Indians should not be enforced at law or in equity by the courts of the United States in the Indian Territory. By section 2 of the Act of April 28, 1904, 33 Stat. 573, it was provided that all laws of Arkansas theretofore in effect in the Indian Territory should be continued and extended in their operation so as to embrace all persons and estates in the Territory, Indian or otherwise. By section 13 of the Act of June 16, 1906, 34 Stat. 267, 275, to enable the people of Oklahoma and of the Indian Territory to form a constitution and state government and be admitted into the Union, it was provided that the laws in force in the Territory of Oklahoma, as far as applicable, should extend over and apply to the state until changed by the legislature thereof. And by section 21 of the Enabling Act, it was provided that all laws in force in the Territory of Oklahoma at the time of the admission of the state should be in force throughout the state, except as modified or changed by the Act or by the constitution of the state, and the laws of the United States not locally inapplicable. It thus is clear that the marriage relations of Creek Indians in Oklahoma are subject to the laws of the state.
The decedent was an unmarried woman at the time she executed the will. The marriage ceremony into which she and appellant entered took place long after the will was executed, and it is provided by *123 Title 84, section 108, Okl.St.1941, that a will executed by an unmarried woman is revoked by a subsequent marriage. If that statute stood alone in pertinent application, the will was revoked by the marriage and appellant would be entitled to share in the estate. But Article XXIII, section 11, of the Constitution of Oklahoma, provides that wherever in the constitution and laws of the state the word or words "colored" or "colored race," "negro" or "negro race," are used, it or they shall be construed to mean and apply to all persons of African descent, and that the term "white race" shall include all other persons; section 12, Title 43, Okl.St.1941, forbids the marriage of any person of African descent, as defined in the constitution of the state, to any person not of such descent, or the marriage of any person not of African descent to a person of such descent; and section 13 provides that a marriage in violation of the preceding section shall be deemed a felony and punished as therein specified. The marriage of a Creek Indian of the full-blood and a person of African descent comes within section 12, supra. And the statute provides in effect that such a marriage is a nullity. Blake v. Sessions, 94 Okl. 59, 220 P. 876; Eggers v. Olson, 104 Okl. 297, 231 P. 483; Scott v. Epperson, 141 Okl. 41, 284 P. 19; Baker v. Carter, 180 Okl. 71, 68 P.2d 85; Long v. Brown, 186 Okl. 407, 98 P.2d 28.
The marriage ceremony between these persons took place in Kansas. But in respect of the acquisition of property in Oklahoma by descent and distribution, persons domiciled in that state, and subject to a valid inhibition against entering into a marriage contract there, cannot elude the law of the state by going into another state and being married there, and then immediately returning to Oklahoma to live and maintain the marriage assumed abroad. Eggers v. Olson, supra.
Section 12, supra, making unlawful marriages between persons of African descent and persons of other races or descents is challenged on the ground that it violates the Fourteenth Amendment. Marriage is a consentient covenant. It is a contract in the sense that it is entered into by agreement of the parties. But it is more than a civil contract between them, subject to their will and pleasure in respect of effects, continuance, or dissolution. It is a domestic relation having to do with the morals and civilization of a people. It is an essential institution in every well organized society. It affects in a vital manner public welfare, and its control and regulation is a matter of domestic concern within each state. A state has power to prescribe by law the age at which persons may enter into marriage, the procedure essential to constitute a valid marriage, the duties and obligations which it creates, and its effects upon the property rights of both parties. Maynard v. Hill, 125 U.S. 190, 8 S. Ct. 723, 31 L. Ed. 654. And within the range of permissible adoption of policies deemed to be promotive of the welfare of society as well as the individual members thereof, a state is empowered to forbid marriages between persons of African descent and persons of other races or descents. Such a statute does not contravene the Fourteenth Amendment. Ex parte Francois, 9 Fed.Cas. page 699, No. 5,047; In re Hobbs, 12 Fed.Cas. page 262, No. 6,550; Ex parte Kinney, 14 Fed.Cas. page 602, No. 7,825; State v. Tutty, 41 F. 753, 7 L.R.A. 50; State v. Gibson, 36 Ind. 389, 10 Am.Rep. 42; State v. Kennedy, 76 N.C. 251, 22 Am.Rep. 683; Green v. State, 58 Ala. 190, 29 Am.Rep. 739; Frasher v. State, 3 White & W. 263, 30 Am.Rep. 131; Dodson v. State, 61 Ark. 57, 31 S.W. 977; Kirby v. Kirby, 24 Ariz. 9, 206 P. 405; In re Shun T. Takahashi's Estate, 113 Mont. 490, 129 P.2d 217.
Section 12, supra, is attacked on the further ground that it impinges upon section 1 of the Civil Rights Bill, R.S. § 1977, 8 U.S.C.A. § 41. The statute does not merely forbid a person of African descent to intermarry with a person of other race or descent. It equally forbids a person of other race or descent to intermarry with a person of African descent. And the succeeding section prescribes the same punishment for both offenders. There is no discrimination against the colored race, within the purview of the Civil Rights Bill. Pace v. State of Alabama, 106 U.S. 583, 1 S. Ct. 637, 27 L. Ed. 207.
The court admitted in evidence the pertinent parts of the tribal rolls of the Creek Nation showing that Stella Sands was enrolled as a Creek Indian of the full-blood, and that appellant was enrolled as a Creek Freedman. It is contended that the rolls were not conclusive evidence of Indian blood and that they were hearsay. The Dawes Commission was a special tribunal created by act of Congress and vested with certain judicial powers. Absent *124 fraud, gross mistake, or arbitrary action, its judgments are conclusive in respect to the ultimate questions it was authorized to determine, and as to every question of law or fact necessary to resolve in order to determine the ultimate questions. The conclusive effect of the findings of the Commission is limited to ultimate questions which it was authorized to determine, such as the persons to be enrolled. Statements and recitals in the records of the Commission relating to matters which were incidental and collateral to the ultimate question for determination are not conclusive, but they are admissible in evidence and are entitled to appropriate consideration along with all the other evidence where the question to which they relate is in issue. Norton v. Larney, 266 U.S. 511, 45 S. Ct. 145, 69 L. Ed. 413; United States v. Mid-Continent Petroleum Corporation, 10 Cir., 67 F.2d 37, certiorari denied, 290 U.S. 702, 54 S. Ct. 346, 78 L. Ed. 603; Scott v. Beams, 10 Cir., 122 F.2d 777, certiorari denied, 315 U.S. 809, 62 S. Ct. 794, 86 L. Ed. 1208. The records were clearly admissible, and it is unnecessary to determine whether they were conclusive, prima facie, or otherwise, as additional and independent evidence was introduced relating to the blood of the deceased and of appellant.
It is further contended that the deceased was and the appellant is of mixed blood, part Indian and part Freedman. The effect of this contention is to challenge for want of substantial evidence the finding of the court that the deceased was a full-blood Creek Indian and that appellant is of African descent. It would not serve any useful purpose to review the evidence at length. It is sufficient to say that a pains-taking examination of the record convinces us that the findings are supported by substantial evidence and are not clearly erroneous, due regard being had for the opportunity of the trial court to observe the witnesses, appraise their credibility, and to determine the weight to be given to their testimony. Therefore the findings are not to be overturned on appeal. Prudential Insurance Co. v. Carlson, 10 Cir., 126 F.2d 607; Newell v. Phillips Petroleum Co., 10 Cir., 144 F.2d 338; Davies v. Lahann, 10 Cir., 145 F.2d 656.
The remaining contention which merits attention is that the United States should not be permitted to benefit to the detriment of appellant by the breach of an agreement of counsel. A few days before the cause came on for trial, appellant filed an application for continuance in which it was recited that by oral statement and by letter assurance had been given to the attorney for appellant that the probate attorney would file a motion for judgment on the pleadings and that then the proceeding would be presented to the court only on the issues of law; that relying upon the assurance the attorney for appellant made no preparation for the trial; that at the last minute counsel for the United States reached a contrary conclusion and determined not to file the motion; and that except for the agreement, counsel for the appellant would have been ready to introduce his proof tending to show that Stella Sands was of mixed blood. But appellant only asked for a continuance. Nothing else was sought or even suggested. And while the case was partially heard at the time it was set for trial, a continuance was granted and about six months later the hearing was resumed and completed, without objection or exception on the part of appellant. Manifestly he is not in position now to urge that the United States benefited and he suffered detriment as the result of a breach of agreement between counsel.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549489/ | 146 F.2d 884 (1945)
ATLANTA FLOORING & INSULATION CO., Inc., et al.
v.
RUSSELL.
No. 11110.
Circuit Court of Appeals, Fifth Circuit.
January 30, 1945.
*885 William A. Fuller, Clifford R. Wheeless, and Oliver C. Hancock, all of Atlanta, Ga., for appellants.
Benton E. Gaines and Jos. J. Fine, both of Atlanta, Ga., for appellees.
Before HOLMES, WALLER, and LEE, Circuit Judges.
HOLMES, Circuit Judge.
On this and the preceding appeal, we were given very narrow issues to decide, and in each the record contained only the facts necessary to determine the specific issue presented. In deference to the petition for rehearing, we shall attempt to clarify our opinion.
Summary jurisdiction may not be exercised to determine adverse claims to property not in the actual or constructive possession of the bankrupt at the time the petition in bankruptcy was filed, whether the adverse claimant asserts the absolute *886 title thereto or merely a lien thereon.[1] The mere assertion of an adverse claim is not sufficient. The bankruptcy court has jurisdiction to inquire into the claim for the purpose of ascertaining whether the summary remedy is an appropriate one.[2]
In the absence of a substantial adverse claim, the bankruptcy court has summary jurisdiction to determine controversies relating to property of the bankrupt at the time the petition in bankruptcy was filed.[3] A claim is to be deemed substantial if there are probable facts or circumstances sufficient to support a reasonable legal hypothesis upon which it should be allowed; it is held to be colorable if the contention in support of it is so plainly without merit as to amount to a mere pretense. If found to be merely colorable, the court may then proceed to adjudicate the merits summarily, but if found to be substantial, it must decline to determine the merits and dismiss the summary proceeding.[4] A state court that is enforcing a lien upon specific property when the debtor becomes a bankrupt is entitled to proceed without interference from the bankruptcy court.[5]
The court below at least had summary jurisdiction to inquire into its jurisdiction, and this it failed to do sufficiently. To be more specific, the bankruptcy court has summary jurisdiction to inquire into the character of the suit in the state court in order to determine (1) whether the same was in part superseded by the adjudication in bankruptcy, (2) the nature and amount of the claims propounded therein, (3) the character of the alleged liens therein sought to be enforced, (4) whether said claims are real or merely colorable, (5) the value of the bankrupt's estate in the custody of the state court, (6) which, if any, of such liens were invalidated by bankruptcy, (7) what equity, if any, will probably remain for the benefit of the bankrupt's general creditors after satisfaction of liens not invalidated by bankruptcy, plus costs incurred in the state court, (8) whether simple-contract creditors were entitled to intervene and, if they did so, whether under the law of Georgia a contingent lien on the property possessed by the state-court receiver was created for their benefit, as well as for the benefit of the judgment creditor as held in Straton v. New, 283 U.S. 318, 51 S. Ct. 465, 75 L. Ed. 1060, (9) whether the intervening lienors, under the law of Georgia, are entitled to a lien on the fund by reason of the creditor's suit and, if so, the date or dates on which the lien or liens attached, and (10) any other fact or facts bearing upon the character of the proceeding in the state court or upon the title or possession of the bankrupt's property, and any liens thereon, at the time the petition in bankruptcy was filed. These facts are relevant, if for no other reason, in order to enable the court to determine whether or not to direct its receiver or trustee to intervene in the creditor's suit to protect the interests of the bankrupt estate.
The best evidence of the nature of the proceeding in the state court is the creditor's bill or petition, but it is not fully set forth in the record. It appears from excerpts therefrom that the bill was filed *887 by a judgment creditor on behalf of itself and all other creditors "similarly or dissimilarly" situated. We are not sufficiently advised as to the claims of those "dissimilarly situated." The bill alleged that the defendant was insolvent, and prayed that a receiver be appointed to take over, operate, and sell the defendant's business and entire assets; that all lienholders be required to intervene and be enjoined from foreclosing or changing their liens; that all other creditors be required to intervene and be restrained from prosecuting separate actions; that the rights and remedies of all creditors be established, the assets marshaled, and all creditors paid according to their rank.
Is this a true creditor's suit, a local statutory creditor's suit, a proceeding to enforce a lien upon specific property, an insolvency proceeding, an equity receivership, a special statutory receivership under local law, or a combination of two or more thereof? For a true creditor's bill, see Metcalf v. Barker, 187 U.S. 165, 23 S. Ct. 67, 47 L. Ed. 122. If it is an insolvency proceeding, the burden is on the appellants to show it.[6] State insolvency laws are suspended only to the extent that they actually conflict with federal bankruptcy laws.[7] If they conflict with the Federal Constitution, they are void to the extent of such conflict; for instance, if they provide for the debtor's discharge from the obligation of existing debts.[8] The bankruptcy court has summary jurisdiction to inquire into the matter. Nearly all bankruptcy jurisdiction is summary; if plenary action by the trustee in bankruptcy against an outside party is necessary, it may be brought in another court.[9]
Is this an equity receivership within the meaning of Duparquet Huot & Moneuse Co. v. Evans, 297 U.S. 216, 56 S. Ct. 412, 80 L. Ed. 591, wherein the court distinguishes an equity receiver from a receiver in foreclosure? In that case the court said, at page 222 of 297 U.S., at page 415 of 56 S.Ct., 80 L. Ed. 591: "It is common learning that an equity receiver in suits to conserve the assets or divide them among creditors must yield to a trustee in bankruptcy. Gross v. Irving Trust Co., 289 U.S. 342, 53 S. Ct. 605, 77 L. Ed. 1243, 90 A. L.R. 1215." The quoted sentence is dictum and may be too broad, as the court cites Gross v. Irving Trust Co., wherein bankruptcy supervened within four months of institution of the suit in the state court in which receivers were appointed.[10]
Finally, do we have here a special statutory receivership under the Georgia law, wherein seizure by the receiver was equivalent to an attachment, as in Neely v. McGehee, 5 Cir., 2 F.2d 853, and Blair v. Brailey, supra? We need more facts to answer these questions; the correct answer may turn upon the proper construction of the plaintiff's petition; if it were before us in its entirety, we might determine its nature; but to expect courts to decide cases without sufficient facts may be likened to requiring the ancients to make brick without straw. Ex facto jus oritur. The opinion of this court in Carling v. Seymour Lumber Company[11] will illustrate how necessary it is for us to have additional facts, and it seems that they can be obtained *888 only by the court below in the exercise of its summary jurisdiction.
In an appendix to appellee's petition for a rehearing, we are given some belated facts, which indicate that, in the present state of the record, there is no equity for unsecured creditors in the fund held by the state court. These facts are certified to by the appellee, and appended to his petition; but they may or may not be correct, and therefore we leave them to be presented to the court below in an orderly way, where issue may be taken thereon if desired. Some of these questions will become moot if the court below finds that there are no funds in the state court in excess of the amount needed to pay the judgment creditor and others similarly situated.
On the prior appeal, we held that the judgment creditor's suit in the state court was not superseded by the adjudication in bankruptcy.[12] On this appeal, the effort is to supersede said suit except as to the amount of the plaintiff's debt plus interest and costs. We are holding against this contention, because there are alleged to be a number of other liens on the property, the holders of which are proper, necessary, or indispensable parties to the proceeding to ascertain, marshal, and enforce liens thereon.
The state-court receiver is a ministerial officer, with no powers except those conferred by the order of his appointment and the practice of the court. He is an indifferent person between the parties, and has no title to or lien upon the property in his possession. He is appointed on behalf of all parties who may establish rights in the cause. His custody is that of the court; his right to retain possession is derived from the jurisdiction of the court, the correct exercise of which depends upon the claims of the plaintiff and interveners, and they assert no title to the property, only a lien thereon. One who has no title to property and no lien thereon does not have a substantial adverse claim as against the trustee in bankruptcy.
It must be conceded that the legal title to the res in controversy is in the trustee in bankruptcy, or will vest in him upon his appointment, which title is not affected by the prior possession of the state-court receiver;[13] and that the original plaintiff in the state proceeding is an adverse claimant whose lien (whether inchoate, complete, or contingent) was not invalidated by the adjudication in bankruptcy: but what about the interveners? Some of them may be simple contract creditors, without a lien upon or an interest in the property, who were not entitled to a receiver in order that the property might be forthcoming to satisfy their demands.[14]
Some of the interveners may have acquired liens by legal proceedings within four months of bankruptcy. The contingent lien of interveners in a creditor's suit may attach upon the filing of the bill, upon the appointment of a receiver, upon the service of process, upon the institution of suit and the issuance of process, upon the seizure of the property, or at the time of intervention. It varies in different jurisdictions. The law of Georgia is controlling upon the subject in this case. There is a distinction between the judgment lien given by the laws of some states and the lien that attaches by reason of a creditor's suit. The latter lien does not relate to the date of the judgment, and sometimes it attaches only from the date of an amended bill.[15]
The court below also had summary jurisdiction to appoint a trustee for the bankrupt estate (the creditors having failed to do so) and to direct him to petition the state court for permission to intervene in the creditor's suit as a judgment creditor holding an execution duly returned unsatisfied, and thereby to secure *889 for the general creditors the same character of contingent lien, if any, that the interveners similarly situated obtained by the creditor's suit.[16] Thus all general creditors would be put upon an equal footing as to liens, if any, acquired by the creditor's suit, but the enforcement of other liens, or the priority to which each was entitled, would not be affected.[17] This is a remedy that may have been lost by delay;[18] but if the right to intervene as a plaintiff has lapsed, the trustee may be permitted to intervene as a defendant to protect the interests of the bankrupt estate.
We think the court below should consider this case in its several aspects and determine, within the limits of its summary jurisdiction, what further action of a summary or plenary character should be taken. If it find that there are funds in the custody of the state court that the latter is without jurisdiction to administer, instead of making a peremptory turn-over order the bankruptcy court should appoint a trustee and direct him to make application to the state court to surrender the funds to him as trustee in bankruptcy;[19] and, if plenary action is necessary, it may direct the trustee either to intervene in the state court as plaintiff or defendant or to file an independent action against the state-court receiver in some other court of competent jurisdiction, but comity requires that he be directed to intervene in the state court. An injunction may also be granted in a proper case to prevent the improvident distribution of the fund until the controversy is finally decided, but an injunction to restrain a court may be issued by the bankruptcy court on the order of the judge only.[20] It may not be issued by the referee.[21]
The petition for rehearing should be, and the same hereby is, denied.
NOTES
[1] First National Bank of Chicago v. Chicago Title & Trust Co., 198 U.S. 280, 25 S. Ct. 693, 49 L. Ed. 1051; In re Rudnick & Co., 2 Cir., 160 F. 903; Cooney v. Collins, 9 Cir., 176 F. 189.
[2] May v. Henderson, 268 U.S. 111, 115, 116, 45 S. Ct. 456, 69 L. Ed. 870; Irby v. Corey, 5 Cir., 95 F.2d 963, 964.
[3] Harris v. Avery Brundage Co., 305 U.S. 160, 163, 164, 59 S. Ct. 131, 83 L. Ed. 100; Mueller v. Nugent, 184 U.S. 1, 22 S. Ct. 269, 46 L. Ed. 405.
[4] Harrison v. Chamberlin, 271 U.S. 191, 46 S. Ct. 467, 70 L. Ed. 897.
[5] Carling v. Seymour Lumber Co., 113 F. 482, certiorari denied 186 U.S. 484, 22 S. Ct. 943, 46 L. Ed. 1261; Griffin v. Lenhart, 4 Cir., 266 F. 671; Russell v. Edmondson, 5 Cir., 50 F.2d 175; Bryan v. Speakman, 5 Cir., 53 F.2d 463; Blair v. Brailey, 5 Cir., 221 F. 1, wherein this court (referring to the appointment of receivers in a creditor's suit in a Georgia federal court) said, at page 4 of 221 F.: "What was done amounted to an equitable attachment of the property. * * * There was a `levy' within the meaning of that term as it is used in section 67f of the Bankruptcy Act. * * * And that levy having been made more than four months prior to the filing of the petition in bankruptcy, it was not avoided by the adjudication of bankruptcy made in pursuance of the petition." Citing Metcalf v. Barker, 187 U.S. 165, 23 S. Ct. 67, 49 L. Ed. 122. See also Emil v. Hanley, 318 U.S. 515, 63 S. Ct. 687, 87 L. Ed. 954; Muffler v. Petticrew Real Estate Co., 6 Cir., 132 F.2d 479; In re Kings, P. Co., D. C., Inc., 26 F. Supp. 426; Merry v. Jones, 119 Ga. 643, 46 S.E. 861; Nelson v. Spence, 129 Ga. 35, 58 S.E. 697.
[6] Straton v. New, 283 U.S. 318, 327, 328, 331, 51 S. Ct. 465, 75 L. Ed. 1060.
[7] Stellwagen v. Clum, 245 U.S. 605, 38 S. Ct. 215, 62 L. Ed. 507.
[8] Sturges v. Crowninshield, 4 Wheat, 122, 4 L. Ed. 529; International Shoe Co. v. Pinkus, 278 U.S. 261, 49 S. Ct. 108, 73 L. Ed. 318.
[9] Lavine's Handbook on Bankruptcy, Ch. 2, pp. 6, 7.
[10] Mayer v. Hellman, 91 U.S. 496, 502, 23 L. Ed. 377; Stellwagen v. Clum, 245 U.S. 605, 615, 38 S. Ct. 215, 62 L. Ed. 507; Straton v. New, 283 U.S. 318, 327, 328, 51 S. Ct. 465, 75 L. Ed. 1060; Collier on Bankruptcy, 14th Ed., p. 305; 8 C.J.S., Bankruptcy, § 12.
[11] 5 Cir., 113 F. 483, 488, wherein this court said: "The argument is that the proceeding in the state court is based on the general insolvency laws, and that its purpose is to wind up and distribute the estate of an insolvent debtor. * * * If the state court's jurisdiction depended alone on the insolvent traders' law * * *, its order appointing Carling receiver would be void. * * * But was the jurisdiction of the state court dependent on the validity of these Georgia statutes relating to insolvency? * * * Part of this property, but not all of it, is covered by the mortgages sought to be foreclosed in the state court. No separate questions are raised as to the property not mortgaged. The orders made by the bankruptcy court which are submitted for review and revision relate to all the property held by the receiver. A receiver or trustee, when appointed in the bankruptcy proceeding, while not entitled to the mortgaged property, will be entitled to any excess arising from the foreclosure sale, when made by order of the state court after the payment of the mortgages and costs of foreclosure."
[12] Atlanta Flooring & Insulation Co. v. Oberdorfer Ins. Agency, 5 Cir., 136 F.2d 457.
[13] 11 U.S.C.A. § 110, sub. a.
[14] Kimbrell v. Walters, 86 Ga. 99, 12 S.E. 305; Steele Lumber Co. v. Laurens Lumber Co., 98 Ga. 329, 24 S.E. 755; Smith v. Manning, 155 Ga. 209, 116 S.E. 813.
[15] 21 C.J.S., Creditors' Suits, § 85. In Merchants National Bank of Omaha v. McDonald, 63 Neb. 363, 88 N.W. 492, 89 N.W. 770, an intervener was held to be entitled to a lien on the fund sought to be reached from the date of the intervention.
[16] 11 U.S.C.A. § 110, sub. c.
[17] 21 C.J.S., Creditors' Suits, § 84c.
[18] 11 U.S.C.A. § 29, sub. e.
[19] "While it is a general rule that a federal court may not enjoin proceedings in a state court, an exception is made in cases where such injunction may be authorized by any law relating to proceedings in bankruptcy. Rev.St.U.S., § 720 [28 U.S.C.A. § 379]. When the state court is in possession, through its receiver, of assets that it is without jurisdiction or authority to hold against a receiver or trustee appointed in bankruptcy proceedings, instead of making a peremptory order on the receiver of the state court to surrender the funds, an injunction, if necessary, might be granted by the bankruptcy court to prevent the unlawful distribution of the assets, until application could be made to the state court for an order to its receiver to surrender the assets to the proper custodian." Carling v. Seymour, 5 Cir., 113 F. 483, 491.
[20] 11 U.S.C.A. § 11, sub. a (15); Collier on Bankruptcy, 14th Ed., p. 252 et seq.
[21] 11 U.S.C.A. § 1 (20). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549547/ | 146 F.2d 341 (1944)
McLAIN et al.
v.
LANCE et al.
No. 11118.
Circuit Court of Appeals, Fifth Circuit.
December 20, 1944.
Rehearing Denied January 15, 1945.
*342 Douglas W. McGregor and Charles Murphy, both of Houston, Tex., for appellants.
Russel H. Markwell and Charles J. Stubbs, both of Galveston, Tex., for appellees.
Before HUTCHESON, WALLER, and LEE, Circuit Judges.
WALLER, Circuit Judge.
A group of Texas residents, known as the "Houston Pilots," filed a libel in personam, seeking a declaratory judgment against another group of residents known as the "Galveston Pilots." Libelees moved to dismiss on the grounds: (a) That courts of admiralty are not authorized to render declaratory judgments; (b) that the controversy here is not maritime and hence a court of admiralty has no jurisdiction to determine same; (c) that libelants and respondents are all duly commissioned officers of the United States Coast Guard and the proceeding is one to delineate, restrict, and control the authority of the Coast Guard over its commissioned officers, and that such is beyond the authority of a court of admiralty; (d) that a proceeding between the same parties, over the same subject matter, and for the adjudication of the same controversy was filed in, and the law of the case settled by, the state courts of Texas prior to the institution of the libel in the present case in which the decision was adverse to the contentions of the libelants. See Houston Pilots v. Goodwin et al., Tex.Civ.App., 178 S.W.2d 308, writ of error denied and libelants' (appellants') motion for leave to file a petition for mandamus denied by Supreme Court of Texas, all prior to the bringing of the present suit.
Sometime after the present war began the Galveston and Houston Pilots were taken into the Coast Guard and commissioned as officers; however, they were not placed on a salary but continued to be remunerated entirely from pilotage fees as provided by state law. The authority of the pilots for the Galveston Harbor and of port pilots generally is found in Articles 8270 et seq., and the authority of the Houston Pilots or of pilots in navigation districts such as the Harris County Houston Ship Channel Navigation District is found in Articles 8248 et seq.,[1] of the Revised Civil Statutes of Texas, insofar as such statutes affect registered vessels.
As a precaution against the menace of submarines, merchant vessels not destined for Houston or Galveston were required by the Navy to anchor in waters of Galveston Bay and particularly at or near a portion thereof known as "Bolivar Roads," while awaiting a safe and appropriate time to proceed, either alone or in convoy. Thus many vessels did not enter either the Port of Houston or the Port of Galveston for the purposes of trade and commerce, but only took refuge in the waters of Galveston Bay. The Houston Pilots, both here and in the state suit, have insisted that they have the right to pilot these "refuge vessels" into and out of Bolivar Roads. The Galveston Pilots, both here and in the state suit, have insisted that under Texas statutes Bolivar Roads is within the pilotage area of the Galveston Pilots, within which they and they alone are entitled to pilot vessels coming into or out of Galveston Harbor for Bolivar Roads and to collect the fees therefor, and that the Houston Pilots are entitled to pilotage fees only for vessels entering the waters within the Harris County-Houston Ship Channel Navigation District.
The controversy is one solely between groups of rival pilots and is wholly between *343 citizens of Texas and ultimately involves a construction of Texas statutes prescribing the authority of pilots as instrumentalities of the state government in respect to pilotage in waters in and around Galveston Bay and the Houston Ship Channel. It is not cognizable in federal court under any jurisdictional ground set out in Secs. 41 or 371, of 28 U.S.C.A., unless a case of admiralty jurisdiction is shown under the admiralty clauses of subsections (3) of Sections 41 or 371. If the controversy between these rival pilots is not one which can be maintained in admiralty, then the "actual controversy" required[2] in a proceeding for a declaratory judgment would be absent, even if it be conceded, or ascertained, that a court of admiralty has power to render declaratory judgments.
That this controversy between rival pilots, which involves no vessel, no cargo, no contract, no tort, no owner, claimant, master, or seaman, and calls for no declaration of the law of the sea but for a construction of statutes of Texas relating to the jurisdiction of Gulf, and Navigation district, pilots, is cognizable in admiralty is gravely doubted. Definitely it is not one over which admiralty would have exclusive jurisdiction. Leon v. Galceran, 11 Wall. 185, 78 U.S. 185, 20 L. Ed. 74, 1 Am.Jr. 556, Sec. 18.
Likewise there is much uncertainty as to whether or not a court of admiralty is authorized to render a declaratory judgment.[3]
The lower Court was of the opinion that since Sec. 81(a) (1) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c provides that the Rules do not apply to proceedings in admiralty while Sec. 57 of the Rules provides that the procedure for obtaining a declaratory judgment shall be in accordance with those Rules, the inference is inescapable that the Supreme Court, in the approval of the Rules, had thus expressed the thought that courts of admiralty were not empowered to render declaratory judgments. It was on this reasoning that the lower Court dismissed the libel.
It is not necessary, however, that we decide either of those questions, for even though the controversy were one cognizable in admiralty, and even though courts of admiralty were authorized to render declaratory judgments in such a controversy, the exercise of that power rested in the sound discretion of the lower Court[4] and it could have and doubtless should have, refused to render a declaratory judgment in a case where the state courts of Texas, having concurrent and mayhap exclusive jurisdiction of the same subject matter and of the same parties, had theretofore declared the rights of the parties to pilotage over the waters involved.
Moreover, the rights of the contending parties stem from local statutes of the State of Texas, rather than from maritime contracts of vessels to pay for pilotage services, or because, forsooth, the Navy or Coast Guard might, or might not, in the future make some order or regulation that would affect the parties. Courts do not concern themselves to decide abstract questions.[5]
*344 In Olsen v. Smith, 195 U.S. 332, 25 S. Ct. 52, 53, 49 L. Ed. 224, the Court, in applying an Act of the Legislature of the State of Texas relative to pilotage in Galveston Harbor, said:
"The first contention in effect is that the state was without power to legislate concerning pilotage, because any enactment on that subject is necessarily a regulation of commerce within the provision of the Constitution of the United States. The unsoundness of this contention is demonstrated by the previous decisions of this court, since it has long since been settled that even although state laws concerning pilotage are regulations of commerce `they fall within that class of powers which may be exercised by the states until Congress has seen fit to act upon the subject.' Cooley v. Board of Wardens, 12 How. 299, 13 L. Ed. 996; Ex parte McNiel, 13 Wall. 236, 20 L. Ed. 624; Wilson v. McNamee, 102 U.S. 572, 26 L. Ed. 234."
Sec. 211, 46 U.S.C.A., provides:
"Until further provision is made by Congress, all pilots in the bays, inlets, rivers, harbors, and ports of the United States shall continue to be regulated in conformity with the existing laws of the States respectively wherein such pilots may be, or with such laws as the States may respectively enact for the purpose."
It will be observed that Congress has made no provision in Sec. 191 of 50 U.S.C. A., for the Navy or Coast Guard to take away from the states the right to regulate the fees of pilots in ports of the United States, nor did the Navy or Coast Guard undertake to do so in this instance. Furthermore, there is no allegation that the Secretary of the Treasury ever promulgated the regulation required to put that section into operation.
Any contention that the exclusive jurisdiction to settle the controversy here is, by the Constitution and laws, vested in a court of admiralty is untenable. Leon v. Galceran, supra. Subdivisions (3) of Secs. 41 and 371 of 28 U.S.C.A., each reserve to suitors any common law remedy which the common law was competent to give. A suit by one pilot against another pilot for money had and received, or for money wrongfully collected and converted, would be a common law remedy even though the right were fixed by state statute.
Since the federal courts would be bound by the construction of state statutes by state courts, they are encouraged to remit the construction of state statutes to state courts whenever there is a discretion in the federal court so to do, and the immediacy of an authoritative state court decision is obvious. In City of Chicago v. Fieldcrest Dairies, 316 U.S. 168, 62 S. Ct. 986, 987, 86 L. Ed. 1355, the complaint prayed for a declaratory judgment as to the meaning and effect of certain local laws. The Court said:
"We granted the petition for certiorari * * * because of the doubtful propriety of the District Court and of the Circuit Court of Appeals in undertaking to decide such an important question of Illinois law instead of remitting the parties to the state courts for litigation of the state questions involved in the case. Railroad Commission v. Pullman Co., 312 U.S. 496, 61 S. Ct. 643, 85 L. Ed. 971.
"We are of the opinion that the procedure which we followed in the Pullman case should be followed here. Illinois has the final say as to the meaning of the ordinance in question. It also has the final word on the alleged conflict between the ordinance and the state Act. The determination which the District Court, the Circuit Court of Appeals or we might make could not be anything more than a forecast a prediction as to the ultimate decision of the Supreme Court of Illinois. Here as in the Pullman case `a federal court of equity is asked to decide an issue by making a tentative answer which may be displaced tomorrow by a state adjudication.' 312 U.S. at page 500, 61 S.Ct. at page 645, 85 L. Ed. 971."
* * * * *
"The desirability of the course which we have suggested is not embarrassed by any question as to whether ready recourse may be had to the state courts. The availability of the state tribunal is obvious, since a case involving substantially identical issues and brought by respondent's parent *345 corporation is pending in the state court." (Italics supplied.)
And in Meredith v. Winter Haven, 320 U.S. 228, text 236, 64 S. Ct. 7, 12, this language was used:
"It is the court's duty to do so when a suit is pending in the state courts, where the state questions can be conveniently and authoritatively answered, at least where the parties to the federal court action are not strangers to the state action. City of Chicago v. Fieldcrest Dairies, 316 U.S. 168, 62 S. Ct. 986, 86 L. Ed. 1355."
In these cases the mere pendency of an action in the state court was considered as sufficient grounds for justifying the federal court, in the exercise of its discretion, to remit the parties to the state court for a declaration, or determination, of rights under state statutes. In the present case not only is a case pending, but it is one in which the state courts, by an opinion in 178 S.W.2d 308, 312, had already declared what the pilotage rights of the parties were.[6]
Where a State Court, having jurisdiction in a suit between the same parties over the same subject matter, has defined and declared the rights of the parties, the federal District Court, acting as a court of *346 admiralty or otherwise, is without power to redeclare, review, or set aside such judgment or decree of the state court, whether it be interlocutory or final, because it is not a court of review for either state or federal cases.
Moreover, the purpose of the Declaratory Judgment Statute is to adjudicate rights of parties who have not otherwise been given an opportunity to have those rights determined, for in Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 57 S. Ct. 461, 463, 81 L. Ed. 617, 108 A.L.R. 1000, this significant statement is found:
"Defendants have not instituted any action wherein the plaintiff would have an opportunity to prove the absence of the alleged disability * * *."
In United States Fidelity & Guaranty Co. v. Koch, 3 Cir., 102 F.2d 288, text 294, the Third Circuit said:
"An obvious and principal reason for the exercise of such discretion is found in the existence of a suit whose determination in another court will ultimately decide the liability of the party petitioning for a declaration. If the petition for a declaration is filed after the commencement of such suit, it should be dismissed, 16 American Jurisprudence sec. 14."
In Aetna Casualty & Insurance Co. v. Quarles, 4 Cir., 92 F.2d 321, 324, Judge Parker, in speaking of the discretion of the Court in matters relating to declaratory judgments, said:
"* * * but it should not be exercised for the purpose of trying issues involved in cases already pending, especially where they can be tried with equal facility in such cases, or for the purpose of anticipating the trial of an issue in a court of co-ordinate jurisdiction. The object of the statute is to afford a new form of relief where needed, not to furnish a new choice of tribunals or to draw into the federal courts the adjudication of causes properly cognizable by courts of the state. See Associated Indemnity Co. v. Manning, D.C., 16 F. Supp. 430."
It appears here that what the libelants need is not so much a declaration of their rights as a different declaration thereof.
Even though a court of admiralty had jurisdiction of the subject matter, its jurisdiction is not exclusive in a personam action such as this,[7] and even though it were authorized to render a declaratory judgment, which we leave undecided, such a court would not exercise such power to overturn a prior judgment of a state court of concurrent and competent jurisdiction between the same parties and involving the same questions. No litigant is entitled to two declarations of the same right.
*347 It is true that the case in the state court is still pending at least on the question of what amount, if any, the Galveston Pilots are entitled to recover from the Houston Pilots, and the judgment is not res judicata of the entire case, but the law of the case has been declared. This declaration of rights, although not in the form of a final judgment in the sense of the conclusion of the case, nevertheless it was rendered out of necessity for the court to finally determine the question of venue or the right of the Galveston Pilots to sue the Houston Pilots in the County of Galveston, same being a county where the defendants did not reside. Since the Houston Pilots did not reside in Galveston County, it was necessary for the plaintiffs to show that the cause of action arose in Galveston County. To this end testimony was taken, and the Court, after investigating the law and the facts, held that the Houston Pilots had committed a trespass in Galveston County, Texas, against the rights of the plaintiffs, and that, therefore, the suit could be maintained in Galveston County. Apparently the Court determined from the evidence and the statutes, as distinguished from the pleadings, that the Houston Pilots had committed a trespass against the Galveston Pilots in charging pilotage on ships not within the scope of their authority under the Texas statutes relating to pilots in navigation districts such as the Harris County-Houston Ship Channel Navigation District. The Supreme Court of Texas declined to review this holding, and we take it that the law of the case involving these same rights has been settled by the Texas courts, and even though they have not already been embodied in a judgment final in form they have been adjudged in an order having the attribute of finality in effect.
Since it would have been a proper exercise of the lower Court's discretion to have dismissed the cause for the reasons set forth herein, the judgment will not be reversed even if the reasons assigned by the lower Court were by us held to be unsound.
Affirmed.
HUTCHESON, Circuit Judge (dissenting).
As the majority opinion well says, this is a "controversy between rival pilots which involves no vessel, no cargo, no contract, no tort, no owner, claimant, master, or seaman, and calls for no declaration of the law of the seas but for a construction of statutes of Texas relating to the jurisdiction of Gulf, and navigation district, pilots." This being so, the court below was without jurisdiction of the libel and should have dismissed it on that ground. If I am correct in this, this court, on a review of the lower court's judgment, would be confined to reversing the judgment and ordering the libel dismissed for want of jurisdiction. I, therefore, dissent from the decision of the appeal on the assumption that there was jurisdiction in the Court below.
NOTES
[1] Article 8249, with reference to pilotage in inland ports, provides:
"Such navigation district shall have exclusive jurisdiction as hereinafter defined over the pilotage of boats between the Gulf of Mexico and their respective ports, as well as of intermediate stops or landing places for such boats upon navigable streams wholly or partly within such navigation districts."
[2] The Declaratory Judgment Statute, Sec. 400, 28 U.S.C.A., provides that "The application shall be by petition to a court having jurisdiction to grant the relief." (Italics supplied.)
[3] In Streckfus Steamers, Inc., v. Vicksburg, 5 Cir., 81 F.2d 298, 299, Judge Sibley questioned the power of a court of admiralty to render a declaratory judgment. Said he:
"That act is expressed to be an amendment of the Judicial Code by adding the new legislation (section 274d, 28 U.S.C.A. § 400, and note) after section 274c (28 U.S.C.A. § 399). The mentioned section and those preceding it have no reference to courts of admiralty, but only to suits at law and in equity, and it is at least doubtful whether courts of admiralty are within the new act."
[4] Brillhart, Adm'r, v. Excess Insurance Co. of America, 316 U.S. 491, 62 S. Ct. 1173, 86 L. Ed. 1620; Western Electric Co. v. Hammond, 1 Cir., 135 F.2d 283; Associated Indemnity Corporation v. Garrow Co., 2 Cir., 125 F.2d 462; Maryland Casualty Co. v. Consumers' Finance Service, 3 Cir., 101 F.2d 514; Maryland Casualty Co. v. Boyle Construction Co., 4 Cir., 123 F.2d 558; Maryland Casualty Co. v. Falkner, 6 Cir., 126 F.2d 175; American Automobile Insurance Co. v. Freundt, 7 Cir., 103 F.2d 613; Delno v. Market St. Ry. Co., D.C., 38 F. Supp. 341; Id., 9 Cir., 124 F.2d 965; Washington Terminal Co. v. Boswell, 75 U.S.App.D.C. 1, 124 F.2d 235, text 251.
[5] In Ashwander v. Tennessee Valley Authority, 297 U.S. 288, text 325, 56 S. Ct. 466, 473, 80 L. Ed. 688, the Court, in speaking of the Declaratory Judgment Act, said:
"By its terms, it applies to `cases of actual controversy', a phrase which must be taken to connote a controversy of a justiciable nature, thus excluding an advisory decree upon a hypothetical state of facts."
[6] "The evidence showed that for many years prior to 1942, the Houston pilots and the Galveston pilots worked under an arrangement which they found satisfactory, and by which they preserved harmony. As pointed out above, both sets of pilots maintain pilot boats outside the Galveston Bar. When a ship was solicited or `spoken' outside the Bar, if she was under orders making Houston or Baytown her destination, she was boarded by a Houston pilot and brought in. If Galveston or Texas City was her destination, then a Galveston pilot brought her in. This conformed to law, for only a branch pilot for the Port of Galveston-Texas City is authorized or licensed to bring in a ship destined for Galveston or Texas City; and vice versa with reference to a vessel bound for Houston. But it would sometimes happen that a vessel when spoken had orders to go to Bolivar Roads and wait there for orders. Under the arrangement spoken of above, if a ship when spoken was found to be bound for Bolivar Roads, the pilots would indiscriminately bring her in. And if she thereafter proceeded to Houston, and had been brought in by a Galveston pilot, the Galveston pilots released the pilotage on her to the Houston pilots. If, however, she thereafter proceeded to Galveston, or was diverted so that she put back to sea, and had been brought in by a Houston pilot, the pilotage on her was released to the Galveston pilots by the Houston pilots.
"There was nothing unlawful in such an arrangement. If a ship was bound for Houston, her pilotage fell under the jurisdiction of the pilot commissioners for Harris County Houston Ship Channel Navigation District. But if it was not so bound, the pilotage of her did not fall within such jurisdiction, as will hereafter appear. The arrangement between the two sets of pilots therefore merely provided for a retroactive correction to conform to the destination of the ship when it became known. The pilots of either port were licensed to perform the mere act of pilotage into the Roads, dependent upon the ship's destination. But by Art. 8249, it is provided (with reference to inland ports): `Such navigation districts shall have exclusive jurisdiction as hereinafter defined over the pilotage of boats between the Gulf of Mexico and their respective ports, as well as intermediate stops or landing places for such boats upon navigable streams wholly or partly within such navigation districts.' * * * Therefore, full and exclusive jurisdiction thereover was vested in such district. The legislative purpose to this effect is clear. It is equally clear that the legislature meant to limit the exclusive jurisdiction thus conferred to such as was thereby granted. The Legislature knew that boats moving between inland ports and the open sea must move through waters over which the pilot commissioners of seaports had the general or residuary jurisdiction. And it was necessary to provide against any conflict of jurisdiction.
"Now the harbor lines of Galveston Harbor begin in the Gulf a mile south of and beyond the sea end of the jetties. Olsen v. Smith, Tex.Civ.App., 68 S.W. 320 (error denied), 195 U.S. 332, 25 S. Ct. 52, 49 L. Ed. 224. They extend north to the south line of Harris County Houston Ship Channel Navigation District, which crosses the Houston Ship Channel between Cedar Bayou and Morgan's Point. Included within the lines of Galveston Harbor are the Galveston docks, the Texas City Docks and Bolivar Roads. Bolivar Roads is as much within the residuary jurisdiction over pilotage which is vested the pilot commissioners of the Port of Galveston-Texas City as are the docks at Galveston and at Texas City. There is no language in the statute that excludes the jurisdiction of said pilot commissioners over the pilotage of boats which are piloted into the Roads which merely anchor there and return to sea, or proceed to Galveston. It would be unjust to exclude said commissioners from exercising jurisdiction over the pilotage of boats from the Roads to docks within Galveston Harbor, and of no benefit to commerce moving between Houston and the open sea, and such pilotage, within the language of Art. 8249, stands upon the same footing as boats bound for the Roads and back to sea; therefore no such intention will be attributed to the Legislature. State v. Mauritz-Wells Co. [141 Tex. 634], 175 S.W.2d 238, and cases there cited. A boat moving from the Gulf of Mexico into the Roads, and back out to sea, is not a boat which is piloted between the Gulf and Houston, nor one which is piloted between the Gulf and `Intermediate stops or land places for such boats upon streams wholly or partly within such navigation district.' Bolivar Roads is not a stop or landing place upon a stream wholly or partly within Harris County Houston Ship Channel Navigation District. It is upon no stream at all.
* * * * *
"From what has been said, it follows that appellants were by law charged with knowledge that appellees had the exclusive right or license to pilotage of ships which were brought into Galveston Harbor solely for the purpose of the anchorage therein, and return to open sea. The evidence fully established that the Houston pilots intentionally and willfully boarded such ships and piloted them in, though the rights to such pilotage belonged to the Galveston pilots. Therefore the Houston pilots intentionally trespassed upon appellees' said right of pilotage, so as to render themselves liable in an action of trespass upon the case.
* * * * *
"We overrule appellants' contention that the pleadings and the evidence were insufficient to sustain venue facts necessary to be pled and proved in order to maintain the action against the `Houston Pilots' in Galveston County, under Subdivision 23 of Art. 1995."
[7] Leon v. Galceran, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549569/ | 140 B.R. 1005 (1992)
In re Charles Paul CULP, Debtor.
P. David NEWSOME, Jr., Trustee, Plaintiff,
v.
Charles Paul CULP, Defendant.
Bankruptcy No. 91-03050-W, Adv. No. 91-0354-W.
United States Bankruptcy Court, N.D. Oklahoma.
June 2, 1992.
*1006 *1007 G.W. Turner, III, Tulsa, Okl., for plaintiff.
Charles Paul Culp, pro se.
ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
MICKEY DAN WILSON, Bankruptcy Judge.
Upon consideration of the record in the above-styled case and adversary proceeding, and in Case No. 88-01859-W (SIPA) In re Fitzgerald, De Arman & Roberts, Inc., Adv. No. 90-0045-W Newsome v. Culp, the Court determines, concludes and orders as follows.
The Court adopts and incorporates herein by reference its "Order Granting Partial Summary Judgment" in Case No. 88-01859-W (SIPA) In re Fitzgerald, De Arman & Roberts, Inc., Adv. No. 90-0045-W Newsome v. Culp, published as In re Fitzgerald, De Arman & Roberts, Inc. Newsome v. Culp ["In re FDR"], 129 B.R. 652 (B.C., N.D.Okl.1991), which identifies the parties and makes certain determinations of fact and conclusions of law.
By said order, on July 16, 1991, this Court ruled that the D'Oench, Duhme doctrine applied in favor of SIPC, and that accordingly Culp owed the Trustee a debt on a promissory note (after setoff of $5,000 owed to Culp) "in the net amount of $555,181.01" not counting any interest, attorney fees, and costs. After trial on August 12, 1991, the Court determined that Culp also owed the Trustee $171,284.74 for prejudgment interest "in accordance with the express terms of the note," postjudgment interest "relating to principal and interest under the note . . . at the rate of 12 percent per annum," attorney fees of $9,197.50 "as provided by the express terms of the . . . note," and court costs of $120.00, all as evidenced by a "Judgment" filed on August 15, 1991.
*1008 Less than two weeks after filing of the judgment, i.e. on August 28, 1991, Culp and his wife Alice Ruth Culp filed their joint voluntary petition for relief under 11 U.S.C. Chapter 7 in this Court. In said case, the last day to file complaints seeking exception to discharge was fixed as November 19, 1991, and before expiration of said period was extended to December 19, 1991.
On December 19, 1991, the Trustee filed his complaint commencing the present adversary proceeding, seeking "judgment . . . determining Culp's debt to the Trustee in the amount of $735,783.25 to be nondischargeable under both 11 U.S.C. § 523(a)(2)(A) and § 523(a)(6)." This sum represents the net amount of the note plus prejudgment interest, attorney fees and court costs as determined by the prior judgment, but does not include postjudgment interest as awarded by the prior judgment. On January 9, 1992, Culp filed his "Answer . . ." pro se. Culp alleges at least one new fact, i.e. "that at least two other traders for FDR accounts were asked to sign notes for FDR under like circumstances, but refused to do so," answer p. 2 ¶ 3. On March 6, 1992, the Trustee filed his ". . . Motion for Summary Judgment" and a ". . . Brief in Support . . ." thereof. On March 23, 1992, Culp filed his response to the motion for summary judgment and brief in support thereof; but his response does not squarely meet the legal points asserted by the Trustee. As is its usual practice, "[t]his Court will not grant summary judgment merely in default of a[n adequate] response . . . [but] will consider whether or not the motion itself is sufficient to overcome the answer," In re FDR, 129 B.R. p. 657.
As a preliminary matter, Culp expresses his "feel[ing]" that
. . . this Court's continued participation in this matter could place the Court in an embarrassing situation. [Culp] is in possession of [the order In re FDR] stating the Court's opinion of [Culp], as determined in a previous motion by the Trustee. It would seem to place the Court in the position of being forced to reverse its previous decision in order to find in [Culp]'s favor in this proceeding. It also would appear that the Court's Judgement would precede this hearing. The Court has a reputation for fairness and justice. Therefore, [Culp] will not ask the Court to disqualify itself from further participation in this matter, only that the Court give serious consideration to these points and to inform [Culp] of its decision,
answer pp. 1-2 § 2. Judges are required to consider their own actual impartiality and the reasonable appearance of impartiality before permitting themselves to render judgment, 28 U.S.C. § 455. However, judges are not expected to disqualify themselves merely because they have made some previous ruling against someone, Frates v. Weinshienk, 882 F.2d 1502, 1506 (10th Circ.1989), cert.den. 494 U.S. 1004, 110 S. Ct. 1297, 108 L. Ed. 2d 474 (1990), quoting In re Corrugated Container Antitrust Litigation, 614 F.2d 958, 965 (5th Circ.), cert.den. 449 U.S. 888, 101 S. Ct. 244, 66 L. Ed. 2d 114 (1980). After all, judges must rule "for" someone and "against" someone every time they rule at all; and it is unreasonable to expect a new judge to be called in for each consecutive ruling in a continuing dispute between two parties. In its previous ruling In re FDR, the Court was not required to decide whether it believed Culp's version of events to be credible, or to make any other subjective commitment which might result, or reasonably seem to result, in personal prejudice. The Court accepted Culp's version of events as true, 129 B.R. p. 656, gave Culp the benefit of the doubt despite his failure to respond to the Trustee's motion for summary judgment, 129 B.R. p. 657, and ruled on the legal and equitable consequences of the situation, 129 B.R. p. 661. If Culp was condemned in In re FDR, he was condemned "out of [his] own mouth," 129 B.R. p. 662. Loosely speaking, Culp might be said now to ask the Court "to reverse its previous decision." This alone is not ground for judicial disqualification for example, a Court is asked to reverse itself every time a motion is made to reconsider or for rehearing, yet such motions are not unusual and normally do not have to be heard by a different judge, F.R.B.P. 9023, *1009 9024, F.R.Civ.P. 59, 60. Moreover, strictly speaking, in this instance the Court is not asked to "reverse" its prior order, but to take the prior order as given and to determine its effect in the new situation of Culp's personal bankruptcy. What the Court determined in In re FDR was whether Culp owed a debt; what must be determined now is whether the debt that Culp owes is dischargeable. The Court is well aware that these are two different questions. The answer to the first question may, as a technical matter of law, influence the answer to the second as the Trustee argues, and as will be discussed below. But there is no "prejudgment" in the mind of the Court. This Court is as capable as any other of determining the effect of a previous order even though the order happens to be this Court's own. This Court knows no reason why it should disqualify itself.
The Trustee's motion for summary judgment invokes the doctrine of collateral estoppel.
Federal courts have traditionally adhered to the related doctrines of res judicata and collateral estoppel . . . Under collateral estoppel, or issue preclusion, once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case,
Northern Natural Gas Co. v. Grounds, 931 F.2d 678, 681 (10th Circ.1991).
Although the bankruptcy court in a dischargeability action under [§] 523(a) ultimately determines whether or not a debt is dischargeable, . . . the doctrine of collateral estoppel may be invoked to bar relitigation of the factual issues underlying the determination of dischargeability . . . Consequently, collateral estoppel is binding on the bankruptcy court and precludes relitigation of factual issues if (1) the issue to be precluded is the same as that involved in the prior [trial court] action, (2) the issue was actually litigated by the parties in the prior action, and (3) the [prior trial] court's determination of the issue was necessary to the resulting final and valid judgment,
In re Wallace, 840 F.2d 762, 764-765 (10th Circ.1988); and see In re Tsamasfyros, 940 F.2d 605, 606-607 (10th Circ.1991). Moreover, "the fact that a bankruptcy debtor appeared pro se in a prior [trial] court proceeding does not lessen the collateral estoppel effect of the [prior trial] court judgment," In re Tsamasfyros, 940 F.2d p. 607, at least where debtor "could not complain that he was denied a full and fair opportunity to present his case or litigate the relevant issues," id.
In In re FDR, this Court found that Culp executed a note to FDR for $560,181.01; that Culp never actually borrowed that amount or received any property worth that amount from FDR; that Culp executed the note at the request of FDR's management; that FDR's management promised Culp they would not try to collect from him on the note, but would use the note merely to establish the existence of an asset valued at half a million dollars; that this bogus asset would serve to inflate FDR's "net capital ratio" in a manner that management hoped would lull and satisfy Federal regulators and inspectors; and that, notwithstanding this deception, FDR eventually failed to maintain an acceptable net capital ratio and as a result was closed down by Federal regulators. The Court found "Culp's admitted knowing participation in a scheme to mislead regulators," whose "fraudulent purpose was known to Culp at the time," 129 B.R. p. 661. The Court concluded that under such circumstances, "Culp is not permitted to raise lack of consideration or any alleged secret agreement not to collect the note as defenses to suit on the note," id. p. 662.
The findings were based on Culp's own admissions in his answer to a complaint, and were made in the course of ruling on a motion for summary judgment to which no response was filed but which was considered by the Court on its own merits and not merely granted in default of a response, In re FDR, 129 B.R. pp. 656-657. Under these circumstances, these issues were "actually litigated" in the prior action, in that Culp was given "a full and fair opportunity to present his case." All of these determinations were necessary to the *1010 Court's final judgment in favor of the Trustee. These matters, having once been litigated and determined, shall not be relitigated and re-determined. The question remains whether these matters, previously established in litigation over existence of a debt, suffice also to show nondischargeability of said debt.
The Trustee proposes, first, that Culp's debt is excepted from discharge under 11 U.S.C. § 523(a)(2)(A), which provides that
. . . A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud . . .
The statute requires that (1) money, property, services, or credit, (2) must be obtained (3) by falsehood or actual fraud. Caselaw seems to have added another requirement, namely (4) "reasonable reliance." This Court must determine whether the undisputed facts in this case satisfy these requirements.
Culp argues that he "obtained" no "money, property, services, or . . . credit," because his note on which the Trustee's claim is based was a bogus note, issued without actually borrowing any money or obtaining any benefit, and serving only to inflate FDR's net capital ratio in order to deceive Federal regulators. Culp is estopped from asserting that he "obtained" nothing by the note, In re FDR, supra; this has already been determined once and will not be litigated again; and these requirements of § 523(a)(2)(A) must be deemed to be satisfied.
§ 523(a)(2)(A) is intended to except from discharge "only those frauds involving moral turpitude or intentional wrong, and does not extend to frauds implied in law which may arise in the absence of bad faith or immorality," In re Black, 787 F.2d 503, 505 (10th Circ.1986). Accordingly, "false pretenses, false representations, or actual fraud" are understood to require "a . . . willful misrepresentation . . . made with the intent to deceive . . .," In re Mullet, 817 F.2d 677, 680 (10th Circ.1987). Culp issued his bogus note knowingly and deliberately. By so doing, he falsely represented the existence and face value of an asset of FDR; he knew this representation was false when he made it; he knew that this false representation would be offered to any parties inquiring about FDR's solvency or "net capital ratio"; he knew that FDR's management intended anyone making such inquiries to accept the note at (or at least near) face value; and he meant to do what he could to satisfy management's expectations. Although the initiative for the deception came from FDR's management, Culp made himself an active and willing part of it. Although his misrepresentation was indirect, it was nevertheless intended, by Culp as well as by his employers, to deceive those inquiring into FDR's net capital ratio. Under these circumstances, these requirements of § 523(a)(2)(A) are satisfied.
Implicit in the term "obtained" is a causal connection between the uttering of the falsehood and the rendering of money, property, etc. that is, the creditor must rely on the false representation in making his decision to lend money, transfer property, or provide services or credit. See generally Prosser, Handbook of the Law of Torts (4th ed., Hornbook Series, 1971) Ch. 18 § 108. The notion of "reliance" as an element of "obtaining" was developed by case law under the statutory ancestors of § 523(a)(2), namely §§ 14c(3) and 17a(2) of the former Bankruptcy Act of 1898-1978 ("the Act"). Cases are many for a partial listing, see 1A Collier on Bankruptcy (14th ed. 1978) ¶ 14.34 pp. 1378-1379 n. 14, § 17.16 pp. 1636-1638 n. 17. These cases fall into four groups; only a few representative examples will be cited for each group.
One group simply inquired whether a creditor actually relied on a debtor's false representations, e.g. In re Kaplan, 141 F. 463 (E.D.Pa.1905), In re Jaffe, 20 F.2d 370 (2nd Circ.1927), International Shoe Co. v. Kahn, 22 F.2d 131 (4th Circ.1927), In re Hochberg, 17 F. Supp. 916 (W.D.Penn.1936), In re Livermore, 96 F.2d 93 (2nd Circ. 1938), Crue v. Timmer, 119 F.2d 415 (6th *1011 Circ.1941), Eline v. Richard, 296 Ky. 283, 176 S.W.2d 697 (1943, reh. den.1944), In re Savarese, 56 F. Supp. 927 (E.D.N.Y.1944), Banks v. Siegel, 181 F.2d 309 (4th Circ. 1950), Rustuen v. Apro, 40 Wash.2d 395, 243 P.2d 479 (1952), Industrial Bank of Commerce v. Bissell, 219 F.2d 624 (2nd Circ.1955), In re Freeman, 131 F. Supp. 437 (S.D.Cal.1955), M-A-C Loan Plan, Inc. v. Crane, 4 Conn.Cir. 29, 225 A.2d 33 (1966).
A second group noted that actual reliance is often difficult to prove directly; its existence (or nonexistence) must be inferred from various circumstances. Such cases inquired whether reliance under particular circumstances was so incredible or "unreasonable" that there could not have been any reliance at all i.e., whether under such circumstances it could be inferred or presumed that no actual reliance had occurred. The word "reasonable" here meant "credible, plausible, might actually have happened." See e.g. In re Reed, 191 F. 920, 930 (W.D.Okl.1911) ("the conclusion is only reasonable that the creditor parted with the merchandise on the strength of the representation"); In re Neuman, 251 F. 667, 668 (D.Mon.1917) ("It is reasonable to believe . . . that Neuman's statement was relied upon by his creditor, and induced in whole or in part the credit that followed it"); Bank of Monroe of Monroe, Neb., v. Gleeson, 9 F.2d 520, 522 (8th Circ. 1925) (". . . it is difficult to conclude that a reasonable man would give a statement any weight under such circumstances and it is strong proof that no such weight was given"); In re Sheridan, 34 F. Supp. 286, 289 (D.N.J.1940) quoting In re Reed, supra; In re Anderson, 104 F. Supp. 599, 603, 605 (E.D.Wis.1952) ("incredible . . . untrustworthy and improbable"); Public Finance Corp. of Warren No. 5 v. Callopy, 164 N.E.2d 205, 208 (Ravenna, Ohio Mun.Ct. 1959) ("preposterous"); Associates Consumer Finance Co. v. Crapo, 21 Mich.App. 195, 175 N.W.2d 315, 317 (1970) ("Common sense and ordinary procedure indicates that the [creditor's] manager was aware . . . that he relied . . . ").
A third group ruled that reliance, even if it actually occurred, was to be discounted if it was not "reasonable." The word "reasonable" here meant "wise, prudent, should ideally have happened." Creditors who actually relied on false representations were denied exception from discharge, and admittedly fraudulent debtors were granted the benefit of full discharge, because in some judge's opinion such creditors should not have been so trusting. Some of these cases seem to invoke "reasonable/prudent" reliance as an element of the debt itself, or as bearing on the relative equities in imposition of a constructive trust on property of the bankruptcy estate. But some courts did allow such considerations to seep into the law of exception to discharge, In re Lustgarten, 289 F. 481 (2nd Circ.1923). This result was uncalled-for by the language of the bankruptcy statute, which said nothing about "reasonable" reliance (except as implied by the statutory word "obtained"). It was unjustified by the purpose of the statute, which has ever been to except from discharge "frauds involving moral turpitude," In re Black, supra; 3 Collier on Bankruptcy (15th ed. 1992) ¶ 523.08[4], [5]; 1A Collier on Bankruptcy (14th ed. 1978) ¶ 17.16[3], of which the most turpid frauds are surely those perpetrated on unusually trusting creditors. It was at odds with fundamental bankruptcy policy, which is to grant discharge only to "`honest but unfortunate debtor[s],'" Grogan v. Garner, 498 U.S. ___, ___, 111 S. Ct. 654, 659, 112 L. Ed. 2d 755, 765 (1991) quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S. Ct. 695, 699, 78 L. Ed. 1230, 1235 (1934), not to dishonest debtors fortunate enough to have gullible creditors. And it was contrary to the usages of equity, whose general rule is that "even the foolishly credulous" deserve protection "against the machinations of the designedly wicked," 37 AM.JUR.2D (1968) "Fraud and Deceit" § 247 p. 329.
The U.S. Supreme Court directed lower courts to concentrate on the reality rather than the propriety of reliance. In Gerdes v. Lustgarten, 266 U.S. 321, 326, 45 S. Ct. 107, 109, 69 L. Ed. 309, 312 (1924), the Supreme Court held that, where a debtor had succeeded in misleading a creditor by inducing actual reliance upon a false statement, "it does not lie in his mouth to say that, by reason of extrinsic circumstances, *1012 the creditor was not justified in relying upon it." The Supreme Court's directive was followed by the Court of Appeals of this Circuit, which treated reliance simply as a matter of "proximate result" or "actual . . . effect . . .," Mullen v. First Nat'l Bank of Ardmore, Okl., 57 F.2d 711, 712, 713 (10th Circ.1932), or "`proximate cause,'" Wolfe v. Tri-State Insurance Co., 407 F.2d 16, 19 (10th Circ.1969); and see In re Vickers, 577 F.2d 683, 687 (10th Circ. 1978).
A fourth group of cases neglected the Supreme Court's ruling in Gerdes v. Lustgarten, and continued to speak of "reasonable" as distinct from "actual" reliance, though in terms that were ambiguous, confusing and perhaps confused, e.g. In re Matera, 436 F. Supp. 947 (E.D.Wis.1977), In re Smith, 424 F. Supp. 858 (M.D.La.1976), Kentile Floors, Inc. v. Winham, 440 F.2d 1128 (9th Circ.1971). A line of cases developed in the 7th Circuit which gave lip service to a separate requirement of "reasonableness," yet applied it in such a way that it amounted to nothing more than the usual requirement of actual reliance, Carini v. Matera, 592 F.2d 378 (7th Circ.1979), In re Garman, 643 F.2d 1252 (7th Circ.1980), cert. den. 450 U.S. 910, 101 S. Ct. 1347, 67 L. Ed. 2d 333 (1981).
In 1960, Act §§ 14c(3) and 17a(2) were both amended. § 14c(3), which had provided denial of discharge for debtors who "obtained" money, property or credit by means of false written financial statements, was narrowed so as to apply only to business debtors. § 17a(3), which had excepted from discharge debts for money, property or credit "obtained" by deceit generally, was given a new clause expressly including deceit by the use of false written financial statements. For the first time, the word "reliance" appeared in the statutory text itself but only in the new part of § 17a(2) referring to false written financial statements. This seems to have been a mere accident of phraseology, with no intent to change current caselaw, which already required actual reliance as an element of both §§ 14c(3) and 17a(2), 1A Collier on Bankruptcy (14th ed. 1978) ¶¶ 14.34, 14.35, 14.36, 14.39 pp. 1395-1396 n. 9, 17.01[3.1], 17.16[1], [3] pp. 1635-1638 n. 17.
When the Bankruptcy Code ("the Code") was enacted in 1978, Act § 14c(3) was abolished; and Act § 17a(2) was replaced by Code § 523(a)(2). Like Act § 17a(2), Code § 523(a)(2) has two parts: the first part, now formally designated (A), deals with deceits generally; the second part, now formally designated (B), deals with one type of deceit in particular, the false written financial statement. Like Act § 17a(2), Code § 523(a)(2) makes no mention of reliance at all in its first part (A), but expressly mentions reliance in its second part (B). Unlike Act § 17a(2), Code § 523(a)(2)(B)(iii) expressly requires that "the creditor . . . reasonably relied . . ." Committee reports suggest that considerations of "reasonable" reliance bear on § 523(a)(2)(B) alone, H.Rep. No. 95-595 (1977) p. 364; S.Rep. No. 95-989 (1978) p. 78, U.S.Code Cong. & Admin.News 1978, 5787.
What to make of this is not clear. On the one hand, § 523(a)(2)(B)(iii) may be merely the result of the Code's mechanical adaptation of § 17a(2)'s accident of phraseology, adding nothing to the requirement of actual reliance already implicit in the statutory word "obtained," and meaning nothing different from § 523(a)(2)(A) despite the difference in wording. On the other hand, § 523(a)(2)(B)(iii) may indicate Congressional intent to require something more than "reasonable/actual" reliance, in the nature of "reasonable/prudent" reliance, for purposes of § 523(a)(2)(B) alone. The latter possibility seems at first unlikely, since it would impute to Congress an intent not only to overrule prior statutory and case law, but also to contradict basic bankruptcy policy and the norms of equity. But in 1960, Congress had noted some extreme abuses of written financial statements by creditors whose lack of scruple equalled or exceeded that of dishonest debtors, 1A Collier on Bankruptcy (14th ed. 1978) ¶ 14.34 pp. 1376-1377, quoting S.Rep. No. 1688, 86th Cong., 2d Sess. (1960); and such sordid practices had also been noted from time to time in caselaw, In re Sabsevitz, 197 F. 109 (S.D.N.Y.1912), In re Berberich, 190 F.2d 53 (7th Circ.1951), In re Anderson, supra, Public Finance *1013 Corp. of Warren No. 5 v. Callopy, supra, Sweet v. Ritter Finance Co., 263 F. Supp. 540 (W.D.Va.1967), In re Dye, 330 F. Supp. 895 (W.D.La.1971). In 1978, Congress might have felt driven to take extreme measures to remedy such abuses, by increasing the burden on creditors to show "reasonable/prudent" reliance on false written financial statements under § 523(a)(2)(B). But committee reports for § 523(a)(2)(B) mention no such innovation, and indeed declare that no change in prior case law was intended.
Although § 523(a)(2)(B) is puzzling, it is at least clear that the puzzle is confined to subsection (a)(2)(B). Subsection (a)(2)(A) continues to use the traditional statutory formula, which makes no mention of "reasonable reliance" but does require that money, property, services or credit be "obtained." The language of § 523(a)(2)(A) alone, in conjunction with § 523(a)(2)(B), and in comparison with former statutory provisions and case law, as well as legislative history, sound bankruptcy policy and equity, all indicate that "reasonable" reliance under § 523(a)(2)(A) should be nothing more than a means of inferring the existence (or nonexistence) of actual reliance under some circumstances, bearing in turn on whether anything was "obtained" by deceit.
The Court of Appeals of this Circuit has held that courts must continue to require "reasonable" reliance under § 523(a)(2)(A). In In re Mullet, 817 F.2d p. 679, the court stated
We conclude that this standard of reasonableness required under § 17(a)(2) should continue to be imposed on claimed reliance pertaining to § 523(a)(2)(A). . . . This standard of reasonableness places a measure of responsibility upon a creditor to ensure that there exists some basis for relying upon the debtor's representations. Of course, the reasonableness of a creditor's reliance will be evaluated according to the particular facts and circumstances present in a given case.
Further, the 10th Circuit Court expressly declared that "the court should not, in hindsight, substitute its business judgment for that of the creditor" in determining what reliance was proper, id. p. 681; and the Bankruptcy Court ruling which the 10th Circuit Court affirmed was that the creditor "`ha[d] failed to establish that there was any kind of reliance . . .,'" id. p. 678 (emphasis added). These elements of the opinion suggest that "reasonableness" should be read narrowly, as going merely to the plausible existence of actual reliance; and that language seemingly to the contrary was meant merely to reject the extreme proposition that a debtor's dishonesty alone can cause exception to discharge (even where a creditor's reliance is so "unreasonable" as to be nonexistent).
This Court reads In re Mullet in the way that conforms more closely to the matter actually before the Court of Appeals, prior caselaw, statutory language, legislative history, bankruptcy policy, and equity in general. It follows that § 523(a)(2)(A) does require "reasonable" reliance, but "reasonable" here means only such reliance as is credible, and goes to the existence of actual reliance by the particular creditor and not to some judge-made standard of prudent or businesslike reliance.
In its previous ruling In re FDR, this Court did not find that any particular person or governmental agency had actually relied on Culp's bogus note. Indeed, the Court noted that "`[r]eliance' . . . in the traditional sense may be difficult to demonstrate" in circumstances such as those before the Court; and adopted a formulation of the D'Oench, Duhme doctrine "in which serious violation or subversion of a statutory regulatory scheme takes the place of traditional reliance . . . as an indicator that something is genuinely amiss . . .," In re FDR, 129 B.R. p. 660. Since Culp is estopped to deny that he "obtained" money by the note, it follows that Culp is also estopped to deny "reasonable/actual" reliance on his conduct. Any other ruling would allow a fraudulent debtor to escape the consequences of his fraud, and do an injury to FDR's creditors, to the securities regulation process, and indirectly to future investors. Courts of equity are generally supposed to avoid overly rigid and narrow definitions of "fraud," so that equity jurisprudence may adequately respond to "the *1014 fertility of man's invention in devising new schemes of fraud," 37 AM.JUR.2D (1968) "Fraud and Deceit" § 1 p. 18. This Court is "not keen to discover technical grounds upon which a bankrupt may escape the consequences of wrongful acts," In re Sabsevitz, supra, 197 F. p. 111; and does not readily impute to Congress an intention to use bankruptcy law to create "a sanctuary for liars," In re Pincus, 147 F. 621 (S.D.N.Y.1906).
Under these circumstances, this final requirement of § 523(a)(2)(A) must be deemed to be satisfied.
The word "injury" raises another issue.
The Trustee proposes, second, that Culp's debt is excepted from discharge under 11 U.S.C. § 523(a)(6), which provides that
. . . A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt . . . (6) for willful and malicious injury by the debtor to another entity or to the property of another entity . . .
The statute requires (1) willful and (2) malicious (3) injury to another entity or to property.
What is "willful and malicious" for purposes of the bankruptcy statute is a matter of Federal bankruptcy law, Brown v. Felsen, 442 U.S. 127, 99 S. Ct. 2205, 60 L. Ed. 2d 767 (1979); Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S. Ct. 151, 79 L. Ed. 393 (1934). The interpretation and application of the terms "willful and malicious" has been the occasion of some inconsistency and confusion in the Federal courts compare In re Franklin First National Bank of Albuquerque v. Franklin, 726 F.2d 606 (10th Circ.1984) holding that professional malpractice amounting to gross negligence was "willful and malicious" under § 523(a)(6) with In re Compos Farmers Insurance Group v. Compos, 768 F.2d 1155 (10th Circ.1985) holding that drunk driving amounting to recklessness was not "willful and malicious" under § 523(a)(6); and see Aubry, "Malice in Wonderland the Meanings of Willful and Malicious in § 523(a)(6)" in Norton Bankruptcy Law Adviser, No. 8 (August 1987). Recently the Court of Appeals of this Circuit appears to have settled on the following interpretation of "willful and malicious" for purposes of § 523(a)(6):
The "willful" element . . . simply addresses whether the debtor intentionally performed the basic act complained of . . . "Willful" conduct is conduct that is volitional and deliberate and over which the debtor exercises meaningful control, as opposed to unintentional or accidental conduct . . . Thus, acts caused by the debtor's negligence or recklessness are not encompassed by this exception . . .
. . . . .
. . . [T]he focus of the "malicious" inquiry is on the debtor's actual knowledge or reasonable foreseeability that his conduct will result in injury to the creditor . . .
Under § 523(a)(6), the debtor's malicious intent can be shown in two ways. In the rare instances in which there is direct evidence that the debtor's conduct was taken with the specific intent to harm the creditor, the malice requirement is easily established . . . More commonly, however, malicious intent must be demonstrated by evidence that the debtor had knowledge of the creditor's rights and that, with that knowledge, [the debtor] proceeded to take action in violation of those rights . . .
. . . [T]he court correctly looked to whether the [debtors] had willfully disregarded the rights of [the creditor] . . . ,
In re Posta, 866 F.2d 364, 367-368 (10th Circ.1989).
. . . Under § 523(a)(6), maliciousness is established if the debtor possesses actual knowledge, or if it is reasonably foreseeable, that his conduct will result in injury to the creditor . . . ,
In re Grey, 902 F.2d 1479, 1481 (10th Circ. 1990) citing In re Posta, supra.
Culp's execution of the false note was intentional and deliberate, with knowledge of the note's falsity. Hence Culp's act was "willful." Culp knew when he executed the note that it would be offered to regulators to deceive them as to FDR's actual net capital ratio, and as a result to enable FDR to continue its irregular operations longer than the law allowed. These *1015 illegal consequences were not only reasonably foreseeable, they were specifically intended. Hence Culp's act was "malicious."
Culp says he acted in mere "ignorance and stupidity," response p. 5 ¶ 10. No doubt Culp was ignorant of the consequences to himself of his act; and he may have stupidly done what others refused to do. But he knew what he was doing, and what consequences to others were expected to follow from his act. This is not mere ignorance or lapse of judgment; this is willful malice.
There has certainly been an "injury" to FDR's regulators, to SIPC, to FDR's customers, to the securities regulation process and therefore indirectly to future investors. Culp has injured, not just one adverse party, but an entire system. The very enormity of such an injury makes it difficult to quantify.
The dischargeability of a debt and the measure of damages for the underlying offense are separate and distinct questions, In re Gerlach, 897 F.2d 1048, 1051 (10th Circ.1990). The nondischargeable "damages" may exceed the actual harm suffered by the creditor, id.; In re Manley, 135 B.R. 137 (B.C., N.D.Okl.1992).
In these unusual circumstances, wherein the "debt" is established by the D'Oench, Duhme doctrine, the basic measure of "damages" for Culp's fraudulent injury to the clients, regulators, insurers and successors of FDR is the face amount of the bogus note. Cases such as In re Modicue, 926 F.2d 452 (5th Circ.1991) are distinguishable, in that they deal with conventional torts whose damages may be readily ascertained independently of any contract, not with "regulatory torts" of the D'Oench, Duhme type which are established by estoppel on a note and have no readily ascertainable measure of damages apart from the note.
Since the note itself provides for pre-judgment interest and attorney fees, those amounts must be included among damages as measured by the note.
The Trustee makes no argument regarding inclusion of the $120 court costs in the non-dischargeable debt.
Accordingly, the Trustee's "Motion for Summary Judgment" is hereby granted, except as to the $120 in court costs. Judgment shall be entered determining Culp's debt to the Trustee to be non-dischargeable under 11 U.S.C. § 523(a)(2)(A), (6) in the amount of $735,663.25. The Trustee shall prepare and submit an appropriate form of judgment.
AND IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549593/ | 140 B.R. 116 (1992)
In re CSVA, INC., Tax I.D. # XX-XXXXXXX, d/b/a Hip Pocket and Hip Pocket Stores, Debtor.
Bankruptcy No. 91-31299.
United States Bankruptcy Court, W.D. North Carolina, Charlotte Division.
March 6, 1992.
Wayne Sigmon, trustee.
David Schilli, Charlotte, N.C., for Quiocassin Associates Ltd. Partnership and Salisbury Mall Ltd. Partnership.
E. Glenn Kelly, Asheville, N.C., for Asheville Mall, Inc.
Michael S. Hunter, Charlotte, N.C., for Crown American Corp.
ORDER
MARVIN R. WOOTEN, Bankruptcy Judge.
THIS CAUSE coming on to be heard and being heard upon the Trustee's Objections to the Claims of Crown American Corporation, Asheville Mall, Inc., Quiocassin Associates Limited Partnership, and Salisbury Mall Limited Partnership, after adequate Notice and a Hearing as that term is defined in the Bankruptcy Code and the Rules of Bankruptcy Procedure.
The Trustee's Objections primarily require the court to determine whether in a bankruptcy proceeding in which CSVA, Inc. d/b/a Hip Pocket and Hip Pocket Stores (the "Debtor") is the lessee of nonresidential real property and the Trustee ultimately rejects the lease of nonresidential real property, a lessor is entitled to a post-petition administrative rent claim at the monthly rental rate provided in the lease for the time period until the court authorizes the Trustee's rejection of the lease. The Trustee does not dispute that the Landlords are entitled to a post-petition administrative rent claim, but objects only *117 to the extent of such an allowed claim. The relevant facts are not in dispute.
After carefully considering the applicable law and the arguments presented, the court concludes that the Landlords are entitled to a post-petition administrative rent claim in the monthly rental rate provided in their respective leases from the entry of the order for relief through the date on which the court approved the Trustee's rejection of the unexpired leases. In support of this conclusion, the court enters the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. An involuntary bankruptcy petition under Chapter 7 of the Bankruptcy Code was filed against the debtor on June 14, 1991. The court entered an Order converting the debtor's Chapter 7 case to a case under Chapter 11 of the Bankruptcy Code and entered an order for relief on the same day. On July 26, 1991, the court entered an Order converting the debtor's Chapter 11 case back to a case under Chapter 7 of the Bankruptcy Code and the Trustee was appointed by the court on July 30, 1991.
2. Crown American Corporation, Asheville Mall, Inc., Quiocassin Associates Limited Partnership, and Salisbury Mall Limited Partnership (hereinafter collectively, the "Landlords"), are claimants holding claims for pre and post-petition rent against the debtor for shopping mall leases.
3. The debtor was in the business of retail clothing sales. During the Gap Period and the Chapter 11 Period the debtor generally remained in active retail business in its various shopping mall locations. At the beginning of the Chapter 7 period and generally by no later than July 30, 1991, the debtor had ceased doing active retail business in any of its locations. After July 30, 1991, the debtor remained in possession of its shopping mall locations for the purpose of storing remaining inventory until same could be removed.
4. On or about August 9, 1991, the Trustee filed a Motion to extend the time to assume or reject unexpired leases until September 15, 1991. This Motion was filed by the Trustee because he was unsure as to whether he would have an automatic 60-day period to assume or reject leases, as granted in § 365(d)(4), in a case converted from Chapter 11 to Chapter 7. Thereafter, the Trustee learned that pursuant to § 348(c) the 60-day period of § 365(d)(4) exists in a converted case and the Motion to extend was thus not necessary.
5. By Orders entered on September 12, 1991, the Trustee formally rejected the leases of the Landlords.
6. The Trustee received the following sums upon liquidation of the inventory remaining in the Landlord's premises after July 30, 1991:
Landlord Location Amount
Crown American Patrick Henry Mall $ 796.00
Crown American New River Valley Mall 822.00
Asheville Mall, Inc. Asheville Mall -0-
Quiocassin Associates Regency Square 782.00
Salisbury Mall Salisbury Mall 750.00
7. The Landlords filed either post-petition rent claims or Requests for Payment of Administrative Rent as follows: *118
Landlord Location Claim Period Amount
Crown American Patrick Henry Mall Gap Period $ 1,034.95
Crown American Patrick Henry Mall Chapter 11 Period 5,174.75
Crown American Patrick Henry Mall Chapter 7 Period 6,948.63
Crown American New River Valley Mall Gap Period 866.11
Crown American New River Valley Mall Chapter 11 Period 4,330.55
Crown American New River Valley Mall Chapter 7 Period 5,815.34
Asheville Mall, Inc. Asheville Mall Gap Period 1,573.77
Asheville Mall, Inc. Asheville Mall Chapter 11 Period 4,578.24
Asheville Mall, Inc. Asheville Mall Chapter 7 Period 6,877.39
Quiocassin Associates Regency Square Gap Period 2,159.64
Quiocassin Associates Regency Square Chapter 11 Period 11,261.45
Quiocassin Associates Regency Square Chapter 7 Period 16,156.20
Salisbury Mall Salisbury Mall Gap Period 377.23
Salisbury Mall Salisbury Mall Chapter 11 Period 1,842.65
Salisbury Mall Salisbury Mall Chapter 7 Period 2,845.72
The Landlords filed Proofs of Claim in the above-referenced bankruptcy proceeding based upon the pre-petition arrearages due from the debtor under each of their respective leases, a claim arising from the Trustee's rejection of their respective leases, and post-petition administrative rent due from the debtor and the Trustee under each of their respective leases. The Landlords have asserted in their Proofs of Claim post-petition administrative rent based on the monthly rental rate in their respective leases and have included other charges provided for in their respective leases.
8. The Trustee filed Objections to each of the Landlords' post-petition rent claims. He asserts that the Landlords should receive only the storage value of the leased premises as a post-petition administrative claim rather than the full contract rate of rent plus other charges. The Trustee also objected because the Proofs of Claim failed to classify post-petition claims into three types: one covering the time period from the filing of the involuntary petition to the entry of an order for relief, one covering the time period under which the case proceeded under Chapter 11, and one covering the time period under which the case proceeded under Chapter 7.
CONCLUSIONS OF LAW
A. Because this bankruptcy case was initiated as an involuntary proceeding, a "gap period" exists. The gap period is the time period between June 14, 1991, when the involuntary petition was filed, and June 25, 1991, when the order for relief was entered.
B. Administrative claims in a case under Chapter 7 of the Bankruptcy Code which has been converted from another chapter have priority in distribution over the administrative claims incurred in the case under the pre-conversion chapter. 11 U.S.C. § 726(b). Similarly, administrative claims arising after the order for relief has been entered have priority over claims arising during the gap period. 11 U.S.C. § 502(f); 11 U.S.C. § 507(a)(2). Thus, in the case now before the Court, the administrative claims incurred after the conversion to Chapter 7 on July 26, 1991 (the "Chapter 7 Administrative Claims") have priority over the administrative claims incurred from June 25, 1991 to July 26, 1991 (the "Chapter 11 Administrative Claims"), which in turn have priority over claims arising during the gap period (the "Gap Period Administrative Claims").
The classification of administrative claims as Chapter 7 Administrative Claims, Chapter 11 Administrative Claims, and Gap Period Administrative Claims is significant when the assets collected by the Chapter 7 trustee are insufficient to pay all administrative expense claims in full. The court has not been called upon to make any determination *119 whether sufficient assets exist to pay all administrative expense claims and does not do so.
C. The court concludes that the Landlords are entitled to a post-petition administrative rent claim at the monthly rental rate provided in their respective leases and should include all of the charges provided for in their respective leases through the date on which the Court approved the Trustee's rejection of the unexpired leases. Numerous other courts have considered the same issue now presented to this Court. The clear majority of courts have held that under section 365(d)(3) of the Bankruptcy Code, the trustee timely must make all of the payments required under an unexpired lease of nonresidential real property until the lease is deemed rejected. See, e.g. In re Laurence R. Smith, Inc., 127 B.R. 715, 716 (Bankr.D.Conn. 1991); Second Penn. Real Estate Corp. v. Papercraft Corp (In re Papercraft Corp.), 126 B.R. 926, 929-30 (Bankr.W.D.Pa.1991); In re Wash. Bancorporation, 125 B.R. 328, 329 (Bankr.D.D.C.1991); In re Narrangansett Clothing Co., 119 B.R. 388, 391 (Bankr.D.R.I.1990); In re Cardinal Indus., Inc., 109 B.R. 738, 741 (Bankr.S.D.Ohio 1989); In re W. Monetary Consultants, 100 B.R. 545, 547-48 (Bankr.D.Colo.1989); In re Granada, Inc., 88 B.R. 369, 371 (Bankr.D.Utah 1988); In re Dieckhaus Stationers of King of Prussia, Inc., 73 B.R. 969, 972 (Bankr.E.D.Pa.1987); In re Longua, 58 B.R. 503, 505 (Bankr.W.D.Wis. 1986); In re Coastal Dry Dock & Repair Corp., 62 B.R. 879, 883 (Bankr.E.D.N.Y. 1986).
Two primary reasons lead this court to conclude and support the majority rule. First, the language of section 365(d)(3) requires the trustee timely to perform all of the obligations of a debtor under an unexpired lease of nonresidential real property, including making timely payments required under the lease. See 11 U.S.C. § 365(d)(3). And, secondly, the legislative history of the enactment of section 365(d)(3) illustrates Congress' intent to provide the lessor of nonresidential real property with such treatment. See 130 Cong.Rec. at 8894-95 (daily ed. June 29, 1984) (remarks of Sen. Hatch).
Section 365(d)(3) of the Bankruptcy Code provides in pertinent part as follows:
The trustee shall timely perform all the obligations of the debtor, . . . arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected, notwithstanding section 503(b)(1). The court may extend, for cause, the time for performance of any such obligation that arises within 60 days after the date of the order for relief, but the time for performance shall not be extended beyond such 60-day period.
11 U.S.C. § 365(d)(3).
Thus, under section 365(d)(3), the trustee must timely perform all of the obligations of a debtor under an unexpired lease of nonresidential real property, including making timely rental payments required under the lease. See 11 U.S.C. § 365(d)(3). Section 365(d)(3) imposes a duty on the trustee to perform such obligations from the time that the order for relief is entered until the lease is assumed or rejected. Id. The trustee's duty under section 365(d)(3) is the same irrespective of whether the case is proceeding under Chapter 7 or Chapter 11 of the Bankruptcy Code, because section 365(d)(3) makes no distinction between cases arising under Chapter 7 or Chapter 11. See Id. In drafting section 365(d)(3), Congress selected the verb form "shall." Id. The trustee's responsibility timely to perform such obligations, therefore, is mandatory, rather than merely permissive. If the trustee fails timely to perform such obligations, however, the trustee's obligation to the lessor is not discharged. Instead, the lessor is entitled to a post-petition administrative rent claim.
Section 365(d)(3) provides that the trustee must timely perform such obligations "notwithstanding section 503(b)(1)." Webster's Dictionary defines the term "notwithstanding" to mean in spite of. See Webster's Twentieth Century Dictionary 1225 (2d ed. 1983). Under section 365(d)(3), therefore, the trustee must make the payments required under an unexpired nonresidential *120 real property lease in spite of the requirements in section 503(b) that the expense be allowed only after notice and hearing and that the expense be an actual and necessary cost of preserving the estate.
The facts before this Court are strikingly similar to the facts in three cases in which the lessors were entitled under section 365(d)(3) to administrative rent claims at the rates in their respective leases. See In re Laurence R. Smith, Inc., 127 B.R. 715, 716 (Bankr.D.Conn.1991); In re Cardinal Indus. Inc., 109 B.R. 738, 739-40 (Bankr. S.D.Ohio 1989); In re W. Monetary Consultants, 100 B.R. 545, 546 (Bankr.D.Colo. 1989). In each of these cases, the debtor was the lessee of nonresidential real property under a written lease and occupied the leased premises post-petition. The debtor, however, did not operate a business from the leased premises, but instead used the leased premises for storage until it could determine whether to assume or reject the lease. In each case, the debtor ultimately rejected the lease, either affirmatively or through its failure timely to assume the lease. In each of these cases, the court held that under section 365(d)(3), the lessor of the nonresidential real property was entitled to a post-petition administrative rent claim determined at the monthly rental rate provided for in the lease for the entire time period until the debtor rejected the lease. Each of these courts rejected the debtor's contention that the lessor's claim was limited to the storage value of the leased premises because of the language of section 365(d)(3) and the intent of Congress to protect lessors in these situations.
Moreover, any other conclusion would appear to flout Congress' articulated intent in enacting section 365(d)(3). The legislative history to section 365(d)(3) provides in relevant part as follows:
A second and related problem is that during the time the debtor has vacated space but has not yet decided whether to assume or reject the lease, the trustee has stopped making payments due under the lease. These payments include rent due the landlord and common area charges which are paid by all the tenants according to the amount of space they lease. In this situation, the landlord is forced to provide current services the use of its property, utilities, security, and other services without current payment. No other creditor is put in this position. In addition, the other tenants often must increase their common area charge payments to compensate for the trustee's failure to make the required payments for the debtor.
The bill would lessen these problems by requiring the trustee to perform all the obligations of the debtor under a lease of nonresidential real property at the time required in the lease. This timely performance requirement will insure that debtor-tenants pay their rent, common area, and other charges on time pending the trustee's assumption or rejection of the lease. For cause, the court can extend the time for performance of obligations due during the first 60-day period. At the end of this period, the amounts due during the first 60 days would be required to be paid, and thereafter, all obligations must be performed on time. This permissible 60-day grace period is intended to give the trustee time to determine what lease obligations the debtor has and to locate the cash to make the required payments in exceptionally large or complicated cases.
130 Cong.Rec. at 8894-95 (daily ed. June 29, 1984) (remarks of Sen. Hatch).
Thus, Congress specifically recognized that a lessor of nonresidential real property occupies a very unique, and almost vulnerable, position when a lessee files bankruptcy. In most situations, the lessee has stopped making payments under the lease, despite its contractual obligation to make lease payments. Yet, the lessor must continue to perform all of its contractual obligations and provide all of the services required under the lease. Other creditors often have the opportunity to decide whether to continue doing business with a bankrupt debtor. A lessor of nonresidential real property, however, must wait for the debtor or the trustee to decide whether to assume or reject the lease. It appears that *121 because of the lessor's unique position and to protect the lessor, Congress enacted section 365(d)(3).
Because of the clear majority rule in interpreting section 365(d)(3), the statutory language of section 365(d)(3), and the legislative intent in the enactment of section 365(d)(3), the court concludes, that under section 365(d)(3), each of the Landlords is entitled to a post-petition administrative rent claim for the full amount of the payments required under its lease through the date that the Court authorized the Trustee's rejection of each lease.
This conclusion also will lead to a fair and just result under the facts before the court. The Trustee has not disputed that either the debtor or he occupied the leased premises. The leased premises were used from the filing of the petition against the debtor through the court's authorization of the Trustee's rejection of the Landlords' leases either in the operation of an ongoing business or for the storage of inventory until it could be inspected and liquidated. In fact, the Trustee moved the court, after being appointed to serve as the Chapter 7 trustee, to have up to and including September 15, 1991 to reject unexpired leases, including those leases of the Landlords. During all of this time, the Landlords were required to continue providing services under their respective leases, despite the trustee's failure to pay any rent to them under the leases. Moreover, the Landlords were required to wait until September 15, 1991 while the Trustee determined whether to assume or reject the leases. Consequently, the Landlords are entitled to a post-petition administrative rent claim in the full amount of the monthly rental rate in the leases.
In arguing that the Landlords' claims must be limited by the storage value of the leased premises, the Trustee relies on the minority courts' holdings that despite the language of section 365(d)(3), a trustee is not required to make the payments required under the leases. See Great Western Sav. Bank v. Orvco, Inc. (In re Orvco), 95 B.R. 724, 727-28 (Bankr.9th Cir. 1989); In re Tammey Jewels, Inc., 116 B.R. 292, 294-95 (Bankr.M.D.Fla.1990); In re Patella, 102 B.R. 223, 225 (Bankr. D.N.M.1989). This court rejects the reasoning and holdings in these cases, which often have been criticized for their failure to follow the language of section 365(d)(3) and their defiance of Congress' intent in enacting section 365(d)(3).
Finally the court concludes that the use of the words "notwithstanding section 503(b)(1) of this title," of necessity clarifies the claims here involved as administrative claims; that the Trustee's liability under section 365(d)(3) is limited to payments from assets of the estate; that such payments must be paid in accordance with the general scheme of priorities under the Code; and that section 365(d)(3) specifies a required payment but does not create any super priority therefor.
NOW, THEREFORE, IT IS ORDERED that:
1. The Trustee's Objections relating to the Landlords' entitlement to a post-petition administrative rent claim at the monthly rental rate provided for in their respective leases and for the other charges provided for in their respective leases be, and it hereby is, overruled;
2. The Trustee's Objections relating to the classification of the Landlords' claims as Chapter 7 Administrative Claims, Chapter 11 Administrative Claims, and Gap Period Administrative Claims be, and it hereby is, sustained; and
3. The Landlords shall have fourteen days from the entry of this Order and Memorandum of Decision to file amended Proofs of Claim consistent with the provisions of this Order and Memorandum of Decision. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549622/ | 265 A.2d 36 (1970)
14.098 ACRES OF LAND, MORE OR LESS, Situate IN BRANDYWINE HUNDRED, NEW CASTLE COUNTY, State of Delaware, Marion L. Rentz and Harry E. Rentz, Jr., her husband, Ernest Lodge Vail and Franklin G. Banks, Guardian of Ernest Lodge Vail, and Unknown Owners, Defendants Below, Appellants,
v.
BOARD OF EDUCATION OF the CLAYMONT SPECIAL SCHOOL DISTRICT, Plaintiff Below, Appellee.
Supreme Court of Delaware.
April 10, 1970.
Donald W. Booker, of Booker, Leshem, Green, Shaffer & Berl, Wilmington, for appellants Marion L. Rentz and Harry E. Rentz, Jr.
Harvey Porter, Wilmington, for appellant Franklin G. Banks, Guardian of Ernest Lodge Vail.
Robert V. Huber, Wilmington, for appellee.
WOLCOTT, Chief Justice, and CAREY and HERRMANN, JJ., sitting.
*37 CAREY, Justice.
The appellants, Marion L. Rentz and Harry E. Rentz, Jr., her husband, Ernest Lodge Vail, and Franklin G. Banks, Guardian of Ernest Lodge Vail, are the defendants in a condemnation suit brought by appellee, Board of Education of Claymont Special School District, in Superior Court. Appellants owned a tract of land in Brandywine Hundred which the appellee needed for school purposes. The award made after trial amounted to somewhat over $10,000 per acre, in accordance with appellee's evidence. *38 See Del., 251 A.2d 835. Appellants' evidence tended to show a value of about $18,000 or more per acre. Appellants now contend that the award fails to conform to the evidence and that the Court below erred in allowing the appellee to introduce certain evidence.
The property is roughly in the form of a triangle, the curved hypothenuse of which is bounded by Interstate Highway 95, a limited-access road. There is no direct access to that highway from the condemned property. One of the sides is a straight line somewhat over 1500 feet long next to Radnor Green, a development of single-family residences. The only access on that side is through Radnor Green by a street 50 feet wide. The other side is approximately 462 feet long and abuts the public highway called Harvey Road. Access to that road from this property is limited to a section about 120 feet long. At the trial, appellee introduced into evidence a letter from the State Highway Department which indicated that in the "not-too-distant future" an additional entrance to Interstate 95 from Harvey Road "will be required." That interchange will undoubtedy cause the elimination of all access to Harvey Road from the tract herein involved.
I.
Appellants' contention that the award fails to conform to the evidence is this: the only acceptable testimony is that the highest and best use of this tract is for multi-family apartments; the testimony as to value for that purpose is $18,000 per acre; no other award can therefore be justified. This argument necessarily assumes that a rezoning application would be granted if applied for; the property was, at the time of the hearing, zoned for single-family residences, in which multi-family apartments are not permitted. Witnesses testifying on behalf of the owners expressed the view that rezoning was reasonably probable because of the need for apartment buildings in the area. Real estate appraisers, testifying on behalf of appellee, gave the opinion that a request for rezoning would probably be denied. The evidence on this point was accordingly in direct conflict; the matter was one for the Commission to resolve. Appellants contend that the testimony of appellee's witnesses should not have been considered with respect to the reasonable probability of rezoning because they were real estate appraisers rather than planners. On this question, appellants are clearly wrong; qualified real estate experts are permitted to express opinions on this issue. 0.040 Acres v. State ex rel. State Highway Dept., 7 Storey 173, 198 A.2d 7; 1.77 Acres v. State ex rel. State Highway Dept., Del., 260 A.2d 157. We find nothing in this contention to justify a reversal.
II.
Appellants' second contention is that evidence was admitted improperly with respect to: (1) the possibility of future limitation of access; (2) testimony of an expert witness concerning valuations given by him in a prior condemnation of other lands; (3) opinions as to "political" difficulties arising in rezoning applications.
It should be noted that the letter from the State Highway Department concerning the building of an additional interchange was admitted into evidence without objection by the appellants. Its admissibility cannot now be questioned by them. In any event, the record indicates that this plan for future construction of the interchange was generally known, or could have been easily learned, by members of the public; certainly any individual, investigating the property with the view of buying it, would have quickly learned of the proposed plan, and would have assessed its *39 impact upon value. It is usually proper for the condemnation commission to be given "all the facts which the owner would properly and naturally press upon the attention of a buyer with whom he is negotiating a sale and all the facts which would naturally influence a person of ordinary prudence desiring to purchase." 4 Nichols on Eminent Domain (3d Ed.) 61. Obviously, this plan of the State Highway Department would have been of material interest to a prospective purchaser, even though no one knew when, if ever, it would be carried into effect. The trial Judge did not abuse his discretion in permitting introduction of this evidence.
Appellants contend that there was error in permitting appellee's counsel to ask an expert witness what value per acre he had given for another part of appellants' land in a condemnation by the State Highway Department, a figure considerably lower than his estimate in this case. The hearing in the prior case took place only a few months before the trial in the present suit. The question was proper cross-examination; the witness was given full opportunity to explain the apparent discrepancy. There is no error in this regard. 1.77 Acres v. State ex rel. State Highway Dept., supra.
Finally, appellants contend that certain statements made by one of appellee's experts, concerning a change in the governing organization of New Castle County and its possible bearing on the rezoning problem, should not have been admitted. There was no suggestion in the question or in the answer that the governing body of the County would, in considering rezoning, be swayed by any improper motive or consideration. The witness pointed out that the reorganization of the County Government had brought with it a change in rezoning procedures which, in his opinion, made it more difficult to obtain approval of such applications. No reversible error has been shown in this respect.
The judgment below will be affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549634/ | 256 B.R. 539 (2000)
In re Keith W. LANG, Debtor.
Annino, Draper & Moore, P.C., Plaintiff/Appellee,
v.
Keith W. Lang, Defendant/Appellant.
BAP No. MW 00-054.
United States Bankruptcy Appellate Panel of the First Circuit.
December 20, 2000.
Peter M. Stern, Springfield, MA, on brief for appellant.
Michael R. Siddall, Springfield, MA, Annino, Draper, Moore, P.C., on brief for appellee.
Before: GOODMAN, DE JESUS, VAUGHN, U.S. Bankruptcy Judges.
PER CURIAM.
I. ISSUES ON APPEAL.
The bankruptcy court denied Keith W. Lang's (the "debtor") discharge pursuant to 11 U.S.C. § 727(a)(2)(A) on the grounds that he fraudulently transferred assets with the actual intent to hinder, delay and *540 defraud a creditor, Annino, Draper & Moore (herein "Annino" or the creditor). The debtor argues that the bankruptcy court improperly found that the debtor made the transfers with actual fraudulent intent.
II. JURISDICTION.
The bankruptcy court's order denying the debtor's discharge is a final order. The bankruptcy appellate panel exercises jurisdiction pursuant to 11 U.S.C. § 158(a)(1) and § 159(b)(1).
III. STANDARD OF REVIEW.
Findings of fact shall not be set aside unless clearly erroneous, and due regard should be given to the opportunity of the trial judge to determine the credibility of all witnesses. Fed.R.Bankr.P. 7052 and 8013. The determination that a debtor's intent was fraudulent pursuant to 11 U.S.C. § 727(a)(2)(A) is a finding of fact. When based primarily on the credibility and demeanor of the debtor, deference should be given to the bankruptcy court's factual findings. Palmacci v. Umpierrez, 121 F.3d 781, 785 (1st Cir.1997) (citing In re Burgess, 955 F.2d 134 (1st Cir.1992)).
IV. DISCUSSION.
Prior to filing his Chapter 7 petition, the debtor's employer was alleged to have breached its collective bargaining agreement. The debtor's union filed a grievance against the employer which resulted in an arbitration award against the employer in favor of its employees, including the debtor. When the employer failed to pay the sums due pursuant to the arbitration award, the debtor entered into a contingency fee agreement with Annino for the purpose of engaging Annino to collect all sums due. The gross amount of the debtor's claim against his employer was approximately $16,000. The parties have stipulated that the debtor recovered the amount of $9,971.33 (net after taxes) in December of 1997, which he deposited immediately thereafter into his checking account. On January 30, 1998, Annino demanded payment of $5,386.56, the amount it claimed was due pursuant to the contingency fee agreement. The debtor did not pay. Thereafter, when the debtor filed his petition for relief under Chapter 7 of the Bankruptcy Code, Annino filed an adversary complaint seeking the denial of the debtor's discharge pursuant to 11 U.S.C. § 727(a)(2)(A) on the grounds that the debtor fraudulently transferred the proceeds of the arbitration award to his father for the express purpose of avoiding Annino's claim.[1] 11 U.S.C. § 727(a)(2)(A) provides for denial of a debtor's 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;
Except for the determination that the debtor acted with fraudulent intent, all the requisite elements of 11 U.S.C. § 727(a)(2)(A) are uncontested and are not the subject of this appeal, as set forth in the parties' Joint Pre-trial Statement as follows:
3. The Plaintiff is a creditor of the Defendant.
. . .
6. The Defendant transferred approximately Four Thousand Dollars ($4,000.00) to his father within one (1) year of the filing of the petition.
*541 b. The following issues of fact, and no others, remain to be litigated:
1. Whether the Defendant, with intent to hinder, delay or defraud a creditor, transferred, removed or concealed property of the Defendant within one year before the date of the filing of the Petition.
Appellee's App. pp. 101-102.
In addition to the Joint Pre-trial Statement, the bankruptcy court considered the debtor's petition, schedules and statement of financial affairs, the debtor's answers to interrogatories, and the trial testimony of the debtor and his father. On this evidence, the bankruptcy court denied the debtor's discharge under 11 U.S.C. § 727(a)(2)(A), finding that the debtor intentionally transferred money to his father with the actual intent to hinder, delay, and defraud Annino.
On appeal, the debtor argues that the bankruptcy court incorrectly concluded that he made the transfers to his father with the actual intent to hinder, delay and defraud Annino. The bankruptcy court ruled as follows:
The Court must therefore consider the surrounding facts and circumstances and draw inferences of a debtor's actual intent from that debtor's action. In re Sterman, 244 B.R. at 504; In re Hunter, 229 B.R. at 857; In re Kablaoui, 196 B.R. at 709; Funeraria Porta Coeli, Inc. v. Rivera de Montes (In re Rivera de Montes), 103 B.R. 362, 365 (Bankr. D.P.R.1989). Courts have also looked to certain recognized indicia or "badges of fraud" as further evidence of a debtor's actual intent to hinder, delay, or defraud under § 727(a)(2)(A). They include: (1) the lack of or inadequacy of consideration for the transfer; (2) the existence of a family, friendship, or special relationship between the parties; (3) an attempt by the debtor to keep the transfer a secret; (4) the financial condition of the party sought to be charged both before and after the transaction; (5) the existence or cumulative effect of the pattern or series of transactions or course of conduct after incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors; and (6) the overall chronology of events and transactions. In re Hunter, 229 B.R. at 857; In re Hayes, 229 B.R. at 262; In re Kablaoui, 196 B.R. at 709-10. While the presence of a single factor set forth above may lead to mere suspicion for § 727(a)(2) purposes, the accumulation of several factors indicates strongly that a debtor possessed the requisite improper intent. In re Sterman, 244 B.R. at 504; Cogliano v. Hegarty (In re Hegarty), 208 B.R. 760, 766 (Bankr.D.Mass. 1997).
March 31, 2000 Memorandum of Decision p. 8.
On appeal, the debtor relies on these very same badges of fraud, without reference to specific record cites, to argue that the evidence does not support the bankruptcy court's findings. However, "[a] finding of fact is clearly erroneous when the reviewing court is left with the abiding and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S. Ct. 1504, 84 L. Ed. 2d 518 (1985). Upon review of the evidence in the record in this case, the bankruptcy court made no mistake.
Based on his testimony and demeanor, the bankruptcy court concluded that the debtor was not a credible witness because his trial testimony was, in and of itself contradictory, and it did not square with the information contained in the debtor's schedules which described the money transfers to his father as a payment to a creditor. The conclusion that the debtor lacked credibility is supported by the debtor's trial testimony as follows:
Q: How come your father isn't listed as a creditor?
A: Because my father's not a creditor.
Q: Okay. Was your father a creditor?
A: No.
*542 Q: Okay. When you said you paid him $4,000, what was that payment for?
A: I didn't make a payment. I gave my father money, and I didn't know exactly how much it was.
Q: You don't know how much you gave him?
A: Not exactly.
. . .
Q: What you what I just heard say is that your father wasn't a creditor.
A: He wasn't a creditor. I that's a payment that I made.
Q: Okay, well, why would you say in the bank
A: I didn't make I didn't I just came up with a number. I wasn't sure how much it was.
[And later in that same line of inquiry, the debtor responded as follows:]
Q: Do you know why you gave your father the money?
A: Because he is my father and I love him and I wanted to help him.
Trial transcript pp. 33-36.
In addition to the debtor's lack of credibility, the bankruptcy court relied on several other indicia of fraud, including the fact that the debtor made these cash transfers to a close relative at a time when the debtor was actively being pursued by a creditor with a valid claim; the debtor kept no records of the cash transfers; and the cash transfers were made for less than reasonably equivalent value. Given the debtor's contradictory statements that the money was gift, followed by his testimony that the money was payment to his father in return for sums advanced by his father during the debtor's prior period of unemployment, the bankruptcy court's finding that the debtor's payments to his father were made for less than reasonably equivalent value is well founded.
The bankruptcy court's determination that the debtor intentionally misidentified the nature and amount of cash transfers that he made to his father is supported by the evidence and it was proper for the court to include the intentional misidentification as a factor in evaluating whether the debtor acted with intent to hinder, delay and defraud Annino.
V. CONCLUSION.
The evidence in the record supports the bankruptcy court's evaluation of the debtor's credibility and supports the bankruptcy court's findings that the debtor made cash transfers to his father with the actual intent to hinder, delay and defraud Annino. The order denying the debtor's discharge is AFFIRMED.
NOTES
[1] The debtor listed Annino's claim on his schedules as fixed and liquidated, although he stated the amount was uncertain. At trial, the debtor testified that he did not respond to Annino's payment demand because he believed that he did not owe the money. He offered no evidence to dispute the amount of Annino's claim. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549672/ | 72 F.2d 618 (1934)
BRYAN et al.
v.
WELSH et al.
No. 1136.
Circuit Court of Appeals, Tenth Circuit.
September 8, 1934.
Hall F. Platt, for original petitioners.
D. H. Linebaugh and Francis Stewart, both of Muskogee, Okl., Thomas D. McKeown, of Ada, Okl., and Hall & Thompson, of Oklahoma City, Okl., for intervening shareholders who join in the original petition.
W. B. Blair, of Tulsa, Okl., and W. E. Utterback, of Durant, Okl., for intervening shareholders who oppose the original petition.
G. C. Spillers, of Tulsa, Okl., for Curtis F. Bryan, state court receiver.
Before LEWIS and BRATTON, Circuit Judges.
PER CURIAM.
This petition for appeal is presented by Curtis F. Bryan, receiver of Imperial Royalties *619 Company, a common-law trust, and a large number of beneficiaries in the trust who hold certificates representing their respective interests. Petitioners rely on section 24 (b) of the Bankruptcy Act (11 USCA § 47 (b), claiming that the bankruptcy court without right made these orders in a proceeding in bankruptcy, i. e.: (1) An order overruling the receiver's motion to dismiss the petition in bankruptcy; (2) an order overruling a motion of the original petitioners to dismiss the cause; (3) an order overruling a motion to vacate the appointment of a trustee for the Imperial Royalties Company; (4) an order appointing a trustee for said trust estate; and (5) an order directing said trustee so appointed to take possession of the property of said trust.
The petition in alleged bankruptcy was filed in the District Court by six beneficiaries in the trust holding certificates for preferred shares. They alleged the trust consisted of a large estate in oil interests and rights in gas and oil covering about 700,000 acres with 3,500 producing wells thereon located in the states of Oklahoma, Texas, Arkansas, Louisiana, Kansas, and New Mexico; that the declaration of trust authorized an issue of 7,000,000 shares preferred, par value $1 each, of which more than 5,000,000 had been issued and were outstanding, also 7,000,000 common shares no par, of which 1,811,000 were outstanding; that class A preferred and class A common certificates no par were authorized, each to the extent of 300,000 shares, and approximately 250,000 of each had been issued and were outstanding; that the district court of Tulsa county, Okl., theretofore appointed an equity receiver of the trust estate who had taken charge and was in possession; that the declaration of trust was executed and filed December 1, 1920, three trustees being named to handle the affairs of said trust with full authority on their part to manage and control the trust estate and select their successors; that all of said trustees had resigned in November, 1933, and there was now no trustee to hold and manage said estate, it being in possession of the said receivers appointed by the state district court; and that because of the resignations of the said trustees and the appointment of said receiver the petitioners ceased to be shareholders in the trust and became creditors thereof in an amount in excess of $1000, and they held no securities in payment of said indebtedness.
The petition further alleged that there had been various acts of mismanagement, waste, and depletion of the trust assets while the trustees were in charge and control; that acts of bankruptcy had been committed by the trust within four months last past by preferring one creditor over another; that certificate holders had advanced in excess of $5,000,000 to the trust in consideration for the certificates issued to them respectively; that these certificate holders were widely scattered in a number of states and were unable to ascertain each other's address so as to cooperate, and there is need for relief under section 77B of the Bankruptcy Act (amendment June 7, 1934 [11 USCA § 207]); that the bankruptcy court was invested with jurisdiction by said act to deal with the situation and perfect a reorganization of said trust for the benefit of all interested parties, and the petition sought that relief. Throughout petitioners designate themselves as creditors and all other preferred certificate holders as creditors of said trust, and said trust as their debtor.
A large number of other certificate holders were permitted by the court to intervene and join petitioners. A still larger number of other certificate holders in the trust holding more than 5 per cent. of the preferred stock or certificates and more than 5 per cent. of the common stock or certificates were permitted to intervene and oppose petitioners. The orders complained of were made by the court over their objections and over the objection of the receiver, and they and the receiver join in the petition here for an appeal. Their right to the appeal and the merits, based on the claim of a lack of any basis in the petition of the original petitioners and other certificate holders later joined with them, have each been argued.
As preliminary, there may be serious doubt whether the order designated (5) is one from which this court may grant an appeal [Clements v. Conyers (C. C. A.) 31 F.(2d) 563], and it may be further doubted whether the state court receiver is in position to take an appeal. He did not ask to be permitted to intervene and defend in behalf of the trust. He made objections and motions, some oral and some in writing, when the orders were being made, and in some he restricted his appearance to such motions; but the opposing certificate holders, having more than 5 per cent. of both common and preferred shares, stand on better ground than the original petitioners. Said section expressly gives them the right to defend. We therefore grant the appeal.
*620 The objections to the original petition are: (a) That certificate holders are not creditors of the trust, and (b) that the original petition in bankruptcy did not allege that the trust "is insolvent or is unable to meet its debts as they mature"; therefore, on both grounds original petitioners and many certificate holders who intervened and joined them have not complied with said section 77B (a), 11 USCA § 207 (a). Both objections seem to us to be well taken. As to the first, it seems to be the well-settled rule that certificate holders in a common-law trust stand in their relation to the trust as stockholders in a corporation. They are not creditors of the trust. They are equitable owners of the trust property. Fletcher, Cyclopedia Corporations (Perm. Ed.) vol. 16, § 8241; Goodhue v. State Street Trust Co., 267 Mass. 28, 165 N.E. 701. It is not claimed there was any agreement that certificate holders had a contract right to be reimbursed on surrender of certificates, nor that they elected the trustees. On the contrary, it is alleged that the trustees were self-perpetuating they were to appoint their successors.
As to the second ground of contention, it is obvious that the debtor must be brought within the Bankruptcy Act, and the indispensable requisite for that purpose is that it be an insolvent. Paragraph (a) of said section 77B requires that allegation. It is not so alleged here. That is true also in a suit in equity, not under the Bankruptcy Act, where a receiver is sought for the purpose of reorganization. Of course, if that was the procedure, possession of the trust estate could not be taken from the state court. The two suits would be on an equal footing, concurrent jurisdiction of the same controversy. First National Bank of Cincinnati et al. v. Flershem et al., 290 U.S. 504, 54 S. Ct. 298, 78 L. Ed. 465, 90 A. L. R. 391, opinion delivered January 8, 1934; Pacific Live Stock Co. v. Lewis, 241 U.S. 440, 36 S. Ct. 637, 60 L. Ed. 1084; Ingram v. Jones (C. C. A.) 47 F.(2d) 135; Boynton v. Moffat Tunnel Imp. Dist. (C. C. A.) 57 F.(2d) 772, 780.
After the District Judge made the orders of which complaint is made by appellants, he continued the whole controversy for final hearing and disposition to September 18th. We must assume that the proceeding will be dismissed at that time unless by the intervention of creditors and appropriate allegations by them the two vital defects will be cured. On failure therein application may be made for our mandate. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549305/ | 462 Pa. 257 (1975)
341 A.2d 68
COMMONWEALTH of Pennsylvania
v.
Elmer Herman ULBRICK, Appellant.
Supreme Court of Pennsylvania.
Submitted April 9, 1975.
Decided July 7, 1975.
*258 Thomas F. Morgan, Public Defender, Clearfield, for appellant.
Richard A. Bell, Dist. Atty. William C. Kriner, Asst. Dist. Atty., Clearfield County, for appellee.
Before JONES, C.J., and EAGEN, O'BRIEN, ROBERTS, POMEROY, NIX and MANDERINO, JJ.
OPINION OF THE COURT
PER CURIAM.
The appellant filed a petition under the Post Conviction Hearing Act challenging the legality of his sentence after his conviction of two counts of murder in the second degree. The petition was denied and this appeal followed.
The trial court imposed a sentence of twenty years. No minimum sentence was stated by the Court as is required by the Act of June 19, 1911, P.L. 1055, § 6, 19 P.S. § 1057. Appellant contends that the failure to announce a minimum sentence makes the sentence illegal and justifies his discharge.[1] However, imposition of a *259 flat sentence benefits the defendant for the minimum is then presumed to be one day and he thus becomes immediately eligible for parole. Commonwealth v. Butler, 458 Pa. 289, 294, 328 A.2d 851, 855 (1974); Commonwealth v. Daniel, 430 Pa. 642, 647 n.* 243 A.2d 400, 462 n. 6 (1968); Commonwealth ex rel. Kehl v. Myers, 194 Pa.Super. 522, 169 A.2d 117 (1961); Commonwealth ex rel. Clawges v. Claudy, 173 Pa.Super. 410, 98 A.2d 225 (1953); and Act of Aug. 6, 1941, P.L. 861, § 21, as amended, 61 P.S. § 331.21. Since the minimum is implied, the sentence is legal and the appellant has incurred no harm.[2]
Order affirmed.
ROBERTS, J., filed a concurring opinion.
POMEROY, J., filed a concurring opinion.
ROBERTS, Justice (concurring).
Appellant seeks in this collateral proceeding to challenge the validity of his sentence for murder in the second degree. This he could have done in a direct appeal from his judgment of sentence. Having failed to pursue a direct appeal and to prove the existence of extraordinary and unusual circumstances justifying his failure to appeal, appellant's present claim has been waived. Post-Conviction Hearing Act, Act of January 25, 1966, P.L. (1965) 1580, §§ 3(d), 4(b) & (c), 19 P.S. §§ 1180-3(d), -4(b) & (c) (Supp. 1974); Commonwealth v. Hines, 461 Pa. 271, 336 A.2d 280 (1975). Accordingly, I agree that appellant is not entitled to relief and therefore concur in the result.
*260 POMEROY, Justice (concurring).
I join in the order of the Court affirming the denial of appellant's third petition for post-conviction relief, but for reasons which differ from those set forth in the Court's opinion. In my view, appellant is precluded from challenging in a new collateral proceeding the sentence which was imposed following the granting of appellant's second Post-Conviction Hearing Act petition by his failure to take an appeal from the imposition of that sentence.
On February 26, 1969, appellant was sentenced to life imprisonment upon two convictions of murder in the second degree. On September 16, 1969, he filed a petition for post-conviction relief which was denied on January 14, 1971. Appellant's second Post-Conviction Hearing Act petition, challenging his life sentence, was granted on July 20, 1971, and on July 22, 1971, the court imposed the twenty year sentence of which appellant now complains. Appellant did not appeal from this sentence.[1] Instead, he filed this third petition for collateral relief.
A person is not eligible for relief under the Post-Conviction Hearing Act if the error upon which he bases his claim has been waived. Act of January 25, 1966, P.L. (1965) 1580, § 3(d), 19 P.S. § 1180-3(d) (Supp. 1974). An issue is waived if "[t]he petitioner knowingly and understandingly failed to raise it and it could have been raised before the trial, at the trial, on appeal, in a habeas corpus proceeding or any other proceeding actually conducted, or in a prior proceeding actually initiated under this act" and "[t]he petitioner is unable to prove the existence of extraordinary circumstances to justify his failure to raise the issue." Id. § 4(b), 19 P.S. § 1180-4(b) (Supp. 1974). "There is a rebuttable presumption that a failure to appeal a ruling or to raise an issue is a knowing and understanding failure." Id. § 4(c), 19 P.S. § 1180-4(c) *261 (Supp. 1974). Because appellant has shown no extraordinary circumstances which would justify his failure to appeal from the judgment of sentence of which he now complains, he has waived his right to challenge that sentence collaterally.
Although, for the reasons stated above, I would not reach the merits of appellant's petition, I deem it appropriate to comment on the Court's treatment of the question of the "no-minimum" sentence which was meted out to appellant. If, as the Court states, imposition of a sentence without a minimum cannot possibly harm appellant, I would agree that he should not be heard to complain of it. I cannot concur, however, in the sleight of hand by which the opinion of the Court transforms a sentence which clearly does not comply with the Act of June 19, 1911, P.L. 1055, § 6, 19 P.S. § 1057, into a "legal" sentence. None of the authorities cited by the Court establish that, in the absence of a stated minimum, a minimum sentence of one day is presumed; the two Superior Court cases cited[2] stand merely for the proposition that where no harm results from the imposition of a defective sentence that sentence will not be disturbed. If a person who has received a no-minimum sentence could establish some possibility that he may be prejudiced by the lack of a minimum sentence, I would vacate the sentence and remand the case for imposition of a sentence which fulfills the requirements of the Act of 1911. See the dissenting opinion of this writer in Commonwealth v. Piper, 458 Pa. 307, 328 A.2d 845 (1974), and the concurring opinion of this writer in Commonwealth v. Butler, 458 Pa. 289, 328 A.2d 851 (1974).
NOTES
[1] Assuming arguendo the sentence to be illegal, the proper remedy would be to remand for resentencing, not discharge. See, e. g., Commonwealth v. Swingle, 403 Pa. 293, 169 A.2d 871, cert. denied, 368 U.S. 862, 82 S.Ct. 107, 7 L.Ed.2d 59 (1961).
[2] The trial court modified the sentence to reflect this immediate parole eligibility. This formal modification occurred after the time permitted by statute. Act of June 1, 1959, P.L. 342, § 1, 12 P.S. § 1032. Appellant cites this late correction as an additional ground for the invalidation of his sentence. The modification, however, only verbalized that which the law already recognized.
[1] The Commonwealth took an appeal from the twenty year sentence, but its appeal was discontinued on March 17, 1972.
[2] Commonwealth ex rel. Kehl v. Myers, 194 Pa.Super. 522, 169 A. 2d 117 (1961); Commonwealth ex rel. Clawges v. Claudy, 173 Pa. Super. 410, 98 A.2d 225 (1953). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549316/ | 140 B.R. 742 (1992)
In the Matter of Gregory Earl SEXTON, Debtor.
Bankruptcy No. 91-2204-D-H.
United States Bankruptcy Court, S.D. Iowa.
April 9, 1992.
William Titus, Iowa City, Iowa, for debtor.
Burton H. Fagan, Bettendorf, Iowa, trustee.
ORDER OBJECTION TO CLAIM OF EXEMPTIONS
RUSSELL J. HILL, Bankruptcy Judge.
On October 31, 1991, a telephonic hearing was held on Trustee's objections to Debtor's claims of exemptions. Trustee Burton H. Fagan appeared for the Trustee and William Titus appeared for the Debtor. At the conclusion of the hearing, the Court took the matter under advisement upon a briefing deadline. Debtor filed a Memorandum of Authorities; the Trustee filed a "Pre-Trial Brief"; and the parties also both signed a Proposed Stipulation of Facts filed December 9, 1991. The Court now considers the matter fully submitted.
This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). Upon review of the pleadings, arguments of counsel and stipulation submitted, the Court now enters its findings and conclusions pursuant to Fed. R.Bankr.P. 7052.
FINDINGS OF FACT
The following findings of fact were made based on the stipulation of facts submitted by the parties.
1. The Debtor filed for protection under Chapter 7 of the Bankruptcy Code on July 29, 1991.
2. On his Schedule B-4, Debtor claimed as exempt a $430 "money payment" from Mason-Dixon and a $570 "money payment" from Continental Grain. The exemptions were claimed pursuant to Iowa Code § 627.6(9)(c).
3. The Debtor operated a sole proprietorship known as Sexton Trucking. During *743 the course of 1991, Sexton Trucking employed four drivers, had two trucks, and was employed by numerous companies for transporting products.
4. For prepetition trucking services performed and/or "mileage shipped," "pursuant to terms of a written contract which Debtor will provide," Continental Grain owed the Debtor $1,100. The Debtor used his company truck to perform the services.
5. Continental Grain did not withhold taxes from the funds it paid the Debtor.
CONCLUSIONS OF LAW
At issue is whether, pursuant to Iowa Code § 627.6(9)(c), the Debtor may claim as exempt wages the funds owed to the Debtor by Continental Grain. The Debtor argues his earnings as an independent contractor are protected by the exemption. He sees no reason to discriminate between the earnings of an employee and an independent contractor when the payments made are for personal services. He further argues that whether the earnings are for "personal services" should determine whether they are exempt and that "wages" should include any earnings that represent compensation for personal services. Trustee objects arguing that the exemption refers to employer-employee arrangements and not independent contractors whose funds are accounts receivable and not wages. Trustee focuses on the definition of the term "wages," which he argues does not include sums gained by the conduct of business.
Iowa Code § 627.6(9)(c) provides a resident debtor may hold exempt from execution the following property:
In the event of a bankruptcy proceeding, the debtor's interest in accrued wages and in state and federal tax refunds as of the date of filing of the petition in bankruptcy, not to exceed one thousand dollars in the aggregate. This exemption is in addition to the limitations contained in sections 642.21 and 537.5105.
Iowa's exemption statute must be liberally construed, Frudden Lumber Co. v. Clifton, 183 N.W.2d 201, 203 (Iowa 1971); but a court must not depart substantially from the express language of the exemption statute nor extend the legislative grant. In re Hahn, 5 B.R. 242, 244 (Bankr.S.D.Iowa 1980) (citing Wertz v. Hale, 212 Iowa 294, 234 N.W. 534 (1931) and Iowa Methodist Hosp. v. Long, 234 Iowa 843, 12 N.W.2d 171 (1944)). The Iowa Supreme Court has not yet interpreted the meaning of "wages" in § 627.6(9)(c). In an unpublished decision this court interpreted "wages" in the context of § 627.6(9)(c) to imply an employer-employee relationship and to exclude the sums gained by those conducting their own businesses. In re Snipes, Case No. 88-668-CJ slip op. at 4 (Bankr.S.D.Iowa Oct. 26, 1988) (decision # 146 in Judge Jackwig's decision book) (citing 35 C.J.S. Exemptions § 47 (1960); 31 Am.Jur.2d Exemptions § 39 (1967)). Snipes held that the Iowa Legislature intended the § 627.6(9)(c) exemption for wages to include only those sums paid by an employer to an employee. Id. at 4-5.
Since Snipes the Iowa Court of Appeals has decided whether Iowa law discriminates between an independent contractor and an employee for the purpose of determining whether earnings are exempt from garnishment under Iowa Code § 642.21 (exemption from garnishment of net earnings, incorporating garnishment exemptions of the federal Consumer Credit Protection Act 15 U.S.C. §§ 1671-1677 (1982)). Marian Health Ctr. v. Cooks, 451 N.W.2d 846 (Iowa Ct.App.1989). Cooks concluded that the intent of the legislature could not have been to distinguish employees from independent contractors. Id. at 848. Rather, the legislature was more concerned with distinguishing between types of income, for example, income from investment versus income from personal services. Id. at 847-48.
Because the parties stipulated that the "Debtor used his company truck and billed Continental Grain for services performed," the Court concludes that in this particular case the Debtor may claim the funds owed by Continental Grain as exempt pursuant to Iowa Code § 627.6(9)(c). First, the Court finds that under *744 the reasoning of Cooks, Iowa law does not distinguish for earnings, income, or wage exemption purposes (under § 642.21 or § 627.6(9)(c)) between independent contractors and employees. Rather, the focus should be on distinguishing between types of income. That is, whether the funds represent compensation from personal services, which are exempt, or the non-exempt account receivable an independent contractor derives from the labor of his or her employees or investment income. Second, the Court finds the parties agree that the funds owed by Continental Grain represent compensation for the personal services of the Debtor himself and not his employees. Therefore, the Court concludes those funds are exempt to the extent allowed by § 627.6(9)(c).
ORDER
IT IS ACCORDINGLY ORDERED that the Trustee's objection to Debtor's claim of exemption is overruled; and that the funds owed by Continental Grain to the Debtor are exempt as wages for the personal services of an independent contractor to the extent allowed by § 627.6(9). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549317/ | 146 F.2d 124 (1944)
UNITED STATES
v.
75 CASES, MORE OR LESS, EACH CONTAINING 24 JARS OF PEANUT BUTTER, LABELED IN PART (JARS): "TOP NOTCH BRAND", et al.
No. 5254.
Circuit Court of Appeals, Fourth Circuit.
December 27, 1944.
*125 C. Ross McKenrick, Asst. U. S. Atty., of Baltimore, Md. (Bernard J. Flynn, U. S. Atty., of Baltimore, Md., Vincent A. Kleinfeld, Sp. Asst. to Atty. Gen., and Alvin M. Loverud, Atty., Federal Security Agency, of Washington, D. C., on the brief), for appellant.
Raymond M. Hudson, of Washington, D. C., and J. Charles Fagan, of Baltimore, Md., for appellees.
Before PARKER, SOPER, and DOBIE, Circuit Judges.
DOBIE, Circuit Judge.
This is an appeal from an order and judgment of the District Court impounding certain evidence and documents, and dismissing five libels for condemnation, consolidated for trial, brought pursuant to the *126 provisions of the Federal Food, Drug, and Cosmetic Act, June 25, 1938, c. 675, 52 Stat. 1040, 21 U.S.C.A. § 301 et seq., hereinafter called the Act. The evidence and documents were impounded, and the Government prohibited from using them and any information obtained therefrom, on the assumption that the evidence, documents and information were obtained by a government representative wrongfully and in violation of certain provisions of the Act. The opinion of the District Court is reported in 54 F.Supp. 641.
The Old Dominion Peanut Corporation (hereinafter referred to as claimant) is a corporation with its place of business in Norfolk, Virginia, engaged in manufacturing peanut butter and peanut candies. On or about October 15, 1943, one Rankin, an inspector for the Food and Drug Administration, went to claimant's plant for the purpose of making an inspection of the factory, under authority of Section 374 of the Act. He saw Stubbs, claimant's president, and revealed the purpose of his visit. Stubbs made no objection. An inspection of the factory was made and Rankin found rodent pellets and refuse in and around the food products. Chapman, claimant's plant superintendent, secured containers for Rankin and samples of the food products were taken.
After the completion of the factory inspection, Rankin asked to see the company invoices for the purpose of ascertaining where shipments of these food products were being made. Mizzell, the claimant's sales manager, produced the invoices for Rankin's inspection. No objection whatever was made by either Stubbs or Mizzell.
Subsequently, on November 1, 1943, Rankin returned to claimant's plant for another inspection. Stubbs gave Rankin permission to make the inspection and take photographs of insanitary conditions. The inspection again showed the presence of rodent pellets and refuse. Rankin photographed and took as evidence a dead mouse found in the candy manufacturing room. Rankin testified that he informed Worsham, claimant's secretary-treasurer, of the insanitary conditions and advised him that legal proceedings might result. Rankin again asked for permission to inspect claimant's invoices and this permission was once more granted, without objection. He made notations of claimant's interstate shipments. Later certain shipments of these food products were seized and, on analysis showing the presence of filth in the food products, the instant libels for condemnation were brought.
The District Court found, and we agree with this finding, that permission to inspect the factory was fully and freely given. Further findings were made to the effect that permission was given to Rankin to inspect the claimant's invoices; but the District Court held that this permission was secured by a method that "smacks of surprise, if not of actual misrepresentation." This finding was predicated on the Court's interpretation of the requirements of Section 373 of the Act, and was, we think, clearly erroneous. Federal Rules of Civil Procedure, rule 52(a), 28 U.S.C.A. following section 723c.
Section 373 of the Act provides as follows: "For the purpose of enforcing the provisions of this chapter, carriers engaged in interstate commerce, and persons receiving food, drugs, devices, or cosmetics in interstate commerce or holding such articles so received, shall, upon the request of an officer or employee duly designated by the Administrator, permit such officer or employee, at reasonable times, to have access to and to copy all records showing the movement in interstate commerce of any food, drug, device, or cosmetic, or the holding thereof during or after such movement, and the quantity, shipper, and consignee thereof; and it shall be unlawful for any such carrier or person to fail to permit such access to and copying of any such record so requested when such request is accompanied by a statement in writing specifying the nature or kind of food, drug, device, or cosmetic to which such request relates."
The Court below has taken the position, that since Section 373 "meticulously" sets out the method by which information as to interstate shipments is to be obtained, should the Government choose to avail itself of any other method, it must make a full and complete disclosure to the claimant and make sure that claimant's consent is not due in any respect to a failure to understand the fullest use to which the records might be put by the Government.
While we agree that in no case should the Government be permitted to use fraudulent methods in obtaining evidence, we think that the District Court has here *127 placed in unduly narrow construction on this statute. No such interpretation is warranted, either by the words of the Act, by its purpose, or by its legislative history.
Section 373 was enacted to provide a compulsory method by which information of interstate shipments, necessary to the enforcement of the Act, might be obtained from carriers. The need for such a method is obvious since interstate transportation is, in large part, done by common carriers. The lack of such a provision had proved a definite handicap to the enforcement of the Act. H.R. Report No. 2139 75th Cong. 3rd Session. But this section does not require that investigation must be limited to the records of the classes of persons therein enumerated. Nothing in the legislative history of the Act indicates any such intent on the part of Congress.
Claimant contends here, as it did below, that since the Act provides that the records of carriers and receivers may be examined, this excludes the examination of the claimant's records. We agree with the District Court that the prescribing of certain compulsory methods of investigation does not exclude permissive investigation. The affidavit filed by Stubbs clearly shows the unfortunate result which would follow from a contrary view. The affiant there states that one of the interstate shipments involved was moved by the purchaser in his own truck. Such an instance reveals the difficulties confronted by those administering the Act, should permissive examination of the shipper's records be denied. In such cases there would be no common carrier's records to be examined. Such a view would clearly not be in conformity with the purposes of the Act.
We need not consider the question of claimant's rights had it refused to allow Rankin's inspection of its invoices. The District Court found that such permission was given. We think that claimant has no grounds for contending, nor the District Court for finding, that claimant was really misled. Claimant's officers well knew, or must have known, that, should the plant inspection justify the sampling of products shipped in interstate commerce, this would be done. Further, Stubbs admitted that he was "generally" familiar with the Act, and in the light of his experience he must have been aware, at least such knowledge is legally imputable to him, that should the sampling disclose filth, the products would certainly be subject to condemnation. This is the obvious and only practical inference to be drawn from these facts.
In connection with Section 373 of the Act, there is no ground for the application of the maxim expressio unius est exclusio alterius. We interpret this section, rather as affording a cumulative procedure to the Government, without restricting other avenues of information. Nor are we impressed by the statement of claimant's president (who, without any remonstrance or protest, gave Rankin free access to the invoices) that he would not have granted this access if he had not thought Rankin had a legal right to such access or if he had known that the information thereby gleaned might be used in subsequent libel proceedings. Permission to inspect the invoices was still voluntary and the Government was free to use this information in the proceedings for libel. See Joong Sui Noon v. United States, 8 Cir., 76 F.2d 249, 251.
We are not here dealing with a criminal proceeding within the 4th Amendment to the Constitution. United States v. 935 Cases, etc., 6 Cir., 1943, 136 F.2d 523, certiorari denied, Ladoga Canning Co. v. United States, 320 U.S. 778, 64 S.Ct. 92. These libels for condemnation are proceedings in rem, and we agree with the Court below that there has been no violation of the "search and seizure" clause of the 4th Amendment. United States v. 935 Cases etc., supra. Public interest demands such a construction as will further the purposes of the Act. United States v. Research Laboratories, 9 Cir., 126 F.2d 42, certiorari denied, 317 U.S. 656, 63 S.Ct. 54, 87 L.Ed. 528.
Claimant relies on Boyd v. United States, 116 U.S. 616, 6 S.Ct. 524, 29 L.Ed. 746, in support of its contentions. Several factors impel the view that the Boyd case has no application here. That case involved an unconstitutional demand for the production of records in a criminal proceeding. If the records were not produced (in the Boyd case) the allegations were to stand as admitted. No such question arises here. By a specific proviso in Section 373 of the Act such information received may not be used in a criminal prosecution of *128 the person giving the information. Nor was the plate glass involved in the Boyd case an outlaw of interstate commerce. It was subject to forfeit only because of the illegal acts of its owner. Under the Act, condemned goods are subject to seizure and destruction irrespective of the intent of the manufacturer. United States v. Buffalo Pharmacal Co., 2 Cir., 1942, 131 F.2d 500.
Claimant further contends that it was improper for the inspector to combine a factory inspection and an examination of the claimant's invoices. It can hardly be assumed that the activities of the Food and Drug Administration are of a pigeon-hole nature which demand canalized separation. The Administration operates as a unit in furtherance of its primary purpose the protection of the public. It is not unreasonable to assume that packaged food in which filth is found will be sold by the producer. Further, not only is it commensurate with the purpose of the Act to ascertain the interstate destination of the food in order to sample it for filth, should the factory inspection justify such action; but any other procedure would tend to frustrate the entire purpose of the Act. There was nothing wrongful in either the method of obtaining the information, or in the use of the information voluntarily granted. Joong Sui Noon v. United States, supra.
There is no legal merit in the contention that the Administration must use other and more expensive and time consuming methods of investigation instead of using information voluntarily given. Nor do we find approval for claimant's position that had Rankin not received the information from its invoices, there would have been no means of tracing the adulterated food shipped in the purchaser's truck. The Administration is not indulging in a game of "hide and seek". Its efforts are expended in the protection of the public.
Finally claimant contends that the taking of samples by Rankin was illegal. This, we think, is also without merit. Section 372(b) of the Act clearly contemplates the taking of samples.
The judgment of the District Court is reversed and the cause is remanded to that Court for further proceedings consistent with this opinion.
Reversed and remanded. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549318/ | 134 N.J. Super. 466 (1975)
341 A.2d 691
JANIS E. HIRSCH AND CAROL E. HIRSCH BIDWELL, PLAINTIFFS-APPELLANTS,
v.
TRAVELERS INSURANCE COMPANY, ET ALS, DEFENDANTS-RESPONDENTS.
Superior Court of New Jersey, Appellate Division.
Submitted June 9, 1975.
Decided June 17, 1975.
*468 Before Judges LEONARD, SEIDMAN and BISCHOFF.
Mr. Samuel Leventhal, attorney for appellants.
Messrs. Markowitz and Zindler, attorneys for respondent Doris Hirsch (Mr. Joseph Markowitz on the brief).
PER CURIAM.
Plaintiffs appeal from a judgment dismissing their complaint as to defendant Doris Hirsch, upon whose property they attempt to impose a constructive trust.
Jack M. Hirsch and Shirley Hirsch, the natural parents of plaintiffs, were divorced on March 10, 1967. The property settlement agreement, incorporated into a judgment nisi, provided that Jack Hirsch would designate plaintiffs as irrevocable beneficiaries of seven life insurance policies having a total face value of $98,000, pay the premiums thereon and direct the insurance companies to notify plaintiffs if any premiums were in default. The agreement further provided that Jack Hirsch would place certain securities in trust for plaintiffs' education, and an appropriate trust instrument was executed.
*469 After his divorce from Shirley Hirsch, Jack Hirsch married defendant Doris Hirsch. He died testate on January 18, 1973. Plaintiffs allege that shortly thereafter they discovered that Jack Hirsch violated the property settlement agreement by (1) depriving plaintiffs, by various means[1], of their rights as beneficiaries under the insurance policies, and (2) selling the securities held in trust for plaintiffs and converting the proceeds to another use. Plaintiffs allege that Jack Hirsch used the proceeds of these wrongful acts to finance the purchase of land and the construction of a $200,000 house on it, title of the land and property being placed in the names of decedent and Doris Hirsch as tenants by the entireties.
Plaintiffs filed a complaint naming as defendants: (1) the insurance companies (2) the executors of Jack Hirsch's estate and (3) Doris Hirsch. As to defendant Doris Hirsch, plaintiffs sought to impose a constructive trust on the above-mentioned real property for their benefit.
Doris Hirsch filed a motion to dismiss the complaint as to her for failure to state a claim upon which relief could be granted. The trial judge held that Doris Hirsch had not been unjustly enriched by Jack Hirsch's wrongful actions and that a constructive trust was not available to plaintiffs. The motion of Doris Hirsch to dismiss was accordingly granted.
We reverse.
On a motion to dismiss a complaint for failure to state a claim upon which relief can be granted, all facts alleged in the complaint and legitimate inferences drawn therefrom are deemed admitted. See Heavner v. Uniroyal, Inc., 63 N.J. 130, 133 (1973); J.H. Becker, Inc. v. Marlboro Tp., 82 N.J. Super. 519, 524 (App. Div. 1964).
*470 The following facts and legitimate inferences appear from an examination of the complaint: (1) funds were wrongfully diverted from the insurance policies and from trust funds by decedent; (2) monies thus diverted were used in the purchase of land and construction of the home in question, and (3) Doris Hirsch paid no consideration for her tenancy by the entirety which has now, by the death of her husband, resulted in her sole ownership of the property.
It is fundamental that a constructive trust should be impressed in any case where failure to do so would result in unjust enrichment. D'Ippolito v. Castoro, 51 N.J. 584, 588 (1968). All that is required to establish a constructive trust is a finding that there was a wrongful act resulting in the transfer of property and consequent unjust enrichment of another. Id. at 589. See also In re Mid-Center Redevelopment Corp., 383 F. Supp. 954, 971-973 (D.N.J. 1974); Restatement, Restitution, § 160 at 640 (1937).
The complaint alleges a wrongful diversion of trust funds resulting in the unjust enrichment of Doris Hirsch. It is clear that the facts alleged, if proven, establish her enrichment. The troublesome issue is whether this enrichment may be considered unjust so as to give rise to a cause of action against her.
One receiving a benefit is liable to make restitution only if the circumstances of its receipt or retention are such that, as between two contestants, it would be unjust for the recipient to retain the benefit. Restatement, Restitution, § 1 at 12 (1937); cf. Brick Tp. v. Vannell, 55 N.J. Super. 583, 595 (App. Div. 1959).
Where two innocent parties are involved and the recipient of a wrongful transfer is a bona fide purchaser for value, the recipient will prevail over one seeking to impose a constructive trust. Restatement, Restitution, § 172 at 691 (1937); 5 Scott, Trusts (3 ed. 1967), § 474 at 3454; cf. Bajek v. Polack, 120 N.J. Eq. 104, 107-108 (Ch. 1936). On the other hand, where the recipient is a gratuitous transferee, she holds the property subject to the equitable rights *471 of the wronged party and a constructive trust can be impressed. Restatement, Restitution, § 168 at 684 (1937); 5 Scott, op. cit., §§ 470, 510 at 3444, 3595.
Where a wrongdoer obtains funds at the expense of another and acquires other property with those funds, and then transfers the other property gratuitously to a third person, if the wronged party can "trace" the funds, he is entitled to reach the property and impose a constructive trust or an equitable lien on the property. Restatement, Restitution, § 202, comment (f) at 822 (1973); 5 Scott, op. cit., § 514.1 at 3605. In Golden v. Glens Falls Indemnity Co., 148 F. Supp. 41 (D.D.C. 1957), aff'd 250 F.2d 769 (D.C. Cir.1957), the court held that where a husband used funds, wrongfully obtained to purchase real estate, the funds could be traced to and a lien placed on the real estate now held by the wife where it had been held as tenants by the entireties and the wife obtained full title when her husband died.
Application of these principles to the complaint leads to the conclusion that plaintiffs have stated a cause of action against Doris Hirsch and that the complaint against her was wrongfully dismissed. Plaintiffs were beneficiaries of the insurance policies and the trust and had an equitable interest in the trust property and in the proceeds of the insurance policies. The complaint alleges that plaintiffs have an equitable interest in the real estate purchased with the wrongfully diverted funds. Giving plaintiffs the benefit of all favorable inferences it cannot be said, as a matter of law, that defendant Doris Hirsch is a bona fide purchaser; she may be a gratuitous transferee and may have taken title to the property subject to the equitable interest of plaintiffs. Marriage itself has been considered value, so as to make the wife a bona fide purchaser, only where the marriage is in consideration of the transfer of the property. 4 Scott, op. cit., § 298.2 at 2431. In the limited record before us there is no indication that this is the case here.
Reversed and remanded. We do not retain jurisdiction.
NOTES
[1] Jack Hirsch allegedly manipulated the insurance policies as follows: changed the beneficiary to Doris Hirsch on some policies; borrowed money on several of the policies; reduced the face amount of several policies to paid-up policies and discontinued paying premiums on them. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549421/ | 146 F.2d 730 (1945)
CLEVELAND
v.
UNITED STATES and ten other cases.
Nos. 2945-2955.
Circuit Court of Appeals, Tenth Circuit.
January 4, 1945.
Writ of Certiorari Granted March 12, 1945.
*731 Claude T. Barnes and Edwin D. Hatch, both of Salt Lake City, Utah (J. H. McKnight and Knox Patterson, both of Salt Lake City, Utah, on the brief), for appellants.
John S. Boyden, Asst. U. S. Atty., of Salt Lake City, Utah (Dan B. Shields, U. S. Atty., and Scott M. Matheson, Asst. U. S. Atty., both of Salt Lake City, Utah, on the brief), for appellee.
Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.
Writ of Certiorari Granted March 12, 1945. See 65 S.Ct. 858.
BRATTON, Circuit Judge.
Six indictments were returned in the United States Court for Utah, five drawn under section 2 of the Mann Act, 18 U.S. C.A. § 398, and one drawn under section 3 of the Kidnapping Act, as amended, 18 U.S. C.A. § 408a. The indictment in one case drawn under the Mann Act charged that Heber Kimball Cleveland transported a certain woman, not then his wife, in interstate commerce from Salt Lake City, Utah, to Evanston, Wyoming, for the purpose of debauchery, and for the further immoral purpose of having sexual intercourse with her. The other indictment drawn under the Mann Act contained like charges, varying only in name of the accused, name of the woman transported, date, and points of origin and termination respectively of the transportation. The indictment drawn under the Kidnapping Act charged that the defendants transported, caused to be transported, and aided and abetted in transporting a certain girl in interstate commerce from Provo, Utah, by way of El Paso, Texas, to Short Creek, Arizona, well knowing her to have been inveigled, decoyed, carried away, and held. After trial by jury had been waived, the cases were submitted to the court on stipulated facts. The court found the defendant or defendants in each case guilty as charged in the indictment; and from the sentences imposed, separate appeals were perfected but the cases were briefed and argued together.
A detailed statement of the particular facts in each case would not serve any useful purpose. In most of the cases involving *732 the charge of violating the Mann Act, the defendant was married; while married to his lawful wife, he and the woman named in the indictment went through a ceremony known in the religious cult of Fundamentalists as a plural or celestial marriage; after the ceremony they went into another state for the purpose of living and cohabiting together; and they did live and cohabit together there. In one case, the defendant, while married to his lawful wife, and the girl named in the indictment went from Utah to California for the purpose of being married by a celestial ceremony and then living together as man and wife. After the ceremony, they spent the night together and engaged in sexual intercourse, but the following day she refused to go further with their marriage. And in one case, one of the defendants was living in a state of plural marriage with the woman named in the indictment; and at their request, the other defendant, also a member of the Fundamentalist cult, transported the woman in interstate commerce in order that the cohabitation in plural marriage might continue. In some instances, the celestial ceremony was performed by a member of the Priesthood Council of the cult. In others, the record fails to indicate the position or title of the person performing it. In the case involving the charge of violating the Kidnapping Act, a girl fourteen years old but having the mental capacity of a child about seven years of age was employed by one of the defendants as a housekeeper. They went through a celestial ceremony, and she later became pregnant. Discovering her condition, her parents informed the juvenile authorities; and she was placed in the custody of the Welfare Department of the state, subject to the continuing jurisdiction of the court. With some aid, she escaped and went to the home of the other two defendants. There the three defendants persuaded and convinced her that she should abide "by the law of God rather than the law of man"; that she was justified in running away from the Juvenile Court; that she should go with them to Mexico to be legally married to the defendant in whose home she had been employed; and that she should then remain in hiding until she reached her majority. After thus persuading and convincing the girl, all three defendants transported her from Salt Lake City to Juarez, Mexico, where a civil marriage ceremony was performed. They then transported her to a point in Utah. There the defendant who had assumed to marry her in the manner outlined obtained transportation from another member of the cult, and she was taken to Short Creek, Arizona, where she remained in hiding for more than two years, until discovered by federal authorities. While in hiding, she and the defendant last referred to continued to live together as man and wife.
It is contended that the court erred in denying the motion to quash the indictment in each case. The ground relied upon in each instance was that the grand jury which returned the indictment, and each member thereof, was prejudiced against the defendant and was therefore disqualified to sit as a grand juror in the matter; and that the return of the indictment by grand jurors of that kind constituted a wrongful invasion of the rights of the defendant. An affidavit of the defendant was attached to the motion, in which it was stated that he was an earnest and profound believer in the doctrines and principles of the Church of Jesus Christ of Latter-Day Saints, commonly referred to as the Mormon Church; that he believed in, taught, and practiced the doctrine of plural marriages; that about the year 1920 a breach arose in the church with reference to the practice of polygamy, resulting in factional disagreement and intense bitterness; that due to such bitterness, the dominating high priesthood of the church aided assisted, and incited the convening of the grand jury and the return of the indictment; that the foreman of the grand jury was a prominent and dominating figure in the high priesthood quorums of the church; that, upon information and belief, a large majority of the grand jurors, if not all of them, were likewise influential members of the church; and that the indictment was returned in a spirit of animosity and enmity toward the defendant. There is no need to explore the question of law whether in a United States court an indictment regular on its face may be attacked by motion to quash on the ground that some or all members of the grand jury which returned it were prejudiced against the accused. Except the ex parte affidavit attached to the motion, which contained many allegations predicated upon information and belief, there was no showing that the foreman or any other member of the grand jury belonged to any particular religious sect, or that he bore any animosity, *733 enmity, or prejudice against the defendant. Neither was there any showing that due to prejudice or other like attitude toward the defendant, the foreman or any other member exerted or sought to exert influence with members of the body in bringing about the return of the indictment. Assuming, without so deciding, that the indictments were subject to attack on the ground indicated, the motions and ex parte affidavits, alone and without more, were not enough to warrant the quashing of them.
The judgments in the cases charging the violation of the Mann Act are challenged for lack of jurisdiction of the court. The argument is that it is the function of the states to regulate marriage and divorce within their respective borders; and that a United States court has no jurisdiction in cases of this kind to forbid, regulate, or declare upon the form, type, or number of marriages permissible in the state, or to declare that a polygamous marriage is bad in itself, or that it is a form of prostitution or debauchery. It does lies within the exclusive jurisdiction of the states to regulate and control marriage and divorce within their respective borders. And plural marriages are forbidden by the law of the state where these celestial ceremonies occurred, and by the law of the states into which the women and girls named in the indictments were transported. But the Mann Act, supra, does not undertake to declare what marriages shall be legal and what illegal. It does not concern itself with that question. Instead, it is addressed to the matter of interstate commerce. Section 2 provides that it shall be unlawful to transport or aid in the transportation in commerce of any woman or girl for the purpose of prostitution, debauchery, or any other immoral purpose. Article 1, section 8, of the Constitution of the United States empowers Congress to regulate commerce among the states. That grant of power is direct, plenary, and without limitation except as limited by the Constitution itself. And within the permissible range of exertion of the power lies authority to enact all appropriate legislation for the protection and advancement of commerce. National Labor Relations Board v. Jones & Laughlin Steel Corporation, 301 U.S. 1, 57 S.Ct. 615, 81 L.Ed. 893, 108 A.L.R. 1352. Congress is free in the exercise of its discretion in respect to means of protecting and advancing commerce to adopt any means which appear to it as appropriate and adapted to the end in view, provided it is consistent with the letter and spirit of the Constitution. Everard's Breweries v. Day, 265 U.S. 545, 44 S.Ct. 628, 68 L.Ed. 1174. And it is no basis for valid objection that the means adopted have the same quality and are attended by the same incidents which attend the police power of the states. United States v. Carolene Products Co., 304 U.S. 144, 58 S.Ct. 778, 82 L.Ed. 1234.
Commerce among the states consists of intercourse and traffic among its citizens. It includes the transportation of persons as well as property. While the states alone can penalize the practice of prostitution, debauchery, or other immoral conduct within their respective borders, Congress has power under the constitutional provision, supra, to forbid such practices and conduct through the channels of interstate commerce. And it is within the constitutional range of the power of Congress to prohibit under penalty prostitutes, or persons who engage in debauchery or other immoral practices, being transported in commerce in furtherance of their immoral conduct. Hoke v. United States, 227 U.S. 308, 33 S.Ct. 281, 57 L.Ed. 523, 43 L.R.A.,N.S., 906, Ann.Cas.1913E, 905; Athanasaw v. United States, 227 U.S. 326, 33 S.Ct. 285, 57 L.Ed. 528, Ann.Cas. 1913E, 911; Wilson v. United States, 232 U.S. 563, 34 S.Ct. 347, 58 L.Ed. 728.
The Mann Act, supra, is not limited to the transportation in interstate commerce of women and girls for the purpose of prostitution or debauchery. By express provision, it includes their transportation for any other immoral purpose. The primary objective in the enactment of the statute was to eliminate the "white slave" business which employs interstate commerce as a means of procuring and distributing its victims. But it is settled law that the transportation in commerce of a woman or girl for the purpose of her becoming the mistress or concubine of the accused comes within the Act. Caminetti v. United States, 242 U.S. 470, 37 S.Ct. 192, 61 L.Ed. 442, L.R.A.1917F, 502, Ann.Cas. 1917B, 1168. And we think that the transportation in commerce of a woman or girl to whom the accused is not legally married, though they did go through a so-called celestial plural marriage ceremony which was forbidden by the law of the state where it took place, or intend to go through *734 such ceremony, with the intent and purpose of living and cohabiting with her, constitutes in law transportation for the purpose of her becoming his mistress and therefore contravenes the Act. Cf. Caminetti v. United States, supra.
The case of Mortensen v. United States, 322 U.S. 369, 64 S.Ct. 1037, is not to the contrary. There the accused husband and wife were engaged in the operation of a house of prostitution. They planned an automobile trip to visit the parents of the wife. Two girls employed by them as prostitutes requested to be taken along for a vacation. The four made the interstate trip by motor. After their return, the girls resumed their immoral conduct. It was held that the trip must be treated in its en tirety as one of recreation and holiday; that it could not be arbitrarily split into separate parts and viewed differently; and that since no immoral purpose was contemplated, the statute did not apply. Manifestly, no comparable situation is presented here.
The judgments are attacked on the further ground that they interfere with the freedom of religion. It is argued that the defendants below believe the Divinity and Doctrines of Joseph Smith as published by the early Mormon Church; that they accept those doctrines as their religious guide; and that such doctrines approve plural marriages. The First Amendment to the Constitution provides in effect that Congress shall not enact any law which interferes with the free exercise of religion. But the interdiction relates to legislation in respect to religious belief. It does not withhold power to enact legislation forbidding practices arising out of religious opinion. The right to engage in a practice which violates a forbidding Act of Congress valid in other respects cannot be asserted with success merely because the practice arises out of religious conviction. Reynolds v. United States, 98 U.S. 145, 25 L.Ed. 244. The transportation in commerce of a woman to whom the accused is not married, although they did go through a celestial ceremony of plural marriage forbidden by the law of the state, or intend to go through such ceremony, for the purpose of living and cohabiting with her as man and wife, is a practice which Congress has the constitutional power in its protection of commerce to penalize. Caminetti v. United States, supra.
The next contention is that there was no intent to transport the women and girls named in the indictments across state lines for the purpose of prostitution or debauchery. Except in the case of certain statutory offenses, a criminal intent is generally an element of crime; but every person is presumed to intend the necessary and legitimate consequences of that which he does, and it is no defense to a penal act, knowingly and intentionally committed, that it was done with an innocent intent. Gates v. United States, 10 Cir., 122 F.2d 571, certiorari denied, 314 U.S. 698, 62 S. Ct. 478, 86 L.Ed. 558.
The judgments in the case charging a violation of the Kidnapping Act, supra, are assailed on the ground that the Act is inapplicable to a case of this kind. The Act is not confined to the transportation in interstate commerce of a person who has been kidnapped by physical force and is being unlawfully restrained in order that his captor might secure for himself payment of a pecuniary consideration or something else of material value. Gooch v. United States, 297 U.S. 124, 56 S. Ct. 395, 80 L.Ed. 522. In presently material respect, it makes it unlawful knowingly to transport or cause to be transported, or aid or abet in transporting, in commerce any person who shall have been unlawfully inveigled, decoyed, or carried away for ransom or reward or otherwise. Here, the girl named in the indictment was fourteen years old, but she had the mentality of a child only seven years of age. After one of the defendants and the girl had gone through a celestial ceremony while she was employed as a domestic in his household, after she had become pregnant by him, after she had been placed in the custody of state authorities but subject to the continuing jurisdiction of the court, after she had escaped, and after she had gone to the home of the other two defendants, the three defendants transported her in commerce in order that she might remain in hiding from the court and the Welfare Department and continue to live and cohabit with the defendant in whose home she had been employed. We think it requires no amplification or elucidation to make plain that these acts and the inferences fairly to be drawn from them, considered in their totality, constituted the transportation in commerce of a person who had been inveigled, decoyed, and carried *735 away in order that one of the defendants might secure a benefit to himself, within the meaning of the Act.
It remains to inquire whether any right of the defendants in respect to the filing of motions for new trial was infringed. Rule 1 of the Rules of Practice and Procedure after plea of guilty, verdict or finding of guilt, in Criminal Cases, 292 U.S. 661, 18 U.S.C.A. following section 688, provides among other things that after a finding of guilt by the trial court where a jury has been waived sentence shall be imposed without delay, unless a motion for a new trial is pending; and Rule 2 provides that motions for a new trial shall be made within three days after the finding of guilt, except that such motions based solely upon the ground of newly-discovered evidence may be made within sixty days after final judgment. After these cases were submitted, the trial court took them under advisement. Thereafter the court filed a written opinion in which the several defendants were adjudged to be guilty of the charges laid in the indictments. The opinion directed that a journal entry be entered to that effect, and that the defendants might remain at liberty on their respective bonds, subject to such order as might be made for their appearance for final judgment. Something more than two weeks later the cases were taken up again, the defendants being present. The court entered formal verdicts of guilty, and then indicated its purpose to impose sentence and enter final judgment. The attorneys for the defendants expressed a desire to file motions for new trial. In the course of discussion between the court and the attorneys, the court announced:
"My point is I am here ready to sentence now. If you want to file your motion for a new trial it says you must file them promptly you have had two weeks. If you want to do that now you may do it and I will dispose of them at once and then sentence. If you want to defer that, I will sentence now and you can file your motion afterwards. You can use your own judgment in respect to it."
After further discussion, the court recessed until afternoon, and then imposed the sentences. But no motions were filed, then or later. It is clear that there was no infringement upon the right of the defendants to file their motions at any time during the period fixed by the rule.
The judgments are severally affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549429/ | 462 Pa. 445 (1975)
341 A.2d 466
TOWNSHIP OF WILLISTOWN
v.
CHESTERDALE FARMS, INC., Appellant.
TOWNSHIP OF WILLISTOWN, Appellant,
v.
CHESTERDALE FARMS, INC.
Supreme Court of Pennsylvania.
Argued January 14, 1974.
Decided July 18, 1975.
*446 Lawrence E. Wood, Wood, Parke & Barnes, West Chester, for appellant at No. 438 and appellee at No. 439.
Robert J. Shenkin, MacElree, Platt & Harvey, Paoli, for appellant at No. 439 and appellee at No. 438.
Before EAGEN, O'BRIEN, ROBERTS, POMEROY, NIX and MANDERINO, JJ.
*447 OPINION OF THE COURT
O'BRIEN, Justice.
In May of 1969, Chesterdale Farms, Inc. (Chesterdale), proposed to erect apartments on a tract of land located in Willistown Township (the township). This proposal was rejected because the tract was zoned RA-1, Residential, which did not permit apartments. Some six months later, Chesterdale again submitted a plan for approval, but it, too, was refused. Chesterdale then applied for a building permit, which was refused. Shortly after that refusal, this court decided Girsh Appeal, 437 Pa. 237, 263 A.2d 395 (1970), in which we held zoning that totally excluded apartments to be unconstitutional. Subsequent to our decision in Girsch, supra, Chesterdale again applied for a building permit and, in addition, filed an action in mandamus, alleging that the township's zoning ordinance was unconstitutional in light of Girsh, and further alleging that it was entitled to a building permit as a matter of right.[1] The township thereupon passed a new zoning ordinance which provided an area of eighty acres in the township on which apartments could be built. Chesterdale's land was not in that area.
Chesterdale's application for the building permit was first refused because the new ordinance was pending. Chesterdale then appealed to the zoning hearing board and, after the new ordinance was passed, Chesterdale's request for a permit was denied by the zoning board. Chesterdale appealed to the Court of Common Pleas of Chester County, which upheld the board's decision refusing the permit, but declared the new zoning ordinance to be unconstitutional. Both Chesterdale and the township then appealed to the Commonwealth Court, which, being equally divided, affirmed the decision of the Court of Common Pleas. Both parties then sought allocatur, *448 Chesterdale seeking to have its permit issued and the township alleging that its new ordinance was constitutional. We granted allocatur because of the importance of the issues involved.
No. 439 January Term, 1973 Appeal of Township of Willistown
Appellant (Willistown Township, argues that the August 25, 1970, amendment of its zoning ordinance, which provided for an eighty acre site for apartment-type dwellings, met this court's mandate in Girsh, supra, and therefore, the zoning ordinance is constitutional. Appellee, Chesterdale, contends that the rezoning of only 80 acres out of 11,589 acres in the township constitutes "tokenism," and is an exclusionary land use restriction not meeting the Girsh standard. We agree with appellee, Chesterdale.
In Girsh, supra, this court, in declaring unconstitutional a total exclusion of apartments from a zoning ordinance, except for a variance procedure, stated:
". . . To be constitutionally sustained, appellee's land-use restriction must be reasonable. If the failure to make allowance in the Township's zoning plan for apartment uses is unreasonable, that restriction does not become any the more reasonable because once in a while, a developer may be able to show the hardship necessary to sustain a petition for a variance.
. . ." At page 240, 263 A.2d at page 397.
The rationale supporting our Girsh decision is taken from Nat. Land & I. Co. v. Easttown Twp. Bd. of A., 419 Pa. 504, 532, 215 A.2d 597, 612 (1965), wherein we stated:
". . . A zoning ordinance whose primary purpose is to prevent the entrance of newcomers in order to avoid future burdens, economic and otherwise, upon the administration of public services and facilities can not be held valid." (Emphasis supplied.)
*449 Moreover, the prevention of "newcomers" is not limited to total exclusion, but also selective admission. This court, in Concord Township Appeal, 439 Pa. 466, 268 A. 2d 765 (1970), discussed the responsibilities of municipalities on the fringe of an urban area in dealing with expansive population pressures, and stated:
"The implication of our decision in National Land [419 Pa. 504, 215 A.2d 597 (1965)] is that communities must deal with the problems of population growth. They may not refuse to confront the future by adopting zoning regulations that effectively restrict population to near present levels. . . . It is not for any given township to say who may or may not live within its confines, while disregarding the interests of the entire area." At page 474, 268 A.2d at pages 768-769.
The New Jersey Supreme Court, in Southern Burlington County NAACP v. Twp. of Mount Laurel, 67 N.J. 151, 336 A.2d 713 (1975), in discussing a zoning ordinance which provided for a total exclusion of apartment dwellings, stated:
"We conclude that every such municipality must, by its land use regulations, presumptively make realistically possible an appropriate variety and choice of housing. More specifically, presumptively it cannot foreclose the opportunity of the classes of people mentioned for low and moderate income housing and its regulations must affirmatively afford that opportunity, at least to the extent of the municipality's fair share of the present and prospective regional need therefor. These obligations must be met unless the particular municipality can sustain the heavy burden of demonstrating peculiar circumstances which dictate that it should not be required so to do." ([Page 724 of] 336 A.2d.) (Emphasis supplied.)
Our review of this record convinces us that the township zoning ordinance which provides for apartment construction *450 in only 80 acres out of a total of 11,589 acres in the township continues to be "exclusionary" in that it does not provide for a fair share of the township acreage for apartment construction.
Nor are we convinced by Willistown's argument that Chesterdale's development plans would overburden its municipal services. Suburban municipalities within the area of urban outpour must meet the problems of population expansion into its borders by increasing municipal services, and not by the practice of exclusionary zoning. See National Land, supra, and Concord Twp., Appeal, supra.
Having found the township's zoning ordinance unconstitutional, we direct that zoning approval for appellee's tract of land be granted and that a building permit be issued given appellee's compliance with the administrative requirements of the zoning ordinance and other reasonable controls, including building, subdivision and sewage regulations, which are consistent with this opinion. See Casey v. Zoning Hearing Board of Warwick Twp., 459 Pa. 219, 328 A.2d 464 (1974). The trial court shall retain jurisdiction to oversee the granting of the necessary permits authorized by this opinion.
Order of the Court of Common Pleas affirmed in part and modified in part. Case remanded to the Willistown Township Zoning Hearing Board for proceedings consistent with this opinion.[2] Appellant in Appeal No. 439 January Term, 1973 to bear costs.
JONES, C.J., did not participate in the consideration or decision of this case.
ROBERTS, J., filed a concurring opinion.
*451 MANDERINO, J., concurs in the result.
POMEROY, J., filed a dissenting opinion.
POMEROY, Justice dissenting.
I respectfully dissent.
The 1970 Census showed Willistown Township, a rural community, to have a population of only 9,128 persons living in 2570 dwelling units. On August 25, 1970, the Township's zoning ordinance was amended to provide apartments in an area containing some 80 acres.[1] Under the terms of the amended ordinance, it is possible that 800 to 1040 apartments may be constructed on land so zoned, the number depending upon whether or not the buildings have elevators.[2] The Township thus made provision for the potential addition to its population of apartment dwellers numbering roughly 1600 to 3120 persons,[3] the latter figure being over one-third of the population at the time of the adoption of the amended ordinance.
The Court strikes down this ordinance as "exclusionary" because it "does not provide for a fair share of the township acreage for apartment construction." (Opinion of the Court, supra at 468). The opinion does not state why the share is not "fair", does not vouchsafe *452 what might be considered a "fair share," and does not indicate any criteria by which a fair share may be ascertained. It may be conceded that 80 acres is a relatively small portion of the total township area comprising 11,589 acres, but it is at least a beginning. The record may be searched in vain for any evidence of a purpose to exclude apartments permanently from other portions of the municipality.[4] To the contrary, a township supervisor testified that the 1970 rezoning was only a first step in providing for apartments in an orderly fashion consistent with the overall county plans for redevelopment, and that as the community continues to grow and other facilities are constructed, other land proximate to such facilities will be similarly rezoned for apartments.
I see no justification for the Court on this record to label the Township's approach as mere "tokenism" (Opinion of the Court, ante at 467) or to reject the new ordinance as constituting "prevention of `newcomers'" by "selective admission" (ibid). This Court has eschewed the role of "super board of adjustment" or "planning *453 commission of last resort"; the zoning power, we have said, is a tool of government which, to be effective, "must not be subjected to judicial interference unless clearly necessary." National Land and Investment Company v. Easttown Township Board of Adjustment, 419 Pa. 504, 521, 215 A.2d 597, 607 (1965). No clear necessity is shown for the interference to which the Court, by its decision today, subjects this first step of Willistown Township in its redevelopment undertaking. See Concord Township Appeal, 439 Pa. 466, 481, 493, 268 A.2d 765 (1970) (dissenting opinion of Mr. Justice, now Mr. Chief Justice, Jones, joined by Mr. Justice Cohen; dissenting opinion of Mr. Justice Pomeroy, joined by Mr. Justice, now Mr. Chief Justice, Jones).
My view of the case is well summarized in the opinion of Judge Wilkinson, joined by President Judge Bowman and Judge Blatt, writing in the Commonwealth Court in support of the validity of the ordinance:
"The sole question here is whether the Township Supervisors, in the proper discharge of their duties, after due consideration and proper inquiry and advice, have reasonably provided for apartments in an appropriate sector of the Township. The extensive record in this case, including the detailed opinion filed by the Zoning Board, supports the decision that the Township officials, after considerable study, including recommendations of county and regional planning bodies, amended its zoning ordinance to permit apartments in an area it found best suited therefor, near the existing population center, convenient to transportation, schools and municipal services, and in keeping with the plans for the long-range development of the Township, but flexible enough to reflect continuing study and adjustment to need."
Willistown Township v. Chesterdale Farms, Inc., 7 Pa. Cmwlth. 453, 486, 300 A.2d 107, 124 (1973). To strike down this effort as unconstitutional merely because the *454 acreage set aside for apartments seems to the Court to be too small runs counter to our oft-repeated holdings that a presumption of validity attaches to a zoning ordinance, and that the burden to prove invalidity is upon the one who challenges it. National Land and Investment Company v. Easttown Township Board of Adjustment, supra, 419 Pa. at 522, 215 A.2d at 607. The instant challenger, in my view, has not met the burden.
ROBERTS, Justice (concurring).
I agree that the ordinance involved here is unconstitutional and that appellee is entitled to a building permit upon compliance with "all administrative requirements [e.g. subdivision controls, building codes, etc.] of the zoning ordinance in effect on the date of the original application" which are not unconstitutional. Casey v. Zoning Hearing Board, 459 Pa. 219, 230, 328 A.2d 464, 469-70 (1974). An extensive and detailed statement of the compelling reasons for this result is contained in the opinion in support of affirmance by Judge Mencer (joined by Judges Crumlish and Kramer) in the Commonwealth Court. Willistown Township v. Chesterdale Farms, Inc., 7 Pa.Cmwlth. 453, 456, 300 A.2d 107, 109 (1973).
NOTES
[1] The action in mandamus is still pending.
[2] Given our decision in Appeal of Willistown Township, No. 439 January Term, 1973, we need not reach the issue as to whether the variance was or was not properly denied in Appeal of Chesterdale, No. 438 January Term, 1973 is dismissed.
[1] Not all of the acreage was to be immediately available for apartment construction due to ownership of a tract of land by Villa Maria Academy. The record shows that some of this tract has since been sold to a hospital. See Willistown Township v. Chesterdale Farms, Inc., 7 Pa.Cmwlth. 453, 300 A.2d 107 (1973) (Opinion in Support of Affirmance, at pp. 474-76, 300 A.2d 107).
[2] Section 1009(2) of the Township zoning ordinance provides as follows: "Density. There shall be sufficient lot area to provide a density of not more than ten (10) dwelling units or thirty (30) habitable rooms per acre, whichever constraint may be the more binding, except that either constraint may be increased to thirteen (13) dwelling units or thirty-nine habitable rooms in buildings served by elevators."
[3] The spread represents an estimated average of 2 persons per each of 800 apartments to an average of 3 persons per each of 1040 apartments.
[4] The minutes of the meeting of the Board of Supervisors of Willistown Township held on August 27, 1970, the day the amendatory ordinance was adopted, indicate to me a bona fide undertaking to bring the Township zoning structure into harmony with the Court's decision in Girsh Appeal, 437 Pa. 237, 263 A.2d 395 (1970). The following is an excerpt from those minutes:
"Mr. Reitman, on behalf of the planning commission, then read a letter dated August 25, 1970, from the commission to the board of supervisors describing the long and intensive study and investigation of the planning commission which led to the amendments under consideration, explaining the views of the planning commission on such amendments and recommending passage of the ordinance.
"Mr. Ewing then read from the opinion of the Pennsylvania Supreme Court in Girsh v. Nether Providence Township, observing that the language of that case obliged all townships with a demand for apartments to provide for them. Failure to act, he noted, would only increase the risk that builders could obtain court approval for apartments in areas of their selection. It was therefore important that the township act responsibly to provide a reasonable area for apartment use consistent with the orderly development of the township and furnishing of necessary township services." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549125/ | 50 F.2d 56 (1931)
LANSDOWNE REALTY TRUST
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 2545.
Circuit Court of Appeals, First Circuit.
May 28, 1931.
*57 Alonzo H. Garcelon, of Boston, Mass., for petitioner for review.
J. Louis Monarch, Sp. Asst. to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., F. Edward Mitchell, Sp. Asst. to Atty. Gen., and C. M. Charest, Gen. Counsel, and J. K. Polk, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for the Commissioner.
Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
BINGHAM, Circuit Judge.
This is a petition to review an order or decision of the Board of Tax Appeals affirming the commissioner's assessments of deficiency taxes against the petitioner in the sum of $1,585.53 for the year 1923, of $1,342.44 for the year 1924, $800.11 for the year 1925, and $568.83 for the year 1926. The statutes involved are section 2 (2) of 1921 (42 Stat. 227, 252), § 2 (a) (2) of 1924 and 1926, and section 230 of the Revenue Acts of 1921, 1924, and 1926 (26 USCA §§ 1262 (a) (2), 981 note), and section 704 (a) of the Revenue Act of 1928, 26 USCA § 2704 (a).
The question is whether the petitioner, a Massachusetts trust, is an association and therefore taxable as a corporation under the provisions of the revenue acts above referred to.
The Hammond Real Estate Trust, having determined to wind up its affairs and be dissolved, on February 28, 1920, conveyed, subject to a mortgage for $55,000, 15,000 square feet of land, with a one-story building thereon, situated in Boston, to certain individuals, trustees of the Lansdowne Realty Trust under a declaration of trust executed on the same day, together with the benefits of and subject to the rights and easements created under a lease of the property made by the Hammond Real Estate Trust on the 19th day of February, 1920, to the Standard Steel Motor Company and the Standard Steel Car Company, which lease was to run for five years from March 1, 1920, and in which the lessees, in addition to agreeing to pay the rent for the entire building, agreed to pay the taxes, make repairs, keep up the insurance, and, in case the lessor supplied elevator service, power, steam, water, heat, gas, or electricity, the lessees agreed to pay such charges.
The declaration of trust provided that the trustees would hold the granted premises for the benefit of the cestuis que trustent, "who shall be trust beneficiaries only, without partnership, associate or any other relation whatever inter sese." The trustees were authorized (1) to convert the property into money and distribute the proceeds among the beneficiaries existing at the time of the conversion, with the right in the trustees, in their discretion, to defer the conversion for a period not to exceed twenty years; (2) pending final conversion the trustees were to manage and control the trust property, having the powers and authority they would have if they were themselves sole owners in fee; (3) to collect all rents and income and semiannually to distribute such portions thereof as they might, in their discretion, determine to be fairly distributable net income to the beneficiaries, with authority to use any funds on hand, income or capital, for purposes of repair, improvement, protection, or development of the property, or the acquisition of other property as the trustees might determine to be wise for the protection and development of the trust property as a whole; (4) to borrow money and give any pledge, mortgage, or other security; and (5) employ such agents or attorneys as they might think proper. It provided that the trustees should keep books of account and records of their doings, and annually render an account of the trust. They were to receive as compensation for their services a sum not to exceed 1 per cent. of the gross income. Vacancies in the office of trustee were to be filled by the remaining trustees, with the written assent of the holders of a majority in amount of the beneficial interests. But in case a trustee was absent from the state or was incapacitated through illness or otherwise from acting, then a majority of the trustees were authorized to exercise the powers therein conferred upon all the trustees. The terms of the trust could be modified by the trustees, with the written consent of a majority in interest of the beneficiaries.
The trustees were Arthur H. Tabor, Wendall Tabor, Sturgis Coffin, and Rodman *58 Schaff. Arthur H. Tabor was a beneficiary to the extent of 20 per cent. of the beneficial interests; Wendall Tabor, his son, and Elizabeth W. Tabor, his daughter, each owned 10 per cent.; Elizabeth W. Coffin held a life interest in 20 per cent., the reversion being in Sturgis Coffin; and Sarah T. Coffin and Sturgis Coffin, as trustees of William H. Coffin, deceased, held 40 per cent.
During the years in question the firm of Coffin & Tabor, consisting of Sturgis Coffin, Arthur H. Tabor, and one Dolben, collected the rents from the building and paid the same directly to the beneficiaries monthly, according to their interests. The partnership kept books showing the amount of income received, the expenses paid, and the amounts distributed to the beneficiaries. They also looked after the unrented portions of the building, insured the property, and operated a central boiler for the tenants, although the partnership had no contract with them and received no compensation for these services. The trustees held no meetings, had no bank account, and kept no books. A few improvements and necessary repairs to protect the property were made and some new leases and extensions of old ones were made, and the $55,000 mortgage was extended.
The Board of Tax Appeals held that the trust was an association taxable like a corporation (1) for the reason, as stated in their opinion, that a majority in interest of the beneficiaries were a majority in number of the trustees and thereby in control of the trust; and (2) for the reason that the trustees were carrying on business.
We think the board erred as to the first reason, for the facts specifically found by them show that a majority in interest of the beneficiaries did not constitute a majority in number of the trustees. The only trustees who held a direct and immediate interest as beneficiaries were Arthur H. Tabor and Wendall Tabor, who together owned 30 per cent. The 40 per cent. was not held by Sturgis Coffin as a beneficiary, but as cotrustee with Sarah T. Coffin for the benefit of the estate of William H. Coffin; and Sturgis Coffin had no interest in the 20 per cent. belonging to Elizabeth W. Coffin during her life. Then, again, the trustees did not act by a majority in the conduct of the trust. The declaration of trust required all the trustees to act as a unit in every case except when a trustee was absent from the state or was incapacitated through illness or otherwise from acting, in which case the majority, acting as a unit, could exercise the powers of the trust.
We are also of the opinion that the trust was not an association and taxable as a corporation on the ground that it was doing business as such. It it true that the trustees had powers of a broad character, but they did not exercise them and were not carrying on business after the form and manner of a corporation. When the trustees received the property, it had all been leased for a term of five years from March 1, 1920. During this period of five years the trustees were not called upon to seek tenants or to do anything with reference to the property of any consequence except to collect the rents and turn them over to the beneficiaries. By the terms of the lease the lessees were to keep the premises in repair, pay the insurance, and be responsible for all damages connected with the building. It is perfectly apparent that they were not doing business in any sense, during the years 1923 and 1924, and we are of the opinion that, during the years 1925 and 1926, they were not conducting business after the mode and manner of a corporation, but were doing nothing more than trustees ordinarily would be called upon to perform in the management of trust property. See Gardiner v. United States, 49 F.(2d) 992, decided by this court Feb. 19, 1931; Malley v. Howard (C. C. A.) 281 F. 363; Hecht v. Malley, 265 U. S. 144, 44 S. Ct. 462, 68 L. Ed. 949; Little Four Oil & Gas Co. v. Lewellyn, 35 F.(2d) 149; Lucas, Com'r, v. Extension Oil Co. (C. C. A.) 47 F.(2d) 65; Id., 16 B. T. A. 1028.
This case differs materially from United States v. Neal (C. C. A.) 28 F.(2d) 1022, for there the trustees not only had broad powers, but exercised those powers by loaning the funds of the trust on real estate mortgages. They also made construction loans, loans on collateral securities, bought accounts receivable and notes, made contracts of conditional sale, dealt in stocks and bonds, and owned a large building in Worcester which they maintained and let to numerous tenants. See opinion of the District Court reported in 26 F.(2d) 708, for the facts. In that case the trustees were clearly doing business after the manner of a corporation, and we so held.
The order or decision of the Board of Tax Appeals is reversed, and the case is remanded to that board for further proceedings not inconsistent with this opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549160/ | 992 A.2d 582 (2010)
PROFESSIONAL FIREFIGHTERS OF NEW HAMPSHIRE
v.
LOCAL GOVERNMENT CENTER, INC. and another.
No. 2009-215.
Supreme Court of New Hampshire.
Argued: October 8, 2009.
Opinion Issued: January 29, 2010.
*584 Molan, Milner & Krupski, PLLC, of Concord (Glenn R. Milner on the memorandum of law and orally), for the petitioner.
Hinckley, Allen & Snyder LLP, of Concord (Christopher H.M. Carter and Kevin E. Verge on the brief, and Mr. Carter orally), for the respondents.
BRODERICK, C.J.
The respondents, Local Government Center, Inc. (LGC) and its subsidiaries, appeal an order of the Superior Court (Mangones, J.) granting summary judgment in favor of the petitioner, Professional Firefighters of New Hampshire (Professional Firefighters), and ruling that: (1) two of LGC's subsidiaries are subject to the Right-to-Know Law, RSA ch. 91-A (2001 & Supp.2009); (2) certain salary information for LGC employees is subject to disclosure; and (3) Professional Firefighters is entitled to attorney's fees incurred in securing the requested salary information through litigation. We affirm in part, vacate in part and remand.
I
This is the second time these parties have been before us. See Prof'l Firefighter *585 of N.H. v. HealthTrust, 151 N.H. 501, 861 A.2d 789 (2004). In reciting the facts related to the present dispute, we rely upon the trial court's order granting summary judgment and the undisputed facts in the record before us.
In 1941, the New Hampshire Municipal Association was formed to provide legal, legislative advocacy, and other services to its members, which are comprised of political subdivisions. Its self-defined purpose is "[t]o promote good municipal government and thereby promote the growth and prosperity of cities, towns and villages." The Association later was renamed the LGC. Currently, LGC is a single organization that owns and manages the following subsidiaries: New Hampshire Municipal Association, LLC (NHMA); Local Government Center HealthTrust, LLC (LGC HealthTrust); Local Government Center Real Estate, Inc. (LGC Real Estate); Local Government Center Property-Liability Trust, LLC (LGC Property-Liability); and Local Government Center Workers Compensation Trust, LLC, which merged into LGC Property-Liability. LGC bylaws indicate that LGC manages its subsidiaries through a single board of directors comprised of municipal public officials, school public officials, employee officials and a county public official.
The subsidiaries perform different functions. NHMA provides lobbying and training services to municipalities. NHMA's purpose, as stated on its "CERTIFICATE OF FORMATION" filed with the Secretary of State, is "[t]o strengthen the quality of municipal government through provision of information, policy development and cooperation with the State of New Hampshire, the Legislature and other agencies." LGC HealthTrust and LGC Property-Liability operate pooled risk management programs under RSA chapter 5-B. Participation in these programs requires: (1) status as a municipality; (2) membership in LGC; (3) a contractual agreement with either LGC HealthTrust or LGC Property-Liability; and (4) contractual participation with NHMA. With respect to LGC Real Estate, the trial court noted that "[p]articipating municipalities in LGC have no direct membership or contractual relationship with LGC Real Estate, which is said to `merely provide[] real estate ownership and management to LGC, with no direct benefit or service provided to any municipalities or school districts.'"
In 2003, Professional Firefighters filed a Right-to-Know petition against LGC HealthTrust, seeking meeting minutes of its board of trustees and subcommittees, as well as a contract between it and Anthem Blue Cross & Blue Shield. The trial court granted the request, and LGC HealthTrust appealed. We held that LGC HealthTrust is a quasi-public entity subject to the Right-to-Know Law. See id. at 504-05, 861 A.2d 789. We remanded the case, directing the trial court to either conduct an in camera review or have LGC HealthTrust provide a Vaughn index to determine what information in the minutes and the contract should be exempt from disclosure. See id. at 507, 861 A.2d 789.
Subsequently, Professional Firefighters requested other documents from LGC and its subsidiaries, including salary and benefit information for LGC employees. LGC complied with certain requests, offered to negotiate disclosure terms for other documents, but declined to provide the salary and benefit records on the basis that they are internal personnel records under RSA 91-A:5, IV, and that no public interest would be served by disclosing them.
In March 2007, Professional Firefighters filed a petition under RSA chapter 91-A, seeking the withheld documents and an *586 award of attorney's fees and costs related to the litigation. In response, LGC sent a letter to Professional Firefighters, which, without revealing individual salary figures, disclosed that in a particular year it had made salary payments totaling $6,120,946.68 to approximately 112 full-time employees. Professional Firefighters filed a motion for summary judgment, which the trial court granted, ruling that all LGC subsidiaries, including NHMA and LGC Real Estate, are subject to the Right-to-Know Law, and that LGC is required to disclose the specific salary information of its employees. It also ordered LGC to pay attorney's fees to Professional Firefighters for refusing to produce the salary information.
On appeal, we review the trial court's grant of summary judgment by considering the affidavits and other evidence in the light most favorable to the non-moving party. Smith v. HCA Health Servs. of N.H., 159 N.H. 158, 160, 977 A.2d 534 (2009). If this review does not reveal any genuine issues of material fact, i.e., facts that would affect the outcome of the litigation, and if the moving party is entitled to judgment as a matter of law, we will affirm. Id. We review the trial court's application of law to fact de novo. Id.
Resolution of this case requires us to interpret the Right-to-Know Law, RSA ch. 91-A, which is a question of law that we review de novo. ATV Watch v. N.H. Dep't of Resources & Econ. Dev., 155 N.H. 434, 437, 923 A.2d 1061 (2007).
When interpreting a statute, we first look to the plain meaning of the words used and will consider legislative history only if the statutory language is ambiguous. We resolve questions regarding the Right-to-Know law with a view to providing the utmost information in order to best effectuate the statutory and constitutional objective of facilitating access to all public documents.
Id. (quotations, brackets, ellipsis, and citation omitted).
II
We first address LGC's argument that the trial court erred in ruling that two of its subsidiaries, NHMA and LGC Real Estate, are subject to the Right-to-Know Law. LGC argues that because NHMA and LGC Real Estate are not staffed by public employees, do not manage money collected by governmental entities and do not perform an essential governmental function, they are not subject to the Right-to-Know Law. It particularly emphasizes that the subsidiaries do not perform essential governmental functions as, LGC contends, is required under our holding in Prof'l Firefighter of N.H. in order for an entity to be subject to the Right-to-Know Law.
Part I, Article 8 of the New Hampshire Constitution provides that "the public's right of access to governmental proceedings and records shall not be unreasonably restricted." This right is embodied within the Right-to-Know Law, which was enacted "to ensure ... the greatest possible public access to the actions, discussions and records of all public bodies." RSA 91-A:1. Indeed, as the statute's preamble recognizes, "[o]penness in the conduct of public business is essential to a democratic society." Id. Thus, the Law provides that "[e]very citizen ... has the right to inspect all governmental records in the possession, custody, or control of [all] public bodies or agencies." RSA 91-A:4,1.
Some entities are "not easily characterized as solely private or entirely public," Union Leader Corp. v. N.H. Housing Fin. Auth., 142 N.H. 540, 547, 705 A.2d 725 (1997), and "[n]ot all organizations that work for or with the government *587 are subject to the right-to-know law," Bradbury v. Shaw, 116 N.H. 388, 389, 360 A.2d 123 (1976). However, an entity that has a distinct legal existence separate from the State and that functions independently from the State may nevertheless be subject to the Right-to-Know Law depending upon its structure and function. See, e.g., Bradbury, 116 N.H. at 389-90, 360 A.2d 123; Union Leader Corp., 142 N.H. at 547, 705 A.2d 725; Prof'l Firefighter of N.H., 151 N.H. at 504, 861 A.2d 789.
We have reviewed whether entities that work for or with the government are subject to the Right-to-Know Law on at least three occasions. In Bradbury, we considered the status of an industrial advisory committee formed by the mayor of Rochester. Bradbury, 116 N.H. at 389, 360 A.2d 123. We examined its composition (which included "newspapermen and members of the city council"), the frequency of its meetings (once per month), and its functions (which included reviewing land purchases the city had made, identifying city-owned property to possibly sell, arranging sale transactions and participating in land sale negotiations, discussing extension of city water and sewer lines and construction of new streets). See id. Ultimately, we concluded that the committee's involvement in governmental programs and decisions brought it within the scope of the Right-to-Know Law. Id. at 390, 360 A.2d 123.
In Union Leader, we considered the status of the New Hampshire Housing Finance Authority, a statutorily created entity charged with providing safe and affordable housing to the elderly and low income residents of New Hampshire. Union Leader Corp., 142 N.H. at 547, 705 A.2d 725. In so doing, we examined its structure and function as outlined in the statutory scheme under which it originated, RSA chapter 204-C, and determined that it (1) encouraged "the investment of private capital ... through the use of public financing," (2) was a public instrumentality, (3) performed public and essential governmental functions of the State, and (4) was empowered to work with other state and federal agencies. See id. Accordingly, we concluded that despite its distinct legal existence separate from the State, the Authority was subject to the Right-to-Know Law. Id.
In Prof'l Firefighter of N.H., we considered the status of LGC HealthTrust, a nonprofit corporation formed by an association of governmental entities to provide general health insurance benefits for public employees under a pooled risk management program. Prof'l Firefighter of N.H., 151 N.H. at 502, 861 A.2d 789. We examined the entity's structure and function as delineated by RSA chapter 5-B. Id. at 504, 861 A.2d 789. In particular, we noted that LGC HealthTrust (1) was comprised exclusively of political subdivisions, which are subject to the Right-to-Know Law, (2) was governed entirely by public officials and employees, (3) provided health insurance benefits for public employees through a pooled risk management program, an activity that the legislature recognized as an essential governmental function, (4) operated for the sole benefit of its constituent governmental entities and for public employees, and (5) managed money collected from governmental entities while enjoying the tax exempt status of public entities. Id. In the end, we concluded that LGC HealthTrust was subject to the Right-to-Know Law because it "performs the essential governmental function of providing insurance and pooled risk management programs to political subdivisions." Id. at 504-05, 861 A.2d 789.
Our ultimate goal in construing the Right-to-Know Law is to further the statutory and constitutional objectives of increasing *588 public access to all public documents and governmental proceedings, see id. at 504, 861 A.2d 789, and to "provide the utmost information to the public about what its government is up to," Goode v. N.H. Legislative Budget Assistant, 148 N.H. 551, 555, 813 A.2d 381 (2002) (quotation omitted). Whether an entity performs an essential governmental function is not the exclusive method for determining whether it is subject to the Right-to-Know Law. Indeed, we have emphasized that:
Any general definition can be of only limited utility to a court confronted with one of the myriad organizational arrangements for getting the business of government done. The unavoidable fact is that each new arrangement must be examined anew and in its own context.
Bradbury, 116 N.H. at 390, 360 A.2d 123 (quotation, brackets and ellipsis omitted). In the end, we examine the structure and function of an entity to assess the entity's relationship with government, and determine whether that entity is conducting the public's business. See RSA 91-A:1 (purpose of Right-to-Know Law is to facilitate openness in the conduct of public business).
We examine the summary judgment record to determine the structure and function of NHMA and LGC Real Estate. According to the LGC bylaws, all of LGC's affiliated entities, including NHMA and LGC Real Estate, are part of an organization solely owned by LGC and managed by a single board of directors, consisting of municipal public officials, school public officials, employee officials, and a county public official. The LGC bylaws state that the board of directors shall "set policy, oversee and administer LGC" and its subsidiaries, including "NHMA ... and LGC Real Estate." Further, the bylaws provide that a single executive director is in charge of "the daily activities of LGC, including all of its subsidiar[ies]." LGC concedes that it, itself, is a governmental entity that is subject to the Right-to-Know Law.
In response to interrogatories, LGC admitted that its participants consist of public government members and other entities that perform functions that would otherwise have to be performed by a governmental entity. We acknowledge that NHMA and LGC Real Estate perform different functions for LGC, and such functions arguably could be performed by a private entity. However, LGC admitted in its pleadings in the superior court that it "assists members in performing essential governmental functions." Furthermore, NHMA and LGC Real Estate, in the performance of their respective functions, are directly managed by, owned by and operate for the sole benefit of LGC, which has a conceded status as a governmental entity whose members consist solely of political subdivisions and which is managed solely by municipal, school, employee and county officials. This is not a circumstance in which a public body or public agency is contracting with an otherwise private entity with a separate legal existence from that public body or public agency in order to accomplish certain tasks. Cf. News and Sun-Sentinel v. Schwab, et al., 596 So.2d 1029, 1031-32 (Fla.1992) (private architectural corporation retained by county to provide professional services for construction of public school was not subject to state public records act because it was not an entity acting on behalf of a public agency). Finally, their answers to interrogatories indicate that both NHMA and LGC Real Estate enjoy the tax exempt status of public or governmental entities under the federal Internal Revenue Code, 26 U.S.C. § 115. Therefore, we conclude that the structure and function of NHMA and LGC Real Estate in their relationship with *589 LGC, which has a conceded status as a governmental entity subject to the Right-to-Know Law, demonstrate that they are conducting the public's business. Accordingly, we affirm the trial court's decision that NHMA and LGC Real Estate are subject to the Right-to-Know Law.
III
Next, LGC argues that the trial court erred in ordering it to disclose records that identify the names and individual salaries of its private employees. LGC disclosed general salary information to Professional Firefighters by providing its total number of full-time employees, as well as the total salary paid to them. However, it refused to disclose the individual salaries of its employees by name. LGC contends that these specific records are exempt from public disclosure under RSA 91-A:5, IV as "confidential, commercial, or financial information" whose disclosure would "constitute an invasion of privacy." According to LGC, its "private employees have a higher expectation of privacy [regarding their salary information] than those who choose to work in the public sector," and their privacy interests far outweigh any public interest in the production of this information.
We reject LGC's argument that because its employees are "private" by nature, their salary records are entitled to a greater degree of privacy protection under the Right-to-Know Law than are public employees' records. Whether records are subject to public disclosure depends upon whether the entity itself is subject to the Right-to-Know Law. See RSA 91-A:4, I (citizens have the "right to inspect all governmental records in the possession, custody, or control of [all] public bodies or agencies"). LGC admits that it is a governmental entity that is subject to the Right-to-Know Law. Further, it does not argue that the salary records are not "governmental records." See id. Therefore, LGC's employee salary records are subject to public disclosure unless an exception or exemption applies.
The Right-to-Know Law does not guarantee the public an unfettered right of access to all governmental workings, as evidenced by the statutory exceptions and exemptions. See Goode, 148 N.H. at 553, 813 A.2d 381. However, "[w]hen a public entity seeks to avoid disclosure of material under the Right-to-Know Law, that entity bears a heavy burden to shift the balance toward nondisclosure." Lambert v. Belknap County Convention, 157 N.H. 375, 379, 949 A.2d 709 (2008). "We resolve questions regarding the [Right-to-Know Law] with a view to providing the utmost information in order to best effectuate the statutory and constitutional objective of facilitating access to all public documents." Goode, 148 N.H. at 554, 813 A.2d 381 (quotation omitted). "Thus, we construe provisions favoring disclosure broadly, while construing exemptions narrowly." Id.
LGC contends that the specific names and salary information of its employees are exempt under RSA 91-A:5, IV, as records pertaining to "confidential, commercial, or financial information." Under this statute, we must analyze "both whether the information sought is confidential, commercial, or financial information, and whether disclosure would constitute an invasion of privacy." Union Leader Corp., 142 N.H. at 552, 705 A.2d 725 (quotation and emphasis omitted). When considering whether disclosure of public records constitutes an invasion of privacy under RSA 91-A:5, IV, we engage in a three-step analysis. See Lambert, 157 N.H. at 382-83, 949 A.2d 709. First, we evaluate whether there is a privacy interest at stake that would be invaded by the disclosure. Id. at *590 382, 949 A.2d 709; see also Union Leader Corp., 142 N.H. at 553, 705 A.2d 725 (court examines whether the asserted private confidential, commercial, or financial interest "is sufficiently private [such] that it must be balanced against the public's interest in disclosure"). Second, we assess the public's interest in disclosure. See Lambert, 157 N.H. at 383, 949 A.2d 709. Third, we balance the public interest in disclosure against the government's interest in nondisclosure and the individual's privacy interest in nondisclosure. Id. If no privacy interest is at stake, then the Right-to-Know Law mandates disclosure. Id. Further, "[w]hether information is exempt from disclosure because it is private is judged by an objective standard and not a party's subjective expectations." Id. at 382-83, 949 A.2d 709.
In ruling that LGC must disclose the specific salary information sought, the trial court followed our decision in Mans v. Lebanon School Board, 112 N.H. 160, 290 A.2d 866 (1972), and ruled that LGC employees "are entitled to no greater privacy interest in their salaries than are public employees." We agree. We need not specifically address whether the records are "confidential, commercial, or financial information," because we follow Mans and conclude that disclosure of the records would not constitute an invasion of privacy.
In Mans, we considered whether the individual salary information for public school teachers was shielded from disclosure pursuant to the exemption at issue here. Id. at 161, 290 A.2d 866. While the school district was willing to publish the name of each teacher and a general salary schedule, a resident taxpayer sought disclosure of individual salaries by name. Id. We reviewed whether the specific salary information was private in nature and exempt from disclosure under RSA 91-A:5. Id. at 162-64, 290 A.2d 866. In so doing, we particularly examined the harm that the school system claimed that the individual employees would incur in the event of public disclosure, id. at 163, 290 A.2d 866, and the public's need for access, id. at 164, 290 A.2d 866.
With respect to harm, we noted that salaries of public officials and employees, both state and municipal, had been commonly published in different venues "without significant damage to individual dignity or the efficient management of the State system." Id. at 163, 290 A.2d 866. Regarding public need, we noted that the records were pertinent to the mode and manner of public expenditures for school purposes and, thus, concluded that the Right-to-Know Law favored public scrutiny in order to enable resident voters to properly exercise their final appropriating authority. See id. at 164, 290 A.2d 866. We held that "[t]he salaries of public employees and schoolteachers are not intimate details the disclosure of which might harm the individual," and, thus, concluded that disclosure would not constitute an invasion of privacy barring public disclosure under RSA 91-A:5, IV. Id. (quotation and ellipsis omitted). We acknowledged that salary information generally constitutes private information and would be subject to the exemption at issue if we were to construe that exemption broadly. Id. at 162, 290 A.2d 866. Ultimately, however, we rejected a broad construction that would have allowed the exemption to swallow the rule and would have contravened the purposes and objectives of the Right-to-Know Law. See id.
Following Mans, we agree with the trial court that LGC employees have no greater privacy interest regarding their individual salary information than traditional public employees. While such records apparently may not have been historically disclosed to the public as were those of certain *591 public school teachers in Mans, LGC offers no reason why public disclosure of its employees' salary records would cause any significant damage to individual dignity or the efficient management of its operation. See id. at 163, 290 A.2d 866. Its bald assertion that "LGC's private employees have a higher expectation of privacy than those who choose to work in the public sector" is not persuasive. Although LGC employees may not have expected their salary information to be disclosed, their subjective expectations are not dispositive. See Lambert, 157 N.H. at 382-83, 949 A.2d 709 (whether information is private is judged by an objective standard and not a party's subjective expectations); Mans, 112 N.H. at 163, 290 A.2d 866 (sincere conviction of teachers that public access to individual salaries would be embarrassing to them and not in the best interest of the efficient management of school affairs was not dispositive).
Further, the nature of the records is pertinent to the manner in which LGC operates. LGC has a conceded status as a governmental entity subject to the Right-to-Know Law and is subsidized by money generated through tax collection. It is not disputed that other than revenues generated from incidental services, such as the sale of LGC handbooks and directories, the bulk of LGC's income comes from member dues paid by participating municipalities with taxpayer money. This income is used to operate LGC, including paying the salaries of LGC employees. Additionally, the LGC bylaws indicate that LGC members, which are mostly municipalities, are entitled to participate in the return of net income, and in the event LGC dissolves, any remaining assets will be liquidated and the proceeds distributed to LGC members. Moreover, the LGC board of directors are entitled to pay themselves "reasonable compensation for services as Directors and reimburse themselves for reasonable expenses properly and actually incurred in the course of acting as Directors."
Public access to specific salary information gives direct insight into the operations of the public body by enabling scrutiny of the wages paid for particular job titles. Public scrutiny can expose corruption, incompetence, inefficiency, prejudice and favoritism. See International Federation v. Superior Court, 42 Cal.4th 319, 64 Cal. Rptr.3d 693, 165 P.3d 488, 495 (2007). Such scrutiny is necessary for the public to assess whether LGC, which has a conceded status as a governmental entity subject to the Right-to-Know Law, is being properly and efficiently managed and for educating the member municipalities regarding whether continued membership would be a wise expenditure of taxpayer money. In short, knowing how a public body is spending taxpayer money in conducting public business is essential to the transparency of government, the very purpose underlying the Right-to-Know Law.
We are unpersuaded by the cases LGC cites in its effort to shield the specific salary information of its employees. Decided under the federal Freedom of Information Act, the cases largely turn on granting protection to records involving individual employee names and personal addresses, which if publicly disclosed, would expose the individual employees to intrusion into the privacy of their homes. See, e.g., Department of Defense v. FLRA, 510 U.S. 487, 501-02, 114 S.Ct. 1006, 127 L.Ed.2d 325 (1994) (disclosure of home addresses of federal agency employees would constitute an unwarranted intrusion into privacy of the home); Sheet Metal Workers v. Dept. of Veterans Affairs, 135 F.3d 891, 904-05 (3d Cir.1998) (disclosure of names and home addresses of governmental contract employees constitutes an unwarranted invasion of personal privacy). *592 Our decision today is consistent with our own precedent, see Mans, 112 N.H. at 164, 290 A.2d 866, as well as that of other jurisdictions, see, e.g., International Federation, 64 Cal.Rptr.3d 693, 165 P.3d at 495 n.5.
We conclude that LGC has failed to establish that the salaries of its individual employees comprise intimate details that are exempt from disclosure under RSA 91-A:5, IV. See Mans, 112 N.H. at 164, 290 A.2d 866. Accordingly, we affirm the trial court's grant of Professional Firefighters' request for disclosure of LGC employee names and individual salary information.
IV
Finally, LGC challenges the trial court's award of attorney's fees to Professional Firefighters. According to LGC, the trial court erred in concluding that LGC knew or should have known that it was required to produce the salary information of its employees because the trial court failed to consider the merits of withholding the information pursuant to the exemption under RSA 91-A:5, IV.
Under RSA 91-A:8, attorney's fees shall be awarded if the trial court finds that: (1) "such lawsuit was necessary in order to make the information available"; and (2) "the public body, public agency, or person knew or should have known that the conduct engaged in was a violation of [RSA chapter 91-A]." We will defer to the trial court's findings of fact unless they are unsupported by the evidence or erroneous as a matter of law. Prof'l Firefighter of N.H., 151 N.H. at 507, 861 A.2d 789.
LGC argues that it reasonably believed that RSA 91-A:5, IV shielded such records from public disclosure, and, thus, it withheld the salary information. According to LGC, the trial court's award of attorney's fees was based upon its mistaken assumption that LGC withheld the information because it did not believe that all of the LGC entities were subject to RSA chapter 91-A. We agree.
The trial court found that:
[W]hile LGC had a not unreasonable argument as to why some of the respondent entities may have been exempt from the Right-to-Know Law, LGC had refused to produce salary information for all of its subsidiaries, including those it knew, or should have known, were subject to the Right-to-Know Law. Therefore, the Court considers the petitioner to be the prevailing party in this Right-to-Know matter. Accordingly, the petitioner's request for attorney's fees and costs with regard to the procurement of salary information is granted.
Earlier in its order, however, the trial court identified the reason LGC withheld the specific salary information as the claimed exemption under RSA 91-A:5, IV. Thus, the trial court based its award of attorney's fees upon a mistaken understanding of LGC's reason for withholding the requested salary information. In its motion for reconsideration, LGC reiterated that it had withheld the salary information due to its belief that such records were exempt under RSA 91-A:5, IV and that such belief was reasonable. The trial court did not address this issue in its order denying the motion for reconsideration. Given the circumstances of this case, we conclude that the award of fees was based upon a mistaken premise which the trial court failed to correct when it had the opportunity to do so in light of LGC's motion for reconsideration. Accordingly, we vacate the award of attorney's fees and remand.
*593 Affirmed in part; vacated in part; and remanded.
DALIANIS, DUGGAN, HICKS and CONBOY, JJ., concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549166/ | 140 B.R. 765 (1992)
In re Joan Schueman PALMER, Debtor.
Richard A. MARSHACK, Trustee, Plaintiff,
v.
Fred SAUER and Marcia Plahm-Sauer, Defendants.
Bankruptcy No. SA 91-36731JB, Adv. No. SA 91-03837JB.
United States Bankruptcy Court, C.D. California.
April 24, 1992.
*766 *767 Robert P. Goe, Burd & Marshack, Santa Ana, Cal., for trustee.
Ross L. Edgell, Jr., Edgell and Edgell, Orange, Cal., for defendants.
AMENDED MEMORANDUM OF DECISION
JAMES N. BARR, Bankruptcy Judge.
PROCEDURAL BACKGROUND
The Chapter 7 Bankruptcy Trustee (the "Trustee") commenced this adversary proceeding seeking an adjudication of the rights of the parties with respect to real property located in New Mexico (the "Property"). The Trustee then filed a motion for summary judgment against Fred and Marcia Plahm-Sauer (the "Sauers") on the sole basis that, as a bona fide purchaser under 11 U.S.C. § 544(a)(3)[1], he may defeat the Sauers' claim that Joan Schueman Palmer (the "Debtor") was holding the Property in trust for them. Based on the following findings of fact and conclusions of law, I will deny the Trustee's motion for summary judgment and, sua sponte, grant summary judgment to the Sauers.
FACTS
In September, 1989, the Sauers attempted to purchase the Property from Wayne and Jean Miller (the "Millers"). Because of their bad credit history, the Sauers were unable to consummate the sale. Thus, the Debtor, Marcia Plahm-Sauer's mother, agreed to purchase the Property on their behalf. On January 12, 1990, the Millers transferred legal title to the Property to the Debtor pursuant to a warranty deed that was recorded in Bernalillo County, New Mexico. Fred Sauer testified that he and his wife paid the down payment and all mortgage payments, insurance premiums and property taxes on the Property. The Trustee has not disputed this testimony.
The Sauers and the Debtor then entered into an agreement, dated March 9, 1990 (the "Agreement"), pursuant to which they agreed, among other things, that: (i) the Debtor obtained a mortgage and took legal title to the Property because the Sauers' bad credit history prevented them from doing so; (ii) the Sauers "owned" the Property; and (iii) when "practical," the Debtor would transfer any "right, title and interest" in the Property to the Sauers.
In May, 1990 (i.e., more than a year before this bankruptcy case was commenced), the Debtor signed and delivered a warranty deed to the Sauers that apparently transferred her interest in the Property to them. Fred Sauer testified that he did not record that warranty deed because he was concerned that the Debtor's mortgagee would consider the transfer to be a default under the loan agreement. However, notwithstanding that transaction, the Debtor, the Sauers and the Trustee have all agreed, for purposes of this motion, that the Debtor had legal title to the Property at the time she filed the Chapter 7 petition.
On June 13, 1991, the Sauers entered into a written lease agreement with Susannah Specht ("Specht") for a one year period. Specht has paid all of the lease payments to the Sauers. The Debtor filed a Chapter 7 petition on July 15, 1991, at which time Specht was occupying the Property. The Trustee was appointed on August 6, 1991.
JURISDICTION
This court has jurisdiction over this case pursuant to § 1334(a) (the district courts shall have original and exclusive jurisdiction of all cases under Title 11), 28 U.S.C. § 157(a) (authorizing the district courts to refer all Title 11 cases and proceedings to the bankruptcy judges for the district) and General Order No. 266, dated October 9, 1984 (referring all Title 11 cases and proceedings *768 to the bankruptcy judges for the Central District of California). This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O).
ISSUES
The following issues are presented by the Trustee's motion: (i) is the Property held in trust for the Sauers; and (ii) may the Trustee avoid the Sauers' interest in the Property pursuant to § 544(a)(3)?
ANALYSIS
Summary Judgment Basics
The Trustee has the initial burden of identifying the portion of the record which demonstrates the lack of genuine issues of material fact. If that burden is met, the burden of going forward with evidence to establish the existence of such issues shifts to the Sauers. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
Fed.R.Civ.Proc. 56(e), as made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7056, provides that the non-moving party may not rest on mere allegations or denials of its pleading, but must set forth specific facts demonstrating a genuine issue of material fact. A dispute about a material fact is "genuine" if the evidence offered would enable a reasonable jury to return a verdict for the non-moving party; a fact is "material" if it affects the outcome of the lawsuit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Thus, I must grant the Trustee's motion for summary judgment if the record shows that there is no genuine issue of material fact and the uncontroverted facts support judgment for the Trustee. Alternatively, I may grant summary judgment to the Sauers, sua sponte, if there is no genuine issue of material fact and the uncontroverted facts support such a ruling. In re Marvin Properties, Inc., 76 B.R. 150, 152 (Bankr. 9th Cir.1987), aff'd on other grounds, 854 F.2d 1183 (9th Cir.1988), citing Portsmouth Square v. Shareholders' Protective Comm., 770 F.2d 866, 869 (9th Cir.1985).
Is the Property Presently Held in Trust for the Sauers?
The Sauers contend that they are the beneficiaries of a resulting trust and the Trustee has not argued otherwise. To determine whether a valid resulting trust exists, I must apply New Mexico law because the Property is located in that state. In re Torrez, 63 B.R. 751, 754 (Bankr. 9th Cir.1986), aff'd on other grounds, 827 F.2d 1299 (9th Cir.1987) (the validity of a trust must be determined under the laws of the state in which the real property is located).
In Aragon v. Rio Costilla Coop. Livestock Assn., 112 N.M. 152, 812 P.2d 1300 (1991), the New Mexico Supreme Court held that a resulting trust arises when a person transfers property under circumstances which raise an inference that he intended the transferee to have only legal title and not a beneficial interest in the property, the inference is not rebutted, and the beneficial interest in the property is not disposed of. A resulting trust may arise when: (i) an express trust partially or totally fails; (ii) a trust is fully performed without exhausting the trust res; or (iii) one person pays the purchase price for real property and requests that it be conveyed to another person. Aragon, 112 N.M. at 155, 812 P.2d 1300.
In contrast, an express trust is created by the direct and positive acts of the parties: a writing, a deed, a will, or by words which expressly or impliedly demonstrate a desire to create a trust. While an express trust does not have to be in writing, there must be some memorandum to prove that it exists. Aragon, 112 N.M. at 155, 812 P.2d 1300. Unlike a resulting trust which is implied by the nature of the transaction, an express trust is established by the actions of the parties.
In the present case, Fred Sauer and the Debtor both testified that, at the time the Property was transferred to the Debtor, they intended that the Debtor would hold legal title to the Property for the *769 benefit of the Sauers. Approximately three months later, the Debtor and the Sauers memorialized their intentions in the Agreement. The testimony of the Debtor and Fred Sauer (which is uncontroverted by the Trustee) and the Agreement clearly demonstrate that the parties intended to place title to the Property in an express trust for the benefit of the Sauers and that intent was memorialized in a subsequent writing. Thus, I find, as a matter of law, that the Debtor held the Property in an express trust for the benefit of the Sauers at the time this bankruptcy case was commenced.
May the Trustee avoid the Sauers' interest in the Property pursuant to § 544(a)(3)?
The Trustee relies solely on the court of appeals' holding in In re Tleel, 876 F.2d 769 (9th Cir.1989) to support his argument that he may, as a bona fide purchaser under § 544(a)(3), avoid the Sauers' interest in the Property. The Sauers argue that under the Bankruptcy Appellate Panel's (the "BAP") holding in Torrez, the Trustee cannot avoid their interest in the Property.
In Tleel, the debtors, Joseph Chbat ("Chbat") and two other parties acquired certain real property in August, 1978. After buying out the interests of the co-owners, the debtors sold the property to a third party (the "Purchaser") pursuant to a land sale contract. Under that contract, the debtors retained legal title to the property and the Purchaser agreed to make installment payments to the debtors totalling $400,000.
In 1980, Chbat brought a state court action alleging that the debtors breached an oral partnership agreement and requested that the court impose a constructive trust on half the proceeds of the land sale contract in his favor. In December, 1984, the debtors filed a Chapter 11 petition. After the Purchaser defaulted on the land sale contract, the debtors apparently instituted nonjudicial foreclosure proceedings. The bankruptcy court approved the debtors' motion to sell the property free and clear of any liens. Chbat then commenced an adversary proceeding seeking a constructive trust on the proceeds from the sale of the property. The trustee brought a motion for summary judgment arguing that he could avoid Chbat's alleged constructive trust claim under § 544(a)(3). The bankruptcy court granted the trustee's motion for summary judgment action and the BAP affirmed.
Upon appeal, the circuit court of appeals first considered whether the trustee was a bona fide purchaser for purposes of § 544(a)(3). Because the property was located in California, the court of appeals looked to California law to make that determination. Under Cal.Civ.Code §§ 1214 and 1217, a bona fide purchaser is defined as a purchaser for value without actual or constructive notice of a prior interest. The court of appeals then held that because § 544(a)(3) must be applied "without regard to any knowledge of the trustee or of any creditor," actual notice would not affect the trustee's bona fide purchaser status. It ruled that the trustee did not have constructive or inquiry notice of Chbat's alleged constructive trust claim because Chbat did not record his interest in the property and he was not in possession of the property. With that, the court of appeals concluded that the trustee was a bona fide purchaser under § 544(a)(3).
The court of appeals then rejected Chbat's argument that his equitable interest in the property, by virtue of his alleged constructive trust claim, was not property of the estate under § 541(d)[2] and held that a trustee's avoidance powers under § 544(a)(3) take precedence over § 541(d) in "this and [other] similar circumstances. *770 Chabat's asserted constructive trust clearly represent[ed] the kind of inchoate claim that section 544(a)(3) was designed to cut off." Tleel, 876 F.2d at 773 (emphasis added). The court of appeals, citing its prior holding in In re North American Coin & Currency, Ltd., 767 F.2d 1573, 1575 (9th Cir.1985), modified, 774 F.2d 1390 (9th Cir. 1985), stated that extreme caution must be exercised in imposing an equitable remedy such as a constructive trust because to do so would favor one group of potential creditors over another; thereby undermining the policy of ratable distribution among all creditors. Tleel, 876 F.2d at 771. See also In re Seaway Exp. Corp., 912 F.2d 1125 (9th Cir.1990) (trustee who was a bona fide purchaser under § 544(a)(3) could avoid a bank's inchoate constructive trust claim).
The Trustee's reliance on Tleel is misplaced because the facts in that case are distinguishable from those here. In the Tleel case, the court of appeals held that the trustee was a bona fide purchaser under § 544(a)(3) because he did not have constructive or inquiry notice of Chbat's inchoate constructive trust claim. It then held that the trustee could assert its powers under § 544(a)(3) to avoid Chbat's inchoate constructive trust claim. As I will discuss in more detail later, the Trustee here is not a bona fide purchaser for purposes of § 544(a)(3) because he had constructive notice of the Sauers' interest in the Property; thus, Tleel is not controlling here.
In Torrez, John and Jessie Torrez (the "Torrezes") purchased certain real property but requested that the former owners convey legal title to their son and daughter-in-law, the debtors. They entered into this transaction for the sole purpose of circumventing federal reclamation laws. The debtors then transferred the property to a relative, Rachel Torrez Tristao ("Tristao") for no consideration. After filing their Chapter 11 petition, the debtors commenced an adversary proceeding to recover the property from Tristao and to quiet title thereto against the Torrezes, who asserted rights as the beneficiaries of an alleged resulting trust. The bankruptcy court held, in part, that the transfer to Tristao was a voidable fraudulent transfer under § 548(a)(2) and that the Torrezes could not enforce the resulting trust because it was created for an illegal purpose.
Upon appeal, the BAP first considered whether there was a valid resulting trust. Under Cal.Civ.Code § 856, only a bona fide purchaser without notice can avoid a resulting trust. The BAP noted that the Torrezes farmed the property and one of their workers lived there and held that the debtors were not bona fide purchasers for purposes of § 544(a)(3) because they had constructive notice of the Torrezes' interest in the property. It further held that the debtors lacked standing to invoke the unclean hands doctrine to avoid the resulting trust because they were not harmed by the Torrezes' illegal conduct. With that, the BAP reversed the bankruptcy court's decision and the court of appeals affirmed.
The Torrez decision is consistent with the Ninth Circuit's interpretation of § 544(a)(3), which allows a bankruptcy trustee to avoid all obligations and transfers that are voidable by a bona fide purchaser of real property "without regard to any knowledge of the trustee or of any creditor." (emphasis added). The Ninth Circuit has interpreted that phrase to encompass actual knowledge but not constructive notice. For example, in In re Marino, 813 F.2d 1562, 1565 (9th Cir.1987), the court of appeals held that a trustee's actual knowledge was irrelevant under § 544(a)(3). The court of appeals, citing McCannon v. Marston, 679 F.2d 13, 16-17 (3rd Cir.1982), further held that constructive notice, as defined and applied by applicable state law, limited a trustee's avoidance powers under § 544(a)(3). Marino, 813 F.2d at 1565. I am bound to follow the Ninth Circuit's rulings as to the interpretation of § 544(a).
The BAP's holding in Torrez is controlling in this case or, if not controlling, the reasoning of that tribunal should be applied here if I find that the Trustee is not a bona fide purchaser. The powers of a bona fide purchaser for purposes of § 544(a) are defined by the state law in *771 which the property is located. See Marino, 813 F.2d at 1565. Because of the situs of the Property, I must determine whether the Trustee is a bona fide purchaser under New Mexico law. In McBee v. O'Connell, 19 N.M. 565, 145 P. 123 (1914), the New Mexico Supreme Court held that a purchaser of real estate, which is in the possession of someone other than the seller, must make a good faith inquiry as to that person's interest. If he fails to do so, then he will be charged with constructive notice of any facts that may have been otherwise disclosed. See also Citizens Bank of Clovis v. Hodges, 107 N.M. 329, 757 P.2d 799 (N.M.Ct.App.1988) (bank was deemed to have constructive notice of Hodges' interest in the property because they were in possession of that property).
In the present case, the Trustee argues that he did not have notice of the Sauers' interest in the Property. As the Trustee's actual knowledge of the Sauers' interest in the Property is irrelevant, I will only consider whether he had constructive notice of their interest. In that regard, it is uncontroverted that Specht was in possession of the Property at the time that the Debtor filed her Chapter 7 petition and that any inquiry of Specht would have revealed that she was leasing the Property from the Sauers rather than from the Debtor. Under applicable New Mexico law, then, the Trustee is deemed to have constructive notice of the Sauers' interest in the Property. The Trustee is not now, and never could have been, a bona fide purchaser of the Property because his rights and powers as a bona fide purchaser under § 544(a) arose at the time the Debtor filed her petition and he had constructive notice of the Sauers' interest at that time. Therefore, I find that, as a matter of law, the Trustee cannot invoke the avoidance powers of § 544(a)(3). Based thereon, I will deny the Trustee's motion for summary judgment and, sua sponte, grant summary judgment to the Sauers.
NOTES
[1] All references to code sections are to sections of Title 11 of the United States Code unless otherwise noted.
[2] Section 541(d) provides:
[p]roperty in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such a mortgage, sold by the debtor but as to which the debtor retains legal title to service or supervise the servicing of such mortgage or interest, becomes property of the estate under subsection (a)(1) or (2) of this section only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549188/ | 341 A.2d 11 (1975)
STATE of Maine
v.
Mark W. ANNIS.
Supreme Judicial Court of Maine.
July 9, 1975.
*12 Joseph M. Jabar, Dist. Atty., Augusta, Charles K. Leadbetter, Foahd J. Saliem, Asst. Attys. Gen., Augusta, for plaintiff.
Wathen & Wathen by Malcolm L. Lyons, Augusta, for defendant.
Before DUFRESNE, C. J., and WEATHERBEE, POMEROY, WERNICK, ARCHIBALD and DELAHANTY, JJ.
PER CURIAM.
The defendant was convicted of sale of cannabis after jury trial in Kennebec County. We need to discuss only one of the several issues raised on appeal. We sustain his appeal.
The State had presented a young undercover agent for the Augusta Police Department who testified that he met the defendant and another young man named Moore (whose case is not before us) in the evening on the second floor of the recreational center at the Augusta State Mental Institute. He said he asked Mr. Moore, in the defendant's presence, to sell him marijuana. Mr. Moore answered "Sure," and the three went down the stairs and out of the building to an automobile parked at the curb. He testified that Mr. Moore got into the car, sitting behind the steering wheel and the agent sat in the passenger seat, leaving the door on the passenger side open. The defendant stood between the open door and the car, leaning somewhat into the car while Mr. Moore took marijuana from the glove compartment and gave it to the agent. The agent said that the defendant then requested, and received from him, the payment for the marijuana.
The defendant testified that he had gone to the recreational building with Mr. Moore that night and was playing pool with a Mr. Simpson when he saw Mr. Moore and the agent leave the building together. He said that four or five minutes later he went outside and found Mr. Moore and the agent sitting in Mr. Moore's car. He stood by the car three or four minutes talking with them, and, on learning that Mr. Moore was leaving, he went back into the building with his pool opponent who had appeared on the scene. He denied hearing conversation about marijuana in the building, going out of the building with Mr. Moore and the agent, seeing any marijuana changing hands in Mr. Moore's car, or receiving any money from the agent.
The State was obviously aware of the significance of the defendant's testimony that he was, in fact, present for a time beside the automobile where the agent had testified the sale of the drug took place and the State's attorney cross-examined the defendant as to his ability to see and hear what was transpiring in the car. Later, on cross-examination by the attorney for Mr. Moore, the defendant reiterated his brief presence beside the car during part of the time Mr. Moore and the agent were seated inside it.
On cross-examination by the State, the defendant said he did not obtain Mr. Simpson's presence as a witness because he had learned of the trial date only the previous evening and did not know how to locate Mr. Simpson. The State's attorney cross-examined him as to this, also.
Following this cross-examination, the presiding Justice undertook an extensive examination of the defendant in which he asked the defendant a series of some 45 questions concerning the incident at the car and defendant's failure to produce Mr. Simpson as a witness. At the conclusion of the Justice's interrogation, defendant's *13 attorney moved, unsuccessfully, for a mistrial.
The persistent quality of the questions disturbs us more than their number.[1]
*14 We have frequently recognized that a trial judge must be more than an impartial referee and that, on occasion, he is required to participate in the interrogation of witnesses to prevent a miscarriage of justice, such as to clarify confused evidentiary situations or to bring forward overlooked essential facts.[2] In State v. Hunnewell, Me., 334 A.2d 510, 512 (1975) we recognized that
"[i]t is not always easy for the Justice presiding at a jury trial, conscientiously attempting to clarify evidentiary problems for the jury's benefit, to recognize the point at which his cumulated judicial efforts begin to suggest to the jury that the Justice has aligned himself on the side of one of the contestants."
In Hunnewell, although we were disturbed by the extensiveness of the Justice's questioning of the State's witnesses, we concluded that, as it was largely concerned with clarifying admissibility requirements and probative validity of prison records, it was harmless in view of the undisputed evidence of the defendant's unlawful absence from prison. We are faced here with a situation which has much greater potential for prejudice.
The witness was the defendant himself and the repetitive questioning bore directly upon his credibility. The defendant had already agreed several times, on both direct and cross-examination, that he was present at the automobile with the undercover agent and Mr. Moorea fact which was likely to have added credence to the testimony of the State's principal witness. The situation required no further testimonial clarification. The defendant had also been cross-examined by the State's attorney concerning his failure to locate Mr. Simpson.[3] The series of persistent questions by the Justice, several of them in language more of a prosecutorial *15 than an inquiring nature, must certainly have suggested to the jurors that the Justice was assisting the State in emphasizing that particular fact situation. It is likely that it also suggested that the Justice entertained doubts as to the defendant's veracity.
While the defendant's counsel should have made known to the Justice his concern over the possible prejudicial effect of the Justice's questioning earlier than he did, we are satisfied that, however well intentioned the interrogation was, its cumulative impact amounted to manifest error.
The entry must be:
Appeal sustained.
Remanded to the Superior Court for retrial.
NOTES
[1] COURT: Did I understand you to say in answer to a question by Mr. Barr that you didn't hear them talking, that you were looking through the windshield? A Well, what he had asked me, he said if I had heard him say anything, if I was close enough where I could hear them say anything, and I told him no, because at the time I was talking to Jim, and they weren't talking to each other.
THE COURT: Yes, but just prior to that, you said you didn't hear what they were saying, you were looking through the windshield. Didn't you say that?
A No, sir.
THE COURT: You didn't say that?
A No.
THE COURT: I misunderstood then.
A I said that I was talking toward the windshield. He asked me if I had seen any transaction, and I told him `no'.
THE COURT: But you did see them in the car?
A Yes, I did.
THE COURT: You were out there?
A Yes, I was.
THE COURT: You don't know what was going on, you say?
A I went downstairs to find out where he was going.
THE COURT: And they were in the car?
A. Yes.
THE COURT: And you were there at the car?
A Yes, I was.
THE COURT: Was there anyone else with you?
A Tim Simpson was standing on the porch. He came down a couple of minutes after me.
THE COURT: Tim Simpson came down a couple of minutes after you?
A Yes.
THE COURT: So there was a time when just the three of you were there? Is that correct?
A Yes.
THE COURT: And where was Mr. Moore?
A In the driver's seat.
THE COURT: In the driver's seat?
A Yes.
THE COURT: And where was Mr. Bellemore?
A In the passenger side.
THE COURT: And where were you?
A Outside the car.
THE COURT: Which side? The passenger side, or the driver's side?
A The passenger side, in front of the door.
THE COURT: On the passenger's side, in front of the door?
A Towards the front of the hood of the car, `cause there's a drop-off where the car was parked.
THE COURT: And then sometime after that, Mr. Simpson came down?
A. Yes.
THE COURT: So that there was, no question in your mind, there was a time when just the three of you were there before Mr. Simpson came?
A Right.
THE COURT: And you saw no transaction?
A No, I didn't.
THE COURT: And you did not participate in a transaction?
A No.
THE COURT: And you didn't know what they were doing in a car?
A No, I did not. For all I knew he could have been asking him for a ride some place.
THE COURT: You saw them go out together?
A Yes, I did.
THE COURT: And as they started out didn't it occur to you to ask them where they were going?
A Well, I was with Mr. Simpson, I told him to wait a minute and I went down a few minutes after they went down.
THE COURT: And this Mr. Simpson lives in Augusta, you say?
A I think he does, to my knowledge.
THE COURT: When were you notified to be here today?
A Last night.
THE COURT: What time?
A I got the message about 4 o'clock, or 3 o'clock.
THE COURT: Three, four, or five o'clock in the evening?
A Yes. And I was in Poland, and I had no transportation at the time.
THE COURT: What time did you come into town this morning?
A Well I had my friendI finally made it in around ten o'clock, I guess it was, and I stayed at his place, and I came in this morning.
THE COURT: You made it in about ten o'clock last night?
A Ya, someone give me a ride last night. Jim Moore.
THE COURT: Last night?
A Right.
THE COURT: You were at Jim Moore's last night?
A At Monmouth, yes, sir.
THE COURT: Did you talk to him about coming to Court today?
A No, I did not. Just about coming in. We were trying
THE COURT: You talked with him about both of you coming to Court today, didn't you?
A Ya, I did.
THE COURT: Did either one of you talk about getting a hold of Tim Simpson, bringing him in?
A Yes, we did.
THE COURT: Did you come into town looking for him last night?
A We tried calling, but we couldn't get hold of him.
THE COURT: Where did you try to call?
A Well, I really didn't try that hard, 'cause the last time I heard that he was in the county jail, and my lawyer was going to subpoena him to come to court today.
THE COURT: When did your lawyer tell you that?
A This morning. And I went out this morning to look for him. This afternoon, I mean.
THE COURT: You went out to look for him?
A Yes, I did.
THE COURT: Where did he go?
A Just around to his girl friend's, to Rap and Rescue, and down to the park.
THE COURT: And you didn't find him?
A No.
THE COURT: Did you find out where he is?
A No, we did not.
THE COURT: So as far as you know he is not available?
A Not at present, no."
[2] State v. McKeough, Me., 300 A.2d 755 (1973); State v. Chaplin, Me., 308 A.2d 873, 875 (1973); State v. Haycock, Me., 296 A.2d 489, 492 (1972); State v. Rowe, Me., 238 A.2d 217 (1968); State v. Dipietrantonio, 152 Me. 41, 122 A.2d 414 (1956).
[3] After the questioning by the Justice, it was stipulated that the Sheriff, at defendant's attorney's request, had made an unsuccessful attempt to locate Mr. Simpson. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549189/ | 140 B.R. 413 (1992)
In re Raymond D. CHAVEZ, Debtor.
Bankruptcy No. 89-30209.
United States Bankruptcy Court, W.D. Texas, El Paso Division.
March 31, 1992.
*414 *415 *416 Lane C. Reedman, Guevara, Rebe, Baumann, Coldwell & Garay, El Paso, Tex., for Chavez.
Richard M. Leverick, Leverick and Musselman, P.C., Albuquerque, N.M., for FDIC.
DECISION ON COMPLAINT TO DETERMINE DISCHARGEABILITY OF DEBT AND DENY DISCHARGE OF DEBTOR
LEIF M. CLARK, Bankruptcy Judge.
CAME ON for hearing the Complaint of the Resolution Trust Corporation to Determine *417 Dischargeability of Debt and Deny Discharge of Debtor. Based on the pleadings, documents, and the transcript of trial, as well as the memoranda of law submitted by the respective parties, the court, having considered same, finds and concludes that the debts at issue are nondischargeable pursuant to 11 U.S.C. section 523(a)(4), but that the debtor's discharge will not be denied.
FACTUAL BACKGROUND
Sun Country Savings Bank of New Mexico, F.S.B. (SCSB) is a federally insured bank which, like many banks in the Southwest, experienced financial difficulties during the period from 1984 to 1986. As a result of these difficulties, the Federal Home Loan Bank Board (FHLBB) assigned a supervisory agent in order to assist SCSB in remaining a viable institution. Regulations issued by the FHLBB placed limits on the amounts SCSB could lend out. 12 C.F.R. §§ 563.9-1, 563.43. Section 563.9-1 limited the amount for loans to one borrower to an aggregate of $500,000, while section 563.43 limited loans involving affiliated persons to an aggregate of $100,000. 12 C.F.R. §§ 563.9-1, 563.43. The FHLBB specifically spelled out the limitations to SCSB in a supervisory agreement dated May 29, 1985. This supervisory agreement was signed by the debtor, Raymond D. Chavez, as then-president and CEO of SCSB.
In early 1985, a group of potential investors approached the debtor, as an officer and director of SCSB, communicating a possible interest in purchasing the bank through a premium stock offer of $17.50 per share for the directors' shares. The debtor expressed an interest in the offer, however, the original investment group fell through. Still enticed by the idea of a change in ownership, the debtor contemplated creating a local group to purchase the bank on similar terms.
In board meetings, the debtor and the other directors decided that they needed to secure greater control of the bank through a smaller group of shareholders. In order to facilitate the smaller shareholder group, the board elected to increase their share of ownership by purchasing authorized unissued stock from SCSB's reserves and outstanding stock from current shareholders.[1]
Pursuant to this plan, the debtor sold over 10,000 of his personal shares to the other members of the board for the premium price of $17.50 per share. After this sale, in order to regain his percentage of control, the debtor purchased 12,258 of the authorized unissued shares for the par value of $8.00 per share and 5000 additional unissued shares at $11.00 per share. The debtor also orchestrated transactions with the other directors for their purchases of SCSB stock. The debtor and the other directors substantially increased their holdings in SCSB through purchases of authorized unissued shares at $8.00 per share and of certain outstanding shares at the premium $17.50 per share.
In order to assist in the purchase of these large numbers of shares, the debtor arranged for loans to the directors from SCSB and from El Paso Federal Savings and Loan Association (El Paso). A loan of $99,998.25 was made to each of the directors from SCSB for the initial purchase of the new shares.[2] Additionally, the debtor coordinated a series of loans from El Paso to facilitate the purchase of the remaining shares.[3]
*418 The debtor also organized the purchase of SCSB stock by a group of eight people[4] operating under a then-undocumented limited partnership. There is some evidence to suggest that the debtor knew that the individuals were acting as a group (the "McDowell Group"), involved in a common construction project. The evidence also indicates the debtor represented to the McDowell group that if they would each purchase $150,000 worth of SCSB stock, SCSB would assuredly loan them the money for the condominium project. The debtor arranged loans from SCSB to the McDowell group for the stock purchases, classifying them as personal rather than stock loans. Further, the debtor assured the McDowell group that SCSB would repurchase the stock from them if they wished to get out of the transaction.[5]
At the end of all stock transactions, the debtor, the other directors, and the McDowell group had purchased a total of 66,000 shares of the outstanding stock at the premium $17.50 per share. Included among the 66,000 shares sold at the premium were approximately 14,000 owned either by the debtor or his family members. Another 62,000 of the authorized but unissued shares were purchased at the par value of $8.00 per share.
The loans that the debtor secured from El Paso eventually matured; however, the directors did not immediately repay the obligations. El Paso indicated to the debtor that the SCSB stock, which had been pledged for the loans, would be foreclosed upon if the directors did not repay the obligation. Fearing that El Paso would gain control over SCSB with the acquisition of the pledged securities, the debtor organized a second series of loans from SCSB to each of the directors for the purpose of retiring the El Paso loans. The loans to the directors totaled over $220,000 each.[6] To acquire these loans, the debtor had the directors sign blank notes which represented their liability to SCSB. The primary loan terms were then filled in after the monies were advanced.
The total amount of the SCSB loans to the directors was insufficient to completely satisfy the liability to El Paso, so the debtor appropriated $342,406.80 of SCSB funds in order to completely satisfy the debt. The debtor neither filled out any loan applications, nor sought board approval. The El Paso loans were retired, releasing the pledged securities back to the control of the directors.
In July of 1985, pursuant to the representations made by the debtor to the McDowell group, the debtor orchestrated five loans to the group totalling over $500,000. In May of 1985, the FHLBB had issued a supervisory agreement to SCSB which further limited the amount of loans to one borrower, other than directors, to $250,000.
From the period beginning around 1984 to the present, SCSB experienced financial difficulty much like many of the savings institutions in the Southwest. Because of the initial financial distress, the FDIC placed the bank under conservatorship during the time that the debtor was president and CEO. On March 17, 1989, the debtor filed a voluntary petition for protection under Chapter 7 of the Bankruptcy Code. The FDIC consequently filed an adversary proceeding challenging the dischargeability of the debtor's debts to SCSB on September 26, 1989. In May of 1990, the Office of Thrift Supervision appointed the RTC as receiver for SCSB due to the bank's increasing problems. The RTC is continuing *419 the prosecution of nondischargeability as successor to the FDIC and as receiver for SCSB.
ISSUES PRESENTED
The issues presently before this court are whether the claims alleged by the RTC for the debts which arose due to the actions of the debtor are nondischargeable under 11 U.S.C. section 523(a)(2), (a)(4), or (a)(6), and whether the debtor should be denied a discharge pursuant to 11 U.S.C. section 727.
I. Dischargeability under § 523
In determining dischargeability questions under Section 523 of the Bankruptcy Code, the court must consider the primary purpose of bankruptcy, which is to relieve the honest debtor from the weight of his or her debts and permit a "fresh start." See Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 699, 78 L.Ed. 1230 (1934). In order to prevent abuse of the fresh start policy, however, the Code provides several exceptions from discharge in circumstances where the debtor in question is less than honest. See 11 U.S.C. § 523(a)(2) (excepting debts from obtaining property through fraud or false statements or representations); id. at § 523(a)(4) (excepting debts from fraud or defalcation while a fiduciary or embezzlement or larceny); id. at § 523(a)(6) (excepting debts for willful or malicious injury to property of another); id. at § 523(a)(12) (excepting debts incurred for malicious or reckless failure to fulfill any obligation to a federal depository institution). Additionally, the code provides for some circumstances where the debtor will totally be denied a discharge on all debts. See 11 U.S.C. § 727(a)(2) (denying discharge for intending to hinder, delay, or defraud a creditor by concealing or destroying property); id. at § 727(a)(3) (denying discharge for concealing or destroying property, falsifying or failing to keep records from which to ascertain debtor's financial condition); id. at § 727(a)(4) (denying discharge for knowingly or fraudulently making a false oath or claim); id. at § 727(a)(6) (denying discharge for debtor's failure to obey any lawful order of court). All of these exceptions act to temper the fresh start policy by denying the discharge of debts resulting from certain false, fraudulent or willful conduct. See In re Grier, 124 B.R. 229, 231 (Bankr.W.D.Tex.1991). Due to the severity of a "nondischargeable" determination, courts have strictly construed these exceptions in favor of the debtor. See, e.g., Gleason v. Thaw, 236 U.S. 558, 562, 35 S.Ct. 287, 289, 59 L.Ed. 717 (1915); In re Rahm, 641 F.2d 755, 756-77 (9th Cir.1981); In re Ellis, 103 B.R. 977, 980 (Bankr. N.D.Ill.1989); In re Stillwell, 96 B.R. 102, 105 (Bankr.W.D.Ky.1988). However, the creditor's burden of proof to show nondischargeability is only preponderance of the evidence. See Grogan v. Garner, ___ U.S. ___, ___, 111 S.Ct. 654, 661, 112 L.Ed.2d 755, 767 (1991).
a. Section 523(a)(2)
Section 523(a)(2) provides, in relevant part, that an individual shall not be able to discharge a debt resulting from "money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by (A) false pretenses, a false representation, or actual fraud. . . ." 11 U.S.C. § 523(a)(2). In order to effectuate a false pretense, representation or actual fraud, a debtor must knowingly make a falsehood that involves moral turpitude or an intentional wrong upon which another party relies in surrendering property or money to the debtor. The debtor must actively operate to deceive and cheat another; fraud which is implied in law that may exist in the absence of bad faith will not be sufficient. See, e.g., In re Ophaug, 827 F.2d 340 (8th Cir.1987); In re Hunter, 780 F.2d 1577 (11th Cir.1986); In re Howarter, 114 B.R. 682 (9th Cir.B.A.P. 1990); In re Hinman, 120 B.R. 1018 (Bankr.D.N.D.1990).
To establish a cause of action under section 523(a)(2), the party objecting to the dischargeability must prove: (1) that the debtor made active false representations or fraud; (2) that the debtor received money, property, services, or an extension, renewal, or refinancing of credit because of the *420 false representations; and (3) that the representations made were reasonably relied upon and were a substantial factor in the creditor's decision to give the money or services. 11 U.S.C. § 523(a)(2)(A).
The debtor made representations to numerous parties which were indeed false. However, to determine liability at this adversarial proceeding, we must ascertain whether or not the debtor actively made false representations to the RTC or FDIC with the specific intent to deceive. In responding to the Cease and Desist Order issued by the FHLBB, the debtor assured them that SCSB would agree not to violate the lending restrictions placed upon them.[7] The evidence offered by the RTC, although compelling, is not sufficient to prove that the debtor made such a representation with the intent to deceive. In fact, the dealings with the McDowell group occurred almost a year prior to the Cease and Desist Order. Therefore, the RTC cannot prove that the debtor made fraudulent statements to the FHLBB concerning the McDowell loans.
The Cease and Desist Order and other supervisory letters from the FHLBB were concerned mostly with loans to Oscar Garcia and his associated businesses. The RTC offered no evidence that the McDowell group was in any way connected with Oscar Garcia. Furthermore, neither the order nor any of the supervisory letters mentioned the McDowell group specifically. Consequently, the intentional element of deception was not shown. In order to prove that the debtor had the intent to deceive, the evidence would have had to have shown that while agreeing not to violate the Cease and Desist Order, the debtor was, at that moment, contemplating or working on a transaction which he knew was a violation of the Cease and Desist prohibitions. The evidence at hand does not establish such intent.
The evidence also does not show that the debtor personally received money because of the representations. The mere fact that a liability arises as a consequence of the false representation is not sufficient on its own. Rudstrom v. Sheridan, 122 Minn. 262, 142 N.W. 313, 314 (1913). The debtor here did not receive money on account of his representations to the FDIC. In order to show a violation of section 523(a)(2), the money must actually come to the debtor because of the representation. In re Rippey, 21 B.R. 954, 958 (Bankr. N.D.Tex.1982). Therefore, because the debtor received no money directly from the representations made, the debt cannot be declared nondischargeable under section 523(a)(2).
The third element of section 523(a)(2)(A) requires that the representation made is reasonably relied upon and is a substantial factor in the creditor's decision to release the money. 11 U.S.C. § 523(a)(2)(A). The representations made to the FDIC were reasonably relied upon. The FDIC must be able to rely on statements given to it from member savings institutions. Compelling the FDIC to investigate every statement made to it would be too onerous a task. The action taken in reliance upon the representations, however, was not lending money to the debtor but was refraining from taking further action in examining SCSB's transactions. The debtor received no money or property from the FDIC on account of the representations made. The RTC, therefore, also did not show the third element of nondischargeability under section 523(a)(2)(A).
b. Section 523(a)(6)
Section 523(a)(6) excepts from discharge any debt arising on account of "willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. § 523(a)(6). The phrase "willful and malicious," is a *421 term of art which manifests a special definition in the bankruptcy sense. An act is "willful" where it is done deliberately or intentionally. See In re Adams, 21 B.R. 301 (Bankr.N.D.Ohio 1982). Therefore, a "willful and malicious" act includes a wrongful act intentionally done which necessarily causes harm and is without just cause or excuse. See In re Cecchini, 780 F.2d 1440 (9th Cir.1986).
A "willful and malicious" act, however, does not include acts resulting in a reckless disregard or even gross negligence. See, e.g., In re Compos, 768 F.2d 1155, 1158 (10th Cir.1985); In re Scarlata, 127 B.R. 1004, 1013 (N.D.Ill.1991); In re Guy, 101 B.R. 961, 981 (Bankr.N.D.Ind. 1988). Courts have held as reckless disregard an action which involves a high degree of awareness of the probability for injury but which does not necessarily cause such injury. Cf. Seidenstein v. National Medical Enterprises, 769 F.2d 1100, 1104 (5th Cir.1985) (defining "reckless disregard" in defamation cases).
In Tinker v. Colwell, the United States Supreme Court defined the standard for "willful and malicious" in bankruptcy cases as including a "wilful [sic] disregard of what one knows to be his duty." Tinker v. Colwell, 193 U.S. 473, 487, 24 S.Ct. 505, 509, 48 L.Ed. 754 (1903). Subsequent cases interpreting Tinker equated this "willful disregard" with reckless disregard and loosened the "willful and malicious" standard for several years. In 1985, the Tenth Circuit effectively overruled this lightened standard, holding that recent Congressional amendments clearly indicated that "willful" meant deliberate or intentional. See In re Compos, 768 F.2d 1155, 1157-58 (10th Cir.1985); see also H.R.Rep. No. 595, 95th Cong., 1st Sess. 365 (1977), reprinted in, 1978 U.S.C.C.A.N. 5787, 5963, 6320-21 (indicating that reckless disregard is insufficient for "willful" injury under section 523(a)(6)).
The Fifth Circuit breaks down the cause of action for section 523(a)(6) into two elements: (1) a wrongful act intentionally done (i.e., willful); and (2) which necessarily causes harm and is without just cause or excuse (i.e., malicious). See Chrysler Credit Corporation v. Perry Chrysler Plymouth, 783 F.2d 480, 486 (5th Cir.1986); see also Seven Elves, Inc. v. Eskenazi, 704 F.2d 241 (5th Cir.1983); In re Dardar, 620 F.2d 39 (5th Cir.1980). The actions of the debtor in the case at hand involved a disregard of his fiduciary duties. The debtor violated the lending restrictions placed on SCSB and other safe lending practices in securing the different loans for himself and the other directors. He sold a large portion of his personal stock at the premium price while purchasing more stock from the bank at the lower par value, essentially usurping the bank's opportunity to raise a higher amount of capital. If all of the transactions involved had succeeded, there would have been no real loss to SCSB. In fact, SCSB's economic outlook could very well have improved. However, as it turned out, the actions undertaken by the debtor caused injury to SCSB and, although suspect in their own rights, amounted to mere reckless disregard. Conduct which reaches the standard of reckless disregard, although not in and of itself sufficient to determine nondischargeability under section 523(a)(6), can be used as evidence in favor of the second element of maliciousness. Therefore, because the evidence presented is insufficient to prove both elements of nondischargeability, the debts do not fall under section 523(a)(6).
c. Section 523(a)(4)
Section 523(a)(4) allows for an exemption from discharge where the individual debt arises from "fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." This exception constituted the combination of the proposed House Bill which would have excepted a debt for embezzlement and larceny, and the Senate version, which excepted a debt for "fraud while acting in a fiduciary capacity, defalcation, embezzlement or misappropriation." House Bill H.R. 8200; Senate Bill S. 2266. The corresponding compromise created an exception from discharge for debts arising from fraud or defalcation while acting as a *422 fiduciary, and for embezzlement or larceny at any time.
The test to determine whether the debt created by a fiduciary falls within the exception to discharge of Section 523(a)(4) has two steps. In re Wright, 87 B.R. 1011, 1017 (Bankr.D.S.D.1988). First, a fiduciary relationship must exist prior to the particular transaction from which the debt arose. See, e.g., In re Cross, 666 F.2d 873, 879 (5th Cir. Unit B 1982); In re Menendez, 107 B.R. 789, 793 (Bankr.S.D.Fla.1989); In re Valdes, 98 B.R. 78, 80 (Bankr.M.D.Fla. 1989). Second, some type of fraud or defalcation must occur during the fiduciary relationship.
i. Existence of a Fiduciary Duty
The savings and loan crisis is well known throughout the country at this point in time. The state and federal governments will bear the costs of the losses, as well as the American people in general. An exhorbitant amount of money will be needed in order to restore the stability in the banking and saving and loan industry. The mismanagement and self-dealing engaged in by many of the officers and directors of these failed institutions directly contributed to their failure.
In 1990, Congress passed the Crime Control Act. Contained within the act, Congress provided for an amendment to the Bankruptcy Code which would affect treatment of the debts incurred by these institution directors. Section 523 was amended through the addition of subsection (e), which provides that "any institution-affiliated party of a depository institution or insured credit union shall be considered to be acting in a fiduciary capacity with respect to the purposes of subsection (a)(4) or (11)." (emphasis added) 11 U.S.C. § 523(e).
Section 101(33)(A) defines the term "institution-affiliated party" as that given in section 3(u) of the Federal Deposit Insurance Act. 12 U.S.C. § 1813(u). Section 3(u) provides that the term means ". . . any director, officer, employee, or controlling stockholder (other than a bank holding company) of, or agent for, an insured depository institution." (emphasis added) 12 U.S.C. § 1813(u). Section 101(35)(A) defines "insured depository institution" as that given under section (c)(2) of the Federal Deposit Insurance Act. 12 U.S.C. § 1813(c)(2). That section provides that an insured depository institution means ". . . any bank or savings association the deposits of which are insured by the Corporation pursuant to this Act." (emphasis added) 12 U.S.C. § 1813(c)(2).
Combining the two definitions for purposes of section 523(e) yields the result that any director, or even majority shareholder, of a lending or banking institution which is insured under the FDIC shall be automatically considered to be acting in a fiduciary capacity for purposes of (a)(4). At all times relevant hereto, SCSB was a federally insured institution. The debtor also was a member of the board of directors and one of the majority shareholders. The newly amended Section 523(e) mandates that the debtor automatically be treated as a fiduciary to SCSB. The fact that the Crime Control Act of 1990 became effective after the transactions of the debtor is irrelevant. The Congressional intent is clear that the officers and directors who were most responsible for the collapse of the savings and loan industry would not be allowed to discharge the debts which accrued due to their improprieties. H.R.Rep. No. 101-681(I), 101st Cong., 2d Sess. 180-81 (1990), reprinted in, 1990 U.S.C.C.A.N. 6472, 6586-87. ("an institution-affiliated party . . . will be deemed to have been acting in a fiduciary capacity for purposes of section 523(a)(4) . . .") (emphasis added). Had Congress merely intended to give the amendment postscriptive effect, the bulwark of the debt of the present crisis would have been left unaffected.
Alternatively, even if section 523(e) did not automatically create the fiduciary duty, the debtor here would still have been found to owe a fiduciary duty to SCSB. The issue of the existence of a fiduciary relationship is one of federal law, for Section 523(a)(4) purposes. See In re Black, 787 F.2d 503, 506 (10th Cir.1986). State *423 law, however, plays an important role in determining the existence of a trust relationship. See In re Johnson, 691 F.2d 249, 251 (6th Cir.1982).
The fiduciary duty under section 523(a)(4) requires that an express trust exist between the debtor and the creditor, a relationship which may be evident from state law. This includes the explicit proclamation of a trust relationship, a clearly defined trust res, and the intent to create such a relationship. In re Sax, 106 B.R. 534, 539 (Bankr.N.D.Ill.1989). The Sax court held that a bank explicity entrusts to its directors, control over the bank's funds. Further, by accepting the position, the director agrees to use the res, the bank's assets, solely for the benefit of the bank. Undoubtedly, then, the nature of the director's trust relationship is express and clear with regard to federal bankruptcy caselaw.
Prior to the addition of subsection (e) to section 523, a long line of federal cases held that bank directors owed a fiduciary duty to their banks, and that breaches of those duties constituted an exception to discharge under section 523(a)(4). See, e.g., Harper v. Rankin, 141 F. 626 (4th Cir.1907), cert. denied, 200 U.S. 621, 26 S.Ct. 758, 50 L.Ed. 624; Hartford Accident & Indemnity Co. v. Flanagan, 28 F.Supp. 415 (S.D.Ohio 1939); In re Sax, 106 B.R. 534, 539 (Bankr.N.D.Ill.1989); In re Wright, 87 B.R. 1011, 1017-18 (Bankr. D.S.D.1988). The more recent cases have held that the statutes covering federally insured banks "impliedly recognize the fiduciary duty of bank directors and officers. . . ." Wright, 87 B.R. at 1018. 12 U.S.C. section 1818(e)(1) authorizes the FDIC to remove bank directors or officers who engage or participate in practices which constitute a breach of their fiduciary duties. 12 U.S.C. § 1818(e)(1). This federal law impliedly recognizes the explicit state created trust relationship and therefore constitutes a federal determination of the fiduciary issue as mandated under Johnson, Sax, and Black.
New Mexico law considers any corporate director or officer a fiduciary of that corporation. N.M.Stat.Ann. § 46-1-1 (1978); see also N.M.Stat.Ann. § 53-7-28 (1978) (relieving, under state law, directors or officers from personal liability on debts accrued on account of a breach of their fiduciary duties); DiIaconi v. New Cal Corp., 97 N.M. 782, 643 P.2d 1234, 1240 (Ct.App.1982) ("A director is a fiduciary. So is a dominant or controlling stockholder or group of stock holders. Their powers are in trust."). The debtor, as a director of the savings and loan corporation SCSB, held an express trust relationship under New Mexico law. Although state law does not control the fiduciary question for bankruptcy purposes, it helps to ascertain whether or not a trust relationship existed between the two parties. Subsequently applying the federal law recognizing the trust relationship established through state law, the debtor clearly owed a fiduciary duty to SCSB.
ii. Definition of "Fraud or Defalcation"
The definition of "fraud" for purposes of 523(a)(4) is the same as fraud with respect to 523(a)(2). See In re Tsamasfyros, 940 F.2d 605, 607 (10th Cir.1991); Black, 787 F.2d at 505. An active misrepresentation must be made to a party which, in turn, relies on that misrepresentation in giving the debtor property or money. In the case at hand, because the debtor did not meet the specific intent requirements for fraud under 523(a)(2), he also does not meet the fraud requirements for 523(a)(4).
While "fraud" is a relatively common legal term having a more steadfast definition, "defalcation" is not. The modern definition of "defalcation," for bankruptcy purposes, emanates from the case of Central Hanover Bank & Trust v. Herbst, 93 F.2d 510 (2d Cir.1937). In delivering the opinion for the Second Circuit Court of Appeals, Judge Learned Hand defined "defalcation" as a much broader term than "embezzlement" or "misappropriation." He premised this statement on the fact that the original section where "defalcation" first appeared, appeared with "embezzlement" and "fraud." He reasoned that "it *424 must here have covered other defaults than deliberate malversations, else it added nothing to the words, `fraud or embezzlement.'" Central Hanover, 93 F.2d at 511. Prior to the Central Hanover decision, "defalcation" had a colloquial definition which implied some "moral dereliction." Central Hanover injected the interpretation that, in the bankruptcy sense, "defalcation" could even include innocent defaults by fiduciaries, but because the law was unclear, the court would assume that it required some minimal form of impropriety, although much less than that commanded for fraud, embezzlement, or misappropriation.
Modern cases interpret Central Hanover's definition of "defalcation" closely to Judge Hand's idea. They have upheld the proposition that "defalcation" is a much broader term than misappropriation or fraud. See, e.g., In re Johnson, 691 F.2d 249, 254-55 (6th Cir.1982); In re Reeves, 124 B.R. 5, 8 (Bankr.D.N.H.1990); In re Hirsch, 101 B.R. 364, 366 (Bankr.S.D.Fla. 1989); In re Guy, 101 B.R. 961, 984-85 (Bankr.N.D.Ind.1988). The broadening definition lengthens the list of actions constituting a "defalcation" to now include negligent, innocent, ignorant, or simple defaults or actions which breach fiduciary duties. See In re Twitchell, 72 B.R. 431, 434-35 (Bankr.D.Utah 1987), rev'd, 91 B.R. 961 (D.Utah 1988), rev'd, 892 F.2d 86 (10th Cir. 1989).
iii. Fiduciary Duties
Generally, two duties exist under a fiduciary relationship: the duty of care, and the duty of loyalty. See, e.g., Gearhart Industries, Inc. v. Smith Internat'l, Inc., 741 F.2d 707, 719 (5th Cir.1984) (dividing the duty of care into duty of care and duty of obedience); Imperial Group (Texas), Inc. v. Scholnick, 709 S.W.2d 358, 363 (Tex.App. Tyler 1986, writ ref'd n.r.e.). The duty of care involves the director's diligence and competence in running the corporation. See Gearhart, 741 F.2d at 720-21; McCollum v. Dollar, 213 S.W. 259, 261 (Tex.Comm'n App.1919, holding approved) (establishing reasonable prudent person standard). The duty of loyalty addresses conflicts of interest and prohibits any self-dealing at the expense of the corporation. See Gearhart, 741 F.2d at 719. Combined, they yield the general premise that the director must act solely for the benefit of the corporation, a statement common to trust relationships. See, e.g., Gearhart, 741 F.2d at 719-21; Scholnick, 709 S.W.2d at 362-63; Hughes v. Houston Northwest Medical Center, 680 S.W.2d 838, 843 (Tex.App. Houston [1st Dist.] 1984, writ ref'd n.r.e.), cert. denied, 474 U.S. 1020, 106 S.Ct. 571, 88 L.Ed.2d 555. Breaches of these duties may arise where the director engages or promotes activities which are detrimental to the corporation. See McCollum, 213 S.W. at 261. Further, a breach may occur where the director seizes an opportunity which the corporation could have profited from. See, e.g., Gearhart, 741 F.2d at 719-20; Scholnick, 709 S.W.2d at 363.
In the present case, the debtor breached both the duty of care and the duty of loyalty. The debtor arranged loans to the other directors and the McDowell group in violation of the federal limitations established by the FHLBB. He approved loans from SCSB knowing that they were to be used to purchase SCSB stock, also in violation of federal regulations. He also extended loans to the McDowell group that he promised to rescind if they decided to get out of certain transactions. Additionally, he appropriated over $300,000 from SCSB's reserves without authorization. Clearly, the actions of the debtor here do not constitute those of a prudent person acting within a duty of care to a lending institution.
The debtor's stock transactions also violated his fiduciary duties by seizing the opportunity of SCSB to raise more capital through sales of the unissued stocks at the premium price. Instead, the debtor took the opportunity to sell his own stock at the premium price while replenishing his holdings through purchases of the unissued stock at less than half of his selling price. Such actions clearly constitute self-dealing on the debtor's part and therefore a breach of his duty of loyalty.
*425 The knowing violation of federal regulations, the unauthorized appropriation of funds, and the seizure of SCSB's opportunity to increase capital through premium stock sales plainly fall within the definition of "defalcation," for 523(a)(4) purposes. In fact, if innocent or ignorant defaults may lead to "defalcation," the debtor's knowing improprieties fall into the definition without question.
II. Denial of Discharge under § 727
As noted previously, the requirements for discharge are construed generously in favor of the debtor. Any claim for denying discharge therefore, must be "real and substantial." In re Burgess, 955 F.2d 134, 137 (1st Cir. Jan. 31, 1992). Section 727 defines several activities which may cost the debtor his or her discharge. 11 U.S.C. § 727. These acts include: acts against property intending to hinder, delay, or defraud creditors; acts against any recorded information concerning the debtor's financial condition; knowingly or fraudulently making false or fraudulent claims; and failing to obey certain orders of a court of law. 11 U.S.C. § 727(a)(2), (3), (4), (6). Because a denial of discharge carries such serious consequences, it should not be granted without evidence of specific intent. See Burgess, at 137.
In the case at hand, the debtor did not transfer, remove, or destroy any property with the intent to hinder, delay, or defraud SCSB. Further, the RTC offered no evidence that the debtor made any false oaths with the specific intent to defraud SCSB. The debtor did fail to keep a record of the appropriated money at SCSB; however, § 727(a)(3) applies to the financial records of the debtor and not to the debtor's employer, unless the debtor and the employer are indistinguishable. See Burgess, at 137-38.
A debtor should be granted a discharge unless to do so would be an injustice; it is for this reason that § 727 is construed in favor of debtors. The RTC offered no convincing evidence that the debtor engaged in any of the activities prohibiting discharge under § 727. Accordingly, the debtor's discharge will not be denied.
CONCLUSION
"Bankruptcy courts are inherently courts of equity. It is a well known legal maxim that `[h]e who comes into equity must come with clean hands.'" In re Grier, 124 B.R. 229, 234 (Bankr.W.D.Tex.1991) (quoting D. Dobbs, Handbook on the Law of Remedies 45-46 (1973)). The debtor, Raymond D. Chavez, comes to this court seeking to discharge a debt arising from transactions which occurred while acting as a fiduciary at SCSB. In light of the foregoing, the court finds that Raymond Chavez's conduct amounted to a breach of his fiduciary duties to SCSB and accordingly constituted defalcation while acting as a fiduciary. The court, therefore, orders that pursuant to 11 U.S.C. section 523(a)(4), the obligations owed to SCSB by the debtor Raymond D. Chavez shall not be discharged. Additionally, the evidence does not show that the debtor's acts met the prohibitions of section 727. The court, therefore, will not deny his discharge.
All findings may be construed as conclusions and vice versa. All issues shall be deemed disposed. Judgment will be entered consistent with this decision.
NOTES
[1] Prior to 1985, SCSB had increased the number of shares authorized for sale. This newly authorized stock would retain the same par value as the existing stock, which was $8.00 per share.
[2] At all times during the debtor's transactions, regulations limited the total aggregate amount of loans to directors at $100,000. 12 C.F.R. § 563.43.
[3] The seven directors borrowed from El Paso the following sums:
1) Raymond Chavez: $312,500;
2) Mary Jane Garcia: $100,000;
3) Vivian Dominguez: $312,500;
4) James Fergason: $312,500;
5) Larry Fields: $312,500;
6) Clarence Fielder: $100,000;
7) Estella Evans: $100,000.
a portion of these loans were used to retire the SCSB loans made for the purchase of the initial new shares.
[4] The eight people consisted of: E.T. and Claudia LaFore, Mannie Ortiz, Paul Noland, Ralph and Sally Neel, and Jack and Elisa McDowell.
[5] In fact, one of the eight, Paul Noland, left the deal and surrendered his stock. The debtor cancelled Mr. Noland's obligation on the stock loan which totaled $165,534.25. Therefore, the stock which Mr. Noland purchased through the loan for an average price of $12.75, half at $17.50 and half at $8.00, was bought back by SCSB for approximately $14.00 per share.
[6] A series of three individual loans were made to each director. The individual loans did not exceed $100,000, but the aggregate did.
[7] The FHLBB issued a Cease and Desist Order in which SCSB was instructed not to make any more loans to an Oscar Garcia or any relation to him. In the response letter, Raymond Chavez represented to the FHLBB that SCSB would no longer loan to Mr. Garcia and that they would conform to all of the mandates issued by the FHLBB. These representations do not constitute the false representations or pretenses as described supra, therefore do not constitute violations of § 523(a)(2). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549723/ | 72 F.2d 681 (1934)
EMERALD OIL CO.
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 1035.
Circuit Court of Appeals, Tenth Circuit.
September 5, 1934.
*682 A. U. Miner, of Salt Lake City, Utah (D. A. Skeen, of Salt Lake City, Utah, on the brief), for petitioner.
Wm. B. Waldo, Sp. Asst. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for respondent.
Before PHILLIPS, McDERMOTT, and BRATTON, Circuit Judges.
PHILLIPS, Circuit Judge.
This is a petition to review a decision of the Board of Tax Appeals involving income taxes of the Emerald Company for the years 1923 to 1925, and 1927 to 1929, inclusive.
The Emerald Company is a Utah corporation with its principal office and place of business at Vernal in that state. Prior to 1913 it acquired about 2,800 acres of oil lands in the Rangeley Field located in the Uintah Basin, which is 50 miles from Vernal and about 125 miles from railroad facilities. By March 1, 1913, the Emerald Company had drilled 11 or 12 wells thereon, which were each producing an average of ten barrels of oil a day. The Rangeley Field is a shallow field. The producing sand is found at depths varying from 400 to 500 feet. The average life of the wells had been about four years. The first refinery in the Uintah Basin was constructed in 1918. But the oil is of a high gravity and prior to that date it was disposed of at the local market, where the price of gasoline was fifty cents a gallon, for use in tractors, stationary gasoline engines, and automobiles, and also for fuel.
On June 27, 1924, the Emerald Company entered into a lease of its lands for a term of five years, and so long thereafter as oil or gas should be produced therefrom, to the Texas Production Company. Under the lease the Texas Company agreed to pay the Emerald Company a cash bonus of $25,000 and certain stipulated cash royalties, in addition to a percentage of the production.
In reporting its income for 1923 and 1924 the Emerald Company claimed deductions for depletion of $7,625 and $13,940, respectively. These amounts were disallowed by the Commissioner. For 1925, 1927, 1928, and 1929 it claimed deductions for depletion of $9,000, $4,996.69, $9,996.69, and $19,653.94, respectively. The Commissioner reduced these amounts to $4,125, $4,655.85, $4,207.19, and $6,189.56, and proposed additional assessments.
The Emerald Company filed petitions with the Board of Tax Appeals for a redetermination of its tax liability for the above years. It asserted that the oil lands had a fair market value of $250,000 on March 1, 1913, that depletion should have been allowed on that basis, and that the bonus of $25,000 received in 1924 should have been treated as a return of capital.
The Board found that the fair market value of the oil lands on March 1, 1913, was $150,000 and that the Emerald Company was entitled to depletion allowances for the years 1923 and 1924 under the provisions of section 234 (a) (9) of the Revenue Act of 1921 (42 Stat. 256) and section 234 (a) (8) of the Revenue Act of 1924 (43 Stat. 284 [26 USCA § 986 (a) (8)]), based upon that figure. Its decision for those years was entered under Rule 50, which requires that a computation be made by the parties and submitted to the Board. Both parties submitted computations. They were in agreement with respect to depletion allowances on the oil actually produced in 1923 and 1924, but were in disagreement as to the amount of depletion to be allowed on the bonus payment of $25,000. The Board rejected the figures of both parties on that item. In its memorandum decision, it said:
"Said depletion deduction on this bonus payment should be computed in accordance with Article 216, Regulations 69, approved by the court in Murphy Oil Company v. Burnet (C. C. A.) 55 F.(2d) 17, affirmed by the Supreme Court, Murphy Oil Company v. David Burnet, 287 U. S. 299, 53 S. Ct. 161, 77 L. Ed. 318, on December 5, 1932. * * *
"Said depletion deduction on said bonus payment when computed in accordance with the article of the Commissioner's Regulations above set out, amounts to $6,890.43 instead of $6,185.36 as used by the respondent in his computation and $21,402.50 as used by petitioner in its computation."
*683 The deficiencies proposed by the Commissioner for 1925, 1927, 1928, and 1929 were affirmed.
The Board in its memorandum opinion set out the facts upon which its decision was based, but did not make separate findings of fact. This is assigned as error. Under section 907 (b) of the Revenue Act of 1924, as added by Revenue Act 1926, § 1000 (26 US CA § 1219 note), the Board was required to make findings of fact. Kendrick Coal & Dock Co. v. Commissioner (C. C. A. 8) 29 F.(2d) 559.
But section 601 of the Revenue Act of 1928 (45 Stat. 871, 872 [26 USCA § 1219]) reads in part as follows:
"Sections 906 and 907 (a) and (b) of the Revenue Act of 1924, as amended, are further amended to read as follows: * * *
"`Sec. 907 * * * (b) It shall be the duty of the Board and of each division to include in its report upon any proceeding its findings of fact or opinion or memorandum opinion. The Board shall report in writing all its findings of fact, opinions and memorandum opinions.'"
By the use of the disjunctive "or," Congress manifested the intention to leave it optional with the Board to make its report in the form of special findings, an opinion, or a memorandum opinion. See House Reports, Vol. 1, No. 2, p. 30, 70th Congress, First Session. Under section 907 (b) as amended a written opinion may perform the function of a finding of fact, and we may look to it to determine what the decision is and the facts upon which it is based. Olson v. Commissioner (C. C. A. 7) 67 F.(2d) 726; Insurance & Title Guarantee Co. v. Commissioner (C. C. A. 2) 36 F.(2d) 842; Commissioner v. Crescent Leather Co. (C. C. A. 1) 40 F. (2d) 833, 834; California Iron Yards Co. v. Commissioner (C. C. A. 9) 47 F.(2d) 514, 518; Sheppard & Myers, Inc., v. Commissioner (C. C. A. 3) 45 F.(2d) 50, 51.
The Emerald Company claims that the Board erred in finding that its oil properties had a fair market value of $150,000 on March 1, 1913. Value is a question of fact, and the Board's finding thereof will be sustained if supported by substantial evidence. Gloyd v. Commissioner (C. C. A. 8) 63 F.(2d) 649; Denver Live Stock Com. Co. v. Commissioner (C. C. A. 8) 29 F.(2d) 543; Folk v. Commissioner (C. C. A. 10) 67 F.(2d) 779; Tracy v. Commissioner (C. C. A. 6) 53 F. (2d) 575.
The Board had before it the evidence with respect to the location and structure of the field, the number, average production and probable life of the wells located therein, market conditions and transportation facilities, and the sums invested therein. This evidence, in our opinion, affords a substantial basis for the Board's finding of value.
The Emerald Company complains that the Board disregarded the testimony of several witnesses of offers to purchase the property, received during 1912 to 1914, at prices ranging from $200,000 to $250,000; and the testimony of an expert that the properties had a fair market value of $250,000 on March 1, 1913.
In Sharp v. United States, 191 U. S. 341, 348, 24 S. Ct. 114, 115, 48 L. Ed. 211, the Supreme Court said:
"It is, at most, a species of indirect evidence of the opinion of the person making such offer as to the value of the land. He may have so slight a knowledge on the subject as to render his opinion of no value, and inadmissible for that reason. * * * There is no opportunity to cross-examine the person making the offer, to show these various facts. Again, it is of a nature entirely too uncertain, shadowy, and speculative to form any solid foundation for determining the value of the land which is sought to be taken in condemnation proceedings."
See, also, Clarke v. Hot Springs Elec. L. & P. Co. (C. C. A. 10) 55 F.(2d) 612; Sommers v. Commissioner (C. C. A. 10) 63 F. (2d) 551.
The opinion of the expert as to value is not binding upon the Board. A fact-finding body may disregard the opinion of an expert and use its own judgment in arriving at value. Wyoming Inv. Co. v. Commissioner (C. C. A. 10) 70 F.(2d) 191, 193; Folk v. Commissioner, supra; Tracy v. Commissioner, supra; Gloyd v. Commissioner, supra; Uncasville Mfg. Co. v. Commissioner (C. C. A. 2) 55 F.(2d) 893, 897; Anchor Co. v. Commissioner (C. C. A. 4) 42 F.(2d) 99. It may not reject opinion evidence and make an arbitrary finding of value based on mere conjecture and unsupported by any substantial evidence. Gloyd v. Commissioner, supra. But the Board did not do that. As we have previously shown, its finding was based upon substantial evidence. We conclude that the depletion allowances for 1923 and 1924, computed on a March 1, 1913, value of $150,000, should be sustained.
*684 The Emerald Company contends that in determining the proper depletion allowance to be deducted from the $25,000 bonus, it was necessary to take into consideration future royalties; that because of the terms of the lease and the location of the properties it was not possible to determine such future royalties, and therefore the whole of such bonus should have been treated as a return of capital.
Future royalties from oil properties cannot be determined with accuracy. At best they can only be estimated. We see nothing in the terms of the lease or the situation of the properties that prevented a reasonably accurate estimate from being made in the instant case. The cash bonus was taxable as income after the proper depletion allowance was deducted therefrom (Murphy Oil Co. v. Burnet, 287 U. S. 299, 53 S. Ct. 161, 77 L. Ed. 318); and the record does not disclose that future royalties were not fairly estimated and considered in computing such depletion allowance.
For the years 1925, 1927, 1928, and 1929 the Commissioner computed depletion under the provisions of section 204 (c) (2) of the Revenue Act of 1926, 26 USCA § 935 (c) (2) and section 114 (b) (3) of the Revenue Act of 1928 (26 USCA § 2114 (b) (3). See Note 1.[1]
The Emerald Company contends that since it furnished the same information for the above years as it did for 1923 and 1924, and since section 204 (c) (2), supra, provides "that in no case shall the depletion allowance be less than it would be if computed without reference to this paragraph," the Commissioner and the Board were in error in limiting it to 27½% for those years.
The determination of the Commissioner was prima facie correct, and the burden was on the taxpayer to overcome it. Walls v. Commissioner (C. C. A. 10) 60 F.(2d) 347; Wyoming Investment Company v. Commissioner (C. C. A. 10) 70 F.(2d) 191; O'Meara v. Commissioner (C. C. A. 10) 34 F.(2d) 390. The record does not disclose that a computation on any other basis would have resulted in a larger depletion allowance.
Finally, the Emerald Company asserts that the Board erred in denying its petition for rehearing. The absence of this motion from the record precludes a consideration of this assignment.
Affirmed.
NOTES
[1] Note 1.
Section 204 (c) (2), supra (44 Stat. 16 [26 USCA § 935 (c) (2)]), reads as follows:
"In the case of oil and gas wells the allowance for depletion shall be 27½ per centum of the gross income from the property during the taxable year. Such allowance shall not exceed 50 per centum of the net income of the taxpayer (computed without allowance for depletion) from the property, except that in no case shall the depletion allowance be less than it would be if computed without reference to this paragraph."
Section 114 (b) (3), supra (45 Stat. 821 [26 USCA § 2114 (b) (3)]), is substantially the same as the above. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549669/ | 56 N.J. 251 (1970)
265 A.2d 809
AFFILIATED DISTILLERS BRANDS CORP., A CORPORATION OF THE STATE OF NEW YORK, RESPONDENT-CROSS-APPELLANT,
v.
ARTHUR J. SILLS, ATTORNEY GENERAL OF THE STATE OF NEW JERSEY, AND JOSEPH P. LORDI, DIRECTOR OF THE DIVISION OF ALCOHOLIC BEVERAGE CONTROL OF THE DEPARTMENT OF LAW AND PUBLIC SAFETY OF NEW JERSEY, APPELLANTS-CROSS-RESPONDENTS.
The Supreme Court of New Jersey.
Argued April 7, 1970.
Argued April 22, 1970.
Decided June 1, 1970.
*253 Mr. Elias Abelson, Assistant Attorney General, argued the cause for appellants-cross-respondents (Mr. George F. Kugler, Jr., Attorney General of New Jersey, attorney; Mr. Philip S. Carchman, Deputy Attorney General, on the brief).
Mr. Charles Danzig argued the cause for respondent-cross-appellant (Messrs. Riker, Danzig, Schere & Brown, attorneys; Mr. Peter L. Berkley on the brief).
Mr. John J. Francis, Jr., argued the cause for certain wholesalers as amicus curiae (Messrs. Shanley & Fisher, attorneys; Messrs. Pitney, Hardin & Kipp and Mr. William P. Reiss, of counsel; Mr. John J. Francis, Jr. and Mr. Harold H. Fisher on the brief).
The opinion of the court was delivered by PROCTOR, J.
Plaintiff, Affiliated Distillers Brands Corporation (Affiliated), is a wholly owned subsidiary of Schenley Industries, Inc., a Delaware corporation. The latter has been engaged for many years in distilling, blending, importing and marketing distilled spirits and wines. Affiliated brought this action in the Chancery Division seeking to *254 have Chapters 58 and 59 of the Laws of 1966 declared unconstitutional and enjoined as unenforceable. In the alternative, plaintiff sought a declaration that Chapter 58 is not applicable to it because it qualifies for an exception contained within the statute. The Chancery Division held that Chapter 58 was unconstitutional; it refused to pass upon the validity of Chapter 59 because the plaintiff failed to show a conflict between the latter statute and plaintiff's actions or plans. 106 N.J. Super. 458 (1969). The defendants, the State Attorney General and the Director of the Division of Alcoholic Beverage Control, appealed from the declaration of unconstitutionality of Chapter 58 and the plaintiff cross appealed from the ruling on Chapter 59. While these appeals were pending in the Appellate Division, we certified the matter on our own motion.
The two chapters which plaintiff attacks are amendments to certain statutes dealing with the regulation of the distribution of alcoholic beverages. Chapter 58 is an extension of New Jersey's "tied house" prohibition (N.J.S.A. 33:1-43) and deals with the manufacturer-wholesaler relationship. Chapter 59 deals with the separate problem of manufacturers discriminating among wholesalers. Affiliated's attacks on the legislation are primarily grounded on provisions of the United States and New Jersey Constitutions. It contends that the legislation is not in the public interest and was enacted for the "private, anti-competitive interests" of an organized group of wholesalers, the New Jersey Wine and Spirit Wholesalers Association (Association). In support of its claim, Affiliated produced evidence of the events leading up to the enactment of the challenged legislation.
For many years Affiliated has been the marketing agent for the various alcoholic beverages which Schenley manufactures and imports, and has held a plenary wholesale license under N.J.S.A. 33:1-11(1). The license allowed Schenley, through Affiliated, to promote the sales of its products with the various retail outlets. Had Affiliated filed a price list for the wholesale to retail sales of alcoholic *255 beverages, it could have sold directly to retailers, but it never filed such a list since its practice was to sell only to other wholesalers. In 1964, Affiliated became concerned about the deteriorating position of Schenley products in the New Jersey market. Affiliated's president testified that Schenley's share of sales in New Jersey had decreased from 22% to 6% between 1946 and 1964. It was his opinion that Schenley's position could be improved if Affiliated, through its current license, began selling on a wholesaler to retailer basis while at the same time retaining existing distributors. He believed that if Affiliated "operated our own wholesale house and put forth all of our own efforts, that we could stimulate retailer interest as well in our brands beyond that which we had and that using our own house as sort of a bell cow house, that the other distributors would be more alert and fight for the business and that our sales overall would show a considerable increase." He added that Affiliated did not intend to cut prices.
In accordance with its plan, Affiliated rented a warehouse, entered into a trucking contract, hired a sales manager, and began to interview prospective salesmen. On April 1, 1966, Affiliated submitted for filing to the Division of Alcoholic Beverage Control its "Price and Discount Listings" for sale from wholesaler to retailer so that it might begin selling Schenley products to retailers immediately. Association objected to the filing because the regular quarterly filing date had passed. The Director rejected the filing.[1]
Prior to the next quarterly filing date, the Association's attorney drafted legislation to block Schenley and others from entering the wholesale to retail business. We need not recount the events leading up to the passage of *256 the legislation here attacked. These events are extensively set forth in the trial court's opinion. See 106 N.J. Super. at 461-470. It is enough to say that the Association sponsored and solicited support for the enactment of the legislation. As the trial judge correctly pointed out, however, the interest of the Association and its role in the passage of the legislation do not render the statute invalid if there is also a public need coupled with a reasonable attempt to satisfy that need. Id. at 470; Independent Electricians & Electrical Contractors' Association et al. v. New Jersey Board of Examiners of Electrical Contractors, 48 N.J. 413, 420-21 (1967). While the events preceding the enactment of this legislation impel us to examine it with a more critical eye, we must nonetheless determine, as in any other case of this nature, whether the legislation fulfills a public need. And in so determining, it must be remembered that because of its inherent evils liquor has always been dealt with as a subject apart. Borough of Fanwood v. Rocco, 33 N.J. 404 (1960); Paul v. Gloucester County, 50 N.J.L. 585, 595 (E. & A. 1888). Its sale may be prohibited entirely or severely curtailed. Borough of Fanwood v. Rocco, supra 33 N.J. at 411. While the constitutional protections of equal protection and due process are applicable to actions arising in this area, these protections must be viewed in the light of the broad power of the Legislature to regulate the sale of intoxicating beverages. Indeed, that power has been called "practically limitless." Blanck v. Mayor and Borough Council of Magnolia, 38 N.J. 484, 490 (1962); Meehan v. Excise Commissioners, 73 N.J.L. 382, 386 (Sup. Ct. 1906), aff'd 75 N.J.L. 557 (E. & A. 1908).
Chapter 58 (with the new language italicized) provides in pertinent part:
It shall be unlawful for any owner, part owner, stockholder or officer or director of any corporation, or any other person whatsoever interested in any way whatsoever in any brewery, winery, distillery or rectifying and blending plant, or any wholesaler of alcoholic beverages, *257 to conduct, own either in whole or in part, or be directly or indirectly interested in the retailing of any alcoholic beverages....
* * * * * * * *
It shall be unlawful for any owner, part owner, stockholder or officer or director of any corporation, or any other person or corporation whatsoever interested in any way whatsoever in any winery, distillery, or rectifying and blending plant, to conduct, own either whole or in part, or be directly or indirectly interested in the business of any licensee for the sale at wholesale to licensed retailers in New Jersey of any alcoholic beverages, other than malt alcoholic beverages, and such interest shall include any payments or delivery of money or property by way of loan or otherwise accompanied by an agreement to sell the product of said winery, distillery or rectifying and blending plant; except that the foregoing shall not apply in the case of a licensee for the sale at wholesale who on July 1, 1965, and thereafter until the effective date of this act, shall have filed for publication by the Division of Alcoholic Beverage Control price listings for brands of alcoholic beverages pursuant to the rules and regulations of the Division of Alcoholic Beverage Control.
It shall be unlawful for any owner, part owner, stockholder or officer or director of any corporation, or any other person whatsoever, interested in any way whatsoever in the retailing of alcoholic beverages to conduct, own either in whole or in part, or to be a shareholder, officer or director of a corporation or association, directly or indirectly, interested in any brewery, winery, distillery, rectifying and blending plant, or wholesaling or importing interests of any kind whatsoever outside of the State.
* * * * * * * *
It shall be unlawful for any owner, part owner, stockholder or officer or director of any corporation, or any other person or corporation whatsoever interested in any way whatsoever in the wholesaling of alcoholic beverages, other than malt alcoholic beverages, to own either in whole or in part, or to be a stockholder, officer or director of a corporation or association, directly or indirectly, interested in, any winery, distillery or rectifying and blending plant, or wholesaling or importing interests of any kind whatsoever outside of the State, unless such relationship with respect to such winery, distillery or rectifying and blending plant or wholesaling or importing interests of any kind whatsoever outside the State shall have been in existence on July 1, 1965 and shall have continued to be in effect on the effective date of this act. N.J.S.A. 33:1-43.
I
Plaintiff initially attacks the first amendatory paragraph of Chapter 58 as a denial of due process in that it bears no relation to the public health, safety or welfare. The *258 State answers this charge by asserting that the statute fosters temperance and helps stabilize the liquor industry. In order to determine whether the present legislation fulfills a public purpose, it is necessary to understand the overall approach which the Legislature has utilized to control the sales of alcoholic beverages. This approach can be characterized as a three-tiered distribution system of licensees manufacturers, wholesalers, and retailers. The manufacturers hold Class A licenses, N.J.S.A. 33:1-10; the wholesalers hold Class B licenses, N.J.S.A. 33:1-11; and the retailers hold Class C licenses, N.J.S.A. 33:1-12. Basically, Chapter 58 precludes a manufacturer from wholesaling or from having any interest in wholesalers. Stated differently, it prevents so-called "tied houses" at the manufacturer to wholesaler level. Tied house legislation is not new to New Jersey. After Prohibition was terminated by the adoption of the twenty-first amendment, and control was returned to the states, the New Jersey Legislature retained a system of private operation but surrounded it with comprehensive safeguards to promote temperance and to eliminate abuses of the trade. L. 1933, c. 436; N.J.S.A. 33:1-1 et seq. Our Control Act expressly prohibited tied houses between retailers and wholesalers or manufacturers. N.J.S.A. 33:1-43. Chapter 58 amended that statute to extend the prohibition against tied houses to include the relationship between manufacturers and wholesalers. In other words, prior to the present amendment tied houses between manufacturers and wholesalers were still permitted, and by closing this gap, the Legislature has now made all tiers of the three-tiered system independent of the others.
Affiliated concedes that "there is ample historical and logical justification for legislative prohibition of tied-house relationships between distillers and retailers and between wholesalers and retailers" since "such tied-houses inevitably result in excessive sales stimulation at the retail level, creating a direct conflict with the promotion of temperance." Indeed, it would be difficult not to make such a concession *259 in view of the testimony of Affiliated's own expert and our prior opinion in Grand Union Co. v. Sills, 43 N.J. 390 (1964). In Grand Union, Justice Jacobs noted that tied houses "contributed to sales stimulations which ran counter to the goal of temperance." Id. at 398-399. Affiliated attempts to distinguish the present legislation by contending that it cannot affect temperance since it deals only with those stages of distribution which are remote from the consumer. The State and the Association, as amicus curiae, contend that tied houses between manufacturers and wholesalers will lead to instability of the market and will ultimately affect consumption patterns adversely. Underlying the tied house prohibition is the assumption that the retail market for alcoholic beverages is elastic and that price cutting, aggressive marketing techniques, and similar practices tend to increase consumption and threaten the legislative goal of temperance. We recognize that this view of the alcoholic beverage market is not free from dispute. A strong effort to show that the market was inelastic was made in Grand Union v. Sills, supra, and, in the present case, Affiliated's expert testified that in his opinion the market was "relatively inelastic," although it was affected to some degree by price changes. As was noted in Grand Union, however, legislation based on the premise of an elastic market is valid in the absence of more compelling evidence that the market is inelastic. 43 N.J. at 402-403. In Grand Union, Justice Jacobs wrote:
In fixing its policy the Legislature accepted widely held views as to sound liquor control. These include beliefs that the consumption of liquor is elastic rather than inelastic, that price cuttings and their advertisement, along with comparable practices, are undesirable in the liquor field as tending to stimulate consumption * * *
* * * * * * * *
In the absence of more compelling data, our Legislature remains at liberty to continue the course it has set for our State, and this is particularly so because its course has thus far soundly served the public interest. 43 N.J. at 402-403.
*260 Thus, the question is narrowed to whether legislation prohibiting tied houses between manufacturers and wholesalers bears any reasonable relationship to the legislative policies of temperance and stability of the market in an elastic market. We think it does. Despite Affiliated's statement that it presently does not intend to cut prices, there can be no assurances that it will not do so in the future. Affiliated contends that it cannot cut prices because each level of distribution must be self-sufficient and the trial court agreed. 106 N.J. Super. 474. It seems to us that tied houses between manufacturers and wholesalers are not so remote from the ultimate consumer that increased sales could not result. Affiliated and its expert concede that the retail market can be affected by "excessive sales stimulation." While it may be true that each tier must operate on a self-sufficient basis, there is no compulsion that each tier must operate at a profit. And if profits at the wholesale level are as "enormous" as Affiliated asserts, we cannot see why it cannot make significant cuts in its prices to retailers by reducing its profit or eliminating it altogether. Such a practice would be to the mutual benefit of both retailers and Schenley since they could split the profit which Affiliated declined to make. In other words, if Affiliated had a potential profit of one dollar a bottle at current prices, it could give 50¢ to Schenley and 50¢ to retailers. Retailers would then make extra efforts to sell Schenley products and increase their own profits. In so doing they might resort to the "excessive sales stimulation" practices which plaintiff concedes are at odds with the legislative goal of temperance. Moreover, our decisions have indicated that the Legislature also intended to insure that the alcoholic beverage industry remain stable. Grand Union v. Sills, supra 43 N.J. at 404. Price cutting practices at any tier affect the stability of the market. If Affiliated could operate as an arm of Schenley without a profit or at a small profit, other wholesalers would be unable to compete in sales of Schenley products to retailers. At the same time, sales stimulation *261 at the retail level (due to a retailer's larger profit on Schenley products) would result in a larger share of the market for Schenley. The result would be to decrease the business of all other wholesalers, and perhaps drive any marginal operators out of business altogether. Indeed, if Schenley were free to pursue this course of action, all other major manufacturers could enter the wholesaler to retailer market and thus compound the problems which Schenley alone could cause. While all of the above may seem a remote possibility, we cannot say that the Legislature was not free to act until these potential practices became a reality. The Legislature need not wait until evils have become flagrant and the State's liquor control policy has been impaired. Grand Union v. Sills, supra at 408. See also Murphy v. California, 225 U.S. 623, 629, 32 S.Ct. 697, 56 L.Ed. 1229, 1232 (1911).
Plaintiff contends that it cannot cut prices because of certain powers of price regulation which are vested in the Director. N.J.S.A. 33:1-93 gives him the power to promulgate rules and regulations on the "maintenance and publication of invoice prices, discounts, rebates, free goods, allowances and other inducements." Our cases have held that the Director has broad powers in fixing liquor prices and in promulgating price regulations. E.g., Gaine v. Burnett, 122 N.J.L. 39 (Sup. Ct.), aff'd 123 N.J.L. 317 (E. & A. 1939). These powers are discretionary, however, and the Legislature is free to enact prophylactic measures to insure against the possibility of price cutting.
Finally, we note that many other states have statutes prohibiting tied houses between manufacturers and wholesalers. E.g., Deerings Cal. Codes, Bus. & Prof. Ch. 5, Art. 1 § 23772; Kan. Stat. Ann. Ch. 41, Art. 7 § 704; Ky. Rev. Stat. Vol. 2 § 243.110; Tenn. Code Ann. Vol. 10A § 57-140; Wis. Stat. Ann. Vol. 21 § 176.05(5a).
We are satisfied that the first amendatory paragraph of Chapter 58 is not violative of due process. Nor do we believe that there is any merit to Affiliated's contention that *262 the paragraph is violative of equal protection in discriminating between those wholesalers which are tied to manufacturers and those wholesalers which are independent. For the reasons previously expressed, we believe there is a rational basis for this difference in treatment.
II
Affiliated contends that even if the first amendatory paragraph of Chapter 58 is valid, it should still be able to deal with retailers since it is protected by the following grandfather clause which is included in the paragraph:
* * * the foregoing shall not apply in the case of a licensee for the sale at wholesale who on July 1, 1965, and thereafter until the effective date of this act, shall have filed for publication by the Division of Alcoholic Beverage Control price listings for brands of alcoholic beverages pursuant to the rules and regulations of the Division of Alcoholic Beverage Control.
We think that the trial judge's finding that Affiliated was not protected by this clause, 106 N.J. Super. at 489-490 was correct and should not be disturbed.
III
Affiliated contends that if the grandfather clause does not apply to it, the clause is invalid because it irrationally limited the chapter's effect to Schenley-Affiliated and was thus special legislation and constituted a denial of equal protection. The State answers that Schenley-Affiliated was the only major distiller planning wholesale activities and the Legislature attacked the evil where it was most felt. The trial judge agreed with Affiliated and held that the grandfather clause was invalid even if the rest of the legislation were "otherwise valid." 106 N.J. Super. at 482-488. The effect of the grandfather clause was to create three classes of wholesalers: 1) those who are not now and never have been connected with manufacturers; 2) those *263 who are connected with manufacturers, who had filed wholesale to retail price lists prior to July 1, 1965, and who have continued to file such lists; and 3) Affiliated which had made its plans and all necessary investments, and which had filed a price list which was rejected by the Director.
There are two general rationales for upholding grandfather clauses. The first is that past business experience or practical training is a substantial equivalent of any licensing or examination requirement which might validly be imposed on a new entry into a trade. Independent Electricians and Elec. Contractors' Ass'n v. N.J. Bd. of Examiners, 54 N.J. 466 (1969). This rationale has no relevance here since we are not dealing with a skill and since the statute prohibits any later entries into the field. The second rationale is that when an initial regulatory scheme is adopted, existing businesses must sometimes be preserved in order to satisfy the dictates of fairness and avoid hardships. United States v. Maher, 307 U.S. 148, 153, 59 S.Ct. 768, 83 L.Ed. 1162, 1167 (1939); Commonwealth Air Transport v. Stuart, 303 Ky. 69, 196 S.W. 2d 866 (1946). In the present case, the State does not dispute that Affiliated and Schenley had the proper license (for which they paid a substantial annual fee) and had made the investments necessary to commence sales to retailers. But they were precluded from engaging in such sales by the grandfather clause's back-dated filing requirements. Thus, if the Legislature sought to protect investments, it failed to afford the protection of the grandfather clause to all of those who had licenses and who made the necessary investments. This unequal treatment would be an invidious discrimination sufficient to invalidate the clause if its basis was solely the preservation of existing businesses. But defendants and amicus curiae contend that the discrimination is not invidious because the clause operates to make a rational distinction based on the size of the manufacturers. They argue that the handful of manufacturers who had, prior to the cutoff date, sold directly to retailers and who would otherwise be barred by Chapter *264 58 from continuing such method of distribution, hold a relatively small share of the market and do not pose a threat to the stability of the industry. Schenley, on the other hand, is one of the four largest national distillers, and the Legislature sought to prevent a threat to the stability of the industry where it was most felt.
The grandfather clause does not contain any language which would indicate that size was a factor considered by the Legislature. Nevertheless, if size does form a valid basis for the clause, we would, of course, uphold it. We are not, however, satisfied that size was the motivating factor because the clause does not deal in the slightest with the share of the market held by a manufacturer-wholesaler combination. Moreover, there is nothing in the clause to withdraw its protection in the event that a presently protected combination increases its share of the market. Nor is there anything to prohibit a protected small manufacturer-wholesaler combination from being acquired by a major manufacturer. Finally, if small combinations in general pose no threat to the stability of the market, there is no reason why future combinations with a small share of the market are barred. But the entire basis of the defendants' argument is that manufacturer-wholesaler combinations are a serious threat to the industry. If this threat is as serious as defendants contend, perhaps any grandfather clause would be invalid whether drawn in terms of either protecting investment or of size. See Zullo v. Board of Health, Woodbridge Tp., 9 N.J. 431, 440 (1952). But we need not pursue this point. It is clear that the present legislation did not protect existing investments. Nor did it deal with the problems of size. Thus, we conclude that the discrimination the clause permits is invidious and violates equal protection.
IV
Having decided that the grandfather clause is invalid, we must still determine whether that clause can be *265 severed from the remainder of the statute. Affiliated contends that it cannot. Severability is a question of legislative intent. Angermeier v. Borough of Sea Girt, 27 N.J. 298, 311 (1958). The governing principle is whether it can be fairly concluded that the Legislature designed the statute to stand or fall as a unitary whole. In reaching this conclusion, we must determine whether the objectionable feature can be excised without substantial impairment of the principal object of the statute. N.J. Chapt., Am. I.P. v. N.J. State Bd. of Prof. Planners, 48 N.J. 581, 593 (1967). An entire statute will not be invalidated when one clause is found to be unconstitutional unless that clause is so intimately interconnected with the whole that it can be reasonably said that the Legislature would not have enacted the statute without the offending clause. Ahto v. Weaver, 39 N.J. 418, 427 (1963). In the present case, the principal object of the first amendatory paragraph of Chapter 58 is the prohibition of tied houses between manufacturers and wholesalers. That object will not be impaired by the invalidation of the included grandfather clause which, in creating an exception, is at odds with the clear purpose of the statute. "Ordinarily if a part of a statute is adjudged invalid and the remainder can stand independently without conflict with the overall basic purpose of the Legislature, it will be allowed to do so." N.J. Chapt., Am. I.P. v. N.J. State Bd. of Prof. Planners, supra 48 N.J. at 593. See also N.J.S.A. 1:1-10. In these circumstances, we think that the invalid grandfather clause contained in the first amendatory paragraph of Chapter 58 is severable from the main body of the statute and does not invalidate the whole statute.
V
Finally, Affiliated attacks the second amendatory paragraph of Chapter 58 and all of Chapter 59 of the Laws of 1966. N.J.S.A. 33:1-93.6. The trial judge found it unnecessary to determine the validity of these sections because *266 he was unable to see how they conflicted with Affilidated's activities. 106 N.J. Super. at 488-490. We agree with the trial judge on this point.
VI
For the foregoing reasons, the judgment of the Chancery Division declaring the first amendatory paragraph of Chapter 58 of the Laws of 1966 invalid, is reversed insofar as it holds the main body of the paragraph unconstitutional. We affirm, however, the judgment of unconstitutionality of the grandfather clause and further hold that that clause is severable from the remainder of the paragraph. The judgment is in all other respects affirmed.
Affirmed in part and reversed in part. No costs.
For affirmance in part and reversal in part Justices PROCTOR, HALL, SCHETTINO and HANEMAN and Judge GOLDMANN 5.
Opposed None.
NOTES
[1] The Director notified plaintiff of his intention to accept its next timely filing. There is some evidence that he had accepted late filings on other occasions. Plaintiff did not pursue its appeal from the Director's determination since the later passage of Chapter 58 would preclude eligibility even if a successful filing had been made on April 1, 1966. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549792/ | 9 Md. App. 470 (1970)
265 A.2d 585
PAUL HENRY MORRISSEY
v.
STATE OF MARYLAND.
No. 363, September Term, 1969.
Court of Special Appeals of Maryland.
Decided May 26, 1970.
The cause was argued before MURPHY, C.J., and ANDERSON, MORTON, ORTH, and THOMPSON, JJ.
John C. Sullivan for appellant.
Clarence W. Sharp, Assistant Attorney General, with whom were Francis B. Burch, Attorney General, and Donald W. Mason, State's Attorney for Allegany County, on the brief, for appellee.
MURPHY, C.J., delivered the opinion of the Court.
Appellant was charged under a two-count criminal information, the first count of which specified that on June 11, 1969 he unlawfully "did possess and sell a certain drug known generally as LSD" in violation of Maryland *472 Code, Article 27, Section 122B.[1] The second count of the information was identical to the first, except that it charged that appellant "did possess and sell" the LSD on June 13, 1969.
Appellant did not challenge the legal sufficiency of either count of the information; instead he advanced the contention at the trial before a jury that he could not be convicted unless the State proved beyond a reasonable doubt that he both possessed and sold LSD, as charged in the information, on the dates designated in the information.
The evidence adduced at the trial showed that appellant resided in Cumberland with Paul Malec and Iris Mang; that shortly prior to June 11, 1969, appellant, accompanied by Malec, went to Baltimore to obtain a quantity of LSD and hashish, the money for this purpose having been supplied by Mang, Steve Laign, and others; that appellant obtained between 34 and 39 LSD tablets which he placed in a plastic container; that he then returned to Cumberland and gave Laign, who had supplied approximately half of the money used to make the purchase, 15 tablets on or about June 11, 1969; that appellant gave Malec 3 or 4 tablets during that same week; that he also gave some tablets to Tom Sleeman and, on June 13, he gave one to Mang; and that on June 14, the police, in the course of a consensual search, found 3 LSD tablets in the plastic container in the apartment in which appellant resided with Malec and Mang.
Testifying on his own behalf, appellant admitted obtaining the LSD tablets in Baltimore. He denied, however, that he sold any of them. He testified that he "collected *473 the money, then I got the tablets, and then they got the tablets, in that order."
At the conclusion of the evidence, the court told the jury that "there are two separate and distinct charges made against the Defendant" the first that he possessed and sold LSD on June 11, 1969; the second that he possessed and sold LSD on June 13, 1969. The court then charged the jury:
"* * * If the State proves beyond a reasonable doubt that the Defendant did either possess or sell then you would bring in a verdict of guilty.
"It is a well settled rule in Maryland that if a statute makes it a criminal offense to do any one of several acts which are mentioned disjunctively as in this present case, an indictment based upon the statute may charge in a single count as was done in this case that the Defendant did as many of the forbidden things as the pleader, which is the State, chooses to include, using the conjunction `and' where the word `or' is used in the statute, and the count will not be void for duplicity, but the particular offense may be established at the trial of the case by proof of any one of the acts." (Emphasis supplied.)
The court further instructed the jury to return two verdicts either guilty or not guilty as to each count.
Appellant excepted to the court's instructions, claiming that both possession and sale of the LSD had to be established to justify a guilty verdict under either count of the indictment.
The jury returned a verdict of guilty "as charged" on both counts, and appellant was thereafter sentenced to two consecutive nine-month terms of imprisonment.
Appellant contends on appeal, as he did below, that the court erred in instructing the jury that it could find him guilty if it believed that he either possessed or sold LSD as charged in the information.
The object of all pleading, civil and criminal, is to present *474 a single issue in regard to the same subject matter; hence, it is against this fundamental rule to permit two or more distinct offenses to be joined in the same count. State v. Warren, 77 Md. 121. It is, therefore, the general rule that an indictment charging the commission of two or more substantive offenses in the same count is objectionable as being duplicitous. Kirsner v. State, 183 Md. 1; Jackson v. State, 176 Md. 399; Weinstein v. State, 146 Md. 80; Mohler v. State, 120 Md. 325. See also Maryland Rule 716a, providing that "Two or more offenses may be charged in the same indictment in a separate count for each offense." That the Legislature intended "possession" and "sale" of LSD to be separate and distinct offenses under the statute is, we think, too plain to require discussion. Cf. Bryant v. State, 229 Md. 531 and Stewart v. State, 1 Md. App. 309, holding "possession" and "control" of narcotic drugs to be separate offenses under Maryland Code, Article 27, Section 277. It was thus arguable that both counts of the information here involved were, on their face, defective on grounds of duplicity. But under Maryland Rule 725b,[2] it was incumbent upon appellant to raise that objection prior to trial, it being clear that the information charged the commission of offenses over which the court had jurisdiction. We think the appellant's right to challenge the counts of the information on grounds of duplicity was waived by his failure to raise the question prior to or during trial; moreover, it is not unlikely that he intentionally decided against highlighting any defects in the information since his defense was that the State must prove both possession and sale of LSD, as charged, before a conviction could properly be obtained.
It is readily apparent from a review of the record that *475 the State believed that under Leon v. State, 180 Md. 279, the counts were neither duplicitous or otherwise defective. In that case, the defendants were charged under a statute which made it unlawful to make or sell a book or pool on the result of "any trotting, pacing or running race of horses or other beasts, or race, contest or contingency of any kind." The indictment specified that the defendants had unlawfully made and sold a book and pool on the result of a "certain trotting, pacing and running race of horses and other beasts." The defendants contended that the indictment was defective because as whippet races were popular in the State, it was necessary to disclose whether there were any dogs among the "other beasts" alleged in the indictment. It was against this background that the Court said at page 286:
"* * * if a statute makes it a criminal offense to do any one of several acts, which are mentioned disjunctively, an indictment based upon the statute may charge in a single count that the defendant did as many of the forbidden things as the pleader chooses to include, using the conjunction `and' where the word `or' is used in the statute, and the count will not be void for duplicity, but the particular offense may be established at the trial of the case by proof of any one of the acts, * * *."
The Court's instructions to the jury in the present case were taken directly from Leon and it was upon the holding in that case that the court charged that the jury could find appellant guilty if it found that he either possessed or sold the LSD. The rule in Leon is the well established law of this State. See Bonneville v. State, 206 Md. 302; Sturgill v. State, 191 Md. 75; Thomas v. State, 173 Md. 676; Reynolds v. State, 141 Md. 637; Pritchett v. State, 140 Md. 310; Stearns v. State, 81 Md. 341. Generally speaking, we think the rule of Leon to be that an indictment for violation of a statute which creates an offense, and specifies several different acts, transactions, or means *476 by which it may be committed, may properly allege the offense in one count by charging the accused in conjunctive terms with doing any or all of the things specified in the statute. See 41 Am.Jur.2d, Indictments and Informations, Section 213. The rule is not applicable in the circumstances of the instant case. Section 122B, proscribing, disjunctively, in separate subsections the unlawful possession and sale of LSD and providing separate penalties for each, is a statute unlike those involved in Leon and its progeny; unlawful possession of LSD, without more, constitutes one offense under the statute and is complete in itself, while unlawful sale of LSD, without more, constitutes another distinct offense under the Section, also complete in itself. In other words, unlawful possession and unlawful sale are themselves the crimes; no other "acts" or "forbidden things" underlying the offense or necessary to its commission are involved, as in Leon. To instruct the jury as a matter of law that it could find appellant guilty under either or both counts, so long as it found that he either possessed or sold, finds no support in the Leon line of cases.
While the rule is that an indictment or information should not charge the commission of two or more substantive offenses in the same count, it is not objectionable to charge in one count several related acts which enter into and constitute one offense, although when separately considered they may be distinct offenses. Jackson v. State, supra. Thus, if the acts alleged are of the same nature and so connected that they can be construed as stages in one criminal transaction, they may be joined in one count, although separately considered they are separate offenses. Mohler v. State, supra. In Kirsner v. State, supra, the defendant was indicted, inter alia, in one count which conjunctively charged numerous distinct and separate violations of the Building Code (subjecting the offender upon conviction to diverse penalties). The court there alluded to the rule that "several distinct averments in a single count will not constitute duplicity if they collectively constitute but a single charge or transaction." 183 Md. at *477 page 5. Citing Hochheimer's Criminal Law, Second Edition, Section 96, the court noted that "acts made punishable by statute in the alternative may be charged conjunctively in one count, provided the offenses are not repugnant or subject to different punishments" (at page 6). In holding that the count was duplicitous, the court said that it "does not charge one criminal transaction but a series of separate and mutually independent offenses, which are not stages in one transaction and which are not so connected as to form a single offense" (at page 7).
It is, of course, possible that the counts of the information here involved were intended to charge appellant with the offenses of selling LSD on two separate days, and that the averment that he possessed the LSD was included as a mere narrative of an act connected with and related to the sale an unnecessary allegation, mere surplusage, not to be understood as charging a distinct offense. But whether this be so or not, the court's instructions erroneously permitted a finding of guilt of unlawful sale solely upon proof of unlawful possession. In such circumstances, it is not possible to know whether the jury found appellant guilty of possession or sale, or both. Nor could the trial judge, in sentencing appellant, know which offense or offenses he should undertake to punish. While the evidence that appellant possessed the LSD was overwhelming indeed he admitted it the evidence of sale was by no means clear-cut. To permit convictions so obtained to stand would be a manifest abuse of justice.
Judgments reversed; case remanded for a new trial.
NOTES
[1] This Section, now renumbered as Section 313BA, proscribes in separate subsections (b) the sale, barter or trade of LSD, (c) the possession of LSD, (d) the manufacture, making or compounding of LSD, and (e) the administration of LSD to one's self or the internal taking thereof. The proscribed offenses are declared to be misdemeanors. The penalty for violating subsections (b), (c), or (d) is a fine not exceeding $500 and imprisonment not in excess of one year, or both. The penalty for violating subsection (e) is a fine not to exceed $100.
[2] "Defenses and objections based on defects in the institution of the prosecution or in the indictment, other than it fails to show jurisdiction in the court or to charge an offense, must be raised by motion before trial. * * * Failure to present any such defense or objection as herein provided shall constitute a waiver thereof, but the court for cause shown may grant relief from the waiver." The Court of Special Appeals is not a "court" within the meaning of this Rule. Baker v. State, 6 Md. App. 148. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549801/ | 256 B.R. 572 (2000)
In re Thomas E. MERCHANT d/b/a The Winlei-Sterling Property Management Group, Debtor.
Sterling Bank & Trust, Movant,
v.
Thomas E. Merchant d/b/a The Winlei-Sterling Property Management Group and Ronda J. Winnecour, Trustee, Respondents.
Continental Communities, d/b/a Washington Estates Mobile Home Park, Movant,
v.
Thomas E. Merchant d/b/a The Winlei-Sterling Property Management Group and Ronda J. Winnecour, Trustee, Respondents.
In re Earl A. Schifino d/b/a The Winlei-Sterling Property Management Group, Debtor.
Loretta J. Kozlowski, Movant,
v.
Earl A. Schifino d/b/a The Winlei-Sterling Property Management Group and Ronda J. Winnecour, Trustee, Respondents.
Bankruptcy Nos. 00-10916, 00-11505. Motion Nos. RMN-1, 00-QLF-1, B&W-1.
United States Bankruptcy Court, W.D. Pennsylvania.
December 28, 2000.
*573 Stephen H. Hutzelman, Erie, PA, for Thomas E. Merchant d/b/a The Winlei-Sterling Property Management Group and Earl A. Schifino d/b/a The Winlei-Sterling Property Management Group.
Michael E. Wish, Hermitage, PA, for Loretta J. Kozlowski.
Michael S. Janjanin, Erie, PA, for Continental Communities, Inc. d/b/a Washington Estates Mobile Home Park.
Richard M. Nelson, Cherry Hill, NJ, Wayne G. Johnson, Jr., Erie, PA, for Sterling Bank & Trust.
Ronda J. Winnecour, Pittsburgh, PA, Chapter 13 trustee.
OPINION
WARREN W. BENTZ, Bankruptcy Judge.
Introduction
Before the Court are three separate Motions for Relief from the Automatic Stay, Sterling Bank & Trust ("Sterling") and Continental Communities, Inc. ("Continental") seek relief in the Thomas E. Merchant ("Merchant") case and Loretta J. Kozlowski ("Kozlowski") seeks relief in the Earl A. Schifino ("Schifino") case. We have granted the Motions by separate orders and write to explain the basis of our decision.
Factual Background
Merchant, Schifino, and The Winlei-Sterling Property Management Group ("Winlei") are intimately familiar with the bankruptcy process. They have held their creditors at bay with strategic use of the bankruptcy system since the first in a series of cases was filed by Merchant on July 8, 1996. Through the use of alternate names and different addresses, Merchant, Schifino and Winlei have amassed a track record of seven cases in front of three different bankruptcy Judges in the Western District of Pennsylvania between July, 1996 and the present.[1]
Merchant and Schifino are partners in the real estate management business known as Winlei. See Debtors' Motion for Consolidation of Cases, ¶ 3. Merchant and Schifino also share a residence. Id. at ¶ 4. "During the course of their partnership and cohabitation, the Debtors have acquired property, some of which is owned jointly and some of which is individually owned. Also during the course of their partnership and cohabitation, the Debtors have incurred debts, some joint, some individual." Id. at ¶ 5.
Thus, whenever a bankruptcy case is pending, for either Merchant or Schifino, a joint creditor of either is stayed from pursuing its collateral. A review of the docket of each of the series of filed cases reveals that Merchant and Schifino have repeatedly used tactics of delay and in most instances have completely failed to adhere to the bankruptcy requirements with the result being dismissal of each case only to be followed soon thereafter with another case to reimpose the automatic stay.
Ignoring the 1992 and 1993 cases, the first in the continuing series of cases since 1996 was captioned Thomas Edwin Merchant and filed in the Pittsburgh division *574 as a voluntary Petition under Chapter 7 of the Bankruptcy Code on July 8, 1996 at case number 96-23501. Merchant listed his address as 334 Castle Road, Washington, Pennsylvania. The case was assigned to Judge McCullough. At the time of filing, the Petition was incomplete. Merchant was afforded until July 23 to complete filing. By Order dated July 30, 1996, the Court fixed a hearing for August 27, 1996 on a Rule to Show Cause Why Case Should Not Be Dismissed with Sanctions or Sanctions Imposed on Debtor for Failure to Complete Filing. At hearing on August 27, the Petition still had not been completed. The Court noted that the documents to complete the filing were to be filed by August 28. Merchant completed the Petition on August 28. Merchant received a discharge on December 30, 1996 and the case was closed on December 31, 1996. The automatic stay terminates when the case is closed. 11 U.S.C. § 362(c)(2). After the closing of the case, any creditor that holds a security interest in property of the Debtor is free to pursue its state court remedies.
Three days after case number 96-23501 was closed, on January 3, 1997, Earl A. Schifino, with an address of 90 S. Irvine Avenue, Sharon, Pennsylvania, filed a voluntary Petition under Chapter 13 of the Bankruptcy Code in the Erie Division of the Court at case number 97-10012 which was assigned to Judge Bentz.
The Petition was incomplete and Schifino was given until January 21 to complete the filing. On January 21, Schifino filed a Motion for Extension of Time to File Schedules and Plan. The Petition was completed on January 31. There were numerous objections to confirmation of the filed Plan. Schifino filed an Amended Plan on April 4. A confirmation hearing was fixed for June 27. On June 27, Debtor's attorney withdrew from the case. No progress was made toward confirmation. The confirmation hearing was rescheduled for July 25. On July 25 it was rescheduled for August 22. Following a hearing on August 22, the case was dismissed by Order dated August 27, 1997 without confirmation of a plan.
Nine days later, on September 5, 1997, Schifino, with an address of 90 S. Irvine Avenue, Sharon, Pennsylvania, filed another voluntary Petition under Chapter 13 in the Erie Division at case number 97-11343, assigned to Judge Bentz. Once again the Petition was incomplete. Schifino was given until September 22 to complete the filing. On September 23, October 14, October 31 and November 18, he filed motions to extend the time to complete the filing. The Court granted the motions each time with the last date fixed as December 1. When the schedules were not filed, the Court fixed a hearing for December 19 to determine whether the case should be dismissed for failure to file schedules. The Debtor completed the Petition on December 19. A confirmation hearing was held on March 27, 1998. The Chapter 13 Trustee reported that the Debtor had failed to appear as required for the First Meeting of Creditors and that Debtor had made no payments in the case. Counsel for the Internal Revenue Service reported that Debtor had not filed his 1996 tax return and didn't appear for an audit scheduled on his 1995 tax return. The case was dismissed by Order dated April 2, 1998.
It was only a short time before Schifino filed again on July 2, 1998, this time filing as Earl Schifino d/b/a RJ's d/b/a The Patio Café Bar & Grille and d/b/a Winlei-Sterling Property Management. This was a voluntary Petition under Chapter 11 of the Bankruptcy Code filed in the Pittsburgh Division by using an address of 334 Castle Road, P.O. Box 532, Washington, Pennsylvania. The case was assigned to Judge Fitzgerald at number 98-25212. As with each prior case, the Petition was incomplete. Schifino sought two extensions of time before the Petition was completed. During the course of the Chapter 11 case, Debtor failed to timely file the required monthly operating reports until the day *575 before a hearing fixed by the Court to determine whether the case should be dismissed and sanctions imposed. On April 1, 1999, the United States Trustee filed a Motion to Dismiss Case. On April 2, 1999, the Internal Revenue Service filed a Motion for Contempt. A hearing was scheduled for April 23. On April 8, Debtor filed a Motion for Continuance and Debtor's counsel filed a Motion to Withdraw as attorney. On April 9, the Court issued an Order dismissing the case with prejudice.
The next case was filed in Erie by Thomas E. Merchant d/b/a Winlei-Property Management using an address of 90 S. Irvine Avenue, Sharon, Pennsylvania. The case was filed on September 24, 1999 as a voluntary Petition under Chapter 13 at number 99-11518 assigned to Judge Bentz. Once again, the petition was incomplete. Debtor sought and was granted an extension of time to complete the filing until November 2. Nothing further was filed and the case was dismissed by Order dated November 10, 1999.
With that extensive history, we arrive at the two cases presently pending before this Court. The first was a voluntary Petition under Chapter 7 filed on May 26, 2000 by The Winlei-Sterling Property Management Group as a partnership with an address of 90 S. Irvine Avenue, Sharon, Pennsylvania. The Petition was incomplete and Debtor was directed to complete the Petition by June 12, 2000. When the Petition was not completed, the case was dismissed on June 15. On that same date, Debtor filed a Motion to Convert to Chapter 13 and Amend Caption. On June 22, the dismissal order was vacated, the case reopened and converted to Chapter 13, the caption amended to read Thomas Merchant d/b/a The Winlei-Sterling Property Management Group, and the Debtor given an additional 20 days, until July 12, 2000, to complete the Petition. On July 20, Debtor's counsel filed a Motion to Withdraw as Counsel and to Extend Time for Filing of Schedules. By Order dated September 14, 2000, counsel was permitted to withdraw and Debtor was directed to obtain new counsel and complete the Petition within 30 days. The schedules were filed on October 6. The Chapter 13 Plan, due at the same time, has not been filed.
Kozlowski sought relief from stay in this case which was granted by default Order on August 23, 2000. The Kozlowski Order in the Schifino case (number 00-11505) is the subject of this appeal, but the Kozlowski Order in the Merchant case (number 00-10916) is not the subject of an appeal.
The second bankruptcy case presently pending before the Court is a voluntary Petition under Chapter 13 filed on September 8, 2000 by Earl A. Schifino d/b/a The Winlei-Sterling Property Management Group at number 00-11505. Once again, the Petition was incomplete at filing and Debtor was given until September 28 to complete the filing. Debtor then sought and was granted an extension of time. The Petition was completed on October 6, but a Chapter 13 Plan, also due, remains unfiled.
Motions for Relief from Stay
A. Loretta J. Kozlowski
Kozlowski seeks relief from stay in the Schifino case. She obtained the same relief in the Merchant case by Order dated August 23, 2000.
On February 3, 2000, Kozlowski entered into an Articles of Agreement with Schifino and Merchant on behalf of Winlei for the purchase of two mobile homes. The purchase price was $17,000 with a downpayment of $1,000 and a balance of $16,000 financed by the owner for 36 months at 9%. Schifino admits not a single payment on the agreement has been made and that they have failed to make promised repairs with a fund advanced by Kozlowski and have failed to pay lot rental as required under the agreement.
Kozlowski entered into a second agreement with Winlei on February 17, 2000 for the sale of real property located at 1005 Highland Avenue, New Castle, Pennsylvania, *576 for an amount of $39,500 to be paid at the rate of $819.96 per month for 60 months commencing March 17, 2000. Schifino admits that no payments have been made.
B. Sterling Bank and Trust
Sterling seeks relief from stay in the Merchant case. Sterling holds a first mortgage lien on property in Florida. Debtor was delinquent in payments on the mortgage as of the filing date of the bankruptcy case. Debtor has made no plan payments to the Chapter 13 Trustee.
C. Continental Communities
Continental Communities ("Continental" or "Movant") seeks relief from stay in the Merchant case. Debtor owns a mobile home located in the Movant's trailer park. Lot rent is charged monthly in the amount of $225 plus a late fee of $25. Movant instituted a landlord/tenant action against Debtor and obtained a judgment for possession and money on August 26, 1999. The mobile home remains in the park. Movant seeks relief to proceed with action to remove the mobile home.
Discussion
The filing of a bankruptcy Petition operates as a stay against actions against the Debtor inter alia to obtain possession of or to enforce any lien against property of the estate. 11 U.S.C. § 362(a). The automatic stay prevents creditors such as Sterling, Continental and Kozlowski from initiating or continuing the types of actions they wish to pursue against Merchant and Schifino unless they first obtain relief from the automatic stay.
11 U.S.C. § 362(d) provides:
(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;
(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; or
. . .
11 U.S.C. § 362(d).
A creditor is entitled to relief from the automatic stay if there is sufficient "cause" under § 362(d)(1). "Cause" is an intentionally broad and flexible concept which must be determined on a case-by-case basis. In re M.J. & K. Co., Inc., 161 B.R. 586, 590-91 (Bankr.S.D.N.Y.1993); In re Holly's, Inc., 140 B.R. 643, 687 (Bankr. W.D.Mich.1992) (and cases cited therein).
The Court in In re Holly's collects numerous decisions which discuss relief from stay for "cause:"
There are a multitude of reported decisions discussing relief from the stay for "cause." The decisions are fact intensive and except for the balancing test enunciated in Cardinal Indus., the opinions generally offer no precise standards to determine when "cause" exists to successfully obtain relief from stay. See, e.g., Tucson Estates, 912 F.2d at 1166 ("cause" exists to lift stay as to state court trial involving same issues for which bankruptcy court may abstain); White v. White (In re White), 851 F.2d 170, 173-74 (6th Cir.1988) ("cause" exists to lift stay to allow spouse to continue divorce proceedings and determine property settlement); Little Creek Dev. Co. v. Commonwealth Mortgage Corp. (Matter of Little Creek Dev. Co.), 779 F.2d 1068, 1071-73 (5th Cir.1986) (lack of good faith in filing for bankruptcy constitutes "cause" for relief from stay); MacDonald, 755 F.2d at 717 ("cause" exists to lift stay to allow creditor to proceed in state court action for spousal support modification); Farmers & Merchants Bank & Trust of Watertown v. Trail West, Inc., 28 B.R. 389, 394 *577 (D.S.D.1983) (debtor's failure to comply with restrictions placed on it by the Code constituted sufficient misconduct to lift the stay); In re Future Growth Enters., Inc., 61 B.R. 469, 472 (Bankr. E.D.Pa.1986) ("cause" to lift stay exists when debtor is significantly in default under lease and has failed to successfully move for assumption); Matter of McMartin Indus., Inc., 62 B.R. 718, 723 (Bankr.D.Neb.1986) ("cause" exists to grant relief from the automatic stay when debtor fails to pay postpetition taxes, fails to disclose a bank account on its bankruptcy schedules, and fails to notify creditor of the existence of the account); Matter of Lipply, 56 B.R. 524, 528 (Bankr.N.D.Ind.1986) ("cause" is more than simple nonpayment but relief from stay is granted where malfeasance by debtor constitutes abuse of bankruptcy process); Brand Assocs. v. CGR, Ltd. (In re CGR, Ltd.), 56 B.R. 305, 307 (Bankr.S.D.Tex.1985) ("cause" to grant relief from stay exists when debtor fails to follow court order); In re Dabney, 45 B.R. 312, 313 (Bankr.E.D.Pa.1985) (debtor's failure to pay rent for three months did not constitute sufficient misconduct to lift the stay); Schmidt Indus., Inc. v. Schreiber (In re Schreiber), 14 B.R. 1013, 1014 (Bankr.S.D.Fla.1981) (failure to file plan and comply with requirements of the Code constitutes "cause" for relief from stay).
In re Holly's, Inc., 140 B.R. at 687-88; see also In re Little Creek Dev. Co., 779 F.2d 1068, 1071-72 (5th Cir.1986).
The Bankruptcy Code imposes on debtors a duty not to abuse the judicial system. In Chapter 13 reorganization cases, good faith requires that there must be a reasonable expectation on the part of the debtor that a successful reorganization can be accomplished and the debtor must undertake efforts to carry out the reorganization.
A bad faith filing may constitute cause for relief from the automatic stay. In re Novak, 103 B.R. 403 (Bankr. E.D.N.Y.1989). An abuse of § 362 occurs when a debtor has no intention of effectuating a realistic plan of reorganization.
The record certainly supports the conclusion that Merchant and Schifino's successive filing of bankruptcy petitions was done in bad faith. In 1992 and 1993 Merchant filed two cases which were dismissed for failure to comply with the requirements of the Bankruptcy Code. The present series of seven cases began with Merchant's Chapter 7 in 1996. After repeated delay, Merchant completed the filing and was granted a discharge. Since that time, Merchant and Schifino have filed four reorganization (3 Chapter 13 cases and 1 Chapter 11 case) cases prior to the two which are presently pending. Each of the four cases was incomplete at filing and replete with delay. Merchant and Schifino failed to comply with the requirements of the Code in each case which resulted in dismissal without any plan of reorganization.
Merchant and Schifino have continued the same pattern of abuse in the present cases. Both cases were incomplete at filing. The Merchant case, originally filed by Winlei, was dismissed for failure to complete the filing and reopened and converted to Chapter 13 at Merchant's request on June 22. A Chapter 13 plan was due 15 days later. Fed.R.Bankr.P. 3015(b). Merchant sought and was granted an extension of time until October 16. No plan has been filed. Local Rule 3021.2 provides that "[a]ny extension of time granted by the court for the filing of a plan . . . shall not also act as an automatic extension of time for the submission of payments to the Chapter 13 Trustee." Local Bankruptcy Rule 3021.2. Merchant has made no payments to the Chapter 13 Trustee. Local Rule 2015.1(B) instructs a debtor if engaged in business in a Chapter 13 case to "file monthly statements of operations . . . not later than the fifteenth (15th) day of each month." Merchant has filed no statements of operation. Local Bankruptcy Rule 2015.1(B).
*578 Similarly, Schifino has failed to file a plan, has failed to file monthly statements of operation and has failed to make any plan payments.
"Where a debtor seeks protection of the Bankruptcy Code, creditors may legitimately expect the debtor, at a minimum, to abide by provisions of the Code [and the Rules]. When debtors flout the code, they lose their protection from creditors and relief from the automatic stay will be granted." In re Knight Jewelry, 168 B.R. 199, 202 (Bankr.W.D.Mo.1994) citing Farmers & Merchants Bank & Trust v. Trail West, Inc., 28 B.R. 389, 394 (D.S.D. 1983).
Merchant and Schifino have failed to abide by the Code and the Rules in their numerous strategically filed cases since 1996. They continue to flout the Code and the Rules in the present cases. Accordingly, Sterling, Continental and Kozlowski have been granted relief from the automatic stay by separate Orders.
NOTES
[1] The July 8, 1996 filing was not Merchant's first case. He filed a Voluntary Petition under Chapter 7 on July 14, 1992 (Bankruptcy No. 92-23154) which was dismissed on July 30, 1992 for failure to complete the required schedules. He filed a second Voluntary Petition under Chapter 7 on August 26, 1993 (Bankruptcy No. 93-23006) which was dismissed on September 13, 1993 for failure to complete the required schedules. Those cases are in addition to the seven filed since July 8, 1996. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549789/ | 265 A.2d 724 (1970)
INDUSTRIAL NATIONAL BANK OF RHODE ISLAND and Nancy Steere, Executors u/w of Ruth G. Steere
v.
GLOCESTER MANTON FREE PUBLIC LIBRARY OF GLOCESTER, Rhode Island et al.
No. 841-Appeal.
Supreme Court of Rhode Island.
May 25, 1970.
*725 Kingsley L. Bennett, Providence, for plaintiffs. Attorneys for defendants:
Bradley L. Steere, Providence, for Glocester Manton Free Public Library;
Eugene A. Liberati, Theodore A. Miller, Providence, for Sarar Corporation and/or Scituate Ambulance and Rescue Corps;
Perry Shatkin, Providence, Guardian of the person and Estate of John E. Steerer;
Edwards & Angell, Beverly Glenn Long, John H. Blish, Deming E. Sherman, Providence, for Margaret P. Rose, Katheryn Ray and Central Baptist Church;
Lewis A. Waterman, Providence, for Bertha Edna Kimball Hadfield and Dorothy Kimball Dowe;
Higgins, Cavanagh & Cooney, Albert D. Saunders, Jr., Providence, for Union Church of Chepachet;
Herbert F. DeSimone, Attorney General, W. Slater Allen, Jr., Asst. Atty. Gen., for defendants.
OPINION
KELLEHER, Justice.
This is a civil action seeking the construction of and instructions pertaining to the will of Ruth G. Steere. A hearing was held in the Superior Court, and the case was then certified to us pursuant to the provisions of G.L. 1956 (1969 Reenactment) § 9-24-28.
The testatrix died on December 9, 1964, leaving a last will and testament dated April 29, 1959. The will was admitted to probate by the Providence Probate Court on January 26, 1965, and letters testamentary were issued to plaintiffs.
The portion of the testatrix's will that is before us is the residuary clause wherein the estate is divided into 10 parts to be divided equally among the beneficiaries thereof as set forth in paragraphs numbered 1 through 10. Paragraph 6 of the residuary clause reads as follows:
"6. In equal shares to the following
"A. The Chepatchet Library[1] in Glocester, R.I. to be known as the Frank Steere Memorial.
"B. Scituate Sanatarium[2] in North Scituate, R.I. to be known as the Steere Memorial in memory of Oliver *726 W. Steere Father and His Sons Fred Steere. Frank Steere Esq., Arthur Steere M.D."
This suit arises from the fact that there is and was no such entity as the "Scituate Sanatarium." There was evidence adduced in the Superior Court which shows that a Rhode Island business corporation called the Sarar Corporation (Sarar) operated a nursing home in the Town of Scituate. The home was known as the "Scituate Sanitarium." The corporation's endeavors fell upon bad times and on January 10, 1964, all its assets were sold at a foreclosure sale. At the time of the testatrix's death, the nursing home was inoperative. There are corporation taxes due the state, and no annual reports have been filed with the Secretary of State since 1959.
In the Superior Court, the Scituate Ambulance and Rescue Corps, a Rhode Island nonbusiness corporation, was allowed to intervene in these proceedings. As noted in its name, the corps operates an ambulance service for anyone who may become sick or injured in Scituate or its vicinity. Although certain members of the corps were active in the management of the nursing home, there is no doubt that the corps and the home were separate entities. A witness who was an officer in both corporations testified that the corps did not operate the nursing home. He also admitted that, as of the date of the testatrix's death, Sarar was a mere corporate shell having no function and no assets. Sarar has filed an amended answer in which it insists that the bequest should be paid to the corps.
The question posed by plaintiff executors is what shall be done with the legacy originally destined for the nursing home. The legacy consists of cash and securities, and at the time of oral argument, it was valued as being in the neighborhood of $30,000.
A multitude of arguments has been advanced on behalf of the various heirs, beneficiaries, or organizations who share, or hope to share, in the estate of Ruth G. Steere. In the light of the great diversity of arguments propounded in this case, we shall not refer specifically to every argument made, but we shall refer only to those arguments which we believe contribute to a fuller understanding of our construction of the will before us. As we have said so many times before, our primary obligation in construing a will is to ascertain, if possible, the testator's dispositive intent as expressed in his will and to give effect thereto unless it is contrary to some established principle of law. Edwards v. DeSimone, 105 R.I. 335, 252 A.2d 327; MacDonald v. Manning, 103 R.I. 538, 239 A.2d 640; Smith v. Powers, 83 R.I. 415, 117 A.2d 844.
A reading of the Steere will and the uncontradicted evidence presented before the Superior Court make it quite clear that the intended recipient of the legacy due under paragraph 6 of the residuary clause was the nursing home operated by Sarar and known in the Scituate area as the "Scituate Sanitarium." Accordingly, the testatrix's failure to properly describe the corporate entity in her will would not, in and of itself, bar Sarar from receiving the gift because the description in the will, aided by extrinsic evidence, clearly identifies Sarar as the intended legatee. See Industrial National Bank v. Alexander von Humboldt Stiftung, 105 R.I. 370, 252 A.2d 335; First Baptist Church v. Soban, 77 R.I. 115, 73 A.2d 772; Warwick Central Baptist Soc'y v. Hohler, 72 R.I. 445, 53 A.2d 494.
Although the testatrix intended to make a bequest for the general uses and purposes of the nursing home, it is obvious that at the time of her death this intent could not be effectuated since the object of the testatrix's bounty had ceased to function in the early part of 1963 almost 22 months prior to her death. The record shows that Sarar was incapable of taking the bequest intended for the nursing home. We believe that Sarar's insistence that the legacy be given to the corps is ample evidence of that fact.
*727 Any assertion that the ambulance corps was the intended legatee finds no support in the record. The corps, a nonbusiness corporation, was an entity separate and distinct from the nursing home, which was a corporation designed to make a profit. Furthermore, it is conceded by the corps that it never operated the nursing home or any other convalescent facility.
Since the intended beneficiary of paragraph 6 was defunct at the time of the testatrix's death, the gift to the nursing home has lapsed.[3]
Having found that the gift has lapsed, we have examined the testator's will to determine whether consideration should be given to the application of the gift cy pres. Cy pres is invoked if it appears that the donor intended that his gift be applied to a charitable purpose the general nature of which is so described that it can be inferred that the donor had a general charitable intent. If, on the other hand, the donor had a specific intent to aid one particular object, then the cy pres doctrine is inapplicable. This case falls within the rule of Gladding v. St. Matthew's Church, 25 R.I. 628, 57 A. 860.
Applying these principles of law to the instant will, we do not find that the will demonstrates a general charitable intent. The testimony discloses that the testatrix was well acquainted with the works of the nursing home. Her father had been a patient there. The bequest was given in memory of her father and brothers. There is nothing in the record that warrants any finding that the legacy allocated to the nursing home was motivated by the testatrix's desire that the needs of the ill and the elderly be served. Rather the gift appears to be a token of her appreciation for the care given her father. Since the requisite general charitable intent is lacking, the use of the cy pres doctrine is inappropriate.
The library argues that, because it and the nursing home share equally the so-called sixth portion of the estate, the share destined for the home should be distributed to it. Since the two institutions were mentioned together in paragraph 6, the library claims ownership of the sixth share of the residuary estate. This contention merits serious consideration if the bequest constitutes a class gift. If a donor makes a gift to a class and one of the class goes out of existence before the death of the donor, the entire gift passes to the surviving member or members of the class who were in existence at the time the class was determined. Hazard v. Stevens, 36 R.I. 90, 88 A. 980. Usually a testamentary gift will be deemed to be a class gift when a bequest is given to a group of persons who at the time of the gift are uncertain as to number, but who are to be ascertained at some future time when all who constitute the class will take an equal or other definite portion, the amount of each share being dependent upon the number that ultimately constitutes the class. Industrial National Bank v. Dyer, 96 R.I. 39, 188 A.2d 909.
In our opinion, the designation of the beneficiaries in the sixth part of the residuary clause, namely the "Scituate Sanatarium" and "The Chepatchet Library," does not constitute a gift to a class which would permit the library to take the entire sixth share. It is obvious that, at the time the testatrix drew her will, there were but two organizations that would share the sixth portion of her residuary estate. There was absolutely no uncertainty as to the number who would share this *728 portion on April 29, 1959 the day the will was drawn.
We also point out that at the beginning of the bequest to the nursing home and the library are found the words "in equal shares to the following." This language is a significant indication that the gifts made to each beneficiary were in the nature of an estate in common. There is nothing in the record which shows that the testatrix ever intended that the nursing home and the library were to be given a joint interest in the sixth portion of the residuary. We think that the following portion of 4 Page, Wills § 37.59, at 697-98 (1961 ed.), contains the rule of law controlling the library's claim of total ownership:
"If testator's intention to create an interest not in its nature joint appeared on the will, the estate devised to two or more was held to be an estate in common. No technical words are necessary to show this intention. Any words which make such intention clear are sufficient. Words which frequently have this effect are those which indicate a separate division among the beneficiaries, such as a direction that the gift be divided among the beneficiaries equally, or in equal shares, or share and share alike."
Having concluded that the legacy bequeathed to the nursing home lapsed and that it cannot be paid to the ambulance corps or the Chepatchet library, we must now determine whether the one-twentieth share of the residue of the estate of Ruth G. Steere should be distributed to the remaining residuary legatees or to the testatrix's next of kin in accordance with the laws of intestacy.
It is elementary law that, in absence of a statute and where there is no express limitation or bequest over, a lapsed legacy falls into the residuary estate. Rhode Island Hospital Trust Co. v. Votolato, 102 R.I. 467, 231 A.2d 491; Woodward v. Congdon, 34 R.I. 316, 83 A. 433.
It was the rule at common law that a lapsed devise or bequest of a portion of the residuary estate did not pass into the remainder of the residue but, in absence of a specific provision by the testator to the contrary, it would pass as intestate property to the heirs at law. Petition of Phillips, 25 R.I. 254, 55 A. 696; Re Will of Kimball, 20 R.I. 619, 40 A. 847; Church v. Church, 15 R.I. 138, 23 A. 302. This common law rule was changed with the enactment of G.L. 1896, chap. 203, sec. 7, now known and cited as G.L. 1956, § 33-6-20, which allows a lapsed residuary gift to pass to the other residuary beneficiaries. The pertinent part of the statute reads:
"Unless a contrary intention shall appear by the will * * * if a residuary devisee or legatee die before the testator without leaving issue living at the time of the testator's decease, and there be other residuary devisees or legatees named in such will in the same residuary clause, such other residuary devisees or legatees named in such clause, whether a class or not, shall take at the testator's decease the share of such residuary devisee or legatee so dying in like proportions as their shares bear one to another as expressed in said will under said residuary clause."
While the statute modifies the common law, it does not completely abrogate it because § 33-6-20 speaks only of a residuary legatee who is a person. The legislation does not embrace a corporate legatee such as Sarar. We have repeatedly said that a will should be construed so as to avoid any partial intestacy so long as such construction appears natural and reasonable. Armington v. Meyer, 103 R.I. 211, 236 A.2d 450; Rhode Island Hospital Trust Co. v. Huntoon, 94 R.I. 474, 181 A.2d 614; Industrial Trust Co. v. Lathrop, 72 R.I. 62, 47 A.2d 916. We have also remarked that the avoidance of intestacy is favored, especially when the partial intestacy relates to the residuary estate. This is so because it is assumed that, when a person makes a will, he intends to dispose of his entire estate. Rhode Island Hospital Trust Co. v. Thomas, 73 R.I. 277, 54 A.2d 432; Edwards v. *729 Martin, 54 R.I. 64, 169 A. 751; Pell v. Mercer, 14 R.I. 412.
The common law rule that a lapsed residuary devise or bequest passes as if there had been intestacy has evoked considerable criticism. The judicial disfavor for a partial intestate distribution of a residuary estate is well expressed in the following excerpt from Corbett v. Skaggs, 111 Kan. 380, at 386, 207 P. 819, at 822:
"We regard the rule that lapsed shares of deceased residuary legatees shall be treated as intestate property as in direct conflict with the one to which this court is definitely committed that the actual purpose of the testator, so far as it can be ascertained, must be given effect. The presumption against intestacy of any part of the estate is a means of carrying out this policy which is disregarded by taking lapsed legacies out of the residue for the benefit of those who would inherit from the decedent in the absence of a will. The reasons for allowing lapsed specific legacies to fall into the residue apply with equal force in favor of allowing all the residue to go to the surviving residuary legatees in the case of the death of one of them, instead of turning over a part of it to persons for whom other provision had been made, or who had not been referred to in the will at all. The statement sometimes made in support of the latter practice that the share of a deceased residuary legatee cannot fall into the residue because it is itself a part of the residue appears rather to play upon words than to point out any real difficulty."
In addition to Corbett v. Skaggs, supra, the rule has been rejected judicially in In Re Slack Trust, 126 Vt. 37, 220 A.2d 472; Schroeder v. Benz, 9 Ill. 2d 589, 138 N.E.2d 496; Commerce National Bank v. Browning, 158 Ohio St. 54, 107 N.E.2d 120. See also In re Moloney, 15 N.J. Super. 583, 83 A.2d 837. Many states have enacted legislation to counter the common law rule. See Purdon, Pennsylvania Statutes Annotated Title 20, § 180.14(10) (1950); 2 Anderson, Ohio Revised Code Title 21, § 2107.52 (1967); New Jersey Statutes Annotated § 3A:3-14; Rhode Island § 33-6-20. The intestate distribution of a lapsed residuary devise or legacy has come under critical fire in various treatises and law reviews. 6 Page, Wills § 50.18, at 98-99 (1962 ed.); 10 N.Y.U.L.Q. Rev. 97; 36 Harv. L. Rev. 230; 55 Mich. L. Rev. 1202; 31 Yale L.J. 782.
The cases supporting and rejecting the common law rule may be found in annotations at 28 A.L.R. 1237; 139 A.L.R. 868 and 36 A.L.R. 2d 1117.
Although a corporate legatee is not within the purview of § 33-6-20, this statute reflects a public policy that cannot be ignored. While the rule enunciated in Corbett v. Skaggs, supra, may be classified as the minority rule, it represents in our opinion a progressive minority. It makes sense, and we adopt the Corbett-Skaggs rule as being applicable to any lapsed residuary devise or bequest which is not embraced within the terms of § 33-6-20. As the court said in In Re Slack Trust, supra, the Corbett-Skaggs rule "* * * is a rule of construction only, adopted because it appears to comport most closely with the presumed intent of the testator in the usual case." It is at all times subject to the contrary expressions of intent in the instrument by the testator.
We can find nothing in the record before us which would warrant the conclusion that the "Scituate Sanatarium" legacy should pass out of the estate and be distributed to the heirs at law of the testatrix. Accordingly, this portion of the residuary estate should be distributed among the remaining residuary beneficiaries in proportion to their respective interest in the residue.
The parties shall submit for our approval a form of judgment in accordance with this opinion to be entered in the Superior Court.
PAOLINO, J., did not participate.
NOTES
[1] This reference is incorrect. The plaintiffs state that the true name of this beneficiary is the Glocester Manton Free Public Library of Glocester, Rhode Island.
[2] In Webster's Third New International Dictionary, the word is spelled either "sanitarium" or "sanatorium."
[3] In Winsor v. Brown, 48 R.I. 200, 136 A. 434, this court said that, while in its technical sense a "lapsed legacy" refers to a gift by will which becomes inoperative because the beneficiary died between the time of the will's execution and the testator's death, it would construe the word "lapse" to mean "fail." In the case at bar, we are using the term "lapsed legacy" to describe a gift which has failed to vest because of the incapacity of the beneficiary to take the gift. See Booth v. Baptist Church, 126 N.Y. 215, 28 N.E. 238. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549936/ | 32 F.2d 622 (1929)
BUCK et al.
v.
MILAM et al.
No. 687.
District Court, D. Idaho, E. D.
April 17, 1929.
Hugo B. Anderson, of Salt Lake City, Utah, and F. L. Soule, of St. Anthony, Idaho, for plaintiffs.
W. A. Ricks, of Rexburg, Idaho, for defendants.
CAVANAH, District Judge.
The defendants conduct a dance hall and place of entertainment known as the "Cahoon Park Dance Hall" in Madison county, Idaho, where entertainments and dances are given and musical compositions are played for the general public for profit. The plaintiffs own the musical compositions entitled "Ramona" and "The Sunrise (Will Bring Another Day for You)," and under the Copyright Act possessed the exclusive right to perform the compositions publicly for profit.
It is charged in two causes of action in the complaint that the defendants in infringement of the copyright have given public performances for profit of the musical compositions in question, by causing them to be played in their dance hall and place of entertainment for the amusement of their patrons. Under the pleadings and agreed statement of facts presented, the infringement of the copyright and damages to plaintiff, and $100 attorney's fee and costs to be allowed plaintiff, are admitted, leaving for decision the one question as to the amount of damages.
There is no proof of actual damages or profits, and plaintiffs contend that the general clause of subdivision (b) of section 25 of the Copyright Act (17 USCA § 25(b) governs, and the damages must be assessed at not less than $250, the minimum, and not more than $5,000, maximum, for each of the two infringements. On the other hand, the defendants assert that the court is restricted to an allowance of $10 for each infringement performance of a musical composition as provided in the "Fourth" paragraph of section 25. So that the question is: Must there be allowed to the plaintiffs at least $250 under the general clause, or must there be allowed only $10 for every infringing performance under the "Fourth" paragraph?
Referring to section 25 of the Copyright Act, we find that it provides that the person infringing shall be liable:
"(b) To pay to the copyright proprietor such damages as the copyright proprietor may have suffered due to the infringement, as well as all the profits which the infringer shall have made from such infringement, and in proving profits the plaintiff shall be required to prove sales only and the defendant shall be required to prove every element of cost which he claims, or in lieu of actual damages and profits such damages as to the court shall appear to be just, and in assessing such damages the court may, in its discretion, allow the amounts as hereinafter stated, but in case of a newspaper reproduction of a copyrighted photograph such damages shall not exceed the sum of $200 nor be less than the sum of $50, and in the case of the infringement of an undramatized or non-dramatic work by means of motion pictures, where the infringer shall show that he was not aware that he was infringing, and that such infringement could not have been reasonably foreseen, such damages shall not exceed the sum of $100; and in the case of an infringement of a copyrighted dramatic or dramatico-musical work by a maker of motion pictures and his agencies for distribution thereof to exhibitors, where such infringer shows that he was not aware that he was infringing a copyrighted work, and that such infringements could not reasonably have been foreseen, the entire sum of such damages recoverable by the copyright proprietor from such infringing maker and his agencies for the distribution to exhibitors of such infringing motion picture shall not exceed the sum of $5,000 nor be less than $250, and such *623 damages shall in no other case exceed the sum of $5,000 nor be less than the sum of $250, and shall not be regarded as a penalty. But the foregoing exceptions shall not deprive the copyright proprietor of any other remedy given him under this law, nor shall the limitation as to the amount of recovery apply to infringements occurring after the actual notice to a defendant, either by service of process in a suit or other written notice served upon him.
"First. In the case of a painting, statue, or sculpture, $10 for every infringing copy made or sold by or found in the possession of the infringer or his agents or employees;
"Second. In the case of any work enumerated in section 5 of this title, except a painting, statue, or sculpture, $1 for every infringing copy made or sold by or found in the possession of the infringer or his agents or employees;
"Third. In the case of a lecture, sermon, or address, $50 for every infringing delivery;
"Fourth. In the case of a dramatic or dramatico-musical or a choral or orchestral composition, $100 for the first and $50 for every subsequent infringing performance; in the case of other musical compositions $10 for every infringing performance."
The defendants having played the copyright compositions in their dance hall and place of entertainment as charged, and in view of subdivision (b) of section 25 of the act providing for an injunction in such cases, and in addition "in lieu of actual damages and profits such damages as to the court shall appear to be just, * * * and such damages shall in no other case exceed the sum of $5,000, nor be less than the sum of $250," I am of the opinion that the present case is one of the "other cases" referred to in clause (b) of section 25, and the minimum damages of $250 is awarded as the "just" damages to be allowed by the court for each infringement shown, making the total damages $500.
In support of this construction of the act in cases similar to the present one, see Westermann Co. v. Dispatch Printing Co. (C. C. A. 6th Cir.) 233 F. 609; Westermann v. Dispatch Printing Co., 249 U.S. 100, 39 S. Ct. 194, 63 L. Ed. 499; Waterson, Berlin & Snyder Co. v. Tollefson (D. C.) 253 F. 859; Brady v. Daly, 175 U.S. 148, 20 S. Ct. 62, 44 L. Ed. 109; Buck v. Lester (D. C.) 24 F.(2d) 877; Witmark & Sons v. Calloway (D. C.) 22 F.(2d) 412; Irving Berlin, Inc., v. Daigle (C. C. A. 6th Ct., filed April 2, 1929) 31 F.(2d) 832.
Accordingly, a decree will be prepared and submitted by plaintiffs' counsel awarding damages of $250, the minimum amount named in the act, on each of the two causes of action, for a permanent injunction, and for attorney's fees in the sum of $100 and costs. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549941/ | 32 F.2d 288 (1929)
ARIZONA COMMERCIAL MINING CO.
v.
CASEY, Collector of Internal Revenue.
No. 2239.
District Court, D. Massachusetts.
April 9, 1929.
*289 At Law. Action by the Arizona Commercial Mining Company against Andrew J. Casey, Collector of Internal Revenue. Judgment for plaintiff.
Dunbar, Nutter & McClennen and Edward F. McClennen, all of Boston, Mass., for plaintiff.
Frederick H. Tarr, U. S. Atty., and J. Duke Smith, Asst. U. S. Atty., both of Boston, Mass., for defendant.
BREWSTER, District Judge.
This is an action brought to recover income and excess profits taxes assessed for the year 1917. The plaintiff duly returned and paid on its 1917 income an income tax of $20,575.24 and an excess profits tax of $1,880.90, or a total of $22,456.14. Early in 1920 the Commissioner of Internal Revenue assessed an additional excess profits tax of $36,044.30 which, on March 2, 1920, the plaintiff paid under protest to avoid penalties.
On October 19, 1920, the plaintiff filed with the collector of internal revenue for this district a claim for a refund of $27,325.75, which claim was rejected on December 22, 1923.
The plaintiff's claim for refund was based wholly on the act of the Commissioner in reducing by $2,000,000 the amount of plaintiff's invested capital upon which the excess profits credits were computed.
In January, 1924, the plaintiff brought suit to recover the whole amount of the additional assessment, or $36,044.30. In its declaration it alleged (1) that it was entitled to a further deduction from gross income, for depletion during the year of its ore bodies, of $29,380.22; and (2) that it was entitled to have included in its invested capital the full cash value of property exchanged for $1,300,000 par value of stock originally issued by the plaintiff, instead of the par value of said stock which had been adopted by the Commissioner of Internal Revenue in fixing the amount of such invested capital.
The case was referred to an auditor, who heard the parties and made his report to this court. Jury trial was waived, and the case is now presented on its merits, to be considered on the auditor's report and documents introduced in evidence.
At the outset we are met with the claim of the defendant that the plaintiff cannot recover in this suit any tax based upon an asserted right to an additional deduction for depletion. This claim is grounded on the alleged failure of the plaintiff to comply with the requirements of statute and of the regulations of the Secretary of the Treasury established in pursuance thereof (R. S. § 3226 [26 USCA § 156] and article 1036, Treasury Regulations 45 [1920 Ed.]). Since Tucker v. Alexander, 275 U.S. 228, 48 S. Ct. 45, 72 L. Ed. 253, it can no longer be doubted that the defendant could insist upon literal compliance with these statutory requirements, and that such compliance, if insisted upon, is a condition precedent to the right of the taxpayer to maintain a suit for the recovery of taxes erroneously assessed. This case is also authority for the proposition that such compliance may be waived by the United States or by the collector, if no statute of limitation is involved.
It is the plaintiff's contention that it complied with the legal requirement relating to a claim for refund, and further that, if it did not literally comply, such compliance was waived by the defendant.
Taking up first the plaintiff's claim that it sufficiently complied with the statute. Section 3226 of the Revised Statutes (U. S. Code, title 26 [26 USCA] § 156) provides that: "No suit or proceeding shall be maintained * * * for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected * * * until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof."
Article 1036 of Treasury Regulations 45, in force when the claim for refund was filed, requires that such claim "shall be made on form 46 (revised)" and that "all the facts relied upon in support of the claim should be clearly set forth under oath."
The plaintiff attaches some importance to the fact that, when it paid the additional assessment under protest, it inserted on the face of the notice and demand the words "paid under protest and claim appearing on back," and on the back of the claim made the following indorsement:
"This payment $36,044.30 is paid under protest because of demand and to avoid penalties. Refund is claimed because said assessment and several parts thereof are unwarranted in fact and by any constitutional provision of any Act of the United States under which the assessment purports to be made.
"Arizona Commercial Mining Co.,
"By C. H. Altmuller, Treasurer."
This notice and demand was receipted and returned to the plaintiff by the collector of *290 internal revenue. This procedure falls far short of the requirements of the regulation. The claim was not under oath. The facts relied upon in support of the claim were not set out. It was not made on form 46 (revised), nor was it duly filed with the Commissioner. That the plaintiff did not regard this statement as sufficient to establish its rights to a refund is indicated by the claim, filed about seven months later, which was submitted on form 46, verified and filed in accordance with the applicable regulation. In this claim the plaintiff sets out the facts relied upon in support thereof, as follows:
"The Arizona Commercial Copper Company, predecessor to the Arizona Commercial Mining Company, had a paid-in capital of $4,000,000, represented by capital stock of $3,000,000 and bonds of $1,000,00. These were exchanged on or about July 12, 1912, for capital stock in the reorganized corporation (the present company), stock of the par value of $1,300,000. No new interests whatsoever came into the reorganization. The reorganized corporation has set up on its books a paid-in surplus of $2,000,000, representing a portion of the $2,700,000 difference in the investment in the predecessor company and the capital stock of the reorganized company. This addition to surplus was eliminated from the invested capital of the petitioner in the government audit of the corporation's income and excess profits tax return for the year 1917. This elimination resulted in an excessive assessment of $28,055.43 refund whereof is hereby claimed. (See attached memorandum for corrected computation of the tax.)"
The amount of the refund claimed was later corrected to read $27,325.75.
From the text of the claim and the accompanying computations, it is clear that the only act of the Commissioner of Internal Revenue which the plaintiff deemed erroneous was the reduction to the extent of $2,000,000 of the amount of the invested capital of the corporation. Its sole claim was for a refund of $27,325.75 resulting from this reduction. The claim to a deduction from income for depletion was never specifically brought to the attention of the Commissioner and he never passed upon it.
This presents the question whether this failure to set forth in the claim this additional ground for a refund precludes the plaintiff from recovering in this action any overpayment of tax upon income which was not reduced by the alleged depletion. The federal courts in other jurisdictions are not wholly in accord as to the necessity of setting out in the claim for refund the same ground for a refund as that relied upon for a recovery in the courts. In the Circuit Court of Appeals for the Eighth Circuit, it has been stated that "the precise ground upon which the refund is demanded must be stated in the application to the Commissioner, and we think, if that is not done, a party cannot base a recovery in the court upon an entirely different and distinct ground from that presented to the Commissioner." Kenyon, J., in Red Wing Malting Co. v. Willcuts, 15 F.(2d) 626, 49 A. L. R. 459. See, also, Tucker v. Alexander (C. C. A.) 15 F.(2d) 356. Recent decisions in the District Court of Connecticut hold otherwise. Union & New Haven Trust Co. v. Eaton, 20 F.(2d) 419. Warner v. Walsh, 24 F.(2d) 449.
While Tucker v. Alexander, supra, was reversed in the Supreme Court on the ground that the defendant had waived compliance with the statute and regulations, the opinion contains language which has a strong tendency to support the views entertained in the Eighth Circuit. Mr. Justice Stone, after referring to section 3226 and the Treasury Regulations established in pursuance thereof, stated that in view of the government's waiver of objections to the sufficiency of the description of the claim filed, it was not necessary to consider the precise extent of the requirements prescribed by statute and regulations, but he added that "literal compliance with statutory requirements that a claim or appeal be filed with the Commissioner before suit is brought for a tax refund may be insisted upon by the defendant, whether the collector or the United States." Tucker v. Alexander, 275 U.S. 228, 231, 48 S. Ct. 45, 46 (72 L. Ed. 253).
In order to literally comply with section 3226, it must be necessary for the taxpayer to duly file with the Commissioner a claim for refund "according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof." It is not a sufficient compliance to file a claim for refund without specifying the grounds upon which the claim is based. The regulations require that all the facts relied upon in support of the claim should be clearly set forth under oath. As has been several times indicated in the opinions, the purpose of the statutes and the regulations is to afford the Commissioner an opportunity to correct errors made by his office and to spare the parties and the courts the burden of litigation in respect thereto. Tucker v. Alexander, supra; Union Trust *291 Co. of Pittsburgh v. McCaughn (D. C.) 24 F.(2d) 459, 461; Feather River Lumber Co. v. U. S. (Court of Claims, May 28, 1928).
While I would not go so far as to say that a taxpayer would be limited to the recovery of the precise amount appearing in his claim for refund, I am of the opinion that he cannot file a claim for refund on one ground and, if that claim is rejected, proceed to sue for a recovery based upon entirely different and distinct grounds. A suit cannot be maintained upon a claim of a nature different from that shown in the formal claim for refund, according to the views reflected in recent opinions. Meinrath Brokerage Co. v. Crooks (D. C.) 28 F.(2d) 991; Ritter v. United States (C. C. A.) 28 F.(2d) 265; Stauffer Eshleman & Co. v. U. S. (Court of Claims, October 15, 1928).
But it is urged that any omission to state fully the grounds relied upon was waived by the defendant.
It appears that when the case was before the auditor for argument, the defendant conceded in his brief that one of the issues of fact before the auditor was whether and to what extent the plaintiff was entitled to an additional deduction for depletion. This statement in the brief is the sole ground upon which the plaintiff bases its argument that compliance was waived. I do not think the argument can be sustained, in view of the pleadings and the record before me. The plaintiff alleged in its declaration a due and sufficient claim for refund of the entire amount sued for. Defendant filed a general denial, which necessarily involved a denial of the allegation. One of defendant's requests for findings, filed with the auditor, was that the "Plaintiff produced no evidence that any claim for refund was filed with the collector of internal revenue as required by law, or that such claim had been rejected by the Commissioner of Internal Revenue."
Inasmuch as the plaintiff claimed that it had duly filed with the collector of internal revenue at Boston a claim for a refund of the entire additional tax, it would be proper, if not necessary, for the auditor to make an alternative finding respecting the right of the plaintiff to a further deduction for depletion. To submit a brief on that issue was in no way inconsistent with the defendant's objection that the plaintiff had failed to comply with the statutory requirements. The facts disclosed on the record before me are clearly distinguishable from those confronting the court in Tucker v. Alexander, supra. In that case, Mr. Justice Stone observed that "during the entire course of the trial no question was raised as to the sufficiency of the claim for refund," and it further appears from the opinion that counsel stipulated that the court might consider the issue submitted, and this stipulation was well within the period limited for the filing of claims for refund.
In the case at bar, the question of the sufficiency of the claim was raised in the pleadings and at the hearing before the auditor, and moreover the time within which claims for refund could be filed had expired long before the defendant filed his brief with the auditor. See R. S. § 3228; section 1112, Revenue Act of 1926 (U. S. Code, tit. 26 [26 USCA] § 157). I find and rule on this aspect of the case that the defendant did not, by his course of conduct, waive compliance with the statute and regulations.
It follows, therefore, from these observations, that the plaintiff is not entitled to recover, in this action, any tax computed upon income which had not been reduced by the actual depletion during the year 1917 of its ore bodies as of March 1, 1913, to the extent of $29,380.22, and I so rule.
This exclusion renders it unnecessary to consider the somewhat complicated findings of the auditor relative to plaintiff's alleged claim for further deduction for depletion.
The next question is whether the plaintiff can recover upon its allegations that it was entitled to have included in its invested capital the $2,000,000 disallowed by the Commissioner.
The pertinent facts bearing upon this issue, as found by the auditor, are as follows:
The plaintiff was organized as a mining corporation under the laws of the state of Maine, on April 4, 1912, with an authorized capital stock of $1,500,000, divided into 300,000 shares, of a par value of $5 each. Its organization was a part of a plan of reorganization of the affairs of the Arizona Commercial Copper Company (hereinafter referred to as the "Copper Company"), which had an outstanding capital stock of $3,000,000 and a bonded indebtedness of $1,000,000. The plaintiff was organized for the purpose of succeeding to the business and property of the Copper Company. The plan of reorganization provided for the deposit with a reorganization committee of the bonds and stock of the Copper Company. Before the plaintiff was organized the reorganization committee had acquired practically all of the bonds and a portion of the stock of the Copper Company.
The plaintiff, on April 9, 1912, voted to purchase of the committee all the property *292 held by it, consisting principally of the deposited bonds of the value of $998,500 and 115,646 shares of the common stock of the old company, together with approximately $300,000 in cash which had been paid in to the committee by the old stockholders, pursuant to the plan of reorganization. For these stocks and bonds the plaintiff issued to the committee 260,000 shares of its stock having a par value of $1,300,000. Of these shares 140,000 were distributed to bondholders of the old company, and 120,000 shares went to holders of stock in the old company, who had elected to come into the reorganization and had paid $3 for each share issued to them.
On July 11, 1912, the assets of the Copper Company were sold at a foreclosure sale to a representative of the reorganization committee for the sum of $1,000,000. The purchaser assigned his bid to the plaintiff and the plaintiff surrendered to the receiver of the Copper Company the $1,000,000 of bonds of that company as payment of the purchase price, and the receiver conveyed the assets directly to the plaintiff.
On July 11, 1912, the assets of the plaintiff corporation as shown by the set-up on its books was:
Real estate and property .............. $1,300,000 00
Other assets .......................... 306,391 69
_____________
Total .............................. $1,606,391 69
And the following liabilities:
Capital stock ......................... $1,300,000 00
Surplus ............................... 306,391 69
_____________
Total .............................. $1,606,391 69
This surplus was the $360,000 received from the stockholders, less certain adjustments.
The result of all this was to set up the fixed assets on the books of the new company at $2,747,553.28, less than they were on the books of the old company.
Until 1917 this real estate and property thus acquired was carried on the books of the plaintiff at $1,300,000. A further entry on the assets side was made as of December 31, 1917 (by whose direction it did not appear in evidence), as follows:
"For value of property conveyed in excess of stock issued March 19, 1912, $2,000,000."
And, at the same time, on the liability side, profit and loss was credited with a like amount, and in the tax return for the year 1917 the additional $2,000,000 was treated as a part of the invested capital of the company. It is this $2,000,000 additional which the plaintiff now claims should be treated as a paid-in surplus, and which the Commissioner of Internal Revenue has disallowed as a part of the invested capital.
The provisions of internal revenue law applicable to this case are to be found in the Revenue Act of October 3, 1917, § 207, 40 Stat. 306. The material parts of this section are:
"Invested capital * * * means: * * * (a) In the case of a corporation * * * (2) the actual cash value of tangible property paid in other than cash, for stock or shares in such corporation or partnership, at the time of such payment (but in case such tangible property was paid in prior to January first, nineteen hundred and fourteen, the actual cash value of such property as of January first, nineteen hundred and fourteen, but in no case to exceed the par value of the original stock or shares specifically issued therefor); and (3) paid-in or earned surplus and undivided profits used or employed in the business, exclusive of undivided profits earned during the taxable year: Provided, that (a) the actual cash value of patents and copyrights paid in for stock or shares in such corporation or partnership, at the time of such payment, shall be included as invested capital, but not to exceed the par value of such stock or shares at the time of such payment, * * * but good will, trade-marks, * * * or other intangible property, bona fide purchased, prior to March third, nineteen hundred and seventeen, for and with * * * shares in the capital stock of a corporation (issued prior to March third, nineteen hundred and seventeen), in an amount not to exceed, on March third, nineteen hundred and seventeen, twenty per centum * * * of the total shares of the capital stock of the corporation, shall be included in invested capital at a value not to exceed the actual cash value at the time of such purchase, and in case of issue of stock therefor not to exceed the par value of such stock."
If the $2,000,000 in controversy can be said to constitute a part of the invested capital, it is because it will come in under the definition of invested capital as paid-in surplus. The plaintiff could not increase its invested capital by marking up its assets to correspond to a mere appreciation in value over cost. La Belle Iron Works v. United States, 256 U.S. 377, 41 S. Ct. 528, 65 L. Ed. 998.
There are decisions of the Board of Tax Appeals involving the Revenue Act of 1917 *293 which hold that, when tangible property is acquired by a corporation in exchange for its stock and the value thereof is clearly and substantially in excess of the par value of the stock exchanged, the excess may be treated as paid-in surplus in the computation of invested capital. Appeal of Cross Mountain Coal Co., 2 B. T. A. 587; Appeal of St. Louis Screw Co., 2 B. T. A. 649; Appeal of Henderson Overland Co., 4 B. T. A. 1088; Opperman Coal Co. v. Commissioner, 6 B. T. A. 1215; Penn Chemical Works v. Commissioner, 7 B. T. A. 442.
I am satisfied that this is a proper application of the statute and am equally satisfied that, under the act of 1917, the actual cash value of the property must be clearly shown as of January 1, 1914. Appeal of Cross Mountain Coal Co., supra. Appeal of West End Consolidated Mining Co., 3 B. T. A. 128.
The Commissioner of Internal Revenue adopted a regulation relative to paid-in surplus. This regulation is found in article 63 of Regulations 41, and reads as follows:
"Art. 63. When tangible property may be included in surplus. Where it can be shown by evidence satisfactory to the Commissioner of Internal Revenue that tangible property has been conveyed to a corporation or partnership by gift or at a value, accurately ascertainable or definitely known as at the date of conveyance, clearly and substantially in excess of the cash or the par value of the stock or shares paid therefor, then the amount of the excess shall be deemed to be paid in surplus. The adopted value shall not cover mineral deposits or other properties discovered or developed after the date of conveyance, but shall be confined to the value accurately ascertainable or definitely known at that time.
"Evidence tending to support a claim for a paid-in surplus under these circumstances must be as of the date of conveyance, and may consist, among other things, of (1) an appraisal of the property by disinterested authorities; (2) the assessed value in the case of real estate; and (3) the market price in excess of the par value of the stock or shares."
The record does not disclose that the plaintiff adduced evidence, either before the Commissioner or the auditor, to support its claim for a paid-in surplus by showing either an appraisal or assessed value of the assets, but the evidence before the auditor tended to show that the shares never had a market value in excess of the par value. Nevertheless, I suppose it is true that if the plaintiff, as a matter of fact, received for the $1,300,000 of its capital stock tangible property having an actual cash value substantially and clearly in excess of the par value of the stock, it would be entitled to have included in its invested capital this excess as paid-in surplus, notwithstanding the provisions of the regulations. But the statute and the regulation clearly impose upon the plaintiff the burden of showing by adequate proof (1) that the stock was issued for tangible property; and (2) that its actual cash value was clearly and substantially in excess of the par value of the shares issued.
For what was the stock issued? The reorganization committee held, under the plan of reorganization, all but $1,500 of the outstanding bonds and 115,646 shares of the common stock of the Copper Company. It had also received from the old stockholders and others who came into the plan of reorganization a little over $300,000. For these bonds, stocks and cash, the plaintiff issued 260,000 shares of its capital stock. The result of this transaction, therefore, was that the original issue of capital stock was paid in with bonds and shares of capital stock of the Copper Company and $300,000 in cash.
The plaintiff, having acquired these securities, then purchased of the receiver, presumably conducting a foreclosure sale under the mortgage or deed of trust securing the bonds of the Copper Company, the fixed assets and property of that company. The price paid was $1,000,000, and the bonds of the Copper Company, which the plaintiff had acquired, were used to pay the purchase price.
While, as a matter of form, the consideration paid for the fixed assets was $1,000,000 of bonds of the old company, surrendered for cancellation, the net result of the several steps taken during the course of reorganization was to pass title to the physical assets of the old company to the plaintiff, against which it had outstanding capital stock of the par value of $1,300,000.
Although the stock had been issued to the secured creditors and certain of the stockholders of the old company, rather than to the Copper Company, they were issued to the reorganization committee only as a matter of convenience, for distribution among those who participated in the reorganization.
The foreclosure sale and the conveyance direct by the receiver to the plaintiff were all part of the same transaction which had *294 for its ultimate purpose the issue of $1,300,000 of capital stock against the assets of the Copper Company and a certain amount of cash. The law will look to the substance of the transaction rather than to the form of it.
For the purpose of determining the amount of invested capital, I think it makes little difference upon which theory we proceed. If, for $1,300,000 of stock or $1,000,000 of bonds, the plaintiff acquired tangible property which, on January 1, 1914, had an actual cash value of $3,300,000, it has established its rights to have the $2,000,000 added to its invested capital for the year 1917. Appeal of Markenheim Co., 1 B. T. A. 1240.
Did the tangible assets acquired by the plaintiff in July, 1912, have an actual cash value on January 1, 1914, which was $2,000,000 in excess of the par value of plaintiff's stock, issued at the time the property was acquired?
This is the question remaining for consideration.
There is, in the auditor's report, no express finding as to the actual cash value of the property on January 1, 1914, but it is possible, from such findings as he did make, to draw the conclusion that the property had on that date an actual cash value substantially and clearly in excess of $1,300,000.
In the first place, it was agreed by the parties that, for the purposes of this case, there was no material change in value of the property between these dates, viz. July 11, 1912, March 1, 1913, and January 1, 1914.
At the plaintiff's request, the auditor found that the plaintiff's invested capital on March 1, 1913, was: Cash, $360,000; and mine, $4,000,000. He also found that the cost of the tangible property of plaintiff was $4,047,553.28, "that being the cost to the Arizona Commercial Copper Company of which the plaintiff company was merely a reorganization."
If, in making these findings, the auditor proceeded on the theory that the invested capital of the plaintiff should be measured by the cost to the old company of the assets taken over by the new, the finding cannot be sustained. Conceding that the incorporation of the plaintiff was a part of the plan of reorganization, there was not sufficient identity of ownership, or control, to warrant the auditor in treating the plaintiff other than as a separate and distinct corporate entity. Holders of less than one-fifth of the stock in the old company participated in the reorganization. A majority of the shares of the new company were issued to holders of bonds of the old company. The plaintiff cannot adopt the invested capital of the Copper Company. It must establish its own. In its accounting and in its returns it proceeded on lines consistent with this view.
The cost of the assets to the old company may, however, be considered as evidence of the actual cash value and is entitled to considerable weight when considered with other findings of the auditor, to the effect that the Copper Company acquired the properties in 1905 and they were carried on the books at the time of the reorganization as
Mines and real estate ................. $2,069,505 61
Mine development and plant construction 1,816,211 94
Railroad .............................. 161,835 73
_____________
Total .............................. $4,047,553 28
The auditor also finds that the value of the ore bodies, as of March 1, 1913, was $2,626,000.
These facts found by the auditor relative to the original cost to the Copper Company and the actual value on March 1, 1913, of the ore bodies, are consistent with his ultimate finding that the invested capital was in excess of $4,000,000, and justify the conclusion that the price of $1,000,000 paid for the fixed assets was merely a nominal value, adopted for the purposes of the reorganization, and did not adequately represent the actual cash value of the property. Considerable stress has been laid upon the fact that in semiannual reports, submitted by plaintiff to stockholders, containing a balance sheet, the assets taken over from the Copper Company have been carried at $1,300,000. The report of December 31, 1913, shows that the mining property and plant were carried at $1,455,238. The report of December 31, 1917, is the first report in which the added value to the mining properties and plant appears, and in this report these properties are valued at $3,732,075.50. I do not suppose that these book values can be taken as conclusive of the plaintiff's rights in the premises. These records merely show that the plaintiff elected to carry on its books nominal, rather than real, values until 1917, when the passage of the excess profits tax rendered it advantageous for it to reflect on its books and in its returns the actual cash value instead of the nominal values.
The auditor's report must be taken as prima facie evidence of the material facts therein recited. His findings lend no support to the defendant's contention that the property, acquired by the plaintiff at the time of the reorganization, had an actual cash value of only $1,300,000, except such inference as may be ultimately drawn from the fact *295 that apparently there was no market for the stock. I cannot deem this as sufficient to override the other express findings of the auditor respecting the value of the ore bodies and the cost of the property. No evidence was offered by the defendant to control these findings.
In conclusion, I am of the opinion that the evidence before me warrants the following conclusions of fact and of law, and I so find and rule:
(1) That the $1,300,000 was in substance, if not in form, issued for tangible property consisting of the mines and other tangible assets of the Arizona Commercial Copper Company.
(2) That the actual cash value of such tangible property on January 1, 1914, was at least $2,000,000 in excess of the par value of the original shares issued therefor.
(3) That the plaintiff is entitled to have included in its invested capital the $2,000,000 disallowed by the Commissioner.
(4) That the additional tax to the extent of $27,325.75 was erroneously assessed upon plaintiff and unlawfully exacted.
(5) That the plaintiff is entitled to recover in this action the sum of $27,325.75, with lawful interest thereon. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549944/ | 265 A.2d 324 (1970)
STATE
v.
Alvin GLASS.
No. 722-Ex. &c.
Supreme Court of Rhode Island.
May 6, 1970.
*325 Herbert F. DeSimone, Attorney General, Scott K. Keefer, Special Assistant Attorney General, Donald P. Ryan, Assistant Attorney General, for plaintiff.
James Cardono, Public Defender. William F. Reilly, Assistant Public Defender, for defendant.
OPINION
PAOLINO, Justice.
The defendant was indicted and tried for unlawfully selling "a narcotic drug, to wit, Heroin," in violation of G.L. 1956, § 21-28-32, as amended by P.L. 1962. chap. 110, sec. 1. He was found guilty by a jury in the Superior Court. After his motion for a new trial was denied, he brought his bill of exceptions to this court.
On March 30, 1967, Malcolm T. Brown, a member of the Providence Police Department, was serving as a narcotic inspector with the department's C-Squad. On that day, while working as an undercover agent, he arranged, with the assistance of an informer, to meet the defendant at a certain location in the City of Providence at about 9:15 to 9:30 p.m. When the defendant arrived there, Officer Brown entered the back seat of the automobile which the defendant was driving and asked him if he had the bags. The defendant replied that he did, and, after being told by Officer Brown that he had the money, defendant handed Officer Brown ten glassine bags, and the officer handed defendant $200 in cash. Then Officer Brown arrested defendant at gunpoint, identified himself as a police officer, and took back the $200.
Officer Brown and another officer, Sergeant Edward J. Pennine, who also appeared at the scene, returned to the police station with defendant; Officer Brown administered a so-called Marquis test on the contents of one of the ten glassine bags to determine if the contents contained a narcotic drug; then Officers Brown and Pennine marked the ten bags for identification and placed them in a desk to which only Officers Brown and Pennine had the key. The next day, the ten bags were delivered by Officer Pennine to the office of the state toxicologist where tests were made upon the contents of one of the ten glassine bags. The contents of this packet were determined to contain heroin.
At the trial, all ten glassine bags were admitted in evidence as a full exhibit over defendant's objection. The undisputed evidence is that only one packet was tested. The state's toxicologist identified the packet which was tested, but frankly admitted that he had no idea what was in the other nine packets. The defendant thereupon moved that the nine packets be excluded from the evidence and that only the packet whose contents had been tested be allowed in evidence. The trial justice denied defendant's motion because "of other evidence in the case * * * which associates these packets with the packet which was tested * * *."
The case is before us on defendant's bill of exceptions, which consists of 66 separate exceptions. However, defendant has briefed and argued only two of his *326 exceptions, namely Exceptions 23[1] and 24.[2]
In accordance with a well-established practice, we consider only those exceptions which defendant has briefed and argued. State v. Wright, R.I. 253 A.2d 593; State v. Quattrocchi, 103 R.I. 115, 235 A.2d 99.
Exceptions 23 and 24 raise the same question, namely, whether the admission in evidence of the nine glassine bags whose contents had not been tested constituted prejudicial error. For the reasons which follow, we find no prejudicial error.
In his charge the trial justice instructed the jury:
" * * * the State must prove under this charge, beyond a reasonable doubt, the following elements: (1) that this defendant, (2) made a sale, (3) of a narcotic drug, namely, heroin, to Malcolm Brown. These are the elements which the State must prove beyond a reasonable doubt, and each and every one of these elements must be so proven."
The defendant took no exception to this portion of the charge, and those instructions therefore became the law of the case.
The trial justice also instructed the jury that the quantity of heroin was immaterial and that, with regard to the nine packets which had not been tested, they could not draw any inference as to what the contents of such packets were.
The defendant took an exception to that portion of the charge where the court charged the jury that the quantity of heroin sold is immaterial.
The indictment charges, insofar as pertinent here, that on March 30, 1967, defendant "* * * did unlawfully sell * * * and deliver a narcotic drug, to wit, Heroin, in violation of Title 21, Chapter 28, Section 32, of the General Laws of Rhode Island, 1956, as amended." It does not specify any quantity and, therefore, proof of sale of heroin in any quantity would support the charge. There is evidence in this record that one packet did contain heroin. In fact, in his argument on his motion to dismiss, defendant conceded that the state had proven that one bag containing heroin was sold.
The thrust of defendant's argument is that the admission of the nine untested glassine bags in evidence prejudiced his case.
Since proof of sale of one packet of heroin was sufficient to support the indictment, we fail to see any merit in defendant's argument that the admission of the nine untested packets prejudiced his case, especially in view of the trial justice's instructions to the jury that they should not draw any inference as to what the nine untested packets contained. Error, if any, in the admission of evidence is harmless where the accused is not prejudiced thereby. State v. Kieon, 93 R.I. 290, 296, 175 A.2d 284, 288.
Even were we to accept defendant's argument that he was prejudiced by the admission of the nine packets, the result in this case would be the same. The determination as to whether the nine packets were part of the res gestae is within the sound discretion of the trial justice. State v. Nordstrom, R.I. 244 A.2d 837, 840. Since these packets were taken at the time of the offense with which defendant was charged, we cannot say that such *327 discretion was abused. See United States v. Gulley, 374 F.2d 55, 58 (6th Cir.1967), and United States v. Freeman, 203 F.2d 387, 389 (7th Cir.1953). See also 1 Wharton, Criminal Evidence (12th Ed.), § 279, at 627, and 22 A C.J.S. Criminal Law § 662(1) n. 2.1, at 668. Matters determined to be part of the res gestae are not admissible in evidence if they are irrelevant. State v. Massey, 32 N.M. 500, 258 P. 1009, and Heidingsfelder v. State, 128 Tex. Crim. 351, 81 S.W.2d 510. The determination of the relevancy of evidence is also within the trial justice's sound discretion. State v. Reardon, 101 R.I. 18, 24, 219 A.2d 767, 771. On the record before us we cannot say that he abused this discretion. The fact that evidence otherwise relevant is in its character prejudicial does not, standing alone, constitute a sufficient cause for its exclusion, unless the prejudice overrides the relevancy. See State v. Reardon, supra. We do not believe that prejudice here, if any, in the admission of the nine untested packets overcame their relevancy.
The defendant's brief contains a lengthy quotation from an argument he made on his motion to dismiss in the Superior Court. We feel that it will be helpful to briefly answer two issues which he presents therein.
We find no merit to his first point that the admission of the nine packets may make him liable to further prosecution if any of them are found to contain heroin, thus subjecting him to double jeopardy.
The second point stems from the state's reply in its bill of particulars to the following request propounded in defendant's motion for a bill of particulars:
"5. State the exact amount by weight of the narcotic drug which was allegedly sold, furnished, given away or delivered."
It appears from the following statement by defendant's counsel on the motion to dismiss, quoted in his brief, that the state could not comply with his request. He said:
"Ten glassine bags is not in the indictment, but by way of bill of particulars, when I asked the exact weight * * *. In answer thereto, the State has said. `Ten (10) glassine bags.' I think this becomes a part of their case, saying ten bags of heroin were sold. Then in proving their case they have proved that one bag containing heroin was sold, rather than ten."
We do not agree with defendant's argument that because of the state's reply of "Ten (10) glassine bags" it became incumbent upon the state to prove the sale of ten glassine bags containing heroin. The indictment, as we have already stated, charges the sale of "a narcotic drug, to wit, Heroin." It does not charge the defendant with the sale of ten packets of heroin. The bill of particulars does not become part of the indictment, and the prosecution remains a prosecution upon the indictment. See 4 Wharton. Criminal Law and Procedure, § 1870. See generally 41 Am.Jur.2d, Indictments and Informations, §§ 163-165. The state's reply restricts it in that it cannot prove that defendant sold more than ten glassine packets, but it does not prohibit the state from proving that the defendant sold less, as it admittedly has done.
The defendant's exceptions are overruled, and the case is remitted to the Superior Court for further proceedings.
NOTES
[1] Exception 23 relates to the trial justice's ruling which overrules defendant's objection to the admission of state's exhibit No. 1, an envelope containing the ten glassine bags.
[2] 24 relates to the trial justice's ruling which denied defendant's motion to exclude the nine untested packets from the evidence. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3040003/ | United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 05-1519
___________
United States of America, *
*
Appellee, *
* Appeal from the United States
v. * District Court for the
* Western District of Missouri.
Ronald C. Vaughn, *
* [UNPUBLISHED]
Appellant. *
___________
Submitted: March 7, 2006
Filed: March 10, 2006
___________
Before MELLOY, FAGG, and BENTON, Circuit Judges.
___________
PER CURIAM.
Ronald Vaughn appeals the sentence the district court1 imposed after he
pleaded guilty to firearm offenses. His counsel has moved to withdraw and filed a
brief pursuant to Anders v. California, 386 U.S. 738 (1967), suggesting that Vaughn
received ineffective assistance of counsel at sentencing. In a pro se supplemental
brief, Vaughn argues that an enhancement under U.S.S.G. § 2K2.1(b)(5) violated his
Sixth Amendment rights under Blakely v. Washington, 542 U.S. 296 (2004).
1
The Honorable Gary A. Fenner, United States District Judge for the Western
District of Missouri.
We decline to consider the ineffective-assistance claim in this appeal. See
United States v. Halter, 411 F.3d 949, 951 (8th Cir. 2005) (per curiam).
Because the district court in sentencing Vaughn did not view the Guidelines
as mandatory, there was no error under Blakely. See United States v. Booker, 543
U.S. 220, 233-37, 245, 258-59 (2005) (Sixth Amendment problem resulting from
mandatory nature of Guidelines remedied by making Guidelines advisory). To the
extent Vaughn challenges the reasonableness of his sentence, see id. at 261 (appellate
court reviews sentence for unreasonableness), we reject this challenge. The record
does not indicate that the district court failed to consider a relevant sentencing factor,
or considered an improper or irrelevant factor, or made a clear error of judgment in
weighing the factors listed in 18 U.S.C. § 3553(a). See United States v. Long Soldier,
431 F.3d 1120, 1123 (8th Cir. 2005); United States v. Haack, 403 F.3d 997, 1002-04
(8th Cir.), cert. denied, 126 S. Ct. 276 (2005).
Having reviewed the record independently under Penson v. Ohio, 488 U.S. 75,
80 (1988), we have found no nonfrivolous issues. Accordingly, we affirm.
______________________________
-2- | 01-03-2023 | 10-13-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1549647/ | 72 F.2d 874 (1934)
HELVERING, Com'r of Internal Revenue,
v.
SECURITY SAVINGS & COMMERCIAL BANK.
No. 3674.
Circuit Court of Appeals, Fourth Circuit.
October 2, 1934.
S. Dee Hanson, Sp. Asst. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and Sewall Key and Norman D. Keller, Sp. Assts. to Atty. Gen., on the brief), for petitioner.
*875 W. W. Spalding, of Washington, D. C. (Albert L. Clothier, of New York City, and Mason, Spalding & McAtee, of Washington, D. C., on the brief), for respondent.
Before PARKER and NORTHCOTT, Circuit Judges, and CHESNUT, District Judge.
NORTHCOTT, Circuit Judge.
This is a petition to review a decision of the United States Board of Tax Appeals (29 B. T. A. 176), involving federal income taxes for the years 1927 and 1928, in the amount of $4,450.79.
The respondent, hereinafter referred to as the Bank, is a corporation, incorporated under the laws of West Virginia, and during the year 1927 was engaged in the banking business in Washington, D. C. On June 14, 1927, the president of the Bank obtained an option from the then president of the Central Savings Bank, a District of Columbia corporation, engaged in the banking business in Washington, for the acquisition by purchase of 1,001 of the 2,000 shares of the capital stock of the Central Savings Bank at a price of $140 per share. At a special meeting of the board of directors of the Bank, held June 24, 1927, the board voted to take over the option for the Bank and took steps to apply to the Comptroller of the Currency for authority to establish a branch bank at the place of business then used by the Central Savings Bank and to take over all the assets and liabilities of the Central Savings Bank for the purpose of operating said branch bank. The Bank's vice president was authorized to vote the stock of the Central Savings Bank for the purpose of liquidating that bank and canceling its charter. Authority to establish and operate the branch bank was granted.
On June 25, 1927, a contract was entered into between the Bank and certain stockholders of the Central Savings Bank for the purchase of 1,701 shares of the capital stock of the last-named bank at the same price of $140 per share. By June 30, 1927, the Bank had acquired additional shares of the stock of the Central Savings Bank and on that date owned 1,839 shares of such stock, for all of which the price of $140 per share had been paid. By the contract of June 25, 1927, it was agreed that before making final payment for the stock, agents of the Bank might inspect the books and records of the Central Savings Bank, and such inspection was made before the purchase of the stock was completed.
At a meeting of the board of directors of the Central Savings Bank held on June 30, 1927, the then acting directors of that bank resigned and were replaced by nominees of the Bank. The president, vice president, and treasurer of the Central Savings Bank also resigned and the vacancies were filled by the election of nominees of the Bank. On the same day the Central Savings Bank, with the approval of its stockholders, entered into an agreement with the Bank by which the Central Savings Bank sold and delivered to the Bank all of its "* * * notes, ledgers and other accounts, choses in action, bills receivable, real estate and any and all other assets, real, personal and mixed of every nature, kind and character whatsoever * * *," for the sum of $250,006.07.
The statement of the Central Savings Bank at the close of business on June 30, 1927, the date of the sale, showed that that bank had savings deposits of over $600,000. At the time of the sale (June 30, 1927), there remained outstanding and not owned by the Bank 161 shares of the capital stock of the Central Savings Bank. These shares were acquired by the Bank between July 1 and October 18, 1927, at the same price as that paid for the other shares, $140 per share. On November 9, 1927, the stockholders of the Central Savings Bank directed the payment of a final liquidating dividend of $124.21 on each of the 2,000 shares of stock or a total dividend of $248,420. By this payment the Central Savings Bank divested itself of all its assets and no further distribution to stockholders was ever made by it.
Immediately after the transaction of June 30, 1927, the Bank took possession of all the assets of the Central Savings Bank and of its banking house and conducted a branch banking business at that location for a period of ten months, after which the location of the branch bank was moved. On December 28, 1927, in conformity with resolutions duly adopted by its board of directors, the Bank charged to profit and loss, on its books, the sum of $31,580, the loss claimed to have been sustained by it through the purchase and liquidation of 2,000 shares of Central Savings Bank stock.
In computing net income for the calendar year 1927 the Bank claimed as a deduction the sum of $31,580, representing the difference between the cost of the 2,000 shares of the Central Savings Bank stock, purchased at $140 per share, and the amount distributed by the Central Savings Bank as a liquidating dividend, namely, the sum of $248,420. This deduction was disallowed by the Commissioner *876 of Internal Revenue, and upon petition of the Bank the Board of Tax Appeals held against the Commissioner.
The sole question presented here is whether the Bank sustained a deductible loss where it bought all of the stock of another bank, took over all the tangible and intangible assets of that bank at a price equal to the book value of its stock, which price was less than the Bank paid for the stock of the purchased bank, when the object was to obtain the business of a rival concern with a large amount of deposits and to establish a branch bank at the place of business of the purchased bank.
A survey of the transaction as a whole leads us to the conclusion that the course of events connected with the purchase of the stock and assets of the Central Savings Bank were, in effect, one transaction. The record discloses the fact that the only object the Bank had in paying a greater value for the stock of the Central Savings Bank than it was shown to be worth on the books, was the acquisition of the business, including the location of the purchased bank; that these intangible assets had a value to the purchasing bank is not to be doubted, else the transaction in itself would have been a foolish one, without excuse. That the Bank thought it was purchasing something of value in addition to the tangible assets is shown by the fact that it paid $140 per share for the 161 shares of stock it did not own on June 30, 1927, when it was definitely known that the liquidating dividend would only amount to $124.21 per share. In other words, after having purchased all the assets of the Central Savings Bank at a figure that would give to the stockholders only $124.21 for a share of stock, it continued to pay $140 a share. The sale of the assets was made by its own officers acting as officers of the Central Savings Bank and was nothing more than a formality that was gone through with for the purpose of carrying out the plan as originally conceived; the Bank knew that it would not get back in actual dividends the amount paid for the stock but unquestionably expected to get value received for the difference by the acquisition of the business and location of the purchased bank and, as it was still in possession of the business and location at the time the return was made, for the purposes of taxation, for the year 1927, there could have been, at that time, no definitely ascertained loss upon the transaction. The value of the assets tangible and intangible which the Bank acquired should be treated, for the purposes of taxation, as equal to the cost of the stock. Prairie Oil & Gas Co. v. Motter (C. C. A.) 66 F.(2d) 309.
The series of acts corporate and otherwise leading up to the purchase of the stock and of the business of the Central Savings Bank constituted only a single transaction in which the Bank purchased certain assets tangible and intangible for the price paid for the stock. The whole transaction constituted the means with which to carry out the plan and in the application of income tax laws the substance and not the form should control. S. A. MacQueen Co. v. Commissioner (C. C. A.) 67 F.(2d) 857; Prairie Oil & Gas Co. v. Motter, supra; Tulsa Tribune Co. v. Commissioner (C. C. A.) 58 F.(2d) 937; West Texas Refining & Development Co. v. Commissioner (C. C. A.) 68 F.(2d) 77.
It is not necessary to cite authority to the effect that intangible assets, while not usually carried on the books of banks, can be of great value, and it is a recognized fact that the good will of a going concern has a definite value however difficult it may be to accurately estimate that value.
The Bank purchased the stock at a certain fixed price knowing all the circumstances connected with its value and it is settled that the fair sale of stock is the best evidence of its market value. Standard Oil Co. v. Southern Pacific Co., 268 U.S. 146, 45 S. Ct. 465, 69 L. Ed. 890; Muser v. Magone, 155 U.S. 240, 15 S. Ct. 77, 39 L. Ed. 135; Tabor Mfg. Co. v. Commissioner (C. C. A.) 34 F.(2d) 140. Moreover, after the absorption of the purchased bank the Bank had everything that it had before and it had lost nothing because of the purchase made of the assets of the Central Savings Bank. Paper transactions of this kind do not of themselves prove a loss. Alpha Portland Cement Co. v. United States (C. C. A.) 261 F. 339; Gulf Oil Corp. v. Lewellyn, 248 U.S. 71, 39 S. Ct. 35, 63 L. Ed. 133.
Respondent relies upon the decision of this court in the case of Burnet v. Riggs National Bank, 57 F.(2d) 980, but that case is easily distinguishable from the instant case. In the Riggs National Bank Case, that bank, at the solicitation of the Comptroller of the Currency for a commendable purpose, took over the assets and business of the Hamilton Savings Bank. The transaction was not entered into with any hope of gain by the acquisition of the Hamilton Savings Bank but was done solely to avoid a disorganization of *877 the banking business in the District of Columbia. The Riggs Bank conducted the business of the purchased bank at a loss, and we properly held that such a loss as was shown to have been incurred in the transaction was a deductible loss under the income tax laws. Here no such condition existed; the Bank purchased the Central Savings Bank stock with the hope and expectation of making a profit by the transaction, and so far as the facts disclosed by the record go, no loss has been shown. While it is true, as we said in the Riggs National Bank Case, that separate corporate entities are not to be entirely ignored in considering questions of taxation, where, as here, the sale of the assets was made between two banks with identical officers and practically identical stockholders, separate corporate entities become so merged that the line of demarcation is scarcely visible.
The loss claimed was not proven and the action of the Commissioner in determining a deficiency in the income tax against the Bank was correct.
The decision of the United States Board of Tax Appeals is, accordingly, reversed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549682/ | 258 Md. 129 (1970)
265 A.2d 260
SHOEMAKER
v.
SHERIFF OF CARROLL COUNTY
[No. 344, September Term, 1969.]
Court of Appeals of Maryland.
Decided May 8, 1970.
*130 The cause was argued before HAMMOND, C.J., and BARNES, FINAN, SMITH and DIGGES, JJ.
William B. Dulany, with whom were Robert K. Parker and Dulany, Davis & Smith on the brief, for appellant.
Francis X. Pugh, Assistant Attorney General, with whom were Francis B. Burch, Attorney General, T. Bryan McIntire, State's Attorney for Carroll County and J. Robert Johnson, Assistant State's Attorney for Carroll County, on the brief, for appellee.
FINAN, J., delivered the opinion of the Court.
This case is before us on appeal from an order of the Circuit Court for Carroll County denying appellant's writ of habeas corpus. The appellant, Donald Shoemaker, was indicted by the State of Pennsylvania for bringing stolen property into the state. While the date of the alleged offense was December 20, 1966, the indictment was not returned until April 23, 1968, even though Pennsylvania had reason to know as of December 20, 1966, that the appellant was a prime suspect. On May 20, 1968, the Governor of Pennsylvania issued a requisition to the Governor of Maryland requesting that the appellant be returned. After an extradition hearing on September 30, 1969, a rendition warrant was issued by Governor Mandel. On this same date, appellant applied for his writ of habeas corpus in the Circuit Court for Carroll County pursuant to Article 41, Section 25, of the Annotated Code of Maryland. After a hearing his petition was denied and this appeal followed.
The affidavits accompanying the application for requisition of the appellant and the testimony of the witnesses for the State of Pennsylvania, at the habeas corpus hearing, established that there was an eyewitness who saw the appellant bring certain property to him on December 20, 1966, in Pennsylvania. There was evidence that this property *131 was stolen. The appellant testified that he presently did not know his whereabouts on December 20, 1966, because of the time lapse since that date. He did acknowledge that he was aware of the charge because of a fugitive warrant served upon him in Washington County on April 10, 1968. On November 4, 1968, the appellant was sentenced to one year in the Maryland House of Correction and was confined until March 24, 1969, at which time he was released on parole. During his confinement in the House of Correction, the State of Pennsylvania failed to file an interstate detainer on the Pennsylvania charge.
In August, 1969, he was once again served with a fugitive warrant. Appellant filed a writ of habeas corpus which was granted. Another warrant was issued August 29 but not served until October 28, 1969.
Appellant raises two major contentions on appeal. He first argues that the delay in indicting and extraditing him by the State of Pennsylvania prejudiced his right to a speedy trial and denied him due process of law. His second contention is that the delay prejudiced his chances of effectively countering the extradition proceedings because the time lapse made it difficult for him to show he was not in Pennsylvania on the date of the alleged offense.
The first contention is beyond our province to examine. There may be merit to the claim that his Sixth Amendment right to a speedy trial was infringed by the long delays in indictment and extradition; however, this is a matter for the Pennsylvania courts to determine. They will be in the best position to determine what harm, if any, was done to the appellant and will have before them the full reason for any delays. We believe this first contention is analogous to an instance where a substantive defense is raised to the crime charged, such as that limitations has run. The law is clear that the demanding state should pass upon the defense raised. In Lincoln v. State, 199 Md. 194, 202, 85 A.2d 765 (1952), we stated:
"The question is raised whether it appears from the face of the papers in this case that limitations have run against abandonment and desertion *132 in Massachusetts on September 15th, 1941. From Chapter 277, Section 63, General Laws of Massachusetts, 1932, Vol. 2, it seems that such is not the case. However, that question is not before us here. In Biddinger v. Commissioner of Police, 245 U.S. 128, 38 S. Ct. 41, 43, 62 L. Ed. 193, supra, the Supreme Court of the United States in a case in which extradition was sought by the State of Illinois from the State of New York said: `The statute of limitations is a defense and must be asserted on the trial by the defendant in criminal cases, United States v. Cook, 17 Wall. 168; and the form of the statute in Illinois, which the appellant seeks to rely upon, makes it especially necessary that the claimed defense of it should be heard and decided by the courts of that State * * *'."
We can only conclude that Pennsylvania should be the forum in which this issue concerning his right under the Sixth Amendment of the United States Constitution should be adjudicated.
The second contention raised is an appropriate one for a court passing upon the legality of a restraint, that is the rendition warrant, to consider. The narrow issue before us is whether the delay in the indictment unfairly prejudiced the appellant's attempt to present a defense at the extradition hearing. The record is fairly clear that the State of Pennsylvania had reason to believe that the appellant committed a crime on or about December 20, 1966. However, an indictment was not returned until almost sixteen months later. In determining whether this delay unfairly prejudiced the appellant's ability to demonstrate that he was not in Pennsylvania on the date alleged, we think it important to note that this is a habeas corpus proceeding challenging the legality of the extradition proceeding. A finding that the extradition was proper is not a finding of guilt.
*133 The standard by which to judge the propriety of the extradition proceeding was set forth in Solomon v. Warden, 256 Md. 297, 260 A.2d 68 (1969):
"The issuance of a warrant of rendition by the governor of the asylum state raises a presumption that the accused is the fugitive wanted and it is sufficient to justify his arrest, detention and delivery to the demanding state. * * * In order to rebut the presumption the accused must prove beyond a reasonable doubt either that he was not present in the demanding state at the time of the alleged offense or that he was not the person named in the warrant and upon proof of one or the other he is entitled to be released. Moreover, in this kind of habeas corpus proceeding `the guilt or innocence of the accused may not be inquired into * * * except as it may be involved in identifying the person * * * charged with the crime.' Code Art. 41, § 34. It should be noted also that the presumption must be rebutted by overwhelming evidence, Mason v. Warden, 203 Md. 659, 661 (1953) thus `mere contradictory evidence on the question of presence in or absence from the state demanding the accused is not sufficient * * *.' Koprivich v. Warden, 234 Md. 465, 469." 256 Md. at 300-301.
We do not believe the sixteen month delay in and of itself is enough to establish irreparable prejudice to appellant's position. We note that there was the testimony of an eyewitness that on December 20, 1966, he purchased certain property from the appellant. The witness had at one time employed the appellant and so was not unfamiliar with the general appearance of the appellant. Thus the presumption raised by the issuance of the rendition warrant is based on substantial testimony. While it is difficult to know what evidence the appellant might have produced had he been indicted more promptly we think that in order to rebut the presumption he would have in *134 some way had to rebut the credibility of the eyewitness produced by the State of Pennsylvania. Merely producing contradictory evidence would not, of itself, have been enough.
It is difficult to see how the sixteen month delay would hamper his efforts to purge the witness of his credibility through cross-examination at the hearing. Moreover, while a sixteen month delay would understandably make it difficult to know where one was on a particular day, we do not believe it would be impossible to produce some evidence as to his whereabouts during that general time period. No testimony was introduced as to his job at that time or where he might have been. We think there is sufficient evidence to conclude that the rendition warrant was properly granted under the facts presented.
Order affirmed with costs. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549783/ | 258 Md. 285 (1970)
265 A.2d 746
HILTON, INCOMPETENT, BY JAMES E. HILTON, HIS COMMITTEE
v.
WILLIAMS
[No. 390, September Term, 1969.]
Court of Appeals of Maryland.
Decided June 2, 1970.
The cause was argued before HAMMOND, C.J., and McWILLIAMS, FINAN, SINGLEY, SMITH and DIGGES, JJ.
Gilbert A. Hoffman, with whom were Daniel M. Hipsley and Patrick A. O'Doherty on the brief, for appellant.
Christopher A. Hansen, with whom were Jesse Slingluff *286 and John E. Sandbower, III, on the brief, for appellee.
SINGLEY, J., delivered the opinion of the Court.
On the morning of 7 October 1966, Hilton, a pedestrian, was struck by an automobile driven by Williams, and seriously injured. Suit was instituted in Hilton's behalf in the Superior Court of Baltimore City. Williams pleaded the general issue; interrogatories were filed and answered by both parties; and Williams deposed two witnesses, Gertrude Friedel, who was a passenger in Williams' car, and Roy Goad, another pedestrian. Williams then moved for summary judgment, filing his own affidavit and the depositions of the two witnesses in support of his motion. The lower court granted the motion and entered judgment absolute in Williams' favor. Hilton would have us reverse the judgment.
The facts which were before the court at the time the motion was granted can be briefly told. On the morning of the accident, Hilton, a man 72 years of age with the mentality of a four year old, was walking in an easterly direction along the sidewalk on the north side of Frederick Avenue in Baltimore City. Williams, with Mrs. Friedel as his passenger, was driving in the center lane of Frederick Avenue's three westbound lanes. According to Williams' affidavit, he was driving at a speed of 25 miles an hour, and had reached a point 40 feet west of the point where Long Island Drive enters Frederick Avenue from the south, when Hilton "suddenly and without warning ran from the north curb of Frederick Avenue towards the south curb directly into the path of [his] automobile."
In her deposition, Mrs. Friedel responded to a question about the speed limit on Frederick Avenue and the speed of Williams' car:
"I think the speed limit there is about 30. We were only going about, approximately, 25 I would say * * *."
*287 When asked about the scene of the accident, she said:
"I guess it would be about 45 feet 40 feet 50 feet something to that effect [west of the point where Long Island Drive enters Frederick Avenue from the south]."
Mrs. Friedel said that she first saw Hilton when he was 15 or 20 feet from Mr. Williams' car, but could not remember whether he was on the curb or in the street.
Roy Goad was walking in a westerly direction on the sidewalk on the north side of Frederick Avenue with a friend who was on his way to school. He was a block or a block and a half away when he first saw Hilton, and about "three or four houses from him" when Hilton was struck. When asked about the scene of the accident, Goad said:
"Well, that's where it practically all happened, right across from Long Island and Frederick."
Later Goad said it was "further up" Frederick Avenue. When asked about the speed at which the Williams car was travelling, Goad said,
"His car was going 35-40 miles an hour, the same as most of the cars were going. I mean, he wasn't speeding."
In response to a question about the speed limit, he replied:
"It's I am pretty sure it's 45, or 40. I know it isn't too high. Of course, I don't drive myself.[1] I am not sure, really."
Goad was quite positive that Hilton had been hit by the right front of the Williams car; Mrs. Friedel, by the "left fender"; and Williams said in answer to an interrogatory, by the front of the car.
*288 Maryland Rule 610 a provides:
"In an action, * * * a party against whom a claim is asserted, may at any time make a motion for a summary judgment in his favor as to all or any part of the claim on the ground that there is no genuine dispute as to any material fact and that he is entitled to judgment as a matter of law." (Emphasis supplied.)
In several recent cases, we have had occasion to comment on summary judgment procedure under the Rule. In Lipscomb v. Hess, 255 Md. 109, 118, 257 A.2d 178 (1969), we said:
"The limitations on summary judgment procedure are too well known to require elaboration. It is not a substitute for trial but a hearing to determine whether a trial is necessary, Whitcomb v. Horman, 244 Md. 431, 224 A.2d 120 (1966); Strickler Engineering Corp. v. Seminar, Inc., 210 Md. 93, 122 A.2d 563 (1956), when there is no genuine controversy, Pullman Co. v. Ray, 201 Md. 268, 94 A.2d 266 (1953). The purpose of the hearing is not to determine disputed facts, but to determine whether such issues exist. Horst v. Kraft, 247 Md. 455, 231 A.2d 674 (1967); Carroccio v. Thorpe, 222 Md. 38, 158 A.2d 660 (1960); Tellez v. Canton R.R. Co., 212 Md. 423, 129 A.2d 809 (1957); White v. Friel, 210 Md. 274, 123 A.2d 303 (1956). If facts are susceptible of more than one inference, the inferences must be drawn in the light most favorable to the person against whom the motion is made, Lawless v. Merrick, 227 Md. 65, 175 A.2d 27 (1961), and in the light least favorable to the movant, Howard Cleaners of Baltimore, Inc. v. Perman, 227 Md. 291, 176 A.2d 235 (1961); Roland v. Lloyd E. Mitchell, Inc., 221 Md. 11, 155 A.2d 691 (1959)."
*289 See also, Jordan v. Malloy, 255 Md. 473, 258 A.2d 182 (1969); McDonald v. Burgess, 254 Md. 452, 255 A.2d 299 (1969) and Dudley v. Montgomery Ward & Co., 255 Md. 247, 257 A.2d 437 (1969) where a summary judgment in favor of the plaintiff was reversed and judgment was entered in favor of the defendant by this Court despite the fact that the summary judgment rules had not been complied with by the defendant.
As the case stood when the motion for summary judgment was considered, there was a dispute as to at least four facts:
(i) The speed limit on Frederick Avenue;
(ii) The speed at which the Williams car was travelling;
(iii) The exact place where Hilton was struck;
(iv) What part of the Williams car struck Hilton.
It is quite apparent that the speed limit and the speed of the car were material, so that it is unnecessary to consider the materiality of the other issues. Whether Williams was driving his car at a speed which was excessive under the circumstances, Maryland Code (1957, 1967 Repl. Vol.) Art. 66 1/2 § 211 (a), or exceeding the speed limit, Code, Art. 66 1/2 § 211 (c), were questions to be determined by the trier of facts:
"[T]he violation of a statutory regulation is evidence of negligence, and if such violation causes or contributes to the injuries complained of it constitutes negligence * * *." Ford v. Bradford, 213 Md. 534, 541, 132 A.2d 488 (1957).
To the same effect are Khoyan v. Turner, 255 Md. 144, 147, 257 A.2d 219 (1969); Alston v. Forsythe, 226 Md. 121, 172 A.2d 474 (1961); Reid v. Humphreys, 210 Md. 178, 122 A.2d 756 (1956).
Because the testimony adduced by Williams regarding speed and the speed limit was clearly conflicting, the motion for summary judgment should not have been granted. *290 It is unnecessary to reach the other questions raised by the parties.
Judgment reversed, case remanded for further proceedings, costs to abide the result.
NOTES
[1] On the admissibility of Goad's testimony as to the exact speed of the Williams car, see Fowler v. Smith, 240 Md. 240, 213 A.2d 549 (1965); People's Drug Stores v. Windham, 178 Md. 172, 12 A.2d 532 (1940). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549829/ | 72 F.2d 440 (1934)
SPOKANE INTERNATIONAL RY. CO.
v.
UNITED STATES.
No. 6959.
Circuit Court of Appeals, Ninth Circuit.
August 31, 1934.
*441 Alex M. Winston, of Spokane, Wash., and Ezra R. Whitla, of Coeur d'Alene, Idaho, for appellant.
H. E. Ray, U. S. Atty., and W. H. Langroise, Sam S. Griffin, and Ralph R. Breshears, Asst. U. S. Attys., all of Boise, Idaho.
Before WILBUR, SAWTELLE, and MACK, Circuit Judges.
MACK, Circuit Judge.
This is an appeal by defendant from a judgment for plaintiff for $21,529.65, pursuant to verdict, in an action for damage to the Pend Oreille National Forest by a fire alleged to have been caused by defendant's negligence.
The negligence charged consisted in failing to keep the right of way clear of inflammable material as required by an Idaho statute of 1925 (Laws 1925, c. 150, § 14 [now in Idaho Code Ann. (1932) § 37-117]), in operating coal burning engines without adequate spark arresters, and in permitting the spread of the fire to plaintiff's lands. Plaintiff's evidence was offered under its contention that liability would be established by proof either that the fire started on defendant's right of way in inflammable material which, contrary to the statute, it had allowed to accumulate there, regardless of whether or not defendant actually caused the fire, or by proof that, due to improper spark arresters or negligent operation, it was caused by a spark or cinder from defendant's locomotive, regardless of whether such spark or cinder first ignited material on defendant's property or beyond its right of way.
Defendant moved for nonsuit at the close of the evidence on the ground of its insufficiency to show that the fire had been started by defendant or had originated on its right of way or to sustain any of the allegations of negligence. Assigning the denial of this motion as error, appellant contends that the complaint states two separate causes of action, one based on negligence in the maintenance of the right of way, the other on negligence in the operation of the trains, and that the judgment must be reversed if the evidence on either cause of action is insufficient to have based a verdict thereon. This contention, however, cannot be sustained because defendant in its motion for a nonsuit treated the complaint and properly so as stating a single cause of action based on several distinct grounds of negligence; it did not ask for a nonsuit on each alleged cause of action but on the entire complaint. Cf. Patton v. Wells, 121 F. 337 (C. C. A. 8, 1903). The denial of the motion as made was not erroneous if there was any substantial evidence in support of any one of the charges of negligence.
The evidence tending to prove that the fire was caused by the operation of defendant's railroad consisted of the testimony of several eyewitnesses that, a few minutes after a freight train had passed, they had seen the fire burning on a hillside just above and north of the railway tracks. One of the witnesses testified that he saw the fire about a minute and a half after the train had passed; others that they saw the start of two or three fires which later merged into one. The tracks at this place ran east and west, up a sharp grade near Bloom's Hill, between Bonners Ferry and Eileen; the train, proceeding in an easterly direction from Bonners Ferry, was being pulled by one engine and pushed by another. The wind was blowing briskly from the southwest, and the fire, which is called the Moyie fire, beat rapidly up the hill to the northeast toward plaintiff's lands. There was no affirmative evidence that sparks had been scattered by these engines or indeed by other engines of defendant. Moreover, there was evidence of other fires in the general vicinity at that time, although none were placed close enough to the supposed origin of the Moyie fire to be a likely cause. There was, too, evidence that people sometimes camped in the vicinity but none that campers had been there on the day of this fire.
The evidence from which the jury might infer that defendant's engine caused the fire is considerably stronger than that in General *442 Insurance Co. of America v. Northern Pacific Ry. Co., 280 U.S. 72, 50 S. Ct. 44, 74 L. Ed. 172 (1929). On the record in that case, the Supreme Court, differing on this point from the majority of this court [28 F.(2d) 574, 576], held that the passage of a train with two coal burning engines shortly before a fire was seen burning close to the railway tracks was not sufficient evidence of causation to take the case to the jury. There the fire started in a warehouse fifty feet from the tracks and was not observed by any of the witnesses until about fifteen or twenty minutes after the train had passed. Although there was a steep grade some distance before the warehouse, coming up which other trains of the defendant had been seen to emit sparks at other times, the right of way past the warehouse was level and there was no evidence that this or any train on that level stretch had emitted sparks. In the instant case, however, the fires were seen almost immediately after the train had passed, burning in several places on the hill in the direction from the track in which the wind was blowing. This evidence, taken in connection with the other circumstances disclosed, was sufficient in our judgment to permit the jury to conclude that the fire was set by a spark or cinder from the passing train.
But evidence of causation alone does not suffice; negligence is the basis of the action. Sparks or live cinders are not shown to have been emitted by these or other of defendant's engines at this or at other times; on the contrary, defendant's engineer on this train testified that when the train went through the tunnel not far from where the fire is alleged to have started, he looked back and saw that no sparks were being emitted. The only evidence tending to minimize defendant's proof that efficient spark arresters were used, which on the very day when the fire started had been examined and found to be in good condition, was the testimony of one of its witnesses (properly admitted in view of his earlier testimony) that after the fire additional finer netting was used for a short time. But it was further testified, without contradiction, that this experiment in additional netting was abandoned shortly thereafter because it prevented getting up enough steam. In view of the conclusion that we have reached as to the negligence in another respect, we find it unnecessary to decide whether or not there was substantial evidence of a violation of defendant's duty as to equipment and operation.
We come then to the effect of the Idaho statute which required defendant to keep its right of way "clear and free from all combustible and inflammable material, matter or substances," during the closed season from June 1st to September 1st. This criminal statute established a standard of care, failure in the observance of which would subject defendant to civil liability if such failure caused or contributed to the damage of another. If the fire originated on defendant's right of way in inflammable material, which in violation of the statute had been allowed to accumulate there, it would be immaterial whether a spark from defendant's engine or the act of a third person from without defendant's right of way had caused the fire. Curoe v. Spokane & I. E. R. Co., 32 Idaho, 643, 186 P. 1101, 37 A. L. R. 923 (1920). On the other hand, even though the fire was set by a spark from defendant's engine, if it ignited material lying outside of the right of way, negligence in failing to maintain the right of way in accordance with the statute would be immaterial unless such failure contributed to the spread of the fire.
Defendant's right of way extended one hundred feet on either side of the tracks. As to the condition of the right of way, a deputy fire warden of the state of Idaho testified that he had examined the right of way during the season of and prior to the fire and had found growing, in the place where the fire is alleged to have started, cheat grass six or eight inches high, which he considered to be highly inflammable material. He was supported as to this condition of the right of way in this region by other witnesses. Although the statute should not be construed to impose on defendant a standard of care impossible of fulfillment, there is nothing to show that this cheat grass could not have been removed or prevented, either by burning off the right of way during the closed season under permit as provided by Idaho statute (see Idaho Code Ann. (1932) § 37-116), or by plowing over the right of way. The evidence clearly sufficed to justify a finding of the violation of the statute.
We come then to the question whether or not the fire could be found to have originated in this combustible material on defendant's right of way. The burned over area reached in some places to within four and a half feet of the tracks; there was testimony that a fire in grass on a hillside would not burn downhill against the wind. Three of plaintiff's eyewitnesses, who from distances of at least a mile and a half saw the fire *443 start, testified that it was close to the tracks, but none of them positively located it within one hundred feet of the tracks and thus on the right of way. One of them, who estimated that he was a mile and a half away, said, "From where I was it looked like it started on or right at the road," meaning, as he explained, the tracks themselves. Defendant introduced evidence to show that these witnesses from where they stood could not possibly have seen a fire originating in a gully beyond the railway tracks. This evidence, however, may be disregarded for the present purpose since there was a conflict in the testimony as to whether or not the fire originated in the gully and whether or not the right of way at that point was entirely in a gully. This direct evidence that the fire started on the right of way is strengthened when weighed in the light both of the jury's right, as hereinabove stated, to find that the fire was caused by a spark or live cinder from defendant's engine and of the testimony of defendant's witness that if a spark or cinder escaped through the fine mesh spark arrester used on defendant's engines in the summer season it would not have carried far. In our judgment, there was much more than a scintilla of evidence in support of a finding that the fire started on defendant's right of way.
We conclude that the motion for a nonsuit was properly denied.
Appellant assigns as error certain rulings on evidence. Proof of other fires along the right of way in this and adjoining sections shortly after trains had passed during the summer of 1929 prior to the date of the Moyie fire was properly admitted as a basis for the inference that defendant's engine set the fire and also, if the fires occurred on the right of way, to show the inflammable conditions permitted thereon. See Grand Trunk R. Co. v. Richardson, 91 U.S. 454, 470, 23 L. Ed. 356 (1875); Northern Pac. Ry. Co. v. Mentzer, 214 F. 10, 17 (C. C. A. 9, 1914). Nor was there error in admitting evidence of the condition of the right of way close to but not immediately at the place of the fire. See Northern Pacific Ry. Co. v. Lewis, 51 F. 658, 665 (C. C. A. 9, 1892).
Error is also assigned in the admission and rejection of certain evidence bearing on the damages. The cost of bringing men to fight the fire was a proper element of damages: as to whether they could have been hired in Spokane instead of the more distant Seattle and at what rates, the testimony was conflicting. Plaintiff's testimony that the fire had destroyed a certain number of acres of immature timber was properly admitted and defendant's offer to prove that such timber had no value, properly rejected on the theory that the cost of restoring the land on which the growth had no market value was the correct measure of damage. Feather River Lumber Co. v. United States, 30 F.(2d) 642, 644 (C. C. A. 9, 1929). The charge for slash disposal as an element in the market price of mature timber was proper in the circumstances.
Granting or denying a motion for a new trial is discretionary with the trial court; only an abuse of discretion is assignable as error. Cf. Clyde Mattox v. United States, 146 U.S. 140, 13 S. Ct. 50, 36 L. Ed. 917 (1892). Clearly the assignment has no direct charge of such abuse. In any event, we find no abuse of discretion or even error in denying the motion in so far as it was based on affidavit of jurors that one of them had stated to the others, that he knew of a more efficient arrester than defendant's and that it should have been used. A verdict cannot be thus impeached. McDonald v. Pless, 238 U.S. 264, 35 S. Ct. 783, 59 L. Ed. 1300 (1915); Economon v. Barry-Pate Motor Co., 55 Ohio App. D. C. 143, 3 F.(2d) 84, 86 (1925); Davis v. United States, 47 F.(2d) 1071 (C. C. A. 5, 1931).
Judgment affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549831/ | 72 F.2d 644 (1934)
BLACKHURST
v.
JOHNSON et al.[*]
No. 9936.
Circuit Court of Appeals, Eighth Circuit.
August 6, 1934.
*645 John T. Barker, of Kansas City, Mo. (Charles P. Woodbury, Paul S. Kelly, and Frank Brockus, all of Kansas City, Mo., on the brief), for appellant.
Dean Wood, of Kansas City, Mo. (John H. Lathrop, of Kansas City, Mo., Leo A. McNalley, of Minneapolis, Kan., and Lathrop, Crane, Reynolds, Sawyer & Mersereau, of Kansas City, Mo., on the brief), for appellees Rachael A. Johnson, Dolph C. Simons, and Leo A. McNalley, trustees.
Ernest S. Ellis, of Kansas City, Mo., for appellee Kathoryne Lucille Blackhurst (infant).
Ralph W. Street, Fred B. Mertsheimer, and M. A. O'Donnell, all of Kansas City, Mo., for appellee Jessie C. Simons.
Before STONE and GARDNER, Circuit Judges, and JOYCE, District Judge.
GARDNER, Circuit Judge.
This is a suit in equity brought by the appellant as plaintiff below, to set aside a trust created by her father, Louis A. Simons, on the ground that it violates the rule against perpetuities. The lower court denied the relief sought and from the decree entered this appeal has been taken.
On September 6, 1932, Louis A. Simons executed a trust agreement, conveying the proceeds of certain life insurance policies amounting to $50,000 to three trustees, who are given powers to invest the money in bonds of the United States and other named securities. The trustees are given full power to collect, sell, reinvest, control, and manage, upon such conditions as in their judgment may seem best, all of the property held in trust. It is provided that certain monthly payments shall be made to the former wife of the grantor under a postnuptial agreement. Surplus income is to be added to the principal of the trust funds. If during the lifetime of the appellant, Julia Kathoryne Simons Blackhurst, daughter of the grantor, or any of her issue, some emergency or contingency shall arise which in the judgment of the trustees makes it advisable to pay any portion of the principal of the property to appellant, or any of her issue, the trustees are given full power so to do or to use and apply for their benefit such portion of the principal of the property as in the judgment of the trustees may be necessary in order to meet such emergency or contingency as shall have arisen. The trust instrument then provides that upon the death of the grantor's former wife, if appellant be then living, the trustees shall distribute all of the net income from the property held in trust to appellant during her lifetime, and upon her death the trust estate is still to continue for the benefit of any issue of appellant until the youngest child of appellant shall arrive at the age of thirty years, at which time the trust shall terminate, and the trustees shall then pay and distribute all of the property held in trust unto the issue of appellant per stirpes and not per capita.
If, upon the death of the former wife, appellant is deceased leaving issue, then all of the net income from the property held in trust is to be distributed unto the issue of the daughter per stirpes and not per capita, until the youngest child arrives at the age of thirty years, at which time the trust terminates and the trustees are to pay and distribute all of the property held in trust unto the persons who would have constituted the heirs at law of the grantor under the statute of descent and distribution of the state of Missouri, in like manner as if the grantor had died intestate at the time of the termination of the trust estate, and in the proportions fixed by the statute.
If the daughter of the grantor die before his former wife, then, if the daughter leave issue surviving her, $50 per month shall be paid by the trustees to the issue, or used and applied by the trustees for the education, maintenance, and support of the issue of the *646 daughter during the life of the former wife. If the daughter die without issue, or leave issue who die before the death of the former wife, payments to the former wife are to continue, and surplus income shall be invested and reinvested and added to the principal of the trust estate.
In the event that any income shall become payable to any minor, the trustees shall use and apply such income for the education, maintenance, and support of such minor, or, in the discretion of the trustees, such income may be sent directly to the minor without the appointment of any legal guardian or curator.
The instrument contains the following provision:
"Neither the trust estate nor the income therefrom in the hands of the Trustees shall be subject to conveyance, transfer or assignment, or be pledged as security for any debt by any beneficiary, and the same shall be entirely free from the claims of any creditor or any beneficiary, through legal process or otherwise. It is the intention of the Grantor herein to place the absolute title to the property held in trust, and the income therefrom, in the Trustees, for and during the continuance of the trust created herein, with power and authority to pay out the same only to the beneficiaries personally. Any attempted sale, anticipation, assignment or pledge of any of the funds or property held in trust, or any part thereof, or the income therefrom, shall be null and void and shall not be recognized by the Trustees."
Power of revocation and modification, including power to change the beneficiaries, is reserved in the grantor.
Grantor died January 6, 1933, and left surviving him his former wife, and, as next of kin and sole heirs at law, his daughter, appellant herein, and her infant daughter, Kathoryne Lucille Blackhurst, the said minor having been made a party defendant to the suit by order of the court on motion of all the parties, a guardian ad litem being appointed for her.
The substantial question presented by the record is whether or not the trust agreement is void under the rule against perpetuities. The particular part of the agreement which sharply presents this issue is that which provides that upon the death of the former wife, if the daughter be alive, all of the net income shall be distributed to her, and in case of her death all of the income shall be held in trust and distributed to her issue per stirpes "until the youngest child of said Julia Kathoryne Simons Blackhurst (appellant) shall have arrived at the age of thirty years, at which time said trust shall terminate, and the trustees shall pay and distribute all of the property held in trust unto the issue of said Julia Kathoryne Simons Blackhurst per stirpes and not per capita," and in case of the death of the former wife and the appellant, without appellant leaving issue, the trust shall terminate and the property be distributed to the heirs at law of the grantor under the statute of descent and distribution of the state of Missouri. The validity of this agreement must be determined by the laws of Missouri. Becker v. Anchor Realty & Investment Co. (C. C. A. 8) 71 F.(2d) 355; Turner v. California Co. (C. C. A. 5) 54 F.(2d) 552.
Under controlling decisions of the Supreme Court of Missouri, it is held that no interest is good unless it must vest, if at all, not later than twenty-one years and ten months after the termination of a life or lives in being at the time of the creation of the interest. Loud v. St. Louis Union Trust Co., 298 Mo. 148, 249 S.W. 629; Schee v. Boone, 295 Mo. 212, 243 S.W. 882. This rule is stated as being "equally applicable to both legal and equitable interests or estates." Whether the interest be considered as created at the date of the instrument or at the death of the grantor, the following situation is or was possible: The former wife, after grantor's death, might die; the daughter (appellant) might give birth to a child ten years after grantor's death; appellant might later die and her now living child might die when the second supposed child was one year old, in which event the trust would have to continue until the later-born child reached thirty years of age, and clearly unless there was a vesting at least at the death of the grantor of the equitable estate, by the terms of the instrument it is void because there would be no vesting within the period limited and defined by the rule against perpetuities. Loud v. St. Louis Union Trust Co., 298 Mo. 148, 249 S.W. 629, 635. Of course, a vested interest is not subject to the rule. Schee v. Boone, 295 Mo. 212, 243 S.W. 882. The vested or contingent character of the remainder is to be determined not by the uncertainty of enjoyment of the possession, but by the uncertainty of the vesting of the estate in the grantee. To avoid the rule against perpetuities, the interest or estate must vest, if at all, within the limitation prescribed beyond a possibility and not a probability, and it is not sufficient that it may vest within the prescribed time. Loud v. St. Louis Union Trust Co., supra. Neither is it sufficient that *647 it be capable of taking effect within the prescribed period. It must be so phrased as ex necessitate to take effect, if at all, within that time. Shepperd v. Fisher, 206 Mo. 208, 103 S.W. 989.
The general rule is that a devise or a bequest to a class, if no time for vesting is fixed, will take effect at the death of the testator, but where the will or trust instrument, either by express words or by necessary implication, fixes a different time, and the whole class is not then completed, the devise or remainder will vest in those then existing who will hold it subject to be opened so as to let in after-born persons who shall belong to the class fixed by the will or trust instrument for its final completion. Such limitations over are contingent remainders or executory devises, as the case may be. Buckner v. Buckner, 255 Mo. 371, 164 S.W. 513.
There is a possibility of the birth of a child to appellant as long as she remains alive, and irrespective of her age. Flora v. Anderson (C. C.) 67 F. 182; Quigley's Trustee v. Quigley, 161 Ky. 85, 170 S.W. 523; May v. Bank of Hardinsburg & Tr. Co., 150 Ky. 136, 150 S.W. 12, 48 L. R. A. (N. S.) 865. In determining whether an estate or interest may possibly vest beyond the expiration of the period specified by the rule against perpetuities, women are considered capable of having issue so long as they live.
If the trust estate does not vest in the grandchildren of the grantor until the youngest arrives at thirty years of age, there is a possibility that all persons alive when the trust took effect might have been dead more than twenty-one years and ten months when the youngest grandchild arrives at thirty years. Hence, if that is the time of the vesting, the rule is violated. If, on the other hand, the remainder in the beneficial interest in the trust estate vests in the living grandchild as representative of her class, opening to let in after-born grandchildren until the class closed at the death of the daughter (appellant), the rule is not violated, and, hence, it is necessary to determine the time of vesting.
It is true the law favors the vesting of estates, and, in the absence of words expressing a clear intention to the contrary, the estate will be construed as vested rather than contingent, and, if consistent with the intention of the grantor, will be construed to vest at the earliest possible time. Deacon v. St. Louis Union Tr. Co., 271 Mo. 669, 197 S.W. 261. A direction to pay, to transfer, to divide, and partition, imports a gift in the absence of an inconsistent condition and it is not material that the money is not to be paid or property divided until some future date. A construction will be adopted, if reasonably possible, that the estate had not been subjected to a condition, particularly a condition precedent. Deacon v. St. Louis Union Tr. Co., supra. The same rule prevails as to interest in personalty as interest in realty.
When the estate has vested, and thus avoided the objection of perpetuities, depends upon the intention of the grantor as manifested by the trust instrument. We are of the view that the grantor here has used language inconsistent with the vesting of any interest in this trust property in the grandchildren. The instrument provides that it is the intention of the grantor to place the absolute title to the trust property and the income therefrom in the trustees for and during the continuance of the trust, with power and authority to pay out the same only to the beneficiaries personally. Any attempted sale, anticipation, assignment, or pledge of any of the funds or property held in trust, or any part thereof, or the income therefrom, shall be null and void and shall not be recognized by the trustees. A grantor under the law of Missouri may prescribe that the interest shall not vest, and such direction must be respected. In Loud v. St. Louis Union Trust Co., supra, the instrument before the court provided that:
"And no right or title to said income or other provision for any such beneficiary shall vest in him or her until the same shall have been actually paid into his or her hands."
As in the instant case, a spendthrift trust was created. Concerning this quoted provision, the court said:
"To foreclose all doubt upon that subject she (testatrix) clinched the matter by adding that their right and title to the property should not vest in any of them until the same had actually been placed into their hands. This shows that it was not her purpose in using that language to fix the time when they could enjoy the property, but the time when the title thereto should vest in them, and thereby withhold their power of alienation, and exempt it from seizure and sale under execution in satisfaction of their debts or other obligations."
It is observed that in the instant case the trust instrument provides for disposition of the income by the trustees with a provision that they may during the lifetime of the daughter, or any of her issue, make payments of any portion of the corpus to them, *648 or may apply such corpus for their benefit if in the sound discretion of the trustees an emergency or contingency shall arise, making such payment advisable; otherwise, the corpus remains intact until the termination of the trust. Even if we were not bound to follow the decisions of the state of Missouri, it would seem that the provisions of the trust instrument in the instant case so clearly express the intention of the grantor that no right in the corpus, legal or equitable, vests in the beneficiaries during the life of the trust as to compel that conclusion. The instrument emphatically denies the beneficiaries all right or power to transfer, assign, or pledge any part of the property, or the income therefrom, and declares that the same shall be free from the claims of creditors of the beneficiaries.
This view is supported by the decisions of the Supreme Court of Missouri in construing very similar instruments. Krause v. Jeannette Investment Co. (Mo. Sup.) 62 S.W. (2d) 890; Mockbee v. Grooms, 300 Mo. 446, 254 S.W. 170; Loud v. St. Louis Union Trust Co., 298 Mo. 148, 249 S.W. 629.
This court in the recent case of Becker, Collector, v. Anchor Realty & Investment Co. (C. C. A. 8) 71 F.(2d) 355, 357, had before it a very similar trust provision. In passing on the matter we said:
"The Supreme Court of Missouri has repeatedly held that the beneficiaries under a trust such as the one here involved acquired no vested interest in the property upon the death of the testator, but took only a contingent remainder until there was an actual distribution of the trust property."
In the instant case, the title was vested in the trustees and remained so vested until the distribution of the trust property. The trust agreement is therefore violative of the rule against perpetuities, and for that reason is void.
The court allowed $7,500 as attorney fees for legal services rendered for the trustees in this cause, and appellant complains of this allowance as being unwarranted. $832.22 was also allowed them for expenses; $750 was allowed as attorney fees for Jessie C. Simons, former wife of deceased, and $100 was allowed for the service of the guardian ad litem for the minor, Kathoryne Lucille Blackhurst, all payable out of the corpus of the estate. There is no basis for the allowance of an attorney fee for the former wife of the grantor of the trust, who was a beneficiary thereunder. It is true, it was to her interest to sustain the trust, but that interest was attacked because she was a beneficiary. When the trust was attacked she might defend or not, as she deemed best, but there is no reason why her attorney's fee should be paid out of the trust estate. This allowance should be denied. The trustees are not beneficiaries under the trust, but are the chosen agencies to administer the trust. It was their duty to defend its existence and validity. They have no personal interest in the matter but are acting solely in their capacity as trustees. They should be compensated for necessary expenses and for reasonable attorney fees.
The amount of the attorney fees allowed the trustees is vigorously contested. The amount involved in this trust is $50,000. There are no disputed questions of fact, and the issues are dependent upon questions of law arising from the undisputed facts. In determining the question of the reasonableness of the attorney fees, many elements are entitled to consideration the character, ability, and experience of the attorneys, the amount involved, the time necessary to prepare for trial, the difficulties and intricacies of the propositions involved, and the results obtained, as well as other elements. The trustees were represented in the lower court by Lee C. Hull and Leo A. McNalley, the latter being also one of the trustees. There is no doubt of the standing and ability of these attorneys, and where the character and extent of the services rendered is not fairly reflected by the record, the appellate court should hesitate to disturb an allowance made by the trial court. We have held, however, that all federal courts have become more or less experts as to the value of the services of attorneys, and that neither the trial judge nor the appellate court is bound by the opinion of experts as to attorney fees. A judge of a trial or appellate court is himself an expert as to what are reasonable attorney fees. It is the duty of the appellate courts to protect trust estates from "vicarious generosity" in the matter of attorney fees. In re Gilbert, 276 U.S. 294, 48 S. Ct. 309, 310, 72 L. Ed. 580; Federal Oil Marketing Corp. v. Cravens (C. C. A. 8) 46 F.(2d) 938; Merchants' & Manufacturers' Securities Co. v. Johnson (C. C. A. 8) 69 F.(2d) 940.
The lower court apparently accepted the statement of the trustees with reference to the reasonableness of these fees, and one of the trustees was one of the attorneys. He, at least in making this application for the allowance of these fees for their attorneys, was acting in a dual capacity. We again reiterate what is said by the Supreme Court in Re Gilbert, supra:
*649 "We were desirous of making it clear by our action that the judges of the courts, in fixing allowances for services to court officers, should be most careful, and that vicarious generosity in such a matter could receive no countenance."
After all, the trust was created for and is to be administered in the interest of the ultimate beneficiaries. "The rights of those who ultimately pay must be carefully protected." Newton v. Consolidated Gas Co., 259 U.S. 101, 42 S. Ct. 438, 439, 66 L. Ed. 844. One of the judicial abuses which subjects our courts to much just criticism is the tendency to absorb property which comes into the control of a court, by making allowances for attorney fees and other expenses pending the litigation payable out of the trust fund.
We have carefully studied the entire record and cannot escape the conclusion that the fees allowed the attorneys for the trustees are excessive as charges against this trust estate, and we conclude that a reasonable fee for the services rendered by attorneys for the trustees, both in the lower court and in this court, is the sum of $3,500.
The guardian ad litem for the infant grandchild, as appellee in this court, has filed a brief raising the point that the trust instrument was testamentary in character, and not being executed in accordance with the laws relating to wills is void. She has, however, not appealed, and questions decided adversely to a party who has not appealed will not be considered on appeal. Appellees can be heard only in support of the decree which was rendered. Merchants' & Manufacturers' Securities Co. v. Johnson (C. C. A. 8) 69 F.(2d) 940; Jones Store Co. v. Dean (C. C. A. 8) 56 F.(2d) 110; Guardian Savings & Trust Co. v. Dillard (C. C. A. 8) 15 F.(2d) 996; O'Neil v. Wolcott Mining Co. (C. C. A. 8) 174 F. 527, 27 L. R. A. (N. S.) 200; Peoria, etc., Ry. Co. v. United States, 263 U.S. 528, 44 S. Ct. 194, 68 L. Ed. 427. Neither is there any assignment of error raising this point. In view of our conclusion, however, the question is unimportant.
The decree appealed from is therefore reversed and the cause remanded with directions to set aside the decree as entered, and to enter decree in lieu thereof annulling the trust and directing the payment of any corpus in the hands of the trustees to the executrix, denying the application for allowance of attorney fees for the former wife of Simons, allowing fees to the guardian ad litem in the amount of $100, allowing expenses incurred by attorneys for the trustees in the amount of $832.22, and allowing fees to the attorneys for the trustees in the sum of $3,500, and for such other proceedings as may be necessary to comply with the views expressed in this opinion.
NOTES
[*] Rehearing denied Oct. 17, 1934. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549856/ | 258 Md. 468 (1970)
265 A.2d 871
BABCOCK & WILCOX, INC., ET AL.
v.
STEINER
[No. 378, September Term, 1969.]
Court of Appeals of Maryland.
Decided June 8, 1970.
The cause was argued before HAMMOND, C.J., and BARNES, FINAN, SMITH and DIGGES, JJ.
John F. Ward, with whom were Henry E. Weil and Shapiro & Weil on the brief, for appellants.
Martin E. Gerel, with whom were Ashcraft & Gerel on the brief, for appellee.
FINAN, J., delivered the opinion of the Court.
In this appeal we are asked to determine whether the lower court erred in affirming an order of the Workmen's Compensation Commission (Commission), whereby the claimant (appellee) was found to be totally permanently disabled from the occupational disease of asbestosis and was awarded a sum not to exceed $30,000, as provided by the Workmen's Compensation Act (Act), Maryland Code (1964 Repl. Vol.) Art. 101, §§ 24 and 36. It is the contention of the employer and insurer (appellants) that the claimant had only a partial disability and pursuant to § 24(b) of the Act, should have received a lump sum final payment of $1000.
Since the findings of facts by the Commission in occupational disease cases are final and when supported by legally sufficient evidence are not subject to appellate review, we will recite the facts upon which the Commission predicated its decision.[1]
*470 The claimant was 64 years of age at the time of the hearing before the Commission on March 28, 1967. He had been employed as an asbestos worker for approximately 36 years. He learned of his respiratory condition in late July or early August of 1964 while working for Babcock & Wilcox, Inc. (the employer and one of the appellants) at Chalk Point, Maryland. During the 10 year period from 1955-1965 he was exposed to asbestos dust about 98% of his working time and for the ten year period of July 1954 to July 1964, he was employed for at least two years in Maryland. He worked for Babcock & Wilcox, Inc., (the employer in this appeal) from January 3, 1964, until August 24, 1964, except for a three week period when he was treated for an ulcer. He was exposed to asbestos dust during the course of this employment. When he left the employer he notified the foreman on the job that he was leaving on account of his health. His physician had advised him to abandon his trade; however, he decided to return for another try and worked for General Insulation Company from September 24, 1964 to October 28, 1964 (five weeks) during which time he was also exposed to asbestos dust. However, General Insulation transferred him to another job on which he worked from October 28, 1964 to December 29, 1964, and from the evidence it may be deduced that he was not exposed to asbestos dust after this transfer. He was thereafter employed in Maryland by Parker-Fallis from January 4, 1965 to March 15, 1965 and from August, 1965 to June of 1966. In this employment he was not exposed to asbestos dust. He worked again in November of 1966 for 4 1/2 days for Parker-Fallis. On November 29, 1966, he went to work for Porter-Hayden Company in Baltimore and worked there until March 22, 1967. On this job he was not exposed to asbestos dust. He was not working, a week later, at the time of the hearing before the Medical Board on March 28, 1967. At the hearing *471 before the Medical Board it was stipulated by the attorneys representing all parties that the claimant had asbestosis and was permanently and totally disabled from working at his occupation or in any industry involving danger from dust inhalation.
At the hearing before the Medical Board, as well as at the hearing before the Commission, the main issue was the question of who was the responsible employer under the Act. Both the Medical Board and the Commission found that Babcock & Wilcox, Inc., was the responsible employer. This same issue as to the responsible employer was raised before the circuit court. The appellants also raised questions bearing on the giving of notice by the claimant and the evidence of any causal connection between his exposure to asbestos dust while in the employ of Babcock & Wilcox and the pulmonary dust disease he contracted. The issue was also raised concerning total permanent disability having been incurred while in the employ of Babcock & Wilcox. The circuit court confirmed the Commission's findings in favor of the claimant on all of the issues and disposed of the issue concerning total permanent disability on the basis that the physicians testifying for the claimant, as well as the insurance carrier, found that the claimant had sustained a total permanent disability from asbestosis.
The record further reveals that although the attorneys for the parties qualified the total permanent disability of the claimant to work in his occupation, the medical testimony which we will later recite, and which was uncontroverted, goes much further.
The testimony of Dr. Irving Selikoff of the Mount Sinai School of Medicine, New York City, who was called as the claimants' witness and whose testimony was uncontradicted stated:
"A. * * * I think this man is disabled totally for this employment without any questions * * *
* * *
*472 Q. (Dr. Frenkil) Dr. Selikoff, do you think this man could do something else?
A. I think he could be a watchman, anything that would not involve any difficulty with pulmonary function, and secondly to avoid respiratory infection. * * * He should not be employed in any business that would involve exposure to elements or require him to have any significant pulmonary reserve. If he could get a job as cashier in a restaurant I think he could sit there, take change."
While it is true that the finding of facts by the Commission in occupational disease cases are final, yet, they must have legally sufficient evidence to support them. See cases cited in General Electric v. Cannella, 249 Md. 122, at 132 and cases cited in footnote 1 of this opinion. In the instant case the appellants would claim that the facts showing that the claimant worked in his own and other occupations, without loss in earning capacity, after the date of total permanent disability is incontrovertible proof that the finding of the Commission on the issue of the extent of the disability was without evidence to support it. If the medical testimony as to the total permanent disability of the claimant had been controverted, then there might be validity to the appellants' contention. However, this testimony was not contradicted.
We do not believe that the appellants can now successfully argue that because the claimant continued working at other jobs he sustained only a partial disability. We think the stipulation as to total permanent disability from working in his occupation, coupled with the broader disability established by the medical testimony, takes the case out of the line of decisions represented by Cannella, supra, and Bethlehem Steel Co. v. Carter, 224 Md. 19, 165 A.2d 902 (1960).[2]
*473 Cannella is readily distinguishable in that the Commission in that case made a finding of fact that the claimant was only 40% disabled from silicosis (and 60% from normal aging); therefore, without more, it was inevitable that the $1000 award provision of § 24(b) should apply. In Carter, the Commission found that the claimant could continue to work in his own occupation so long as "certain precautionary measures" were taken. This was done and he continued to work in his occupation.
In the case before us there is no doubt in our mind that the medical testimony shows that for all practical purposes the claimant is unemployable in any industry. He has spent 36 years of his life in the building trades industry, and specifically as an asbestos worker. The testifying physician, who had eminent qualifications, stated that he could be a "watchman" or "if he could get a job as cashier in a restaurant I think he could sit there, take change." Elsewhere in his testimony Dr. Selikoff testified:
"Q. Didn't you tell Mr. Gerel [counsel] that he would be foolish to go to work next week?
A. Yes, he is disabled, couldn't breathe.
Q. He is breathing today. Let's assume he went to work next week able to do a day's work?
A. I don't think he should, I don't think he could do it without any difficulty."
Professor Larson has an excellent discussion of the meaning of "total disability" in 2 Workmen's Compensation Law, § 57.51:
"`Total disability' in compensation law is not to be interpreted literally as utter and abject helplessness. Evidence that claimant has been able to earn occasional wages or perform certain kinds of gainful work does not necessarily rule out a finding of total disability nor require that it be reduced to partial. The task is to phrase a rule delimiting the amount and character *474 of work a man can be able to do without forfeiting his totally disabled status. The rule followed by most modern courts has been well summarized by Justice Matson of the Minnesota Supreme Court in the following language:
`An employee who is so injured that he can perform no services other than those which are so limited in quality, dependability, or quantity that a reasonably stable market for them does not exist, may well be classified as totally disabled.'" (Lee v. Minneapolis St. Ry., 230 Minn. 315, 41 N.W.2d 433, 436 (1950).
See also Kline, Inc. v. Grosh, 245 Md. 236, 246, 226 A.2d 147 (1965), and Petrone v. Moffat Coal Co., 427 Pa. 5, 233 A.2d 891, 893-984 (1967).
We are confronted here with a record which shows that the date of the occurrence of the disease was on or about August 24, 1964, and that the claimant worked a total of 80 weeks during the ensuing 138 weeks prior to his ceasing work on March 22, 1967. We think this might well be fatal to the claimant's case were we not dealing with the peculiar type of disease with which he is afflicted, namely, asbestosis. First of all, the determination that the occurrence of the disease took place on or about August 24, 1964, and that he was totally disabled as of that date, was not established until the date of the medical hearing on March 28, 1967.
It must be borne in mind that asbestosis, like other pulmonary dust diseases, is insidious in its onset. It can be well advanced before a claimant is aware that it has taken up dread habitation in his chest. The victim may, from a clinical standpoint, be totally and permanently disabled but through sheer drive of will power and habit continue for some time at his job. We think this is what has occurred in this case. At one point in his testimony Dr. Selikoff stated: "I am sure he can do a day's work next week but he would be crazy to do it." The claimant himself described his last days of work in this context:
*475 "Q. Do you intend to keep working?
A. I don't. I can't go back. I just can't make it any more. Just can't make it, just can't do it.
Q. How were you able to work up until last week?
A. I forced myself. * * *
Q. Mr. Steiner, what is the situation as far as coughing is concerned?
A. I cough continuously."
* * *
"Q. (counsel) The pain you indicated earlier you had in your chest, what is the condition of that * * * state of that pain at the present time?
A. It comes and goes, hits for a few seconds, little sharp pains, but right now I have kind of a slight general pain all the way through, feels like it is all the way around, like I have got a belt on around me right under my arm pits, like a belt six inches wide clamped up around me which took my breath, gives it a dull aching feeling."
We think that the situation presented by this case is analogous to that of Peabody Coal Company v. Taulbee, 294 S.W.2d 925 (Ky. 1956). In Taulbee, the claimant was a coal miner, 55 years of age, who had contracted silicosis after working in the coal mines for 30 years. In the instant case Steiner was 64 years of age when he contracted asbestosis and had been working 36 years in the industry. In Taulbee, the claimant also continued to work for the same employer, in the same occupation, after medical examinations determined that he was totally permanently disabled. The Court of Appeals of Kentucky in affirming the finding of the Workmen's Compensation Commission stated:
"In the case at bar, the Board evidently considered the medical evidence sufficiently convincing *476 to justify its conclusion that the claimant should not be working at hard labor at all and that there was no reasonably stable market for his services despite the fact that he continued to work rather steadily for the appellant. We believe that such a decision comes clearly within the powers of the Board to make that it is an aspect of the Board's fact-finding power, and that this Court should not say as a matter of law that a man who is actually working cannot be totally disabled within the meaning of the Workmen's Compensation Law when a competent medical specialist says the man is totally disabled from a medical standpoint and definitely should not be working. The claimant's efforts to supply his financial needs in this absence of the prompt payment of compensation benefits should not be permitted to transmute the finding of fact of the Board into a question of law for this Court." 294 S.W.2d at 926.
In the instant case the Commission in its findings stated: "It has been stipulated by the claimant's attorney and the attorneys for the insurer and employer that the claimant does have asbestosis and is permanently and totally disabled." There is no qualification on this finding. It is true that the stipulation did restrict the total permanent disability to that of disability from performing work in the claimant's occupation; however, the Commission also had before it the medical testimony of Dr. Selikoff, which, as we have already stated, extended the disability to all work, except that of a sedentary nature. On the record before us, in this case, we are not called upon to decide what might have been the result, in light of § 24(b), had the employee been totally permanently disabled from working in his last occupation alone, but had been able to work in other occupations nor do we here decide that issue.[3]
*477 Viewing the record as a whole, we think there was evidence to support the finding of the Commission and that it would be most inappropriate for this Court to modify it. See Mutual Chemical Co. v. Thurston, 222 Md. 86, 94-95, 158 A.2d 899 (1960), and Article 101, § 29. We affirm the order of the lower court sustaining the award of the Commission.
Order affirmed, appellants to pay costs.
NOTES
[1] General Electric v. Cannella, 249 Md. 122, 132, 238 A.2d 891 (1968); Martin Marietta v. Leius, 237 Md. 217, 220, 205 A.2d 792 (1965); Mutual Chemical Co. v. Thurston, 222 Md. 86, 94-95, 158 A.2d 899 (1960); Duncan v. McNitt Coal Co., 212 Md. 386, 395, 129 A.2d 523 (1957).
[2] These cases are cited by the appellants as authority for their contention, along with Belschner v. Anchor Post, 227 Md. 89, 175 A.2d 419 (1961); but Belschiner, although being an occupational disease case, is not a pulmonary dust disease case coming under § 24(b).
[3] Cf. Gower v. Davis Coal and Coke Co., 197 Md. 52, 78 A.2d 195 (1950), decided prior to the repeal and re-enactment of § 24(b) in 1951. For legislative history of § 24(b), see Big Savage Refractories v. Geary, 209 Md. 362, 121 A.2d 212 (1956) and Bethlehem Steel Co. v. Carter, 224 Md. 19, 26, 165 A.2d 902 (1960). It should also be noted that by Chapter 141 of the Acts of 1967, § 24(b) has again been repealed and re-enacted whereby a realistic apportionment may now be made based on the percentage of disability attributable to silicosis, asbestosis or pulmonary dust disease. However, this amendment was passed too late for application to the case at bar. In other words under 24(b) as presently enacted, the Draconian decision need no longer be made whereby the claimant either receives the full award of $30,000, if he be totally permanently disabled, or only $1000, if he be partially disabled. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549884/ | 256 B.R. 441 (2000)
In re David LESONIK, Debtor.
Gary V. Skiba, Trustee, Plaintiff,
v.
David Lee Lesonik; Shera D Lesonik, Now By Marriage, Shera D. Mcqueen; United States of America, Internal Revenue Service; Hamot Medical Center of the City of Erie, Pennsylvania, Defendants.
Gary V. Skiba, Trustee, Movant,
v.
David Lee Lesonik, Respondent.
No. 98-12281. Adversary No. 99-1073.
United States Bankruptcy Court, W.D. Pennsylvania.
March 2, 2000.
*442 David Lee Lesonik, Erie, PA, pro se.
Donna P. Leone, IRS District Counsel, Pittsburgh, PA, for creditor.
MEMORANDUM
WARREN W. BENTZ, Bankruptcy Judge.
The within bankruptcy was filed by David Lee Lesonik on December 24, 1998. Debtor filed without an attorney. He apparently had help from John Lovin, a Petition Preparer, who performed his services for no compensation (according to the DISCLOSURE OF COMPENSATION OF BANKRUPTCY PETITION PREPARER).[1]
David Lee Lesonik had been married to Shera D. Lesonik; they were divorced January 23, 1998. Shera remarried and is now known as Shera D. McQueen.
At Adversary No. 99-1073, the Trustee sought permission to sell real estate at 306-308 West Second Street, Erie, Pennsylvania, to a proposed buyer for $40,000; that premises was owned by David Lee Lesonik and Shera D. Lesonik; when those parties divorced on January 23, 1998, they became tenants in common of the subject property. A hearing on the Trustee's Complaint was held on August 23, 1999, and the private sale requested by the Trustee was confirmed, divesting the interests of David Lee Lesonik and Shera D. Lesonik; the lien of Hamot Medical Center against both David and Shera in the amount of $2,436.72, plus costs, was divested and transferred to the proceeds; so also the liens of the Internal Revenue Service, which were subsequent to the Hamot Medical Center judgment lien, and which were against David only, totaling some $115,000, were divested and transferred to that portion of the proceeds to which David would have been entitled.
It appears that the Internal Revenue Service has not filed a proof of claim, but since its lien was divested by order of court, it awaits an order of distribution of the sale proceeds in its favor, at least to the extent that David would be entitled to such proceeds after payment of the Hamot Medical Center lien.
1. Debtor's Objection to the IRS Lien.
The Debtor has filed an objection to the Internal Revenue Service ("IRS") claim. Apparently, the Debtor has not filed tax returns and the IRS has undertaken to estimate his taxes. After notice and hearing, the Debtor failed to produce any evidence as to what his tax liability ought to be. Debtor, instead, argues in a somewhat scattered fashion, that he does not owe the IRS any money. The Debtor's position seems to boil down to two fundamental objections.
*443 First, the Debtor argues that under a proper interpretation of the Internal Revenue Code, he is not a "person liable," nor is he a "taxpayer," nor is he "liable," nor is he "subject" to a liability for taxes. It seems remarkably clear, however, that the Internal Revenue Code, Title 26 U.S.C.A. § 1 imposes an income tax on all individuals subject to the laws of the United States: "There is hereby imposed on the taxable income of every individual . . .," substantially tracking the language of Amendment XVI of the United States Constitution. It then goes on to define taxable income and method of computation of the tax. There is no room for argument as to the applicability of the Internal Revenue Code. Its language clearly imposes tax liability upon all of us.
The second major thrust of the Debtor's argument relates to the fundamental relationship between the Debtor and the government. He argues that there is a difference between a "citizen individual" who is a "taxpayer" and a "person liable," on the one hand, and on the other hand, a "citizen" who is a "natural sovereign individual," or a "freeman." He asserts that a "taxpayer" citizen can have his rights invaded or be made subject to governmental regulation but a person who is a "natural sovereign individual" is not subject to governmental laws that he is a person "superior to government;" that he retains his "god-given inalienable rights" as guaranteed by the Constitution. Debtor does not cite any particular portion of the Constitution in support of his position.
We think it inescapable that individual human beings residing within the United States are subject to the laws of the United States, including the tax laws. Debtor cannot, by calling himself a "natural sovereign individual," or a "freeman," escape the obligations that each of us bears as a citizen of these United States.
Since the Debtor offered no factual information in dispute of the IRS claim secured by its lien, the claim underlying the lien must be sustained. Thus, the IRS will have a lien on all of the share of the real estate proceeds to which David Lesonik would be entitled.[2]
2. The Lien Claim of Hamot Medical Center.
The lien claim of Hamot Medical Center, predating the IRS lien, must be paid in full out of the joint net proceeds of the sale of the real estate, prior to costs, and prior to the IRS liens.
3. The Claim of Shera D. Lesonik/McQueen.
Shera D. Lesonik/McQueen seems to contend that she is entitled to her one-half of the proceeds of sale of 306-308 West Second Street, Erie, PA, after costs and payment of the Hamot Medical Center lien. She has never appeared in Court, although she has been notified of various hearings. It appears that David and Shera had arranged to sell the subject real estate to K-D Rentals, LLC, and a closing was to occur December 16 or 17, 1998. The closing was aborted when the federal tax liens became known, and then the within bankruptcy was filed by David.
*444 Shera resided in Youngsville, Pennsylvania. The closing attorney, Norman A. Stark, Esq. ("Stark"), sent Mr. and Mrs. McQueen a letter dated December 9, 1998 (Exhibit 1) enclosing the unexecuted deed and asking that they execute it before a notary and return it promptly. The letter also stated:
It is also our understanding that there was a verbal agreement in which you waived any monetary rights to any proceeds from the sale of this property. If this is your understanding, please sign this letter and return it to us. If this is not correct, please state what the correct agreement is and if there is any document supporting your position. If one exists, please send us a copy.
Shera D. McQueen and Henry L. McQueen executed the deed, signed the letter and returned both to Stark. Prior to sending the letter, Stark had learned Shera's desire to waive her right to her share of the proceeds; he then telephoned and verified that such was her desire; he then drafted and sent the letter.
The Trustee now asserts that by the letter of December 9, 1998, Shera Lesonik/McQueen intended to and did give up her interest in the real estate. Shera, however, in an undated, notarized communication to the Trustee, filed with the Court August 5, 1999, explains that she was only giving permission for her ex-husband, David Lesonik, to pick up "my one-half share of the proceeds of the sale of our property at 306-308 West Second Street, Erie." The implication is that David would transmit the proceeds to her, although the communication does not so state specifically. At a subsequent hearing on the above matters held January 12, 2000, David Lesonik requested further time to submit additional briefs, which was granted, and subsequently, there was filed with the Court on January 24, 2000, a notarized acknowledgement of a communication from Shera dated January 21, 2000, saying that the Trustee "mistakenly took (the letter of December 9, 1998) to say that I was giving up my right to any of the proceeds from the sale of our property. My intention was only to relieve that law firm from any liability for allowing my ex-husband to pick up my share." Again, the implication of the communication is that the money belongs to her, although the note does not say so. She asks that she have her day in Court to tell "my side of the story in defense of our property." Shera was given notice of the prior hearings and notice of the evidentiary hearing specially scheduled on January 12, 2000 to hear any evidence which any party might like to offer. She has not attended any of the hearings.
The testimony of David Lesonik in support of the hearsay writings of his ex-wife is hardly believable. He would have us believe that Shera would mail the executed deed to Stark, thus relying on Stark to disburse all of the sale proceeds, yet not trust Stark to mail to her her one-half share.
Moreover, David was not going to appear at the closing scheduled in December, 1998. David was in Georgia, and had given a "power of attorney" to one Russell Atkins to attend the closing and collect the proceeds. Thus, Shera gave David the right to pick up her money, and David purportedly gave the right to Russell Atkins, presumably without Shera's knowledge or consent.
It seems to the Court that if the sale transaction scheduled in December, 1998 had been consummated, that the closing attorneys would have been protected by Shera's written authorization if they paid all the net proceeds over to David. However, once that closing aborted, it may be difficult to say that the signed waiver of the right to proceeds of that certain sale is the same as a signature on a deed transferring all ownership to David. However, we cannot accept the hearsay statements purportedly written and signed by Shera to constitute any evidence of ownership, and if she declines to enter an appearance in Court, or step forward to offer testimony, *445 then it will be extraordinarily difficult to rule in her favor.
4. Trustee's Objections to Exemptions.
The Trustee's objections to the exemptions claimed by the Debtor may be moot, since all property of the estate may be subject to the IRS statutory lien, and therefore, it may be that nothing will be available for Debtor's exemptions. Determination of the Trustee's objections will therefore be deferred to a later date.
NOTES
[1] John Lovin, purported to have been acting as a Petition Preparer here, has been found by this Court in other cases to have been practicing law and ordered to cease and desist.
[2] The sequence of events and the probable reasoning provide a plausible explanation of David's actions, even though the story is irrelevant to the disposition of the matters before us: The IRS had filed notices of liens against David (but not against Shera). David knew that the notices were not liens on the residence because it was owned by David and Shera as tenants by the entireties. David therefore understood that he could sell his residence free of the IRS claim and keep the proceeds without paying the IRS anything. As the contemplated closing on the sale of the residence approached in December, 1998, David learned that upon the entry of his divorce decree on January 23, 1998, he and Shera became tenants in common, and the IRS notices had ripened into liens against David's one-half undivided interest. The contemplated closing was aborted. David then, with the help of John Lovin (a tax preparer of proven incompetence), filed the within bankruptcy, futilely seeking this Court's help in circumventing the IRS lien. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549881/ | 256 B.R. 330 (2000)
In re Arthur P. STRASNICK, Debtor.
Michael E. Moecker of Michael Moecker & Associates, Inc., As Assignee of Little Angel Foods, Inc., Plaintiff,
v.
Arthur P. Strasnick, Defendant.
Bankruptcy No. 99-6955-3F7. Adversary No. 99-399.
United States Bankruptcy Court, M.D. Florida, Jacksonville Division.
November 8, 2000.
*331 *332 Richard R. Thames, Stutsman & Thames, P.A., Jacksonville, FL, for Plaintiff.
Robert Altman, Palatka, FL, for Defendant.
Charles W. Grant, Jacksonville, FL, Chapter 7 Trustee.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
JERRY A. FUNK, Bankruptcy Judge.
This Proceeding is before the Court on the Complaint Seeking Denial of Discharge and Exception to Discharge filed on December 15, 1999 by Michael E. Moecker of Moecker & Associates ("Plaintiff"), assignee of the assets of Little Angel Foods, Inc., ("Little Angel") a defunct Daytona, Florida bakery, pursuant to Florida Statutes § 727.101 et seq. On January 24, 2000, Arthur P. Strasnick ("Defendant"), former vice president and chief operating officer of Little Angel, answered the Complaint and demanded attorney's fees. On August 22, 2000 a trial was conducted. Based on the evidence presented at trial and upon the subsequent arguments and submissions of counsel, the Court denies Defendant's discharge pursuant to 11 U.S.C. § 727(a)(2).
FINDINGS OF FACT
In early 1997, Little Angel obtained a $630,000 loan from the Commercial Bank of Volusia County to finance plans for the expansion of its burgeoning bakery business. Little Angel simultaneously entered into an equipment lease agreement with Orix Credit Alliance, Inc. ("Orix"). The lease agreement required a $500,000 down payment to the equipment dealer.
The angels stopped smiling on the bakery soon thereafter. The equipment dealer absconded with the $500,000. Little Angel had to cough up another $500,000 for the equipment. Meanwhile, Little Angel's theft and conversion suit against the equipment dealer stalled.
Soon thereafter Little Angel found its pocket picked clean once more. A secretary allegedly embezzled about $62,000.00 from the bakery, which was quickly running short on dough. The corporation never recovered any of the allegedly lifted loot.
In August, 1997, Little Angel lost its largest client, Publix Supermarkets ("Publix"). According to Debtor, Publix accounted for 60% of Little Angel's income.
Plaintiff contends that Little Angel became insolvent by September, 1997, as a direct result of the loss of the Publix account. Debtor testified that Little Angel had almost completely recovered one year after losing the Publix account, and that Little Angel did not become hopelessly insolvent until February of 1999.
Defendant admitted that the officers of Little Angel consulted with a corporate bankruptcy attorney, David Otero, six to eight months after losing the Publix account.
In July 1998, Little Angel executed a $75,000.00 promissory note in favor of Defendant. (Def.'s Ex. 1).
In December, 1998, one of many unpaid Little Angel creditors obtained a writ of garnishment and levied upon Little Angel's accounts at South Trust Bank.
In February, 1999, Defendant filed a UCC-1 Filing Statement (Pl.'s Ex. 56) recording a security interest in all of Little Angel's assets pursuant to the February, *333 1998 promissory note. Polzella and O'Meara undertook similar steps in order to establish priority for their insider debts.
On March 2, 1999, Debtor formed a new corporation, Sunshine Bakeries, L.L.C. ("Sunshine Bakeries") as part of Otero's suggested bankruptcy preparation plan. Sunshine Bakeries never operated as a business and never opened a bank account.
On May 14, 1999, Defendant filed a Financial Affidavit in his then-pending divorce from ex-wife Gisele Strasnick. Defendant swore in the Affidavit that he owned jewelry with a value of $25,000.00. Defendant valued his other personal property at $75,000.00. Defendant testified that the jewelry and personal property was owned jointly with his wife and that she took possession of the valuables after the divorce. However, Defendant admitted in a deposition that he had been separated from his ex-wife for seven or eight years prior to the divorce and that there were no joint, marital assets at the time of the divorce.
On May 21, 1999, the Commercial Bank of Volusia County called in the $630,000.00 note on Little Angel's new facility. Little Angel's cookie had finally crumbled, and it ceased operations that day.
On May 25, 1999, after a six-month search for a buyer, a holding company, Little Angel Acquisition, Inc., L.L.C., finally purchased Little Angel's assets and began operating as Carmine's Bakery.
Defendant, Polzella and O'Meara then began to dole out the crumbs.
Little Angel transferred some $281,187.82 into the accounts of Backstreet Associates, Inc., a dummy corporation owned by Defendant that existed only as a bank account holder, between May 26, 1999 and June 14, 1999. Defendant testified that he baked up Backstreet as an internet consulting company. Backstreet never operated as a business. Defendant testified that the money was pumped into the dormant Backstreet accounts because Little Angel's principals feared future levies on cash in Little Angel's accounts.
Defendant admitted that he, Polzella and O'Meara intended to disburse Little Angel's remaining cash to preferred creditors.
Most of the pie, about $231,696.28, went to settle the claims of Little Angel's trade creditors and to pay Otero's fees.
On June 17, 1999, Defendant, Polzella and O'Meara gave themselves a piece. Little Angel wrote checks to the partners totaling $50,000.00 from the Backstreet accounts. Defendant received a check from Little Angel for $35,000.00. (Pl's Ex. 46.) Polzella received a $12,000.00 check and O'Meara received $8,000.00. (Pl's Ex. 47, 48.)
Defendant testified that the money was owed him and his partners for back pay.[1] Little Angel owed Defendant about $8,000.00 for corporate purchases made on his personal credit card. Defendant filed a claim for $68,000.00 against Little Angel in the Assignment for the Benefit of Creditors. (Pl.'s Ex. 49).
The payments to trade creditors and the insiders left little more than $1,000.00 in the Backstreet accounts as of July 6, 1999, when Little Angel's few remaining assets, essentially the proceeds of the asset sale, were assigned to Plaintiff.
Defendant testified that $15,000.00 of the Little Angel check went to his then-girlfriend Jane Strasnick (nee Schwartz) ("Schwartz") to pay off a past loan, for which Defendant did not provide any documentation. Defendant made a $10,000.00 advance lease payment on Schwartz' car. Defendant made $4,000.00 in home repairs. Finally, Defendant gave $5,000.00 to his daughter, Michelle Enos ("Enos").
*334 Soon thereafter Defendant liquidated $6,900.00 in mutual funds. Defendant testified that he paid some of the money to bills and used some to pay down his second mortgage.
On July 6, 1999, Little Angel filed a petition for an Assignment for the Benefit of Creditors in the Circuit Court in and for Volusia County, Florida. (Pl's Ex. 2). Pursuant to FLA. STAT. § 727, the state of Florida appointed Plaintiff to oversee the Assignment.
The cash and receivables flowing into Backstreet were excluded from the Assignment by agreement with Commercial Bank of Volusia County. Defendant testified that he regularly consulted with Plaintiff about the disposition of the cash and receivables. There was only a pittance left after Defendant and his partners went about settling with trade creditors and paying themselves during May and June.
Defendant admitted that Little Angel did not declare bankruptcy at least partially because some of the payments from Little Angel to Backstreet and then to him and the other shareholders may have been preferential and avoidable in bankruptcy.
Defendant also testified that Otero advised him that a bankruptcy would be considerably more expensive than an assignment for the benefit of creditors.
On September 9, 1999, Defendant filed a voluntary Chapter 7 petition in this Court, Case No. 99-06955-BKC-3F7.
In Defendant's Statement of Financial Affairs (Pl's Ex. 1), he listed as personal property $75.00 worth of jewelry and $4,500.00 worth of office furniture.
Defendant did not mention his interest in Sunshine Bakeries in his schedules. Sunshine Bakeries never opened its doors or any bank accounts.
Defendant's Schedule F (Pl.'s Ex. 1) indicated that he owed a total of $2,041,223.66 to unsecured, nonpriority creditors. Defendant indicated in his Schedule H that Polzella, O'Meara and Little Angel were co-debtors on $1,981,223.66, or 94.7%, of his total unsecured, priority indebtedness.[2] Only $107,497.44, *335 or 5.3%, of Defendant's total declared indebtedness was not owed to Little Angel creditors.
Little Angel was not listed as one of Defendant's creditors. Neither Little Angel nor Plaintiff filed a claim against Defendant's estate.
On January 19, 2000, the Chapter 7 Trustee in Defendant's case, Charles W. Grant ("Grant"), filed an adversary Complaint, No. 00-24, seeking to avoid Defendant's $5,000.00 gift to daughter Michelle Enos as a fraudulent transfer. Grant simultaneously filed another adversary Complaint, No. 00-25, seeking to recover Defendant's $15,000.00 payment to Jane Strasnick as a preference.
Both adversaries were dismissed by the Court on account of Grant's failure to timely file for default. (Adv. 00-24, Doc. 7; Adv. 00-25, Doc. 7.)
CONTENTIONS OF THE PARTIES
Plaintiff contends that Defendant should be denied discharge pursuant to 11 U.S.C. § 727(a)(2), which provides for denial of discharge for a debtor who improperly transferred property of his estate within a year before filing a bankruptcy petition with the intent to hinder, delay or defraud creditors. Plaintiff further asserts that Defendant's debt to Little Angel should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(4), which provides for the exception from discharge of debts incurred for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.
Defendant counters that Plaintiff has no standing to object to his discharge because Plaintiff is not a creditor of Defendant. Defendant further argues that he owes no debt to Little Angel, and therefore such nonexistent debt may not be excepted from discharge. Defendant finally asserts that any transfers of estate property were not improper or made with the intent to hinder, delay or defraud creditors, and that Defendant did not stand as a fiduciary of Plaintiff.
CONCLUSIONS OF LAW
I. OBJECTION TO DISCHARGE UNDER § 727(a)(2)(A).
A. Standing to object to discharge under § 727(c)(1).
Defendant argues that Plaintiff does not have the statutory standing to object to Defendant's discharge under § 727(c)(1), which provides that only a creditor, trustee, or the U.S. Trustee may object to discharge under § 727. See 11 U.S.C. § 727(c)(1) (2000). The Code defines a creditor as "an entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor." 11 U.S.C. § 101(10)(A) (2000). A claim is defined as "a right to payment, whether or not such right is reduced to judgment." 11 U.S.C. § 101(5)(A) (2000).
*336 The Eleventh Circuit has not addressed the issue of whether or not an assignee of a corporation's assets may object to the discharge of the assignor's officer on § 727(a)(2) grounds where the assignee has not claimed or asserted any particular debt directly against the officer.
Plaintiff correctly points out that courts have stretched the definition of "creditor" to those representing true creditors under color of statute, and to those with statutory power to pursue actions to collect on behalf of true "creditors."
A Chapter 7 trustee in a third party's bankruptcy case may object to the discharge of a debtor in a separate case if the third party trustee has some claim against the debtor, such as a preference or avoidance claim. See Solomon v. Barman (In re Barman), 244 B.R. 896, 899 (Bankr. E.D.Mich.2000). The court in Barman was faced with an objection to discharge filed by the Chapter 7 trustee in the debtor's parents' bankruptcy case. See id. at 899. The court found that the third-party trustee could bring suit because the third-party trustee had a possible preference claim against the children's bankruptcy estate. See id. at 899. The court noted that such a trustee was not truly a third party because the parent's bankruptcy estate had some particular, direct claim against the debtor that might be affected by discharge of the debtor. See id. The Barman court found that a Chapter 7 trustee, standing in the place of a party with a particular, direct claim, has standing as a "creditor" object to the discharge of any party from whom that claim may be collected. See id.
Additionally, an entity that has been given authority by statute to collect on a particular, direct claim against a debtor has standing to bring an adversary proceeding seeking exception to discharge pursuant to 11 U.S.C. § 523(a). See Fezler v. Davis (In re Davis), 194 F.3d 570 (5th Cir.1999). In Davis, the administratrix of the probate estate of a person shot dead by a debtor sued to have any claim arising from a future wrongful death suit against the debtor excepted from discharge. See id. at 571. The court concluded that the administratrix had standing to seek exception to discharge. See id. at 578. The court reached this conclusion by extending the holding of Nathanson v. National Labor Relations Board, 344 U.S. 25, 73 S. Ct. 80, 97 L. Ed. 23 (1952) to administratrices appointed under a wrongful death statute. The court found that Nathanson stood for the principle that an entity with the statutory authority to bring suit in its own name or for the ultimate benefit of others has standing to seek an exception to discharge if the parties represented had a particular, direct claim against the debtor. See Davis, 194 F.3d at 575. The court found that failure to grant such entities standing might unduly hinder a state's ability to implement and enforce the law that created the statutory authority or entity seeking to attack discharge. See id.
The Court finds that the rationale in Davis applies to § 727 objection standing as well as § 523 exceptions standing. The Nathanson principal functions in both contexts; refusal to allow a statutory representative to object to discharge could also unduly hinder a state's ability to implement its laws regarding suits brought by representatives.
The Court finds that both Barman and Davis operate to extend the meaning of "creditor" in § 727(c)(1) to include Plaintiff. First, Plaintiff is an entity assigned the duty of enforcing a particular, direct statutory claim through collection activities. Plaintiff, an assignee for the benefit of Little Angel's creditors, is charged by Florida Statutes § 727.108 with collecting the assets of the estate for distribution to creditors. This task includes the pursuit of contribution from co-debtors of the estate. Defendant admits in his Schedule H that he is a co-debtor of the estate on almost $2,000,000.00 worth of Little Angel's debts.
*337 Additionally, Plaintiff represents Little Angel's creditors, who may have suits against Defendant for the money he preferentially paid out of Little Angel and perhaps suits under personal guarantees or partnership liability. Those common creditors have particular, direct claims against Defendant. It would be inequitable to bar the statutory representative of those creditors from objecting to Defendant's discharge.
Such a result would also impede the goals of the Florida legislature in enacting § 727.108. An unscrupulous corporate director could cripple the Assignment process by carefully carving up a company before tossing scraps to creditors and then avoiding personal obligations on corporate debts by hiding behind personal bankruptcy.
The Court's conclusion is confirmed by a commonsense interpretation of the close and interwoven relationship between Plaintiff, Defendant, Little Angel, and Little Angel's creditors. Defendant is in bankruptcy because of Little Angel's debts, not because of his own. Defendant owes almost 95% of the debt to be discharged to creditors of Little Angel. It makes sense that Plaintiff may act against discharge on behalf of those common creditors against Defendant.
Therefore, Plaintiff has standing and the Court may proceed to decide whether or not Defendant's discharge should be denied on § 727(a)(2) grounds.
B. The § 727(a)(2)(A) standard for denial of discharge and application to the instant case.
Section 727 provides in relevant part that:
The court shall grant the debtor a discharge, unless
(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 . . .
11 U.S.C. § 727(a) (West 2000).
1. Objection to discharge in general.
The Bankruptcy Code favors discharge of the honest debtor's debts and provisions denying this discharge to a debtor are generally construed liberally in favor of the debtor and strictly against the creditor. See Cohen v. McElroy (In re McElroy), 229 B.R. 483, 487 (Bankr. M.D.Fla.1998). However, there are limitations on the right to a bankruptcy discharge.
Federal Rule of Bankruptcy Procedure 4005 provides that the initial burden of proof on an objection to discharge lies with the plaintiff. FED. R. BANKR. P. 4005. Plaintiff bears the initial burden of proving, by a preponderance of the evidence, that Debtor's discharge should be denied. See Grogan v. Garner, 498 U.S. 279, 285-91, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991); see also Hawley v. Cement Indus., Inc. (In re Hawley), 51 F.3d 246, 249 (11th Cir.1995); Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 619 (11th Cir.1984); Manhattan Leasing Sys., Inc. v. Goblick (In re Goblick), 93 B.R. 771, 775 (Bankr. M.D.Fla.1988). However, once Plaintiff meets the initial burden, Debtor has the ultimate burden of persuasion. See id. Debtor must show by a preponderance of the evidence that he is entitled to a discharge. See Clark v. Wilbur (In re Wilbur), 211 B.R. 98, 101 (Bankr.M.D.Fla. 1997).
2. Denial of discharge under § 727(a)(2)(A).
Under § 727(a)(2)(A), the objecting party must prove by a preponderance of the evidence that: (1) a transfer occurred; (2) the transfer was of debtor's property; (3) the transfer was within one *338 year of the petition, and (4) the transfer was done with the intent to hinder, delay, or defraud a creditor or the trustee. See Williamson Const., Inc. v. Ross (In re Ross), 217 B.R. 319, 323 (Bankr.M.D.Fla. 1998) (citations omitted). In order to find fraudulent intent, the Court can consider circumstantial evidence or can infer it from the debtor's action. See Ingersoll v. Kriseman (In re Ingersoll), 124 B.R. 116, 121 (M.D.Fla.1991). "Badges of Fraud" are strong indicators of fraudulent intent. See id. These "Badges of Fraud" include: (1) lack of adequate consideration for the property transferred; (2) a family or close relationship between the parties; (3) retention of possession for use and benefit; (4) financial condition of the transferor before and after the transfer; (5) cumulative effect of the transactions and course of conduct after onset of financial difficulties or threat of suit; and (6) general chronology and timing of events. See id. at 121-22. "Extrinsic evidence of fraud, for purposes of defeating discharge, can be comprised of conduct intentionally designed to materially mislead or deceive creditors about a debtor's position; conveyances for less than fair value; or continued retention, benefit, or use of property allegedly conveyed together with evidence that conveyed was for inadequate consideration." Siegel v. Weldon (In re Weldon), 184 B.R. 710, 713 (Bankr.D.S.C.1995) (citing Panuska v. Johnson (In re Johnson), 880 F.2d 78, 82 (8th Cir.1989)).
3. Application to the instant case.
The Court notes that in most § 727(a)(2)(A) cases the outcome hinges on permissible inferences of intent from a debtor's behavior. The Court finds it useful to examine the bounds of permissible inference as explored in a recent decision before proceeding on to direct application of the § 727(a)(2)(A) standards and factors.
a. Precedential guidance
The Court finds specific guidance in its decision in Shappell's, Inc. v. Perry (In re Perry), 252 B.R. 541 (Bankr.M.D.Fla. 2000). In Perry, debtor shuffled money, equipment and insurance among several family-owned shell corporations with little concern for the vagaries of accounting. See id. at 545. Debtor failed to provide documentation supporting his explanations of various transfers and withdrawals. See id. Debtor admitted that he had cleaned out the accounts of one of his corporations in order to prevent creditors from levying on its assets and on his own. See id. The Court found that debtor had preferentially paid some of the business creditors in order to keep the business afloat. See id. at 548. Debtor admitted that some of the information on his schedules was inaccurate. See id. at 545. The Court noted that debtor explained away all of his mysterious transfers as "loans," but that debtor could not produce any evidence of these loans or any receipts proving satisfaction of such loans. See id. at 546. Debtor supplied the Court with little more than some "vague recollection" of his financial condition in the months before the petition date. See id. The Court found that debtor could be denied discharge on § 727(a)(2)(A) grounds. See id. at 547. The Court found that the debtor's "jockeying funds between family-run business entities to avoid such funds being levied by his creditors" constituted sufficient evidence to infer an intent to hinder, delay or defraud creditors. See id. at 547. The Court also found that the involvement of his family supplied a powerful "badge of fraud" from which to infer such intent. See id. at 548.
The Court in Perry inferred intent to defraud from a course of conduct followed almost to the letter by Defendant. It is as if Defendant used the Perry factual findings as a business plan. Defendant in the instant case went further afield than the debtor in Perry, however. Defendant proceeded to transfer money not only from Little Angel to Backstreet but then to himself and then one step further to his *339 then-girlfriend and daughter. Defendant exhibited the same elusive, vague demeanor in his testimony that the debtor in Perry displayed. Defendant similarly offered no reliable documentary evidence supporting his claim that the payment to Schwartz, then his girlfriend and now his wife, was in repayment for a loan, or that the advance lease payments were in satisfaction of some past debt. All Defendant had to back him up was a two-year-old promissory note evidencing a $75,000.00 debt to Defendant that Defendant, as Little Angel's president, probably drafted himself. Defendant most likely also drafted the UCC-1 financing statement granting him a security interest in all of Little Angel's assets at a point where the bakery was hopelessly insolvent.
b. Conclusion: The preponderance of the evidence establishes that Defendant transferred property within one year of filing his petition with the intent to hinder, delay or defraud creditors.
1. "Transferred property."
The Debtor clearly transferred property of the estate within one year of filing his Chapter 7 petition. Defendant transferred $10,000.00 in advance lease payments on Schwartz' car. Defendant transferred $15,000.00 to Schwarz. Defendant gave $5,000.00 to Enos. Defendant converted $4,000.00 in cash from the liquidation of his non-exempt mutual funds into exempt property by spending it on home repairs.
Defendant caused Little Angel to transfer almost $300,000.00 to Backstreet and then again to preferred creditors, including $35,000.00 to himself and $15,000.00 to his partners. Though this property did not directly belong to debtor, it did effect the 95% of Defendant's scheduled unsecured debt that stems from a particular, direct claim against Little Angel. Little Angel's property therefore should be considered property "of the debtor" for purposes of establishing transfers, since Defendant's and Little Angel's property constituted a common pool from which repayment was available to common creditors.
2. "Within one year of filing his petition."
It is undisputed that all of the relevant transfers took place between September 9, 1998 and September 9, 1999, the petition date.
3. "With the intent to hinder, delay, or defraud creditors."
The Court finds that the evidence presented by Plaintiff supports an inference that Defendant went about the transfers from Little Angel to Backstreet and then to preferred creditors, himself, and on to Schwartz and Enos with the intent to hinder, delay, and defraud creditors. The Court will address this chain of fraudulent transactions one link at a time.
First, Defendant conceded that cash and receivables were transferred from Little Angel's accounts into Backstreet's in order to hinder creditors seeking to levy on the accounts.
Second, Defendant also admitted that the payments from the Backstreet accounts to certain creditors were preferential. Defendant stated that the avoidability of such transfers in bankruptcy at least partially motivated Little Angel's choice to petition for an Assignment for the Benefit of Creditors. Defendant himself received $35,000.00 and a recorded lien on all of Little Angel's assets as a preferred, insider creditor.
Third, the circumstances of the transfers between Defendant and Schwartz and between Defendant and Enos give rise to an inference of fraudulent intent. The Court finds several badges of fraud present. First, Defendant provided no documentation to support his assertion that the $10,000.00 lease payment and the $15,000.00 cash payment to Schwartz were on account of an antecedent debt. Defendant *340 admitted that the $5,000.00 to Enos was a gift. Therefore, neither transfer was supported by adequate consideration. Second, Defendant had a close family tie with Schwartz, whom he later married, and Enos, his daughter. Third, since Defendant and Schwartz are married and presumably share some moneys and property, it is likely that Defendant has retained possession of the leased car and the cash to some extent. Fourth, the transfers occurred while Defendant was insolvent. By June 1999 Defendant had no income and, according to his testimony, had sunk deep in debt from trying to prop up Little Angel in its last days. Defendant filed for bankruptcy about three months after the transfers.
The Court further finds that the conversion of nonexempt mutual funds into exempt homestead equity lends more force to the Court's conclusion that Defendant undertook these transfers with the specific intent to hinder, delay and defraud his creditors and Little Angel's creditors.
The Court finds that Plaintiff carried its initial burden of bringing forward enough evidence to support an inference that Defendant made transfers with the intent to defraud creditors.
The Court further finds that Defendant failed to bring forward sufficient, credible evidence to rebut Plaintiff's prima facie case for denial of discharge. Defendant's testimony was elusive and inconsistent. Defendant failed to produce sufficient documentation for the "loans" whose existence he posed as a defense. Defendant failed to provide alternative, non-fraudulent inferences of intent arising from the evidence.
Therefore, Defendant will be denied his entire discharge pursuant to § 727(a)(2)(A).
II. EXCEPTION FROM DISCHARGE UNDER § 523(a)(4).
The Court finds it unnecessary to determine whether or not Defendant's debt to Plaintiff should be excepted from discharge as a debt incurred for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny. The Court denies discharge entirely. It would be illogical to except some particular debt from a nonexistent discharge.
Nevertheless, the Court elects to comment on the unique issues arising in the § 523(a) context due to Plaintiff's inability to assert a particular, direct claim against Defendant. The Court finds that, in the § 523(a) context, representative standing a lá Barman and Davis is insufficient. Absent some particular, direct claim between a party seeking exception from discharge and a debtor, what is there to be excepted from discharge?
The only method this court sees to establish some particular, direct debt between a third party creditor representative and a fiduciary of a debtor corporation is the trust fund theory. Under this theory, the fiduciaries of a corporation (officers, directors, shareholders) hold the assets of a corporation in trust for a corporation's creditors. See Ploetner-Christian v. Miceli (In re Miceli), 237 B.R. 510, 515 (Bankr.M.D.Fla.1999). If a fiduciary mismanages or loots the company, the fiduciary has committed a breach of trust and is liable to the corporation's creditors collectively. See id. Creditors of corporations have attempted to fit this breach of trust debt into the § 523(a)(4) exception from discharge for fraud in a fiduciary capacity with mixed results. See id. (finding that, under Florida law, a corporate fiduciary relationship is insufficient for § 523(a)(4) purposes); but see Miramar Resources, Inc. v. Shultz (In re Shultz), 208 B.R. 723 (Bankr.M.D.Fla.1997) (finding that, under Delaware Trust Fund Doctrine, debtor was liable to creditors for defalcation in a fiduciary capacity for § 523(a)(4) purposes). The § 523(a)(4) exception requires a determination as to whether or not a corporate fiduciary holds the assets of a corporation in a "technical trust" for creditors under state law. See Shultz at 728. The Court finds that the answer to that *341 question must be derived by a careful analysis of exactly what qualifies as a "technical trust" under the controlling state law.
The Court therefore leaves the issue of exception from discharge under a corporate fiduciary-trustee theory to any state court before which the parties may bring the issue in the future.
CONCLUSION
First, the Court finds that Plaintiff has standing to object to Defendant's discharge as a statutory representative of the creditors of Defendant's defunct partnership because of statutory representative claims against Defendant and because the represented creditors hold the vast majority of Defendant's debt to be discharged. Second, the Court denies Defendant discharge for making transfers of estate property within one year of filing for bankruptcy with the intent to defraud creditors pursuant to § 727(a)(2)(A). Finally, the Court finds it unnecessary to address the § 523(a)(4) fiduciary fraud exception to discharge brought by Plaintiff in light of the Court's global denial of discharge.
NOTES
[1] Defendant testified that he had not been paid for five or six months out of the final three years of Little Angel's existence.
[2] A comparison of Little Angel's Assignment for the Benefit of Creditors' Claims Register and Defendant's Schedule F leads the Court to conclude that the vast majority of Defendant's debts stem from personal guarantees or partnership liabilities on Little Angel debts. The types of vendors involved and the close amounts owed support this conclusion.
Debt listed on
Creditor Debt Owed by Little Angel Schedule F
American Express Optima $30,000.00 (no claim filed) $31,000.00
Associated Leasing $36,000.00 (no claim filed) $24,782.83
Best Brands $84,741.22 claim filed $66,000.00
Bombardier $66,172.50 claim filed $51,000.00
CCM Electric $16,299.32 claim filed $17,000.00
Colonial Pacific $24,401.14 claim filed $25,000.00
Conti Leasing $57,106.00 (no claim filed) $57,106.00
Dawn Foods $71,000.00 (no claim filed) Notice only
Forrest Financial $53,000 debt, $33,426.46 claim filed $53,000.00
Friendship Dairy $27,988.00 claim filed $29,000.00
Granite Financial $103,000.00 (no claim filed) $70,000.00
Green Tree Vendor Services $25,000.00 (no claim filed) $38,000.00
Icon Funding $65,949.57 debt, $55,799.28 claim filed $65,949.57
Imperial Business Credit $108,379.65 (no claim filed) $20,000.00
Jameson Transport $69,691.70 claim filed $56,000.00
Phelps Engineering $50,000.00 (no claim filed) $60,000.00
Kraft Foods $86,676.86 claim filed $86,000.00
Network Leasing $4,300.00 debt, $7,194.25 claim filed $4,500.00
Newcourt Financial $173,422.53 (no claim filed) $173,422.53
Orix $364,916.43 debt, $388,211.27 claim filed $364,916.43
Progressive Leasing $10,653.68 (no claim filed) $10,553.68
RYA Monarch $281.877.78 debt, $284,937.28 claim filed $284,937.28
Raskas Foods $66,136.00 debt, $62,136.00 claim filed $68,000.00
The debt listed in Little Angel's claims register is the debt as estimated by Little Angel; some creditors did not file claims on these estimated debts or filed claims of differing amounts, most likely because of the futility of any collection efforts or because of settlements with Little Angel. Debtors' Schedule H indicates that Polzella, O'Meara and Little Angel are co-debtors on all of the above-listed debts except for the Newcourt Financial and Dawn Foods accounts. The Court presumes that these are most likely clerical omissions, as the nature of these creditors indicates that they are likely Little Angel vendors. Additionally, the amount of the Newcourt claim as stated by Little Angel and the amount admitted to by Defendant are identical. Further, C.I.T. Group, Dolphin Financial, Copelco, Leaseworld and Melvin Fields are not on the Register but are on Schedule F and are listed as Little Angel co-debts by Defendant in Schedule H. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549886/ | 32 F.2d 141 (1929)
AMERICAN SALES CORPORATION
v.
UNITED STATES.
No. 5498.
Circuit Court of Appeals, Fifth Circuit.
April 19, 1929.
T. W. Gregory, of Houston, Tex., and Jas. W. Wayman, of Galveston, Tex., for appellant.
H. M. Holden, U. S. Atty., and Howell Ward, Asst. U. S. Atty., both of Houston, Tex.
Before WALKER, BRYAN, and FOSTER, Circuit Judges.
WALKER, Circuit Judge.
This is an appeal from a judgment disposing of two cases which were tried together, a jury being waived. One of the cases was an action by the appellee, the United States, to recover amounts alleged to be due under five contracts between appellee and appellant, for the sale by the former to the latter of described wagons. The claim asserted in that suit was resisted on the ground that the original contracts sued on, which fixed the price of the wagons at $55.25 each, were changed, after the terms thereof had been partially complied with and when there had been no breach of the contracts, by reducing the price of the undelivered wagons to $30.25 each, and otherwise altering provisions of the contracts, and that appellant complied with the contracts as so changed. The other suit was an action by the appellant against the appellee to recover an amount paid by appellant for wagons contracted for, but which were not delivered. For a further statement of the nature of the cases and of the facts disclosed by the evidence, reference is made to the opinion rendered by the District Judge. United States v. American Sales Corporation (D. C.) 27 F.(2d) 389. Appellant complains of the action of the court in deciding that the rights and obligations of the parties were governed by the original contracts sued on, because the official who acted for the government in making those contracts and also in signing the instruments purporting to evidence changes of provisions thereof was without power or authority to bind the government by consenting to those changes.
The Act of July 11, 1919 (41 Stat. 104, 105 [5 USCA § 211]), provides that the Secretary of War "is hereby, authorized to sell any surplus supplies * * * now owned by and in the possession of the Government for the use of the War Department to * * * any corporation or individual upon such terms as may be deemed best." It was the power so conferred which was undertaken to be exercised in the making of the original contracts. We think the power conferred includes the power to find a purchaser or one willing to buy supplies referred to, to agree on the price to be paid, to accept part of that price, and to obligate the government, by a contract or agreement *142 binding on it and the party dealt with, to transfer possession of and title to the subject of the contract upon the payment of the balance of the agreed price. The Secretary of War would lack the power to sell "upon such terms as may be deemed best," if he could not provide for a sale being upon such terms that the government would retain the title to, and possession of, the subject dealt with until the agreed price is paid in full. The power conferred does not remain unexercised or subject to be re-exercised so long as any provision of the contract to sell remains unexecuted or executory. We think the language of the provision in question negatives the conclusion that the action of the Secretary of War in disposing of supplies falls short of being a complete exercise of the power conferred as a result of that action being, not a present sale, but a contract to sell under which part of the agreed price is paid when the contract is entered into. A result of the making of the original contracts and partial compliance with the terms thereof was that the government acquired the right to receive from the appellant the unpaid balance of the agreed price. The official who acted for the government in entering into those contracts had only such powers as were specifically granted, and the government was not bound by his acts not within the scope of the authority conferred on him. Anthony v. County of Jasper, 101 U.S. 693, 698, 25 L. Ed. 1005; The Floyd Acceptances, 7 Wall. 666, 19 L. Ed. 169; Finn v. United States, 123 U.S. 227, 8 S. Ct. 82, 31 L. Ed. 128. The extent of that official's powers was to sell the supplies mentioned upon such terms as may be deemed best. Authority to make the original contracts does not imply authority to cancel them or to relinquish rights thereby acquired. Flowers v. Bush & Witherspoon Co. (C. C. A.) 254 F. 519. We are of opinion that the power conferred did not include the power to release the appellant from its obligation to the government to pay the balance of the price stipulated in the original contracts.
Individuals as well as courts must take notice of the extent of the authority conferred by law upon a person acting in an official capacity. Hawkins v. United States, 96 U.S. 689, 24 L. Ed. 607. The official who acted for the government in making the original contracts being without authority to release rights vested in the government by those contracts, the government was not bound by his action purporting to have the effect of reducing the price of the wagons from $55.25 each to $30.25 each. We conclude that the ruling complained of was not erroneous.
The judgment is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549903/ | 32 F.2d 37 (1929)
KALES
v.
WOODWORTH, Collector.
No. 5105.
Circuit Court of Appeals, Sixth Circuit.
April 5, 1929.
Hal H. Smith and Archibald Broomfield, both of Detroit, Mich. (Beaumont, Smith & Harris, of Detroit, Mich., on the brief), for plaintiff in error.
J. R. Wheeler, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., John R. Watkins, U. S. Atty., and C. Frederick Stanton, Asst. U. S. Atty., both of Detroit, Mich., on the brief), for defendant in error.
Before MOORMAN, HICKENLOOPER, and KNAPPEN, Circuit Judges.
MOORMAN, Circuit Judge.
No objections or exceptions were taken in the court below to the findings of fact, and the case before us presents only questions of law upon the facts found. It involves income taxes for the years 1917 and 1919. The facts relating to the two assessments are somewhat alike. Those pertinent to the earlier assessment will appear from the discussion of the later one.
On July 31 of 1916 appellant was the owner of 525 shares of the capital stock of the Ford Motor Company. That company had a surplus at that time of $111,960,907.53. Of this surplus $52,550,771.92 was in cash. For a number of years theretofore the company had paid annually substantial extra dividends, in addition to a regular dividend. For the year 1916 its board of directors, contemplating the construction of an additional *38 plant with this surplus, declared only the regular dividend. Thereupon John F. and Horace E. Dodge, who were large stockholders in the company, filed a bill of complaint against the company and its directors in the circuit court of Wayne county, Michigan, praying, among other things, that the directors be ordered to distribute among the stockholders, as dividends, 50 per cent. of the cash surplus on hand on July 31, 1916. On December 18, 1916, a preliminary injunction was issued restraining the defendants from using this accumulated surplus for the establishment of an additional plant, or from incurring obligations or liabilities which might require its use except in the ordinary course of business. On December 5, 1917, a final decree was entered in the circuit court, ordering the directors of the company to declare a dividend in an amount equal to one-half of the cash surplus on hand on July 31, 1916, less a special dividend of approximately $7,000,000 which had been paid on January 17, 1917. The injunction was made permanent as to the construction of the additional plant. An appeal was taken from this decree, and on July 10, 1919, it was reversed by the Supreme Court of Michigan in every particular, except as to the payment of the dividend, with respect to which it was affirmed. Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668, 3 A. L. R. 413.
Pursuant to this holding the board of directors, on the same date, declared a dividend as of December 5, 1917, of $19,275,385.90, with interest at 5 per cent. per annum, to be paid out of accumulated cash surplus on hand August 1, 1916. This is referred to in the record as the Dodge dividend. Appellant received as her portion thereof $505,978.88, with interest amounting to $40,339.69. Thereafter, on March 25, 1920, she filed an amended income tax return for the year 1917, in which she returned this dividend as a part of that year's income. She paid an additional 1917 tax thereon of $48,601.84. The amount of interest which she received she returned as 1919 income. The Commissioner of Internal Revenue held that this dividend was income for the year 1919, and assessed an additional tax thereon against her for that year. This was paid by the appellant and is the first item involved in this suit.
On or about January 18, 1917, appellant received her pro rata share of the special dividend of $7,000,000 which the Ford Motor Company declared on that date, the amount being $52,500.00. This she included in her income tax return for the calendar year 1917, computing the tax thereon, however, at 1916 rates. The Commissioner of Internal Revenue allocated approximately 68 per cent. of this income to the year 1917, applying the tax rate of that year to it, and assessed against her an additional tax for that year of about $10,000. This amount she paid under protest, and it is the other item involved in this litigation.
The court below held against plaintiff on both of her claims. We proceed first to consider the assessment for 1919. It is admitted that plaintiff kept her accounts and made her returns upon a basis of actual receipts and disbursements, and it is not contended that the Ford Motor Company did not earn sufficient profits from the beginning of the taxing year 1919 up to July 10, 1919, to pay the Dodge dividend. The contention in the court below was that this dividend was income to the stockholders for the year 1916. On this appeal appellant states that she is content to treat it as income for the year 1917. Her contention now is that the effect of the order of the Wayne circuit court of December 5, 1917, was to distribute among the stockholders one-half of the accumulated surplus of the company, so that it became dividends or income to them as of that date. That result is said to have been effected by the peculiar wording of the 1917 income tax act. 40 Stat. 300-338. That act, as well as the 1918 act (40 Stat. 1057 et seq.), levied a tax upon income received during the taxing year, and both provided that income should include dividends. The 1917 act, section 31(a), provided "that the term `dividends' as used in this title shall be held to mean any distribution made or ordered to be made by a corporation." The 1918 act did not so define dividends, but merely stated that dividends, as other items of gain and income, should be "included in the gross income for the taxable year in which received by the taxpayer." From this changed phraseology in the later act it is argued that Congress had in mind, when the 1917 act was enacted (as indeed when the 1916 act was passed, 39 Stat. 756), a constructive receipt by the taxpayer of dividends, and that there was such a receipt in the instant case, when the order of the circuit court was entered, although the taxpayer did not actually receive the dividend until 1919.
It is not necessary for us to consider the different phraseology in these acts, or whether, and, if so, to what extent, there may be constructive receipt of income under either. It may be assumed that by the earlier act *39 Congress intended to treat as dividends or as income constructively received any distribution "ordered to be made by a corporation," whether actually received or not and still that does not help the plaintiff's case. She requires a broader interpretation one covering a distribution ordered to be made, not by the corporation, but by a trial court, which order was stayed by appeal, and might or might not have become finally effective. The statute, in our opinion, cannot be so construed. The only alternative for an actual distribution which it recognizes is an order made by the corporation. Whether the order of the corporation, acting as it must do through its board of directors, would effect a distribution under all circumstances, we do not decide. It is enough for this case to say that whatever power the board has in that respect is drawn from the statute, and a court of equity, neither under the statute nor apart from it, has any right to declare a dividend on behalf of a corporation. The court, it is true, acting in personam against the several members of a board, may cause them to declare a dividend; but the court itself cannot do so. Certainly an order of court that has been stayed by appeal cannot be treated as having that effect.
Again, in considering when this dividend became income, it is to be remembered that we are dealing with a taxing statute, and, as pointed out in Routzahn v. Mason (6 Cow. C. A.) 13 F.(2d) 702, dividends are generally held to be income when received. This does not mean that, when ordered to be paid by the corporation, they are not received within the meaning of the earlier acts, but that they cannot be treated as received, under those acts, when ordered paid by a court whose order is subject to and is stayed by an appeal. Nor does it mean that, in adhering to Routzahn v. Mason, we are departing from any pronouncement of the Supreme Court (275 U.S. 175, 48 S. Ct. 50, 72 L. Ed. 223) in reversing the decision of this court in that case. We think it is clear from the reasoning of the Supreme Court, both in that case and in Edwards v. Douglas, 269 U.S. 204, 46 S. Ct. 85, 70 L. Ed. 235, that the Dodge dividend was received in 1919, and was therefore taxable income for that year. This was the view of the Court of Claims in Dodge v. United States, 64 Ct. Cl. 178.
It is argued, however, that these undivided profits were taxable against the stockholders for the year 1916, under section 3 of the act of 1916, whether they were distributed or not. We do not think the 1916 act applies to this dividend at all, but, if it did, that provision of the statute has no relation, in our opinion, to the facts under consideration here. It deals with gains and profits of corporations, "however created or organized, formed or fraudulently availed of" for the purpose of preventing the imposition of taxes "through the medium of permitting such gains and profits to accumulate instead of being divided or distributed." There was no showing in this case that these profits were permitted to accumulate for the purpose of evading taxes. The board of directors contemplated using them for extensions of business, and while the Supreme Court of Michigan held that it would be an abuse of discretion to devote them to that purpose, there was no intimation by that court, nor has there otherwise been one, to the effect that they were being withheld to avoid tax levies.
We come, next, to the additional assessment for the year 1917 on the $52,500 received as a dividend on January 18, 1917. The taxpayer claims that the rate applicable was the 1916 rate. The tax was assessed upon on a finding by the Commissioner of Internal Revenue that the Ford Motor Company had earned from the beginning of its taxing year, January 1, to January 17, 1917, sufficient profits to pay 68 per cent. of this dividend, and that part of it was allocated to the year 1917 and the balance to the year 1916. The Commissioner's finding of fact as to the company's earnings is not in dispute. It is, of course, not material that the distribution was declared to have been made from profits earned before July 31, 1916, since under the act of 1917, section 31(b), regardless of what is declared to be the fund from which the dividend is paid, it is to be deemed to have been paid from the most recently accumulated undivided profits or surplus. Edwards v. Douglas, supra.
There had been no ascertainment of profits for the first 18 days of the year 1917 at the time this dividend was declared, and it is the contention of appellant that, even though upon the ascertainment of profits at the end of the year, or at the end of the next accounting period, it appeared that profits had been earned up to January 17 from which 68 per cent. of this dividend could be paid, nevertheless that part of it should not have been allocated to 1917, because of an absence of an ascertainment of any profits at that time upon the books of the company. We think the meaning of Edwards v. Douglas and Routzahn v. Mason is that it is not necessary that there be a formal determination or specific allocation of profits on the books of the company, but that a pro *40 rata share of the entire year's earnings may be treated as representing the earnings for the fraction of the year prior to the payment of the dividend, in the absence of a showing that such share of earnings was not actually accumulated during that period. The income tax return of the Ford Motor Company for the year 1917 was accessible to the Commissioner of Internal Revenue at the time the allocation was made, and it is not contended here that upon the pro rata basis indicated there were not sufficient earnings from January 1 to January 18 to pay 68 per cent. of this dividend.
The judgment is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2857964/ | McBride v. New Braunfels Herald-Zeitung
IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-91-083-CV
KIRK WAYNE MCBRIDE,
APPELLANT
vs.
NEW BRAUNFELS HERALD-ZEITUNG,
APPELLEE
FROM THE DISTRICT COURT OF COMAL COUNTY, 274TH JUDICIAL DISTRICT,
NO. C-90-217C, HONORABLE ROBERT T. PFEUFFER, JUDGE
PER CURIAM
This is a pro se appeal from the grant of a summary judgment in a libel case. See
Tex. Civ. Prac. & Rem. Code Ann. §§ 73.001-.006 (1986). Appellant Kirk Wayne McBride sued
appellee, the New Braunfels Herald-Zeitung, for publishing an allegedly libelous story, and the
district court granted the newspaper's motion for summary judgment. McBride brings four points
of error, alleging the trial court erred in granting the motion for summary judgment because the
publication was not privileged (points 1 through 3) and erred in overruling his motion for
rehearing or motion to reconsider (point 4). We will reverse.
McBride was arrested and charged with aggravated robbery on May 2, 1989. On
May 3, 1989, the newspaper printed an article concerning the arrest. (1) The district attorney
dropped the charge against McBride and he was released from the Comal County jail on May 26,
1989. McBride filed suit in April 1990, and the newspaper moved for summary judgment based
on statutory privileges alleging the article was a fair, true, and impartial account of an official
proceeding to administer the law or in the alternative, a reasonable and fair comment on a matter
of public concern published for general information. See Tex. Civ. Prac. & Rem. Code Ann. §
73.002(b) (1986). The district court granted the motion and rendered a general summary
judgment in September 1990.
The standards for reviewing a motion for summary judgment are well established:
(1) The movant for summary judgment has the burden of showing that no genuine issue of
material fact exists and that it is entitled to judgment as a matter of law; (2) in deciding whether
there is a disputed material fact issue precluding summary judgment, evidence favorable to the
nonmovant will be taken as true; and (3) every reasonable inference must be indulged in favor of
the nonmovant and any doubts resolved in its favor. Nixon v. Mr. Property Management Co., 690
S.W.2d 546, 548-49 (Tex. 1985). The newspaper, therefore, must prove the existence of a
privilege as a matter of law. Poe v. San Antonio Express-News Corp., 590 S.W.2d 537, 541
(Tex. App. 1979, writ ref'd n.r.e.)
In point of error one, McBride contends that the trial court erred in granting the
motion for summary judgment because genuine issues of material fact exist regarding the
newspaper's claim of privilege. We disagree. The newspaper does not dispute the content of the
article, but rather argues that the publication was privileged. The existence of a privilege is a
matter of law for the court to decide when the circumstances surrounding the published defamation
are undisputed. Christy v. Stauffer Publications, Inc., 437 S.W.2d 814, 815 (Tex. 1969);
Fitzjarrald v. Panhandle Publishing Co., 228 S.W.2d 499, 505 (Tex. 1950). Point of error one
is overruled.
In points of error two and three, McBride contends that the trial court erred in
granting the motion for summary judgment because the article was neither privileged as a fair,
true, and impartial account of an official proceeding to administer the law, nor privileged as a
reasonable and fair comment on or criticism of a matter of public concern published for general
information. Tex. Civ. Prac. & Rem. Code Ann. § 73.002(b) (1986). We agree.
At the outset, we note that the newspaper has not argued in the district court or this
Court that it is entitled to protection under either the federal or state constitutions, or under
common-law defenses. See U.S. Const. amend. I; Tex. Const. art. I, § 8; Tex. Civ. Prac. &
Rem. Code Ann. § 73.006 (1986). Our analysis, therefore, is based solely on the newspaper's
statutory privileges and not on a publisher's constitutional or common-law privileges against
liability for defamation of a private citizen. See, e.g., Gertz v. Welch, 418 U.S. 789 (1974). See
generally Randy R. Koenders, Annotation, Defamation: Privilege Attaching to News Report of
Criminal Activities Based on Information Supplied by Public Safety Officers--Modern Status, 47
A.L.R. 4th 718 (1986).
The newspaper's allegedly libelous action was the publication of Lt. Rubio's
statement, "He got away with approximately $1,700 in cash and cigarettes . . . . We believe that
there was someone else with him." Because this cause comes to us on summary judgment, we
must make every reasonable inference in favor of McBride and resolve any doubts in his favor.
See Nixon, 690 S.W.2d at 548-49. We must, therefore, assume that Lt. Rubio's use of the word
"he" referred to McBride instead of "the robber." Viewed in this light, Lt. Rubio's statement
accuses McBride of the commission of a crime for which punishment by imprisonment in jail or
the penitentiary may be imposed, which constitutes libel per se. See Christy, 437 S.W.2d at 815;
Democrat Publishing Co. v. Jones, 18 S.W. 652, 654 (Tex. 1892); Poe, 590 S.W.2d at 541. The
district attorney dropped the charge against McBride and the newspaper has not established as a
matter of law that he "got away with approximately $1,700 in cash and cigarettes." (2) In addition,
we must assume that McBride was innocent and Lt. Rubio's statement was, in fact, not true. The
publication, therefore, cannot be privileged as a "fair, true, and impartial account of . . . an
official proceeding . . . to administer the law" for the purposes of our summary-judgment review.
See Tex. Civ. Prac. & Rem. Code Ann. § 73.002(b)(1) (1986). The publication also fails as a
"reasonable and fair comment on or criticism of a . . . matter of public concern published for
general information." Tex. Civ. Prac. & Rem. Code Ann. § 73.002(b)(2) (1986). A false
statement of fact, even if made in a discussion of matters of public concern, is not privileged as
fair comment. Bell Publishing Co. v. Garrett Eng'g Co., 170 S.W.2d 197, 204 (Tex. 1943); see
A.H. Belo & Co. v. Looney, 246 S.W. 777, 784 (Tex. 1922); Fitzjarrald, 228 S.W.2d at 505;
Hornby v. Hunter, 385 S.W.2d 473, 476-77 (Tex. App. 1964, no writ); Davila v. Caller Times
Publishing Co., 311 S.W.2d 945, 947 (Tex. App. 1958, no writ). "However much the reading
public may be interested in news concerning law enforcement, or whatever may be the duty of a
newspaper to disseminate news thereof, these considerations can never be suffered to outweigh
the duty which one person owes to another not to injure his good name by the publication of
untrue statements concerning him." Times Publishing Co. v. Ray, 1 S.W.2d 471, 474-75 (Tex.
Civ. App. 1927), aff'd, 12 S.W.2d 165 (Tex. Comm'n App. 1929, judgm't adopted).
In its reply point, the newspaper claims that if the article is substantially true, then
the publication is privileged. See Crites v. Mullins, 697 S.W.2d 715, 717 (Tex. App. 1985, writ
ref'd n.r.e.). "The test used in deciding whether the broadcast is substantially true involves
consideration of whether the alleged defamatory statement was more damaging . . . , in the mind
of the average listener, than a truthful statement would have been." McIlvain v. Jacobs, 794
S.W.2d 14, 16 (Tex. 1990). Lt. Rubio's statement was that the unnamed "he," whom we must
presume on summary-judgment review to be McBride, stole approximately $1,700. The truthful
statement was simply that McBride was arrested and charged with aggravated robbery. The
average reader can certainly appreciate that saying a person is a robber is not substantially the
same as saying that same person was arrested and charged with robbery. The summary-judgment
evidence does not establish privilege as a matter of law. McBride's points of error two and three
are sustained.
In point of error four, McBride contends that the district court erred in overruling
his motion for rehearing, or in the alternate, his motion to reconsider the order granting the
motion for summary judgment. It is unnecessary to reach this point in light of our disposition of
points two and three.
The judgment of the district court is reversed, and the cause is remanded to the trial
court for a trial on the merits.
[Before Justices Powers, Jones and Kidd]
Reversed and Remanded
Filed: March 11, 1992
[Do Not Publish]
1. The article is as follows:
Man jailed for April 17 store holdup
A New Braunfels man remains in the Comal County jail
today in lieu of a $50,000 bond and is charged with robbing the
Lone Star Ice House at the intersection of FM 2252 and FM 3009.
Curt Wayne McBride, 28, 1532 Lorelei Lane, was arrested
after authorities received a Crime Stoppers tip regarding the
robbery and linked him to the crime. He is charged with
aggravated robbery.
Garden Ridge Police Department officers and Comal County
sheriff's office detectives performed the investigation.
"He got away with approximately $1,700 in cash and
cigarettes," said Lt. Rubio, Comal County sheriff's office. "We
believe that there was someone else with him."
The suspect was arrested at his place of employment in New
Braunfels Tuesday at 11:35 a.m. He was magistrated by Precinct
2 Justice of the Peace R.G. Blanchard.
"The attendant was checking how much gas she had out in
the pumps" when she was robbed at knifepoint, Rubio said. The
robbery occurred around 5:40 the morning of April 17.
2. The facts and outcome of Christy v. Stauffer Publications, Inc. and Stewart v. Enterprise Co.
are analogous to the instant cause. Christy, 431 S.W.2d 54 (Tex. Civ. App. 1968), rev'd, 437
S.W.2d 814 (Tex. 1969); Stewart, 393 S.W.2d 372 (Tex. App. 1965, writ ref'd n.r.e.). | 01-03-2023 | 09-05-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1549904/ | 265 A.2d 90 (1970)
Richard W. HIGGINS
v.
Allan L. ROBBINS, Warden.
Richard W. HIGGINS
v.
STATE of Maine et al.
Supreme Judicial Court of Maine.
April 28, 1970.
*91 Rudman, Rudman & Carter, by Paul L. Rudman, Bangor for plaintiff.
Garth K. Chandler, Asst. Atty. Gen., Augusta, for defendants.
Before WILLIAMSON, C. J., and WEBBER, DUFRESNE, and POMEROY, JJ.
WILLIAMSON, Chief Justice.
These are appeals by the petitioner Richard W. Higgins in two cases: Richard W. Higgins v. Allan L. Robbins (Superior Court #8576 Law Court #970), a complaint for mandamus and declaratory judgment, and Richard W. Higgins v. State of Maine and Allan L. Robbins, Warden (Superior Court #8863 Law Court #975), a post-conviction habeas corpus petition brought under 14 M.R.S.A. § 5502 et seq. The petitioner chose to prosecute pro se both cases before the sitting Justice. On appeal he is represented by Court-appointed counsel. By stipulation and agreement the cases are considered jointly on briefs filed in Law Court #970 and further, the issues are, or more accurately the prime issue is, identical in both cases.
The sitting Justice in #970 on January 6, 1969, entered a declaratory decree or judgment that petitioner's sentence imposed for an offense committed while on parole should be served concurrently with the existing term being served while on parole, and on January 27, 1969 entered a correcting decree or judgment that the sentence should commence on the expiration of the existing term. The latter decree was entered on motion of the respondent Warden made "pursuant to M.R.C.P., Rule 60(b) (5)." The pertinent parts of the decrees, including the facts applicable to both #970 and #975 (habeas corpus) are set forth in Appendix A.
At the outset we are confronted with issues of jurisdiction. That the parties did not question jurisdiction of the Court below in either case is not material to our inquiry. We may examine jurisdiction at any time and on our own motion. Eastern Maine Elec. Coop. v. Maine Yankee Atom. P. Co., Me., 225 A.2d 414; Hutchins v. Hutchins, 136 Me. 513, 4 A.2d 679; Stinson v. Taylor, 137 Me. 332, 17 A.2d 760; Angell v. Gilman, 144 Me. 202, 67 A.2d 15; M.R.C.P. Rule 12(h) (3); 1 F.McK. & W.Me.Civ.Pr.2d § 12.7.
Law Court #970 Declaratory Judgment Mandamus
The relief sought by #970, namely, the fixing of the commencement of the prison sentences, was available to the petitioner under post-conviction habeas corpus statute 14 M.R.S.A. § 5502 et seq. In Green v. State, Me., 245 A.2d 147, we held when the first of consecutive sentences is set aside for error, the later outstanding sentence commences at the date of imposition and not when the first sentence is declared void. The Court determined that the petitioner was entitled to relief limited to giving credit from the day he was received in prison on the valid subsisting sentence. Green overruled the earlier case of Smith v. Lovell, 146 Me. 63, 77 A.2d 575; Mottram v. State, Me., 232 A.2d 809; Hartley v. State, Me., 249 A.2d 38.
A proceeding for a declaratory judgment, however, may be maintained even though another remedy is available. Maine Broadcasting Co. v. Eastern Banking Co. et al., 142 Me. 220, 49 A.2d 224: Uniform Declaratory Judgments Act, 14 M.R.S.A. § 5951 et seq., and particularly Section 5953. Cf. Robbins v. Reed, 106 U.S.App.D.C. 51, 269 F.2d 242 (1959). See Borchard Declaratory Judgments 2d Ed. pp. 232, 236, 316; 1 Anderson Declaratory Judgments § 198 (2d ed.) 22 Am.Jur.2d, Declaratory *92 Judgments § 14; 26 C.J.S. Declaratory Judgments § 17.
Post-conviction habeas corpus takes the place of habeas corpus, writ of error, and coram nobis. 3 Maine Pract. Rules (Glassman) § 35.3; Rule 35(b), M.R.Crim. P. `* * * it comprehends and takes the place of all other common law remedies which have heretofore been available for challenging the validity of a conviction and sentence and shall be used exclusively in lieu thereof." 14 M.R.S.A. § 5502. A declaratory judgment is obviously not a common law remedy, therefore the Court was not in terms denied the jurisdiction, to be exercised in its sound discretion, to entertain and decide a complaint for a declaratory judgment on the facts presented. Jones v. Maine State Highway Commission, Me., 238 A.2d 226.
The fact that the complaint by the petitioner was for both a mandamus against the Warden and a declaratory judgment did not oust the Court below from jurisdiction. Mandamus we have held would not lie against the Warden under our post-conviction habeas corpus procedure. Freve v. State, Me., 230 A.2d 230. The Court below was entitled to find a valid reason for a declaratory judgment without consideration of the petitioner's request for the more drastic action of mandamus. Borchard, supra, p. 360. In short, relief by declaratory judgment did not rest on jurisdiction to issue a mandamus.
In the absence of a post-conviction relief statute such as ours, jurisdiction to enter a declaratory judgment to establish the commencement of a sentence rests on solid authority. Brown v. Commissioner of Corrections, 336 Mass. 718, 147 N.E.2d 782, 68 A.L.R.2d 708. In Woods v. State Board of Parole, 351 Mass. 556, 222 N.E.2d 882, 883, 884, the Massachusetts Court said:
"By final decree Woods' bill was dismissed on the ground that G.L. 231A [declaratory judgments statute] is not `applicable to the determination of rights of persons serving criminal sentences in relation to release dates from * * * [such] sentences.'"
* * * * * *
"The Attorney General correctly concedes that the trial judge (if he meant that declaratory relief is never available with respect to criminal sentences) was in error and gave an incorrect reason for dismissing the bill. General Laws c. 231A (which, in accordance with § 9, is to be liberally construed) does not prevent declaratory relief concerning criminal sentences and their incidents, where other prerequisites of granting such relief are present. See Gildea v. Commissioner of Correction, 336 Mass. 48, 51, 142 N.E.2d 400 (erroneous computation of good behavior deduction); Brown v. Commissioner of Correction, 336 Mass. 718, 147 N.E.2d 782, 68 A.L.R.2d 708 (date of commencement of a `from and after' sentence); Martin v. State Bd. of Parole, 350 Mass. 210, 212-214, 213 N.E.2d 925 (whether prisoner whose parole was revoked was entitled to a hearing on the revocation and to credit for time between revocation and reimprisonment). These cases determined questions related to sentences which did not rest in administrative discretion but involved only the proper application of legal principles to ascertained facts."
We find no statute in Massachusetts analogous to our post-conviction habeas corpus statute.
Under our practice, before the 1963 post-conviction habeas corpus statute, mandamus was available to establish the commencement of a sentence for the purpose of determining eligibility for parole. Smith v. Lovell, supra, overruled on the merits in Green, supra.
The net result, in our view, is that the Court below had jurisdiction to entertain the complaint for a declaratory judgment and to enter the decree of January 6, 1969.
We then come to the interesting and important question of whether a trial judge *93 from whose decision an appeal has been taken has jurisdiction to recall and change his decision on the strength of a later decision in another case rendered by the Law Court before any steps have been taken on the appeal other than filing the required notice.
Rule 60(b) (5), M.R.C.P. reads as follows:
"Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud, Etc. On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: * * * (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; * * *."
In our view, the rule does not permit the recall and change of decision in the situation before us. The purpose of the rule and the extent of its application is stated in 2 F.McK. & W.Me.Civ.Pr.2d § 60.10 as follows:
"Grounds for Relief from Judgment (5) Judgment Satisfied or No Longer Equitable
A motion under Rule 60(b) (5) should not take the place of an appeal not timely taken. Thus it is properly held that a final judgment will not be disturbed when another case involving the same question is decided the other way by the appellate court."
* * * * * *
"We are of the opinion that the judgment in this case was not `based' upon a prior judgment which has been reversed or otherwise vacated within the meaning of subsection 5 of Rule 60(b)." Berryhill v. United States, 6 Cir., 1952, 199 F.2d 217, 219.
"Rule 60(b) was not intended to provide relief for error on the part of the court or to afford a substitute for appeal * * * Nor is a change in the judicial view of applicable law after a final judgment sufficient basis for vacating such judgment entered before announcement of the change." Title v. United States, 9 Cir., 1959, 263 F.2d 28, 31.
See also Elgin Nat. Watch Co. v. Barrett, 5 Cir., 1954, 213 F.2d 776, 779; Scotten v. Littlefield, 235 U.S. 407, 35 S.Ct. 125, 59 L.Ed. 289.
To permit the alteration of a judgment on the strength of a later decision of the Law Court would impair the certainty and finality of judgments in the trial court. The Court on such a motion might be compelled to consider later decisions of the Law Court of doubtful applicability to the case before him.
We conclude, therefore, that the sitting Justice on entering judgment had no further jurisdiction on the facts hereof to alter his decision in response to a Rule 60(b) (5) motion. The road of appeal was open and had been taken by the respondent. It became then a matter for the Law Court on appeal and not the sitting Justice to correct any error on the merits appearing after entry of the judgment. There was error, therefore, in granting the relief sought. The first or pre-Hartley decree of January 6, 1969 stands unaffected by the motion to correct and the correcting decree.
In reaching our decision it is unnecessary for us to consider the point raised by the petitioner that the Court below acted on the respondent's motion without adequate notice to the petitioner of a hearing. See Cousins v. Hooper, Me., 224 A.2d 836.
Under these exceptional and unusual circumstances, we will remand the case for processing of the respondent's appeal. His appeal duly taken was plainly withdrawn solely because he had obtained a favorable result upon his motion to correct the judgment erroneously filed under M.R.C.P. Rule *94 60(b) (5). It will be just, therefore, to consider the appeal to be still alive. M.R.C. P. Rule 73(a).
Obviously, it will be in the best interest of the petitioner and respondent to obtain a decision on the merits at an early date. The respondent will be allowed ten days from the date this decision is certified to the Superior Court to complete and file one complete record on appeal with the Superior Court for transmission to the Law Court, with copy to counsel for the petitioner.
Whether Hartley controls the instant case and whether the rule of Hartley should stand would appear to be the issues to be raised on respondent's appeal as on petitioner's appeal.
In Hartley we held that under 34 M.R.S. A. § 1676 a sentence for a crime committed by a parolee commenced at the termination of the sentence then being served.
If the parties agree, they may present the case on the briefs hitherto filed and with or without oral argument.
For lack of jurisdiction to correct the decree, and not upon the merits, the petitioner's appeal must be sustained.
The entry in #970 will be:
Appeal of petitioner sustained.
Decree of January 6, 1969 and respondent's appeal therefrom reinstated under conditions and limitations consistent with this opinion.
Law Court #975 Post-Conviction Habeas Corpus
On March 7, 1969 the petitioner moved the Court "to allow the Petition enclosed, and titled `Amended Petition for Writ of Habeas Corpus,' to be entered and that such amended petition be considered as the only Petition before the Court, and the Petition of said January 20, 1969 be stricken." The motion was verified by the petitioner. The amended petition, however, was not verified. The motion to amend was granted by the Court.
Verification of the motion to amend by allowance of an enclosed petition is not the equivalent of a verification of the Amendment. The jurisdictional requirement of verification under 14 M.R.S.A. § 5503 was therefore lacking and the Court below for this reason had no jurisdiction to entertain the amended petition. Holbrook v. State, 161 Me. 102, 208 A.2d 313.
Further, the verification is no more than "Subscribed and Sworn to * * * Before Me * * * Notary Public." This does not meet the language of 14 M.R.S.A. § 5503. "Facts within the personal knowledge of the petitioner and the authenticity of all documents and exhibits included in or attached to the petition must be sworn to affirmatively as true and correct." See also M.R.Crim.P. Rule 35(b) (3): Form 26, 3 Maine Pract. Rules (Glassman).
The sitting Justice dismissed the petition on its merits under Hartley. We sustain the dismissal for lack of jurisdiction.
The entry in #975 will be:
Appeal denied.
MARDEN, and WEATHERBEE, JJ., did not sit.
APPENDIX A LAW COURT #970 DECREE OF JANUARY 6, 1969
This is a petition for declaratory judgment and mandamus which the petitioner elected to prosecute pro se. Both petitioner and the State agreed that the issue was one of law and in good faith attempted to prepare an Agreed Statement of Facts and while pertinent dates in the proposed Statement of Facts were not disputed, petitioner requested a hearing which was granted and held on September 24, 1968 at Rockland. At this time petitioner appeared pro se and offered testimony.
*95 The State appeared, represented by Assistant Attorney General Garth K. Chandler and offered the testimony of Mr. G. Raymond Nichols, Assistant Director of Probation and Parole, who testified from department records not inconsistently with those reflected in the proposed Statement of Facts.
At the conclusion of the hearing the issue appearing to be identical with Hartley v. State, which case was pending on appeal before the full Bench, the single Justice advised the petitioner that the decision in this case would be held until the full Bench had reviewed Hartley v. State.
By letter of January 3, 1969 petitioner points out that the Law Court decision in Hartley v. State has not been forthcoming and requests decision in this case.
In the light of the circumstances the request is proper and the following findings of facts are made.
On August 24, 1960 petitioner was paroled from the Maine State Prison on MSP No. 10066 a sentence which petitioner received in Penobscot County on January 18, 1957. The discharge date on MSP No. 10066, when paroled, was November 20, 1962, which would indicate 2 years, 2 months and 26 days (less good time, if any) to be served while on parole.
On or about September 12, 1960 petitioner committed certain acts in the Bangor area and on or about the same date departed from Maine.
On September 19, 1960 a parole violator's arrest and detention warrant was issued on MSP No. 10066.
On or about March 9, 1961 petitioner was returned to Bangor from North Carolina on a charge of assault and robbery alleged to have been committed on September 12, 1960 and was incarcerated in Penobscot County Jail.
On or about March 13, 1961 the parole violator's arrest and detention warrant, referred to above, was lodged with the Penobscot County Sheriff's office as a detainer. This warrant was never served upon petitioner.
On March 16, 1961 petitioner was convicted of assault and robbery, based upon the acts of September 12, 1960 and sentenced that day to serve not less than 10 nor more than 20 years at the Maine State Prison, and on the same day was committed to the Maine State Prison.
Six or seven days after his commitment to the Maine State Prison on the assault and robbery sentence, above referred to, petitioner met with the Parole Board, at which time his parole on MSP No. 10066 was revoked and he was remanded to serve in confinement the unexpired sentence.
The single Justice ruling in Hartley v. State governs and is here reiterated.
This single Justice holds that where the parole violation warrant is not executed, even though it could not be executed by reason of primary custody being in nonparole authority, and sentence is imposed on the new offense without compliance with 15 M.R.S.A. Section 1702 or Rule 32(a) M.R. Crim.Proc., and Warrant of Commitment is executed, execution of the current sentence begins and it cannot be interrupted by subsequent action of the Parole Board for the purpose of continuing the execution of the unexpired sentence. Under these circumstances, the unexpired portion of the Maine State Prison sentence and the current sentence are executed concurrently and if by such concurrence the first sentence is fully executed, the first sentence is terminated by (the non-action of) the Board within the meaning of Section 1676.
In the light of the fact that upon parole August 24, 1960 the petitioner's unexpired term at most did not exceed 2 years, 2 months and 26 days, it follows that sentence in MSP No. 10066 has been fully executed and, unless there be other time which the petitioner owes the State, the execution of his 10 to 20 year sentence began on March 16, 1961.
*96 LAW COURT #975 DECREE OF JANUARY 27, 1969
By Decree of the Superior Court dated January 6, 1969 upon petition of the above named for declaratory judgment it was held that his sentence imposed upon conviction for assault and robbery out of the Superior Court for Penobscot County on or about March 9, 1961 began on March 16, 1961. To this ruling the State appealed, which appeal is pending.
Meantime by opinion filed January 17, 1969 of Hartley v. State the ruling in the Decree of January 6, 1969 was held error.
Now on January 22, 1969 the State moves under Rule 60(b) (5) M.R.C.P. that the Decree of January 6, 1969 be amended to reflect the law declared in Hartley v. State.
Upon consideration therefore, the motion is granted and the Decree of January 6, 1969 is amended to hold that the sentence in MSP No. 10066 upon which petitioner was paroled August 24, 1960, and the sentence imposed on or about March 9, 1961 for assault and robbery were not subject to be served concurrently and that the sentence in MSP No. 10066 and the sentence imposed on or about March 9, 1961 are to be served consecutively as declared in Hartley v. State. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549921/ | 262 B.R. 359 (2001)
In re Frank G. DeTONE, Jr. and Amy R. DeTone, formerly known as Amy R. Clark, Debtors.
Frank G. DeTone, Jr. and Amy R. DeTone, formerly known as Amy R. Clark, Movants,
v.
National City Mortgage Company, Respondent.
Bankruptcy No. 00-26722-BM. Motion No. 00-6352M.
United States Bankruptcy Court, W.D. Pennsylvania.
May 29, 2001.
Charles O. Zebley, Jr., Uniontown, PA, for debtors.
P. William Bercik, Pittsburgh, PA, for National City Mortgage Co.
Robert H. Slone, Mahady & Mahady, Greensburg, PA.
Office of United States Trustee, Pittsburgh, PA.
Motion For Determination Of Secured Status
BERNARD MARKOVITZ, Bankruptcy Judge.
MEMORANDUM OPINION
Debtors seek a determination that National City Mortgage Company ("NCM") may not charge them the full amount of attorney's fees it allegedly incurred in bringing a motion for relief from stay as a requirement of curing a default of their residential mortgage. Act 6 of 1974, debtors assert, limits NCM to charging them *360 only $50.00 for attorney's fees it incurred in bringing the motion.
NCM insists that Act 6 does not so limit its right to charge the full amount of the attorney's fees it incurred as a requirement of debtors' curing the default of their residential mortgage.
We conclude, for reasons set forth below, that Act 6 limits NCM to charging only $50.00 as a requirement of debtors curing the default of their residential mortgage.
- FACTS -
Debtors executed a note in the amount of $32,000.00 in favor of NCM on September 4, 1996. As security for the loan, debtors also executed a first mortgage in favor of NCM against their personal residence.
Prior to July 31, 2000, debtors defaulted on their obligations to NCM under the note and mortgage.
Debtors received combined Act 6 and Act 91 notices from NCM on July 31, 2000, notifying debtors that they had defaulted, setting forth the amounts required to cure the default, and informing debtors of their rights under Act 6 and Act 91.
NCM had not initiated any foreclosure or other legal proceeding against debtors by August 20, 2000, when debtors filed a voluntary joint chapter 7 petition.
The schedules accompanying the bankruptcy petition listed debtors' personal residence as an estate asset with a declared value of $38,000.00. NCM was listed as having an undisputed secured claim in the amount of $32,500.00 arising out of its first mortgage against the residence. Another creditor was listed as having a second mortgage against the residence in the amount of $17,583.43. According to the schedules, the secured claims against the residence exceeded its value by approximately $12,100.00.
NCM brought a motion for relief from stay on September 20, 2000. In support of its motion NCM averred that debtors had not made any mortgage payments since February of 2000 and that the mortgage arrears at the time of the bankruptcy filing totaled $1,645.00. NCM maintained that it was entitled to relief from the automatic stay for cause because debtors had no equity in the property and had not made the required post-petition mortgage payment for September of 2000.
A hearing on NCM's motion was held on October 10, 2000, at the conclusion of which we issued an order consented to by NCM and debtors. NCM agreed to withdraw its motion for relief from stay. Debtors in turn agreed to cure the mortgage arrearages and to pay the sum of $1,645.08 to NCM by October 20, 2000. They further agreed to pay NCM the sum of $264.35 beginning on November 20, 2000, and on the twentieth of every month thereafter until their bankruptcy case was closed. Finally, NCM agreed to provide debtors with an "itemized restatement amount".
NCM subsequently advised debtors that a total of $1,054.56 was required to "reinstate" the mortgage. Included in this amount was a total of $624.95 in attorney's fees NCM had incurred in pursuing the above motion for relief from stay.
Shortly thereafter, debtors brought what they denominated as a "motion to determine secured status", wherein they sought a determination that Act 6 allowed NCM to collect only $50.00 in attorney's fees, not $624.95, before "reinstating" the mortgage.
A hearing on debtors' motion and NCM's opposition thereto was conducted *361 on March 30, 2001, after the parties had submitted a joint stipulation of facts.
- DISCUSSION -
It is not disputed that Act 6 of 1974, 41 P.S. §§ 101 et seq., applies to the present controversy. At issue here are attorney's fees charged for "reinstating" a residential mortgage in a bona fide principal amount of $50,000.00 or less, which is secured by a lien upon real property located in Pennsylvania containing two or fewer residential units. P.S. §§ 101.
Debtors, we have noted, are in default of their residential mortgage in favor of NCM. Up to three times a year, a residential mortgage debtor may cure a mortgage default upon making certain payments and performing certain obligations. Among other things, the mortgage debtor is required to pay any reasonable fees allowed under § 406 of Act 6. 41 P.S. § 404(b)(3).
Section 406 of Act 6 provides in pertinent part as follows:
With regard to residential mortgages, no residential mortgage lender shall . . . receive attorney's fees from a residential mortgage debtor except as follows: . . .
(2) Upon commencement of foreclosure or other legal action with respect to a residential mortgage, attorney's fees which are reasonable and actually incurred by the residential mortgage lender may be charged to the residential mortgage debtor.
(3) Prior to commencement of foreclosure or other legal action attorney's fees which are reasonable and actually incurred not in excess of fifty dollars ($50). . . .
41 P.S. § 406.
NCM may, in other words, charge debtors reasonable and actual attorney's fees it incurred in bringing a mortgage foreclosure or "other legal action" with respect to the mortgage. It also may charge debtors up to $50.00 in reasonable and actual attorney's fees it incurred prior to bringing a mortgage foreclosure or "other legal action".
NCM had not brought a mortgage foreclosure action or any other legal action against debtors before they filed their bankruptcy petition. Once debtors filed the petition, NCM was prohibited by the automatic stay from bringing a mortgage foreclosure action without first obtaining relief from the automatic stay. The only action NCM took was to bring a motion in this bankruptcy case for relief from the automatic stay, which eventuated in the above consent order of October 10, 2000.
The issue that must be resolved in this instance is whether a residential mortgage lender which is subject to the provisions of Act 6 may, in accordance with § 406(2) of Act 6, charge and collect attorney's fees incurred in connection with a motion for relief for stay it brought in a bankruptcy case. Does a motion for relief from stay, in other words, qualify as an "other legal action" for purposes of § 406(2)?
Debtors maintain that such a motion does not so qualify and insist that NCM consequently may not charge them for reasonable and actual attorney's fees it incurred in connection therewith as a requirement for "reinstating" i.e., curing the default on their mortgage.
NCM, by contrast, maintains that a motion for relief from stay qualifies as an "other legal action" for purposes of § 406(2) and insists that it therefore may charge debtors for reasonable and actual attorney's fees it incurred in connection therewith as a requirement for curing the default on debtors' mortgage.
Except perhaps for the observation that, in common parlance, a motion for relief from stay is a "legal action" and unquestionably *362 is "other" than a foreclosure action, NCM has offered nothing in support of its position.
Debtors, on the other hand, have cited to In re Schwartz, 68 B.R. 376 (Bankr. E.D.Pa.1986) as authority for the proposition that a motion for relief from stay does not qualify as an "other legal action" for purposes of § 406(2).
We have reviewed in In re Schwartz with care and find it well reasoned and persuasive. Accordingly, even though its conclusion at first blush appears counterintuitive, we adopts its reasoning here and conclude that a motion for relief from stay does not qualify as an "other legal action" for purposes of § 406(2). In re Schwartz, 68 B.R. at 384. The phrase encompasses only the different forms of legal action under state law which a mortgage lender may utilize to enforce its rights against the mortgagor.[1]
Because NCM has commenced neither a foreclosure action nor any "other legal action" for purposes of Act 6, it follows that NCM may not, as a requirement to curing the mortgage, charge debtors the full amount of the attorney's fees NCM incurred in bringing its motion for relief from stay. NCM may charge debtors only $50.00 in accordance with § 406(2) of Act 6.
An appropriate order shall issue.
ORDER OF COURT
AND NOW at Pittsburgh this 29th day of May, 2001, in accordance with the accompanying memorandum opinion, it hereby is ORDERED, ADJUDGED and DECREED that National City Mortgage Company MAY NOT charge debtors attorney's fees in excess of $50.00 to reinstate debtors' mortgage.
It is SO ORDERED.
NOTES
[1] It is perhaps worth noting that the Supreme Court of Pennsylvania has indicated, albeit parenthetically, that it agrees with the conclusion of In re Schwartz that the term "other legal action" occurring in Act 6 refers to the other forms of action a mortgagee may employ to enforce its rights under the mortgage. Bennett v. Seave, 520 Pa. 431, 442, n. 4, 554 A.2d 886, 891 n. 4 (1989). Strictly speaking, a motion for relief from stay is not a form of action a mortgagee may employ to enforce its rights under the mortgage. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549928/ | 32 F.2d 451 (1929)
FIREMEN'S INS. CO.
v.
BROOKS et al.
No. 5194.
Circuit Court of Appeals, Sixth Circuit.
May 7, 1929.
F. Linton Martin, of Chattanooga, Tenn., and Theodore A. Hammond, of Atlanta, Ga. (Smith, Hammond & Smith, of Atlanta, Ga., and Miller, Miller & Martin, of Chattanooga, Tenn., on the brief), for appellant.
Joe V. Williams, of Chattanooga, Tenn. (Henson W. Schoolfield, of Chattanooga, Tenn., on the brief), for appellees.
Before DENISON and HICKENLOOPER, Circuit Judges, and NEVIN, District Judge.
DENISON, Circuit Judge.
This appeal presents the final phase of the controversy, considered by this court in another aspect in 19 F.(2d) 277. By the decree then affirmed, the District Court, in equity, had ordered a reformation of the policy so as to make Mr. and Mrs. Brooks jointly the insured; and in a suit upon the policy, when so reformed, the plaintiffs had a jury verdict and a judgment for the full amount. The present appeal presents two substantial questions only: (1) Was the policy invalid because of the existence of an outstanding title in one Trimby? (2) Were plaintiffs in fatal default for lack of proofs of loss?
The property, located in Georgia, had belonged to Trimby; he sold it to Mrs. Woods; and she gave him back a deed to secure an unpaid portion of the purchase price; then she deeded the property to Mr. and Mrs. Brooks by ordinary warranty deed, and subject to the debt and "security deed" to Trimby; then the insurance policy was written. The policy contained the usual provision that "unless otherwise provided by agreement, indorsed hereon or added hereto," it should be invalid "if the interest of the insured be other than the unconditional and sole ownership," or if the insured building be "on ground not owned by the insured in fee simple." Precisely, the preliminary question is whether the deed to Trimby made him the owner, or whether it was a security leaving the ownership in the insured.
We do not find it necessary to decide this question, nor whether the validity of the policy, in this particular, should be determined by Georgia or by Tennessee law. For the purposes of this opinion, we assume that the Georgia statute and decisions control, and that, except for the matter to be mentioned, Trimby's outstanding interest would have invalidated the policy from the beginning. At the time the policy was issued, there was "indorsed thereon and added thereto" the customary loss payable clause, which read: "Any loss that may be ascertained and proven to be due the assured under the building items of this policy, shall be held payable to Thomas Trimby as interest may appear, subject, nevertheless, to all the terms and conditions *452 of this policy." The undisputed facts are that (under the legal theory which we assume) the insured owned the equity of redemption and thus had an insurable interest; that Trimby held the legal title under a conveyance which recited that it was given as security for a debt, and which, among other things, obligated the grantor to insure the buildings and to assign the insurance policy to Trimby as additional security for the debt; that, though Trimby held the legal title, he held it in trust for the insured, and his only beneficial or equitable interest was to the extent of his unpaid debt; and that the company consented that the proceeds in case of loss should be paid to Trimby "as interest may appear." Can the insurer then be heard to say that, because Trimby's interest turned out to be a temporary holding of the legal title, instead of any other kind of interest which he might have had in the property or proceeds, therefore it will not pay the loss to him or to any one else? It seems to us entirely plain that if the loss had been payable to Trimby "to the extent of his interest under a security deed," the necessary consent or agreement of the company must be inferred; and, if so, we see no reason why this recognition of Trimby's interest, whatever it may be, is not equally effective. We do not overlook the argument urged upon us that the "loss payable" clause is only an agreement to pay to Trimby what would otherwise have been payable to the insured, and that if, by reason of conditions in the policy, it was invalid in favor of the insured, it cannot be valid in favor of Trimby. This argument is convincing enough in the typical case, where the appointee is claiming rights which the insured never acquired, but it begs the question as applied to this case; for the question here is whether the company did not, as of the date of the policy, agree that the outstanding interest of Trimby should not affect the validity of the policy, if and when a claim arose in favor of the insured; and, if it did, then Trimby may well continue as to the proceeds the mere appointee of the insured, and neither has nor needs better right than they have. This theory was noticed by us and received some attention, but was passed without positive decision, in Commercial Union v. Marshall (C. C. A.) 18 F.(2d) 457. We there pointed out that, with one exception, no case cited held that, where the insurance company had agreed to pay the loss to some person "as his interest may appear," it could successfully claim that an interest in the insured property, which was outstanding in that person and which was in fact the same interest which the loss payable clause was intended to protect, could be considered to be such an outstanding interest as would be a breach of the condition that the insured was the sole owner or the condition that there were no incumbrances. The one exception was the Atlas Reduction Co. v. New Zealand Ins. Co. Case (C. C. A.) 138 F. 497, 9 L. R. A. (N. S.) 433. We have studied that opinion as carefully as may be, and are constrained to think that the dissenting opinion of Judge Hook states the reasoning and the conclusions which are applicable to the facts of our present case. If there were no other consideration, the familiar rule that an ambiguity should be solved against the insurance company, the party which selected the language used, would be applicable; for it is, at least, not clear that the language used might not have been intended to refer to that very interest which Trimby in fact had in the property, and which he and his grantor had agreed should be insured by the grantor and by this policy for Trimby's benefit.
One distinction may be suggested, inherent in the facts of the Atlas Case. The loss payable clause was there added after the policy had been some time in force. There was a distinctly greater possibility that the insured might be using the policy as security in some way disconnected from the property, so that "interest" might mean interest in the proceeds only rather than interest in the property, than there could be in a case where the clause is simultaneous with the policy, for the loss payable clause is the customary means of protecting a then existing interest in the property.
We conclude that the view we intimated in the Commercial Union v. Marshall case should be definitely adopted; and accordingly we hold that this policy was not vitiated by the Trimby deed. We know of nothing in either Georgia or Tennessee inconsistent with this conclusion.
The policy contained the usual provision, as a prerequisite to suit, that proofs of loss must be furnished within 60 days. They were not; but plaintiffs relied upon a waiver. Immediately after the fire, plaintiffs caused notice to be sent to the insurer, which at once sent an adjuster. He went to the scene of the fire, informed himself generally as to the situation, discussed the matter with the insured, and offered to advise the company to pay in settlement less than the full amount. There was little, if any, material information which the proofs of loss would have furnished which the adjuster did not acquire. Brooks testified that as they parted he asked *453 the adjuster whether there was anything more that should be done in the way of furnishing proofs, and the adjuster said there was not. There were also other circumstances tending or claimed to show a waiver, and the court submitted that question to the jury as one of fact. It is within the power of an adjuster to waive proofs of loss (Continental Ins. Co. v. Fortner [C. C. A. 6] 25 F.(2d) 398, 402), and there is substantial evidence tending to show that he did. It was not error to submit that question.
In the course of the submission, the judge referred to a considerable number of circumstances, reciting them as if they tended to show lawful waiver. Some of them certainly did; perhaps some of them did not; but the only exception taken was a general one to the entire charge on the subject of waiver. Under such circumstances, the exception was not good, and the allegations of error based thereon must be overruled. Hindman v. First Nat. Bank (C. C. A. 6) 112 F. 931, 934, 57 L. R. A. 108.
It is argued that the issue of waiver of proofs of loss was not properly raised by the pleadings; and the testimony by Brooks that the adjuster said no further proofs were necessary was objected to on this ground. It is not possible to trace the issues accurately through declaration, amendments thereto, special pleas, replications, demurrers, and joinders and rejoinders, but the allegations of paragraphs 7 and 8 of the declaration, repeated by amended replication 10, formed a sufficient pleading basis for this proof; and there was no certain error in supposing that this basis had not been lost in its subsequent labyrinthian entanglements. It may be observed that the facts which tended to show waiver also tended to show that what was done was accepted as a sufficient performance; and whether the pleader gave to the inference drawn from these facts the name waiver or the name performance could never have been of much importance.
The judgment is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1549929/ | 258 Md. 218 (1970)
265 A.2d 473
PRIVETT, ET AL.
v.
THE HAUSWALD BAKERY
[No. 371, September Term, 1969.]
Court of Appeals of Maryland.
Decided May 12, 1970.
The cause was argued before HAMMOND, C.J., and BARNES, FINAN, SMITH and DIGGES, JJ.
A. Harold DuBois, with whom were Stanley Levin, Verderaime & DuBois, A. Freeborn Brown and Brown, Brown, Lanahan & Whitfill on the brief, for appellants.
William M. Nickerson, with whom were Whiteford, Taylor, Preston, Trimble & Johnston on the brief, for appellee.
*219 HAMMOND, C.J., delivered the opinion of the Court.
In the early winter of 1964 Mrs. Privett, the appellant, was driving her husband's new automobile north on Route 136, a two-lane road in Harford County, on the way to work about 8:30 in the morning when according to her view at the time, or her later more reflective version, one of two events occurred. At the time she said a bread truck left its position in front of a store on the east side of Route 136 and she thought it was coming out in front of her, hit her brakes and skidded (the morning was foggy and some snow and ice were on the road) into one of two cars parked in front of the store some six feet east of the roadway of Route 136. At the trial Mrs. Privett's hedge against her statement the morning of the accident was that the bakery truck came onto the smooth paved portion of Route 136 directly in front of her, causing her to slam on the brakes and skid into the parked car.
The truck driver says he started up from in front of the store some twenty feet off Route 136 and drove within six feet of the roadway so that he could see to the left towards a curve around which Mrs. Privett was coming. Mrs. Privett says that when he saw her he backed up but says that before this he had driven to a position actually in the roadway directly in front of her.
The further testimony was that almost immediately after the accident Mrs. Privett told the truck driver that she was not hurt and the accident was her fault, and "to go ahead and call the State Troopers," and that she told the lady who owned the parked car she hit that it was her fault. The investigating State Trooper testified that Mrs. Privett placed the position of the truck when she hit the brakes as several feet off the paved portion of Route 136, and testified further that along the east side of Route 136 in front of the store there was loose stone or gravel which could be considered either a shoulder of Route 136 or part of the parking area in front of the store, most of which was paved.
Mrs. Privett makes two contentions to us. She says *220 Judge Raine erred in not instructing the jury that as a matter of law she was not guilty of negligence and then erred in instructing the jury that the truck driver had not violated Code (1967 Repl. Vol.), Art. 66 1/2, § 234, unless he had entered the paved portion of Route 136 in violation of Mrs. Privett's rights as a driver on a smooth, paved highway favored over one entering the intersection from a private road.
The case clearly was one for the jury. Mrs. Privett's operation of her vehicle was such that she lost control of it and there was testimony that she told two people at the time, unequivocally, that the collision was due to her fault.
We turn to her second point. Judge Raine told the jury that the truck driver violated § 234 of Art. 66 1/2 only if he "actually entered onto the paved portion of Maryland Route 136." Mrs. Privett by the offer of prayers and by objection to the charge, which referred to the prayers, requested Judge Raine to instruct that under the statutory definition of a highway a shoulder is part of the highway and that the jury could find that the truck driver violated § 234 if they found that before stopping he had invaded the shoulder of Route 136 in violation of Mrs. Privett's right as the favored driver to proceed uninterruptedly along that highway.
We think Judge Raine correctly instructed the jury. It is true that Code, Art. 89B, § 2 (a) defines "Road-Highway" as broadly as can be imagined, as:
"Both the word `road' and the word `highway' include rights-of-way, roadway surfaces, roadway subgrades, shoulders, median dividers, drainage facilities and structures, roadway cuts, roadway fills, guardrails, bridges, highway grade elimination structures, railroad grade elimination structures, tunnels, overpasses, underpasses, and other structures forming an integral part of a road or highway."
It is equally true, however, that Art. 66 1/2, § 234, makes *221 it the duty of the operator of a vehicle "entering a paved public highway * * * from an unpaved public highway or from a private road or drive" to come to a full stop "upon reaching the intersection, and yield the right-of-way to all vehicles approaching on such paved public highway." The emphasis in the quotation was added and all subsequent emphasis in quoted statutes likewise has been added.
The statute makes the stopping point the near edge of the intersection. Code (1967 Repl. Vol.), Art. 66 1/2, § 2 (20) defines "Intersection" as:
"The area embraced within the prolongation or connection of the lateral curb lines, or if none, the lateral boundary lines of the roadways of two highways which join one another at, or approximately at, right angles, or the area within which vehicles travelling upon different highways joining at any other angle may come in conflict."
Article 66 1/2, § 2 (47), defines "Roadway" as: "That portion of a highway improved, designed, or ordinarily used for vehicular travel."
The definition of "Street or Highway" in Art. 66 1/2, § 2 (58), includes "any highway or thoroughfare of any kind used by the public whether actually dedicated * * * or otherwise."
We think it is clear from the definitions that the "paved public highway" defined in § 234 of Art. 66 1/2 as "a highway having a hard, smooth surface * * *," see Slutter v. Homer, 244 Md. 131, 136,[1] was equated in legislative *222 thought and intent with a roadway and that in the case before us § 234 did not require a stop until the eastern lateral line of the roadway of Route 136, that is the smooth, paved surface, was reached.
The statutes in Art. 66 1/2 requiring a stop before entering a boulevard, § 242, and a stop or a yield before entering a through street, § 233, reinforce our view of the meaning of § 234.
The three sections have the common purpose of facilitating the uninterrupted and safe flow of traffic on favored roads and streets and as nearly as may be are to be given the same construction. Shriner v. Mullhausen, 210 Md. 104, 115; Zeamer v. Reeves, 225 Md. 526, 531-532; Goosman v. A. Duie Pyle, Inc., 320 F.2d 45, 48. Nevertheless, under the statutes the point at which the stop must be made may vary with the location, nature and type of highway involved.[2] Section 242 (a) says that the State Roads Commission (with reference to State and County highways) and local authorities (with reference to highways under their jurisdiction) may designate through highways "and erect stop signs at specified entrances thereto or may designate any intersection as a stop intersection and erect like signs at one or more entrances to such intersection." Paragraph (b) of § 242 next says that a stop sign shall be located as nearly as practicable "at the property line of the highway at the entrance to which the full stop must be made, or at the nearest line of the crosswalk thereat, or if none at the nearest line of the roadway." Paragraph c requires "a full stop at such sign or at a clearly marked stop line before *223 entering an intersection * * *." Section 233 (b) reads:
"The driver of a vehicle shall likewise come to a full stop in obedience to a stop sign and yield the right-of-way to a vehicle approaching on the intersecting highway as required herein at an intersection where a stop sign is erected at one or more entrances thereto although not part of a through highway."
Section 243 of Art. 66 1/2 is consistent with the theory that under the statutes the point of required stop may vary. It provides that a vehicle emerging from an alley or private driveway "shall come to a full stop immediately prior to driving onto a sidewalk or into the sidewalk area extending across any alleyway or private driveway." We see § 234 as similar. In effect the legislature in § 234 said that a vehicle emerging from a private driveway (or unpaved street) onto a paved public highway shall come to a full stop immediately prior to entering the intersection, that is, the roadway, which is the area of potential conflict between the favored and unfavored vehicles. This view is consonant and compatible with the established rule of the boulevard law that a favored driver is not compelled to anticipate that the unfavored driver will invade his right-of-way even if he is seen at the edge of the roadway, Zeamer v. Reeves, supra, and with the logical idea that without a stop sign or a stop line to obey, the most reliable and readily identifiable stop symbol to a driver subject to § 234 is the edge of the "hard, smooth, surface" particularly in the many instances like that before us in which there is either no shoulder or an area on the side of the roadway which may be part of the private area or a shoulder.
Judge Raine's charge correctly instructed the jury and the judgment which followed its verdict will be affirmed.
Judgment affirmed, with costs.
NOTES
[1] "Sec. 234 makes the operator of a vehicle upon a paved public highway the favored driver at the intersection of the paved highway with an unpaved highway. A paved highway, as defined in that Section, is one having a hard, smooth surface. The clear legislative intent is that the composition of the road, whether of gravel, crushed stone or other similar substance, is immaterial, as long as the highway has a hard, smooth surface. Correspondingly, and contrary to the appellant's contention, the material of which the highway is composed does not of itself make it one with a hard, smooth surface. It is the nature of the surface which the Legislature has made controlling."
[2] Section 189 of Art. 66 1/2 of the Code requires the State Roads Commission to adopt a manual and specifications for a uniform system of traffic control devices (made binding on localities under § 191 of Art. 66 1/2). The law § 242 (b) of Art. 66 1/2 directs that stop signs therein called for to "be located as near as practical at the property line of the highway." The Manual of Traffic Control Devices of the Commission requires such signs to be erected not closer than six feet nor more than fifty feet from the intersection. Webb, Bothersome Boulevards, 26 Md. L. Rev. 111, 115. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550533/ | 229 B.R. 811 (1999)
In re Jerry Dale SCOTT, SSN XXX-XX-XXXX, Amy Michelle Scott, SSN XXX-XX-XXXX, Debtors.
Bankruptcy No. 98-71071.
United States Bankruptcy Court, E.D. Oklahoma.
February 17, 1999.
*812 Jimmy Veith, Ardmore, OK, for Debtors.
Kirk Cejda, Oklahoma City, OK, for Norwest Mortgage, Inc.
William Mark Bonney, Muskogee, OK, Chapter 13 Trustee.
OPINION
TOM R. CORNISH, Bankruptcy Judge.
The issue in this case is the effect of the confirmed plan on a creditor's timely filed proof of claim filed after confirmation. Since res judicata does not apply in this case, the Court must determine whether Norwest Mortgage, Inc. ("Creditor") is entitled to post-petition attorney fees and costs. The answer to that question is yes. In this case, the mortgage provides for attorney fees and furthermore, the Creditor is over secured. As a result, reasonable fees and costs will be allowed.
The following constitute findings and conclusions pursuant to Rule 7052, Fed. R. Bankr.P., in this core proceeding.
The parties have stipulated to the following facts:
1. Norwest's arrearage claim consists of:
4 Pymts. (1/98 through 4/98) @$424.62 $1,698.48
Accrued Late Charges 67.92
Uncollected Late Charges 198.30
Property Inspections 40.50
_________
Total Pre-Petition Charges $2,005.20
Post Petition Costs Copies & Mailings $ 10.00
Post Petition Attorney Fees 600.00
_________
Total Post-Petition Charges $ 610.00
_________
Total Pre & Post Petition Arrearage $2,615.20
=========
2. It is stipulated that the pre petition arrearage is correct and debtors have no objection to these charges.
* * * * * *
4. It is stipulated that $125.00 per hour for attorney time and $50.00 per hour for paralegal time is reasonable for the services rendered.
5. It is further stipulated that there is equity in the subject property and that Norwest is over secured.
*813 The Mortgage provides, in pertinent part, as follows:
If Borrower fails to make these payments or the payments required by paragraph 2, or fails to perform any other covenants and agreements contained in this Security Instrument, or there is a legal proceeding that may significantly affect Lender's rights in the Property (such as a proceeding in bankruptcy, for condemnation or to enforce laws or regulations), then lender may do and pay whatever is necessary to protect the value of the Property and Lender's rights in the Property, including payment of taxes, hazard insurance and other items mentioned in paragraph 2.
Any amounts disbursed by Lender under this paragraph shall become an additional debt of Borrower and be secured by this Security Instrument. These amounts shall bear interest from the date of disbursement, at the Note rate, and at the option of Lender, shall be immediately due and payable.
As stated before, the issue is the effect of the confirmed plan on a creditor's timely filed proof of claim. In order to resolve this issue, the Court must look at the relationship of various provisions of the Bankruptcy Code. Generally, a confirmation order is treated as res judicata and the confirmed plan binds the debtors and creditors. 11 U.S.C. § 1327. A claim is deemed allowed unless a party in interest objects. 11 U.S.C. § 502(a). The Debtors argue that res judicata binds the Debtors and creditors and therefore, Creditor is bound by the confirmed Plan. Creditor argues (1) res judicata does not apply; and (2) that since its mortgage allows post-petition attorney fees and costs and its proof of claim has not been objected to, it is entitled to the amount set forth in its proof of claim. Due process requires "notice reasonably calculated under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mullane v. Central Hanover Bank & Trust, 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950) (citations omitted). Res judicata would be appropriate if the creditor received adequate notice. Piedmont Trust Bank v. Linkous (In re Linkous), 990 F.2d 160, 162 (4th Cir.1993). The Courts are split on what is required for adequate notice. In re Holmes, 225 B.R. 789, 792-93 (Bankr. D.Colo.1998).
The issue in Holmes was whether a Chapter 13 debtor was required to file a separate, formal objection to a mortgagee's proof of claim as set forth by Rule 2007 or whether the claim could be determined through the confirmation process. Id. at 790. The debtors in Holmes filed a Motion to Confirm their amended Chapter 13 plan which provided:
CREDITORS SHALL TAKE NOTICE THAT IN THE ABSENCE OF A WRITTEN OBJECTION BY A CREDITOR, THE AMOUNT PAYABLE WHICH IS SPECIFIED IN THE PLAN TO BE PAID TO EACH OF THE SECURED CREDITORS WILL BE ACCEPTED BY THE COURT.
Id. In Holmes, the debtors argued that they may modify a secured creditor's claim in a Chapter 13 proceeding without filing an adversary proceeding; filing an objection to the claim; or filing a motion. Id. at 792. The creditor argues that absent an objection to its proof of claim, its secured claim is allowed. Id. The Court, in Holmes, distinguished the cases which required a debtor to object to a secured creditor's proof of claim, by stating the purpose of the formal objection requirement is to put a secured creditor on notice that its claim may be modified. Id. at 793. The Court reasoned that the formal objection requirement was satisfied by the language set forth in the Motion to Confirm. *814 Id. The Bankruptcy Court for the Western District of Oklahoma in Dupree v. Lomas Mortgage USA, Inc. (In re Dupree), 183 B.R. 270 (Bankr.W.D.Okla.1995) was faced with a similar issue; however, it is distinguishable from the case at bar. In Dupree, the Court found Lomas had received notice of the proposed bifurcation and lien splitting of its claim since the debtors had filed a § 506 motion.
Rule 3012, Fed. R. Bankr.P., sets forth the procedure for valuing collateral, as follows:
The court may determine the value of a claim secured by a lien on property in which the estate has an interest on motion of any party in interest and after a hearing on notice to the holder of the secured claim and any other entity as the court may direct.
Violation of Rule 3012 occurs when no notice of hearing on valuation is given. In re Calvert, 907 F.2d 1069, 1072 (11th Cir.1990). In so finding, the Court noted:
However, Rule 3012 requires that specific notice be given that the bankruptcy court will determine the extent to which the claim is secured. Mere notice that the bankruptcy court will hold a confirmation hearing on a proposed bankruptcy plan, without inclusion of notice specifically directed at the security valuation process, does not satisfy the requirement of Rule 3012.
Id.
Since Rule 3012 requirement has not been met and this case is distinguishable from Holmes and Dupree, res judicata does not apply. There was no language in any notice or motion similar to that in Holmes and no motion as in Dupree. There is nothing in the Plan which would put the Creditor on notice that the Plan is reducing its claim. In this District, when a debtor writes down a debt to the value of the collateral, a § 506 motion is required, thus satisfying any due process notice requirements. Although the Debtors are not writing down the debt to the value of the collateral, the same effect results. In order for the order confirming plan to be given res judicata effect, the creditor must have been given minimum notice. Since the proof of claim and the Debtors' objection thereto were filed after the plan was confirmed, res judicata would not apply to the arrearage claim.
The Court would hope that Debtors' counsel will work with creditors and their counsel to determine the proper amount of arrearages prior to confirmation. Then this issue would not come before the Court on a regular basis.
Since res judicata is not applicable to this claim, the Court must now determine whether the Creditor is entitled to post-petition attorney fees and costs. This Court, in a recent decision of In re Johnson, Case No. 98-72421 (Bankr.E.D.Okla. Feb. 4, 1999), was faced with the issue of whether the mortgagee was entitled to post-petition attorney fees and costs. In that decision, the Court found that if a secured creditor is over secured and the mortgage provides for attorney fees in a bankruptcy proceeding, such fees and costs are allowable. Here the Mortgage specifically provides for attorney fees and costs in a bankruptcy proceeding. Furthermore, the parties have stipulated that there is equity in the property. However, the Court must still determine whether the fees and costs are reasonable. The parties agreed, and this Court agrees, that the hourly rate of $125.00 for attorneys and $50.00 for paralegals is reasonable. However, it must be determined whether each task is compensable. Overhead items are not compensable. In re Peoples Sav. & Inv., Inc., 103 B.R. 264, 271 (Bankr.E.D.Okla.1989) (citation omitted). Furthermore, the attorney must keep contemporaneous time records stating each task performed and explanation of such task. Id. at 273. The Court has reviewed the time records and finds that the request for attorney fees should be allowed.
IT IS THEREFORE ORDERED that the Objection to Proof of Claim of Norwest Mortgage, Inc. is denied. However, post-petition fees will be allowed as per the stipulation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/861911/ | IN THE SUPREME COURT OF MISSISSIPPI
NO. 94-CT-00879-SCT
JORGE RAMOS a/k/a JORGE ANTONIO RAMOS
v.
STATE OF MISSISSIPPI
ON PETITION FOR WRIT OF CERTIORARI
DATE OF JUDGMENT: 08/12/94
TRIAL JUDGE: HON. JAMES W. BACKSTROM
COURT FROM WHICH APPEALED: CIRCUIT COURT OF JACKSON COUNTY
ATTORNEY FOR APPELLANT: MICHAEL W. CROSBY
ATTORNEY FOR APPELLEE: OFFICE OF THE ATTORNEY GENERAL
BY: DEIRDRE McCRORY
DISTRICT ATTORNEY: KEITH MILLER
NATURE OF THE CASE: CRIMINAL - FELONY
DISPOSITION: REVERSED AND REMANDED - 3/26/98
MOTION FOR REHEARING FILED:
MANDATE ISSUED: 4/16/98
EN BANC.
ROBERTS, JUSTICE, FOR THE COURT:
Introduction
¶1. This case is before the Court sitting en banc on a Petition for Writ of Certiorari. Jorge Ramos was
convicted by a jury of the Circuit Court of Jackson County, Mississippi, on July 29, 1994, of Felony
Possession of Marijuana with Intent and Possession of a Controlled Substance With Intent, and
sentenced to serve fifteen years in the custody of MDOC. Ramos was additionally ordered to pay a
fine of $10,000. The Court of Appeals affirmed the judgment and sentence of the lower court by
decision rendered on June 3, 1997. The issues presented for certiorari review concern violations of
Rule 4.06 of the Uniform Criminal Rules of Circuit Court Practice(1) and the trial court's allegedly
improper admission into evidence of inculpatory statements and documents not disclosed to Ramos
pursuant to his written discovery request and motion, and the admission by the trial court of certain
expert opinion testimony from a police officer, not produced or disclosed to Ramos, in the form of
lay opinion. We conclude that the cumulative errors found in the rulings of the trial court deprived
Jorge Ramos of a fair trial, and reverse and remand for a new trial.
Facts
¶2. On January 30, 1993, Jorge Ramos, a 21 year old Mexican resident alien was passing through
Mississippi on Interstate Highway I-10. Ramos, his wife and two children were traveling from
Edcouch, Texas to a labor camp in Jacksonville, South Carolina, where they were going to work in
the fields. Sergeant Bosarge with the Jackson County Sheriff's Department stopped Mr. Ramos for
"weaving in the roadway." Bosarge walked the K-9 drug dog which accompanied him in his unit
around Ramos' car. The dog alerted, and Bosarge obtained consent from Ramos to search Ramos'
car. Bosarge located secret compartments under the car which contained thirty-seven pounds of
marijuana. Bosarge's written narrative, which details the stop and arrest, makes no reference to any
statements made by Ramos.
¶3. When the marijuana was located, Bosarge called the Narcotics Task Force, and the case
investigator, Donald Bourgeois, came to assist. Bourgeois prepared a detailed, typed report
concerning the arrest of Ramos and the recovery of the marijuana. Bourgeois' report states that "[t]he
officers talked to the driver and he stated that he had 50 lbs. of marijuana in false compartments
under the car." Both of the above mentioned reports were provided in discovery pursuant to written
request under Rule 4.06 and a detailed motion for discovery.
¶4. At trial, Ramos denied making the statement that he " had 50 pounds of marijuana in false
compartments under the car." Counsel argued that an inculpatory statement of such importance
would have been referenced in Bosarge's narrative report--it was not. Following Bosarge's testimony,
the State advised the court that there was more information which it wished to introduce which was
not provided in discovery, as follows:
1. On the side of the road, Ramos told Bourgeois that he had between 40-50 pounds of
marijuana in the vehicle.
2. At the garage where the marijuana was removed, a subsequent oral statement was made by
Ramos to Bourgeois. During the search of the vehicle, additional marijuana was found in the
doors. Bourgeois approached Ramos and asked "how did they put the packaging in the framing
of the car, and he explained to me that they took and cut holes in the back door panels of the
passenger side of the vehicle and they were stuffed in there with duct tape." Bourgeois further
stated that Bosarge was present during the time this statement was made, but Bosarge was
never called back to the witness stand to testify about the oral statement, not revealed in
discovery, which Ramos denied making.
3. Ramos allegedly stated that "when Mrs. Ramos purchased the automobile(2), he took it to a
shop and he had altered it and hid the marijuana in it without her knowledge."
4. Ramos told Bourgeois to look in the floorboard area in the back and there was more
marijuana. Bourgeois looked there, and more marijuana was located.
¶5. Bourgeois then testified that he revealed all the above information to the attorney for the
defendant when discussing the forfeiture and bond reduction from $200,000 to a reasonable amount.
Ramos' counsel took exception to the allegation and stated that his conversation with Bourgeois
involved the fact that Mrs. Ramos was in jail and that the children were in the hands of strangers at a
detention center. Mrs. Ramos needed help with a bond reduction and was willing to consent to the
forfeiture of the vehicle and $533 if it would get a recommendation of a bond reduction for the
Ramoses.
¶6. The lower court overruled counsel's objections to allowing these previously undisclosed
inculpatory statements admitted before the jury.(3)
¶7. Bourgeois admitted on cross-examination that he reviewed his report the next workday, but he
did not make any notation of all the incriminating information outlined above, or the alleged
conversation with counsel.
¶8. The Ramoses claimed that subsequent to their arrest, they investigated Jose Santana, the man
who allegedly sold them the vehicle in issue, and discovered that he was a convicted drug smuggler,
and was wanted by the police. Prior to trial, and pursuant to reciprocal discovery, a copy of Santana's
conviction was provided to the State along with a Bill of Sale for the vehicle dated January 27, 1993.
The State was told that Ramos intended to use this information in trial. The State advised that it
would have no objection or dispute that the transaction took place on the date alleged, and stated
that someone had called the Texas Department of Motor Vehicles to confirm this information. The
State related that all documents it had relating to the vehicle had been provided to the defense.
¶9. After Mrs. Ramos testified at trial, the State confronted her and impeached her testimony with
documents which it previously claimed that it did not have in its possession. This information was in
the possession of the State, but not provided. The information was allowed into evidence over the
defense's objection that this constituted a further violation of discovery and improper impeachment.
¶10. A police officer, not qualified as an expert witness, gave lengthy testimony concerning the
marijuana itself, and Ramos was not told that the marijuana had been destroyed three months prior to
trial. The judge did not allow Bourgeois' order into evidence ordering the destruction of the
marijuana, but allowed Bourgeois to testify, in reply to the State's question of why the marijuana had
been destroyed, that :
A. Simply because I thought this case, the guy was pleading guilty to it, and it wouldn't be a
trial involved in it, and it was also taking up added space in our evidence vault which we had no
room for. We try to destroy the evidence as soon as we can, especially if we know trial--that it's
not going to court. And under this specific case, we felt like it was not going to court.
¶11. On cross-examination, Bourgeois admitted that he could have picked the phone up and called
the District Attorney's Office, the court, or the jail screen computer to determine the status of the
case, prior to destroying the marijuana. There is no indication that Ramos ever intended to plead
guilty, and he maintained at trial that he knew nothing about the marijuana found in his vehicle.
¶12. Ramos made a prompt objection each time testimony was allowed as to matters that should have
been disclosed but were not disclosed pursuant to discovery requests, followed by a motion for
mistrial/continuance which was denied. Ramos was convicted of Possession of Controlled Substance
with Intent, and sentenced to serve fifteen years in the custody of MDOC, and ordered to pay a $10,
000 fine. The Court of Appeals, Payne, J., noted that each of the incidents outlined above constituted
error, and that each error was properly preserved for appellate review, but found that the errors
constituted harmless error which did not require reversal. This finding is contrary to published
decisions of this Court.
Issues Raised for Certiorari Review
¶13. Ramos asserts that the decision of the Court of Appeals is in conflict with prior published
opinions of this Court in that:
1. The Court of Appeals found no error or harmless error in the trial court's admission
into evidence of inculpatory statements and documents not disclosed to the Petitioner
despite written discovery request, and found harmless error in the trial court's failure to
grant the Motion for a Mistrial/Continuance following the Box guidelines.
2. The Court of Appeals found that the State should have provided to Petitioner,
pursuant to his discovery motion, a document relating to the sale of the car, and that the
court should have granted the Petitioner a continuance pursuant to Box, but that the
error in failing to do so was harmless because it was of the opinion that "the Appellant
could not have rebutted the evidence even if it had been granted the continuance."
3. The Court of Appeals found no error in the admission of certain expert opinion
testimony by the trial court, from a police officer in the form of lay opinion, which
therefore did not require him to be qualified as an expert, and the substance of said
testimony was not produced or disclosed to Petitioner, although requested in the
discovery motion.
Analysis and Authority
I. DID THE TRIAL COURT ERR IN FAILING TO GRANT A MISTRIAL OR
CONTINUANCE WHEN THE STATE VIOLATED DISCOVERY RULES BY
INTRODUCING MULTIPLE INCULPATORY STATEMENTS AND DOCUMENTS
WHICH HAD NOT BEEN PROVIDED TO THE DEFENSE THROUGH
DISCOVERY?
A. STATEMENTS MADE BY RAMOS
¶14. Two reports were given to Ramos pursuant to a Unif. R.Crim.Cir. Ct. 4.06 discovery motion,
and an additional detailed written discovery motion. These were the initial reports by Bosarge, which
made no mention of any inculpatory statement by Ramos, and the Bourgeois' report, which contained
one inculpatory statement allegedly made by Ramos that "[t]he officers talked to the driver and he
stated that he had 50 lbs. of marijuana in false compartments under the car." Ramos, through counsel,
denied in opening statements that this statement had been made, and noted that Bosarge had made no
mention of such a statement in his report, and that further, thirty-seven pounds of marijuana had been
found, not fifty, and questioned why Ramos would admit to hiding thirteen more pounds of marijuana
than had been actually found.
¶15. Following opening statements, Bosarge testified that, although he had not mentioned it in his
report, on the side of the Interstate after the arrest and while waiting on backup, he advised Ramos of
his rights, and then testified:
We talked on the roadside a few minutes in reference to, you know, where he was going. You
know, I was checking the paperwork on the car. And I then asked him again, you know: You
ought to just come clean with it and tell me, you know, how much narcotics you have in the
car. And at that time he just, he just shook his head and said it should be about forty or fifty
pounds.
¶16. Counsel for Ramos objected and said the facts were being altered in response to the opening
statement. The objection was overruled. After Bosarge's testimony, the State advised the court that
there was a matter which needed to be taken up outside the jury's presence. The Assistant District
attorney advised the court that he interviewed the case investigator, Donald Bourgeois, for the first
time during the lunch recess, and
he has some testimony that was not given up in discovery per se as it is written in here, but the
testimony I think will show that Mr. Crosby [counsel for Ramos] has knowledge of the
information, and I'd like to do it now because I know Mr. Crosby is going to object at trial.
¶17. Bourgeois' newly provided information consisted of the following inculpatory statements:
1. On the side of the road, Ramos told Bourgeois that he had between 40-50 pounds of
marijuana in the vehicle.
2. At the garage where the marijuana was removed, a subsequent oral statement was made by
Ramos to Bourgeois. During the search of the vehicle, additional marijuana was found in the
doors. Bourgeois approached Ramos and asked "how did they put the packaging in the framing
of the car, and he explained to me that they took and cut holes in the back door panels of the
passenger side of the vehicle and they were stuffed in there with duct tape." Bourgeois further
stated that Bosarge was present during the time this statement was made, but Bosarge was
never called back to the witness stand to testify about the oral statement, not revealed in
discovery, which Ramos denied making.
3. Ramos allegedly stated that "when Mrs. Ramos purchased the automobile, he took it to a
shop and he had altered it and hid the marijuana in it without her knowledge."
4. Ramos told Bourgeois to look in the floorboard area in the back and there was more
marijuana. Bourgeois looked there, and more marijuana was located.
¶18. Bourgeois then testified that he revealed all the above information to the attorney for the
defendant when discussing the forfeiture and bond reduction from $200,000 to a reasonable amount.
Ramos' counsel advised the court that he would not have made a fool of his client and himself if such
information had been revealed, and stated that his conversation with Bourgeois involved the fact that
Mrs. Ramos was in jail, and the children were in the hands of strangers at a detention center. Mrs.
Ramos needed help with a bond reduction and was willing to consent to the forfeiture of the vehicle
and $533 if it would get a recommendation of a bond reduction for the Ramoses.
¶19. Bourgeois admitted on cross-examination that he reviewed his report the next workday, but did
not make any notation of the incriminating information outlined above.
Q. At any time, in any place, did you ever indicate that the defendant said anything except that
he had fifty pounds of marijuana in the vehicle?
A. No, sir, I don't have any documentation of that.
Q. In fact, what you said here today was that he had between forty to fifty pounds. Nowhere in
any record does he say forty pounds as far as you indicate in any regard; correct?
A. No, sir.
¶20. Bourgeois further admitted that he used a video camera to tape the removal of marijuana, and
that he had access to tape recording equipment, but at no time and in no way did he attempt to
document the confession or statement of Ramos. Bourgeois also admitted that Ramos executed a
signed waiver of rights, but that no officer attempted to take a formal statement. Over the objection
of defense counsel, Bourgeois was allowed to testify. Counsel moved for a mistrial/continuance
pursuant to the Box guidelines.
¶21. Rule 4.06 (now 9.04) states in pertinent part:
(a) . . . the prosecution shall disclose to each defendant or to his or her attorney, and permit
him or her to inspect, copy, test, and photograph, without the necessity of court order, the
following which is in the possession, custody, or control of the State, or the existence of which
is known or by the exercise of due diligence may become known, to the prosecution:
(1.) Names and addresses of all witnesses in chief proposed to be offered by the prosecution at
trial, together with a copy of the contents of any statement, written, recorded or otherwise
preserved of each such witness and the substance of any oral statement made by any such
witness;
(2.) Copy of any written or recorded statement of the defendant and the substance of any oral
statement made by the defendant
Unif. Crim. R. Cir. Ct. Prac. 4.06(a)(1) & (2) (emphasis added).
¶22. Ramos argues that Rule 4.06 requires that any alleged inculpatory statements be provided by the
defense in discovery, and that the State was in direct violation of the discovery rules in failing to
provide the pertinent inculpatory statements to him prior to trial, and cites Box v. State, 437 So. 2d
19 (Miss. 1983) in support of his assertion that he was entitled to a continuance or mistrial.
¶23. The Court of Appeals held:
Ramos is correct in that Box v. State and progeny provide guidelines for trial judges in dealing
with violations of discovery. See also Roberson v. State, 595 So. 2d 1310, 1316 (Miss. 1992).
The Mississippi Supreme Court has set forth the following procedures for the trial court to
follow when faced with a discovery violation:
1) Upon defense objection, the trial court should give the defendant a reasonable opportunity to
become familiar with the undisclosed evidence by interviewing the witness, inspecting the
physical evidence, etc.
2) If, after this opportunity for familiarization, the defendant believes he may be prejudiced by
lack of opportunity to prepare to meet the evidence, he must request a continuance. Failure to
do so constitutes a waiver of the issue.
3) If the defendant does request a continuance, the State may choose to proceed with trial and
forego using the undisclosed evidence. If the State is not willing to proceed without the
evidence, the trial court must grant the requested continuance.
¶24. The Court of Appeals went on to find that Ramos' attorney requested a mistrial instead of
requesting a continuance, but that our case law holds that a motion for a mistrial will suffice to
preserve the issue for appeal, citing West v. State, 553 So. 2d 8, 18 n. 6 (Miss. 1989). The Court Of
Appeals further found that "Procedurally, Ramos did everything he was supposed to do in addressing
an alleged discovery violation and perhaps a continuance should have been granted. Nevertheless, we
find that the assigned errors, if errors at all, do not warrant reversal."
¶25. The finding of harmless error appears to contradict published decisions of this court. In West v.
State, 553 So. 2d 8, 17 (Miss. 1989), we found that the fact that the prosecution fails to unearth
certain evidence until the last minute does not "eviscerate[] the prejudice to a defendant caught
unaware, nor the necessity for reversal" where the trial court denies the defense request for a
reasonable continuance, citing Rule 4.06(e). In West, citing Acevedo v. State, 467 So. 2d 220 (Miss.
1985), this Court held:
This Court reversed Acevedo, holding that the prosecution had "violated its continuing duty to
supplement discoverable matters with newly discovered material or information" under Rule
4.06(e). Acevedo, 467 So. 2d at 224. Noting that the defendant would have had the opportunity
to rebut directly the expert's conclusions had he known of them, the Court concluded that the
prosecution's discovery violation "was beyond the power of correction by cross-examination,
since defense counsel had no notice or opportunity to prepare for an effective cross-
examination." Acevedo, 467 So. 2d at 224.
West, 553 So. 2d at 17.
¶26. In Darghty v. State, 530 So. 2d 27 (Miss. 1988), we reversed and remanded when the trial court
failed to follow the Box guidelines where a defendant violated the discovery rules, holding:
Even-handed application of the Rule requires the same procedure to be followed when the State
objects to testimony because of a defendant's violation as when the defendant objects for the
same reason. See Coates v. State, supra, at 467; Acevedo v. State, 467 So. 2d 226, 224 (Miss.
1985) . . . .
Loveberry's testimony being relevant and competent, it was prejudicial error to exclude it
without following our procedural guidelines. Accordingly, we reverse and remand for another
trial.
Id. at 33 (emphasis added).
¶27. In Hentz v. State, 489 So. 2d 1386 (Miss. 1986), we admonished the prosecuting attorneys that
they "should make available to attorneys for defendants all . . . material[s] . . . and let the defense
attorneys determine whether or not the material is useful in the defense of the case. We direct the
attention of trial judges to this problem and suggest that they diligently implement this suggestion in
order to dispense with costly errors, which might cause reversal of the case. Barnes v. State, 460
So. 2d 126 (Miss. 1984); Harris v. State, 446 So. 2d 585 (Miss. 1984); Morris v. State, 436 So. 2d
1381 (Miss. 1983)." Id. at 1388. (emphasis added). In Dotson v. State, 593 So. 2d 7 (Miss. 1991),
this Court reproved, "Now, we take this opportunity to reinforce that which we stated in Hentz with
a simple message to the bench and bar. Read Hentz! Apply Hentz!" Id. at 12 (emphasis added).
¶28. We find that the alleged inculpatory statements made by Ramos to Bourgeois should have been
provided to defense counsel. The State failed to produce the substance of the oral statements said to
have been made which were inculpatory and prejudicial, and further, the trial court did not follow the
Box procedural guidelines, which constitutes reversible error.
B. THE DOCUMENTS RELATING TO THE PURCHASE OF THE VEHICLE
DRIVEN BY RAMOS AT THE TIME OF HIS ARREST
¶29. Allegedly, subsequent to the arrest, the Ramoses discovered that the man who sold them the
recently purchased 1981 Lincoln automobile Ramos was driving at the time of his arrest, was a
convicted drug smuggler, and was wanted by the police. Prior to trial, and pursuant to reciprocal
discovery, a copy of Santana's conviction was provided to the State, along with a Bill of Sale for the
automobile. The State was advised that Ramos intended to use this information in trial, and the State,
in turn, advised defense counsel that it would not dispute that the transaction took place on the date
alleged, and further told defense counsel that all the documents it had relating to the sale of the car
had been provided to the defense. The State asserted that it possessed no title or other such
documents and had no documents which contradicted the Ramoses' position.
¶30. After Mrs. Ramos testified, the State confronted the defense with documents which it had
previously claimed it did not have in its possession. The previously undisclosed documents were used
to contradict Mrs. Ramos' testimony concerning the date of the sale of the vehicle, the identity of the
seller, and the amount of the sale. This information was in the possession of the State from the time
the vehicle was confiscated following Ramos' arrest, but was not provided or disclosed to the defense
in discovery.(4) The Court of Appeals held:
. . . . Ramos claims that he was surprised when the State produced this document at trial
because the State had previously informed him that they did not have any documents pertaining
to the sale of the car. While the State should have provided the documents in discovery and the
judge should have granted a continuance, the error is harmless.
The Court of Appeals continues that:
The Mississippi Supreme Court has stated on numerous occasions that the purpose of Rule 4.06
is "to avoid unfair surprise to either the state or defendant at trial." Ghoston v. State, 645 So.
2d 936, 939 (Miss. 1994). Certainly, Ramos cannot claim surprise as the registration of the car
was taken from his personal possessions. Ramos' surprise was that the State found the public
record to which there could be no rebuttal even if the Appellant had been "noticed" with the
information on discovery.
Ramos stated, in the brief of the appellant:
Although the State had denied possession of those documents earlier in the day, they magically
produced the documents in time to ambush the defendant's wife without warning during her
cross-examination. The discrepancies could be explained, but under ambush and with the
passage of one and one-half years, it was difficult for the witness to seem credible when called a
liar by the prosecutor in the middle of the trial. This evidence was allowed into evidence over
the objection of the defense that it was a further violation of discovery and improper
impeachment.
¶31. The cases and analysis applied to the first discovery violation also apply to this second issue and
discovery violation, and this error compounded by the previous error constitutes reversible error.
II. DID THE TRIAL COURT ERR IN ALLOWING DEPUTY BOSARGE TO TESTIFY
AS A LAY WITNESS INSTEAD OF REQUIRING THE STATE TO QUALIFY
BOSARGE AS AN EXPERT [AND THEREFORE ALLOWING INTO EVIDENCE
CERTAIN STATEMENTS NOT DISCLOSED IN DISCOVERY]?
¶32. Ramos contends that the trial court committed reversible error in allowing Deputy Bosarge to
testify, in the form of lay opinion, as to the following: (1) the street value of marijuana; (2) that based
on his "experience and training as a law enforcement officer" the hidden compartments in Ramos'
vehicle were sealed with fresh tar, which is used by drug smugglers to mask the smell of marijuana
and blend with the under body of the car; (3) the marijuana was pressed into hard bricks and wrapped
in duct tape, which is the normal method used by drug smugglers to smuggle; and (4) when the
packages were cut open, in his opinion, the marijuana was fresh.
¶33. Ramos argues that all of the above statements were based on Bosarge's training and experience
as a deputy sheriff, and therefore should have been classified as expert opinion and subjected to the
foundational requirements of Miss. R. Evid. 702 and the discovery rules of Unif. Crim. R.Cir. Ct.
Prac. 4.06(a)(4).(5)
¶34. The Court of Appeals held:
In the present case, we believe that Deputy Bosarge should have been proffered as an expert
and therefore qualified as such before being permitted to testify. See Seal v. Miller, 605 So. 2d
240, 244 (Miss. 1992)(calling on a police officer to respond to a question based on his
experience as an officer investigating accidents is by definition not a lay opinion). The error,
however, is negligible in light of the fact that Ramos was arrested while driving a vehicle
containing thirty-seven pounds of marijuana. We therefore find that reversal is not required in
this instance.
¶35. This holding is contrary to published opinions of this Court. In Sample v. State, 643 So. 2d 524
(Miss. 1994), this Court held:
There is often a very thin line between fact and opinion. The problem with Corr's "expert"
testimony is that it runs afoul of our stated policy requiring that expert witnesses be first
tendered as such before being allowed to express expert opinions. Roberson v. State, 569 So.
2d 691, 696 (Miss. 1990). To sanction this testimony attempts to circumvent this policy by the
familiar retreat to Miss. R. Evid. 701, which some attorneys would use to justify all
transgressions of our discovery and evidentiary policies concerning expert opinion.
Id. at 529.
¶36. The Court further held:
It is important that we not blur the distinction between Rules 701 and 702, not so much for
admissibility, as for notice and opportunity to prepare rebuttal. Expert testimony and opinions
are subject to special discovery rules in both the civil and criminal arenas. Miss. R. Civ. P. 26(b)
(4); Unif. R. Cir. Ct. 4.06(a)(4).. . . .
Corr was allowed to express his opinions concerning the value, normal street usage and
customary packaging of marijuana based upon his training and experience as a narcotics officer.
He was, therefore, a Rule 702 expert. Wells v. State, 604 So. 2d at 279.. . .
Id. at 530.(6)
¶37. In Couch v. City of D'Iberville, 656 So. 2d 146, 153 (Miss. 1995), this Court held that if the
witness must possess some experience or expertise beyond that of the average, randomly selected
adult, the opinion is a Rule 702 opinion and not a Rule 701 opinion, citing Sample v. State, 643 So.
2d 524, 529-530 (1994); see also Mississippi State Highway Commission v. Gilich, 609 So. 2d 367,
377 (Miss. 1992)(lay opinions are those which require no specialized knowledge however attained);
Seal v. Miller, 605 So. 2d 240, 244 (Miss. 1992)(question calling on a police officer to respond
based upon experience as an officer investigating accidents is by definition not a lay opinion).
¶38. Our case law characterizes the testimony of Officer Borsarge as expert, not lay testimony. As
such, it is subject to the discovery provisions of Rule 4.06. This cause is reversed and remanded for a
new trial.
¶39. REVERSED AND REMANDED.
PRATHER, C.J., SULLIVAN AND PITTMAN, P.JJ., BANKS, McRAE, SMITH, MILLS AND
WALLER, JJ., CONCUR.
1. The current version of this rule is contained at Rule 9.04 of the Uniform Rules of Circuit and
County Court Practice.
2. The Ramoses claimed that they had just recently purchased this automobile, were meeting the
person who had sold it to them in South Carolina so that he could make some necessary repairs to
the automobile, and that they knew nothing about the marijuana found in the automobile. The State
claimed it did not have any documents relating to the automobile in its possession, and then produced
them at trial to impeach the testimony of Mrs. Ramos, as it related to the purchase of the automobile
in question.
3. Rule 4.06 expressly states that such statements must be disclosed pursuant to a discovery request
made under the rule.
4. Rule 4.06(a), now 9.04, provides in pertinent part that the prosecution must disclose " (5.) . . . any
physical evidence. . . relevant to the case or which may be offered in evidence." (emphasis added).
5. Rule 4.06(a)(4) states in pertinent part that the prosecution must disclose to each defendant any
reports or statements of experts, written, recorded or otherwise preserved, made in connection with
the particular case and the substance of any oral statement made by any such expert.
6. Sample, Prather, P.J., Hawkins, C.J., Sullivan and Banks, JJ., concurring. Dan M. Lee, P.J.,
concurring in results. McRae, J., dissenting with separate written opinion, Smith, J., dissenting with a
separate written opinion joined by Pittman and Roberts, JJ. | 01-03-2023 | 04-26-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550111/ | 63 N.J. Super. 424 (1960)
164 A.2d 806
JOSEPH E. CONNELLY, PLAINTIFF-RESPONDENT,
v.
HOUSING AUTHORITY OF THE CITY OF JERSEY CITY, DEFENDANT-APPELLANT.
Superior Court of New Jersey, Appellate Division.
Argued October 3, 1960.
Decided October 27, 1960.
*425 Before Judges CONFORD, FOLEY and HALPERN.
Mr. Harry Indursky argued the cause for the appellant.
Mr. Nicholas S. Schloeder argued the cause for the respondent.
*426 The opinion of the court was delivered by HALPERN, J.C.C. (temporarily assigned).
This appeal challenges a decision of the Superior Court, Law Division, Hudson County, which reinstated plaintiff as executive director, secretary and treasurer of the defendant housing authority upon a finding that charges of alleged misconduct were insufficient to support his dismissal. The issues are whether the trial court possessed the power to reinstate plaintiff after ruling that some of the charges had been proven and that one involved an act of "serious insubordination," and, if so, whether such power was properly exercised.
Plaintiff is a Navy veteran of World War II, entitled to job protection under the Veterans' Tenure Act, R.S. 38:16-1, as amended by L. 1942, c. 83, which provides that no honorably discharged war veteran holding a salaried state, county or municipal position of indeterminate term "* * * shall be removed from such employment, position or office, except for good cause shown after a fair and impartial hearing, but such person shall hold his employment, position or office during good behavior, and shall not be removed for political reasons. * * *"
Plaintiff was suspended by the authority on May 22, 1959, without the filing of any charges or a hearing. He commenced this suit attacking the suspension and asserting his status as a veteran. Thereafter, the authority filed five specific charges against him, conducted a hearing, and discharged him permanently on July 9, 1959. He then supplemented his original complaint to allege that the evidence adduced at the hearing failed to establish the validity of the charges, and that they were insufficient to support the penalty imposed.
The charges were essentially that:
(1) on or about December 1, 1958, he failed to keep an appointment with certain representatives from the New York office of the Public Housing Administration and the chairman of the authority;
*427 (2) when asked at the authority meeting of December 4, 1958 to explain the above absence, he refused to do so and expressed contempt for the Public Housing Administration staff;
(3) at the same December 4, 1958 meeting he criticized commissioners of the authority for allegedly interfering with his conduct of the office by overruling his decisions on request of subordinates;
(4) he failed to attend the authority's annual meeting on May 18, 1959 and gave no excuse therefor; and
(5) he took three days annual leave, May 19 through 21, 1959, without prior approval of or notice to the authority.
The trial court, reviewing a transcript of the hearing, found that charges 1, 4 and 5 were proven or admitted, but that the acts involved were trivial and excusable in nature. No useful purpose will be served by detailing the uncontradicted explanations offered by plaintiff except to comment that there is a serious question whether charges 1 and 5 involved any acts of misconduct at all. It is sufficient for the purposes of this decision to adopt the trial court's description of these acts.
We agree with the trial court that the criticism of the commissioners alleged in charge 3 was not improper conduct in light of the facts adduced with respect thereto. See Rinaldi v. Mongiello, 7 N.J. Super. 410 (Law Div. 1949), affirmed on opinion below, 6 N.J. Super. 387 (App. Div. 1950).
The authority relies heavily on the trial court's findings in reference to charge 2. The latter part of that charge alleging that plaintiff voiced contempt for the federal officials was not specifically proven, but the refusal to explain the facts pertaining to charge 1 was termed by the trial court an act of "serious insubordination." The authority contends the trial court was without power to revoke the punishment except on a clear showing that it abused its discretion and that its action was arbitrary and capricious. To be decided here is the degree of evidence necessary to support *428 a discharge, the authority arguing that the evidence presented of misconduct was sufficient, and respondent contending that the circumstances as a whole must show the discharge to be reasonable.
In support of its argument, the authority cites a number of cases which establish the "substantial evidence rule" that decisions of administrative bodies will not be disturbed on judicial review when the evidence before the agency furnishes a reasonable basis for its action. In re Greenville Bus Co., 17 N.J. 131 (1954); Hasbrouck Heights v. Div. of Tax Appeals, 54 N.J. Super. 242 (App. Div. 1959); In re Marion Bus Transp. Co., 53 N.J. Super. 308 (App. Div. 1958); Zachariae v. New Jersey Real Estate Comm'n, 53 N.J. Super. 60 (App. Div. 1958). These cases are readily distinguishable, however, and the "substantial evidence rule" cannot be applied here because the underlying factor of special expertise on which it is founded is not present. The above-cited cases involved appeals from the approval of new bus routes by the Public Utilities Commission, the suspension of a broker's license by the Real Estate Commission, and a judgment of the Division of Tax Appeals relating to assessments. They are classical examples of the exercise of quasi-judicial functions by administrative agencies possessing expertise in specialized fields. Since cases involving the disciplining of a public officer or employee ordinarily involve no expertise, we are returned to the fundamental premise of substantial justice as the standard of judicial review. Russo v. The Governor of State of New Jersey, 22 N.J. 156, 169 (1956).
Other cases cited by the authority were appeals from decisions of the Civil Service Commission. East Paterson v. Civil Service Dept. of N.J., 47 N.J. Super. 55 (App. Div. 1957); Dutcher v. Department of Civil Service, 7 N.J. Super. 156 (App. Div. 1950). Under the applicable civil service statutes the function of reviewing disciplinary action by local governing agencies is vested in the Civil Service Commission. N.J.S.A. 11:2A-1; R.S. 11:15-1 *429 to 11:15-6. We are here dealing with the Veterans' Tenure Act which, in conjunction with R.R. 4:88-2, places the review function in the Superior Court, Law Division. The above cited cases deal with the power and function of the Appellate Division in judicially reviewing determinations by administrative agencies, under R.R. 4:88-8, and have no application in the instant case.
Under R.R. 4:88-13 the trial court had power to review the facts and make independent findings thereon to such extent as the interests of justice required. Rinaldi v. Mongiello, supra. The authority's conduct of this hearing required the broadest application of this rule. The commissioners not only performed the duties of judge and jury, but were in fact the only witnesses against plaintiff. They testified and then returned to their seats as commissioners and passed judgment on their own testimony. This observation is not made in criticism of the commissioners. The Legislature allowed for no alternative. Nevertheless, the patent dangers in this kind of procedure were recognized in Drozdowski v. Sayreville, 133 N.J.L. 536 (Sup. Ct. 1946), and cases cited therein, which stand at least for the rule that the entire situation should be reviewed very carefully on appeal. See Mackler v. Bd. of Education of City of Camden, 16 N.J. 362 (1954). In the line of cases holding administrative agencies to possess broad discretionary powers, the defendants ordinarily are total strangers to those who are exercising the discretion, and the offenses involved are against the public at large rather than against individual members of the agencies.
We are fully aware of apparently strong comments by the court in Harrison v. State Board of Education, 134 N.J.L. 502 (Sup. Ct. 1946), where a reinstatement by the Commissioner of Education was held to be improper and it was said, "we are only concerned with the truth of the charges; once guilt of misconduct has been established, the disciplinary action is exclusively within the domain of the local board." 134 N.J.L., at p. 505. There, numerous *430 incidents of misconduct had been proven, and they clearly were sufficient to support a discharge. Certainly, the employing agency is empowered to impose whatever penalty is supported by the proofs, and no reviewer may arbitrarily change it. The situation was similar in Russo v. The Governor of State of New Jersey, supra. But where, as here, the question is not only whether the charges were proven true but also whether they were substantial enough reasonably to support a discharge, we see no relevancy in comments from cases where the latter question already had been answered in the affirmative.
The Veterans' Tenure Act requires more than a pro forma filing of charges and hearing. It specifically declares that removal shall not be ordered "except for good cause shown." Full effectuation of that policy requires judicial evaluation of the seriousness of the charges to determine the justification for removal. The trial court properly found that the proven charges, taken singly or collectively, did not reach the level of "good cause" for removal.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550088/ | 147 Conn. 566 (1960)
JOHN E. LANCASTER ET AL.
v.
THE BANK OF NEW YORK, EXECUTOR (ESTATE OF ROBERT A. LANCASTER)
THE BANK OF NEW YORK, EXECUTOR (ESTATE OF ROBERT A. LANCASTER)
v.
JOHN E. LANCASTER ET AL.
Supreme Court of Connecticut.
Argued June 8, 1960.
Decided July 19, 1960.
BALDWIN, C. J., KING, MURPHY, MELLITZ and SHEA, JS.
*568 Palmer S. McGee, Jr., for the appellant (defendant in the first case and plaintiff in the second).
Morgan P. Ames, with whom, on the brief, was Edward R. McPherson, Jr., for the appellees (plaintiffs in the first case and defendants in the second).
KING, J.
On August 12, 1957, the Probate Court for the district of Ridgefield entered a decree admitting *569 to probate the last will and testament of Robert A. Lancaster, a bachelor, who died, a resident of Ridgefield, on May 7, 1957, leaving a gross estate well in excess of $100,000. From this decree the contestants, who are the decedent's heirs at law, appealed to the Superior Court. The reasons of appeal raised the two statutory issues of due execution and testamentary capacity. General Statutes §§ 45-160, 45-161; Crane v. Manchester, 143 Conn. 498, 501, 123 A.2d 752, and cases cited. They also included a claim that the will, which was executed April 25, 1957, was the product of undue influence brought to bear on the testator by Mrs. Mabel M. Chisolm, who was the principal beneficiary under the will and in whose apartment the testator lay ill while the will was being prepared and executed. Upon a trial to the jury, a verdict that the will was invalid was rendered on March 19, 1958. The jury's answers to interrogatories established that the issue of testamentary capacity was found in favor of the proponent and the issue of undue influence in favor of the contestants. Apparently due execution, on which the proponent offered evidence, was quite properly not questioned by the contestants. See Doolittle v. Upson, 138 Conn. 642, 643, 88 A.2d 334; Boschen v. Second National Bank of New Haven, 130 Conn. 501, 504, 35 A.2d 849. The proponent's motion to set aside the verdict as against the law and the evidence was denied, without memorandum, on May 23, 1958. From the judgment entered on the verdict on May 23, 1958, the proponent appealed on June 3, 1958. On January 7, 1959, the proponent filed its assignment of errors, claiming error in the denial of its motion to set aside the verdict as against the evidence and in three rulings on evidence.
*570 In the meantime, by complaint served on November 26, 1958, six months after the entry of judgment in the probate appeal, the proponent instituted a petition for a new trial of the probate appeal on the claim of newly discovered evidence. The petition was ultimately denied, and an appeal from that judgment is consolidated with the appeal from the judgment in the appeal from probate. If reversible error occurred in the appeal from probate, the proponent would obtain a new trial and it would be unnecessary to consider the petition for a new trial. Accordingly, we first turn to the assignments of error in the appeal from probate. Three of these attack rulings on evidence.
Counsel for the contestants read the direct testimony of Dr. Grafton E. Burke as given in a deposition which had been taken by the proponent. Dr. Burke had first attended the decedent in Mrs. Chisolm's apartment on April 24, 1957, which was the day before the will was executed and the day before the decedent was taken to the hospital. The decedent had a cancer of the groin which proved fatal. The proponent objected to a question asked of Dr. Burke during his cross-examination by the contestants. The objection was not addressed merely to the form of the question, and therefore it properly was made during the reading of the deposition at the trial. Rusch v. Cox, 130 Conn. 26, 35, 31 A.2d 457. The finding states that no ground for the objection was given. The objection was overruled and the proponent excepted. Since no ground for the objection was stated, we cannot find error in the court's action in overruling it. See Coupland v. Housatonic R. Co., 61 Conn. 531, 552, 23 A. 870; Practice Book § 155.
Mrs. Doris Chapman was called as a witness by *571 the contestants and testified that she had assisted Mrs. Chisolm daily in caring for the decedent in her apartment during the week before he was taken to the hospital. The finding states that Mrs. Chapman was called by the contestants "to testify on certain very limited issues," which "did not include any conversations by Lancaster concerning hospitalization." On her cross-examination, the court excluded, as beyond the scope of the direct examination, a question as to whether the decedent had ever indicated to her or to Mrs. Chisolm his wishes in regard to going to the hospital. The ruling was correct. Finch v. Weiner, 109 Conn. 616, 619, 145 A. 31. Furthermore, the finding discloses that, later on, in the rebuttal portion of the proponent's case, Mrs. Chapman was called as the proponent's witness and testified that the decedent told her that he did not want to go to the hospital. Even if the ruling excluding the cross-examination had been erroneous, the subsequent testimony would have rendered the error harmless and therefore immaterial.
Twelve of the seventeen witnesses called by the contestants testified by deposition and were not present at the trial. One of these deponents was Dr. Charles H. Armando Krebs. Krebs had received a degree in medicine from a European university; he did not practice medicine in this country and to a considerable extent devoted himself to music. Mrs. Chisolm was also interested in music and had sung professionally. He and Mrs. Chisolm had become acquainted, because of their common interest in music, while returning from Europe on the same ship. When the decedent lay ill in Mrs. Chisolm's apartment, Krebs called several times a week at one period in connection with a European concert tour which he was arranging for Mrs. Chisolm. His deposition *572 was taken in New York at the instance of the contestants. Included among those present at the taking of the deposition were counsel for the contestants, counsel for the proponent, and Mrs. Chisolm's personal counsel, Alfred Rice. Krebs spoke and wrote English so imperfectly as to be frequently unintelligible. At the outset of the taking of the deposition, after he was sworn, he asked for an interpreter. This precipitated a long colloquy, preliminary to the deposition proper, between Krebs and the three attorneys. The discussion ranged over a variety of topics. Counsel for the proponent, aided by Rice, attempted to persuade Krebs to refuse to testify at all, on the ground that he had not been served with a subpoena and on the further ground that he was entitled to consult counsel of his own. Krebs testified to efforts of unknown persons to influence his testimony by threats and intimidation. Finally, he decided that he needed no lawyer but did need a German interpreter. Thereupon a German interpreter was obtained and Krebs was resworn and gave his deposition.
When the deposition proper was offered at the trial, counsel for the proponent claimed that if all or any part of it was to be read in evidence the entire preliminary colloquy should also be read because it bore on the weight to be given to Krebs's testimony. The court refused to permit the preliminary colloquy to be read, pointing out that some parts of it were inadmissible for any purpose. To this ruling an exception was taken. It may be that certain portions of the colloquy could properly have been admitted as bearing on the credibility of the witness. No such claim, however, was made. The claim was that the entire colloquy should be read to the jury. The court was not in error in overruling it. *573 Johnson v. Rockaway Bus Corporation, 145 Conn. 204, 210, 140 A.2d 708.
The final assignment of error is based on the court's refusal to set aside the verdict as against the evidence. We are hampered in our review of this ruling by the court's failure to file any memorandum accompanying and explaining its denial of the motion. See cases such as Lupak v. Karalekas, 147 Conn. 432, 433, 162 A.2d 180; Kerrigan v. Detroit Steel Corporation, 146 Conn. 658, 663, 151 A.2d 517 (dissenting opinion). While a memorandum of decision is not legally required on the denial of a motion to set aside the verdict, but only on the granting of it (Practice Book § 163), it is sound practice, where, as in this case, the motion is not frivolous, to set forth in a memorandum the basic reasons why the motion is denied.
The court held as matter of law that Mrs. Chisolm's relationship to the decedent was not of a confidential nature so as to relieve the contestants of the burden of proving undue influence. Page v. Phelps, 108 Conn. 572, 584, 143 A. 890; Berkowitz v. Berkowitz, 147 Conn. 474, 476, 162 A.2d 709. Recently, we had occasion to summarize our law on the meaning of the term "undue influence" as applied to will contests. Lee v. Horrigan, 140 Conn. 232, 237, 98 A.2d 909, and cases cited. Direct evidence of undue influence is often unavailable and is not indispensable. Salvatore v. Hayden, 144 Conn. 437, 440, 133 A.2d 622. On the other hand, the mere opportunity of exerting undue influence, which of course existed to a marked degree in the present case, is not alone sufficient. Richmond's Appeal, 59 Conn. 226, 246, 22 A. 82; Hills v. Hart, 88 Conn. 394, 402, 91 A. 257. There must be proof not only of undue influence but that its operative effect was to *574 cause the testator to make a will which did not express his actual testamentary desires. Hills v. Hart, supra, 401. Of course, the will here disregarded to a great extent the testator's heirs at law, that is, his brother and the two children of his deceased sister, and left the bulk of his estate to one wholly unrelated to him. If the jury found that such a disposition was unjust and unreasonable, then that disposition would be circumstantial evidence tending to prove undue influence. Salvatore v. Hayden, supra, 441. Whether the disposition was unjust and unreasonable was a question of fact for the jury and depended to a considerable extent on what the jury found, from the evidence, was the testator's true relationship with, and feeling toward, his heirs at law, on the one hand, and Mrs. Chisolm, on the other hand. Doolittle v. Upson, 138 Conn. 642, 645, 88 A.2d 334.
There was testimony by Mrs. Rita Michaelson that she first met the decedent at a New Year's eve party on December 31, 1955, and that thereafter she was in his company once or twice a week until February, 1957, when he had a severe hemorrhage, could no longer live alone, and went to Mrs. Chisolm's apartment. Mrs. Michaelson further testified that the decedent had told her that they would get married in about two years but that it would not do to let Mrs. Chisolm know that they were in each other's company, because then "all hell" would break loose; that he frequently told her that he was under some pressure from Mrs. Chisolm; that during the first week in February, 1957, the decedent, in a visit to the apartment of Mrs. Michaelson, told her that he had a problem and showed her the growth on his body; that on the Friday before Lincoln's Birthday she saw him twice and the growth was again discussed; *575 and that thereafter she did not see him or have any communication with him until after he had been taken to the hospital on April 25. There was also evidence that Mrs. Chisolm failed to notify any of the friends or relatives of the decedent during the two months in which he lay ill in her apartment. He was obviously a very sick man at the time the will was executed, and his illness might be found to have affected his susceptibility to undue influence. See Hills v. Hart, supra, 397.
Whether Mrs. Chisolm was actually present in the room (other than momentarily when she was summoned to find the decedent's glasses for him) during the actual execution of the will, as Krebs testified, is not of controlling importance, since it would be unlikely that she would exert any influence upon him in the presence of the witnesses to the will and the lawyer who drew it, none of whom were well acquainted with her. While the undue influence, to justify the verdict, had to be operative to produce a will which did not reflect the testator's free will and true testamentary desires, its actual exertion, if it was exerted, would be likely to precede the testator's giving of instructions to the scrivener and the execution of the will itself. See Jackson v. Waller, 126 Conn. 294, 302, 10 A.2d 763; Richmond's Appeal, supra; Hills v. Hart, supra, 401. The jury, had they accepted the proponent's evidence, would quite properly have found in favor of the will on the issue of undue influence. But we cannot say that they could not reasonably find, as they did, that the contestants sustained their burden of proving undue influence on Mrs. Chisolm's part. We would reach the same result even without Krebs's testimony, which also tended to indicate undue influence and which we shall consider in more detail in connection with the *576 appeal from the judgment denying the petition for a new trial. There was no error in the refusal to set aside the verdict.
Since there is no error on the appeal from probate, it becomes necessary to consider the appeal from the judgment denying the petition for a new trial. The assignments of error are two in number and complain of (a) the sustaining of a demurrer to the original complaint in the petition and (b) the expunging of what the petitioner terms an amended complaint, filed after the sustaining of the demurrer. Since the amended complaint was complete in itself and entirely superseded the original complaint, it is more accurately termed a substitute complaint. The motion to expunge was made on the ground that the substitute complaint merely repeated, in substance, the allegations in the original complaint, which had been adjudged insufficient when the demurrer was sustained. Fidelity & Casualty Ins. Co. v. Sears, Roebuck & Co., 124 Conn. 227, 236, 199 A. 93; Goldberg v. Kaplan, 101 Conn. 432, 438, 126 A. 329. The substitute complaint differed from the original complaint only in a single paragraph, in which certain allegations of the original complaint were made more general and certain factual inaccuracies of statement were changed, if not corrected. For reasons which will hereinafter appear, there was no error in sustaining the demurrer to the original complaint, nor would there have been had the original complaint been identical with the substitute complaint. Since the substitute complaint is, as pointed out, more nearly accurate, we have decided to consider the ruling on the demurrer as though it had been addressed to the substitute complaint.
The substitute complaint alleged, in essence, that by far the most important testimony in support of *577 the issue of undue influence was that of Krebs, who testified that he had been in Mrs. Chisolm's apartment the day the will was executed and who described the actions of Mrs. Chisolm on that day, before and after the execution; that Krebs had written a letter to Mrs. Chisolm, dated May 9, 1957, two days after the testator's death; that this letter, which was incorporated in the petition, stated, if properly construed, that Krebs had not seen Mrs. Chisolm between April 19, 1957, and May 9, 1957; that it therefore disclosed the inaccuracy of the testimony of Krebs that he was in the apartment on April 25, 1957, when the will was executed and the consequent injustice of the verdict and the judgment; and that therefore a new trial was warranted. Affidavits of various persons were attached, including an affidavit by the trial attorney for the proponent that he had not been advised prior to the trial of the letter of May 9, 1957, and did not know of it until about October 7, 1958, and an affidavit of Mrs. Chisolm that she had received the letter a few days after the testator's death. The contestants demurred to the complaint on a number of grounds, among which was that the proposed new evidence at most merely affected the credibility of the witness Krebs. We confine our discussion to this ground, since it is dispositive of, and fatal to, the appeal.
Krebs, though an important witness, was not a party and could make no admissions. The letter would be admissible only as an inconsistent statement to affect his credibility. It would not be evidence of the truth of any statement of fact contained in it. The plaintiff seems to claim that the letter was evidence that Krebs was not in Mrs. Chisolm's apartment on the day the will was executed. Such a claim is erroneous. Sears v. Curtis, 147 *578 Conn. 311, 316, 160 A.2d 742. The effect of the letter, at most, would be to throw doubt on Krebs's testimony that he was in the apartment that day. Where claimed newly discovered evidence would merely affect the credibility of a witness, it is not a ground for a new trial unless it is reasonably probable that on a new trial there would be a different result. Turner v. Scanlon, 146 Conn. 149, 163, 148 A.2d 334; Smith v. State, 139 Conn. 249, 251, 93 A.2d 296; Apter v. Jordan, 94 Conn. 139, 142, 108 A. 548; Husted v. Mead, 58 Conn. 55, 62, 19 A. 233; Tappin v. Clarke, 32 Conn. 367, 369. Only under most exceptional circumstances, even in a capital case, could a witness' testimony be so important and influential that a court could, within the limits of a sound discretion, determine that new evidence merely impeaching the witness' credibility would probably produce a different result. See Taborsky v. State, 142 Conn. 619, 632, 116 A.2d 433; Smith v. State, supra, 253. The rule restricting the right to a new trial when one is claimed on the basis of newly discovered evidence merely affecting the credibility of a witness is necessary because "scarcely has there been an important trial, with many witnesses, where [after the trial] diligent search would not have discovered evidence [to impeach the character of] some witness on the trial." Tappin v. Clarke, supra. Without such a rule, "there might never be an end to litigation." Turner v. Scanlon, supra.
As has already been pointed out in the discussion of the claim that the verdict was against the evidence on the issue of undue influence, there was sufficient evidence to support the verdict even without Krebs's testimony. Furthermore, as previously noted, Krebs both spoke and wrote English so imperfectly that it is not entirely certain that the *579 letter is inconsistent with his testimony. There is also the closely allied question, which would not be at all likely to arise in the case of one facile in writing English, whether he actually intended to convey the meaning which he seems somewhat uncertainly to have expressed in the letter. On a new trial, he would undoubtedly be allowed to explain what he did mean by this ambiguous and rather unintelligible missive. Bredow v. Woll, 111 Conn. 261, 264, 149 A. 772.
Even if it is assumed that the letter would be so construed as to be inconsistent with Krebs's testimony concerning the execution of the will, it could not be said that the result of a new trial would probably be different. That there might possibly be a different result would not justify the overruling of the demurrer. The memorandum of decision sustaining the demurrer discloses that the trial court, after comparing the testimony as given on the trial with the allegations in the petition for a new trial, together with the exhibits attached, decided whether, within the limits of a sound discretion, a court could grant a new trial. This was the correct test. Link v. State, 114 Conn. 102, 107, 157 A. 867. The proposed new evidence was inadequate to support the exercise of a discretion to grant a new trial. This is true whether we consider the original complaint or the substitute complaint, and there was consequently no error either in sustaining the demurrer or in expunging the substitute complaint. The court did not base its decision sustaining the demurrer squarely on the ground we have discussed; but where, as here, one ground of demurrer is efficacious, error cannot be predicated on the fact that the demurrer was sustained on another, even if erroneous, ground. Turrill v. Erskine, 134 Conn. 16, 20, 54 *580 A.2d 494; Maltbie, Conn. App. Proc. § 65, and cases cited. It is therefore unnecessary to consider the other grounds of demurrer or the contestants' bill of exceptions.
There is no error in either case.
In this opinion the other judges concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3070451/ | COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-15-00059-CR
Jason Bailey § From Criminal District Court No. 4
§ of Tarrant County (0669679R)
v. § May 21, 2015
§ Per Curiam
The State of Texas § (nfp)
JUDGMENT
This court has considered the record on appeal in this case and holds that
the appeal should be dismissed. It is ordered that the appeal is dismissed for
want of jurisdiction.
SECOND DISTRICT COURT OF APPEALS
PER CURIAM | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1550217/ | 262 B.R. 893 (2001)
In re CONXUS COMMUNICATIONS, INC., Conxus Financial Corp., Conxus Network, Inc., Conxus Spectrum, Inc., and Conxus Properties, Inc., Debtors.
MFS Telecom, Inc., and MFS Datanet, Inc., Appellants,
v.
Motorola, Inc., and Conxus Communications, Inc., et al., Appellees.
CIV. A. No. 99-582-JJF.
United States District Court, D. Delaware.
June 4, 2001.
*894 *895 Eric Lopez Schnabel, Klett Leiber Rooney & Schorling, Wilmington DE, Klett Leiber Rooney & Schorling (Robert P. Simons, Kurt F. Gwynne, of counsel), Philadelphia, PA, for Appellants.
Arthur G. Connolly, III, Karen C. Bifferato, Connolly, Bove, Lodge & Hutz, Wilmington, DE, Steptoe & Johnson, LLP (Howard H. Stahl, Steven K. Davidson, Sidney P. Levinson, of counsel), Washington, DC, for Appellees.
OPINION
FARNAN, District Judge.
Pending before the Court is an appeal by MFS Telecom, Inc. and MFS Datanet, Inc. (collectively "MFS") from the August 27, 1999 Order (the "Order") of the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") enjoining MFS Datanet, Inc. and MFS Telecom, Inc. from terminating telecommunications services to the estates of Conxus Communications, Inc., Conxus Financial Corp., Conxus Network, Inc., Conxus Spectrum, Inc. and Conxus Properties, Inc. (collectively, the "Debtors"). For the reasons discussed, the Order issued by the Bankruptcy Court enjoining MFS from discontinuing its service to the Debtors will be reversed.
BACKGROUND
On May 19, 1999 (the "Petition Date"), the Debtors, a paging company, filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. (D.I. 7, Ex. 3 at 2). The Debtors' secured lender was Motorola, Inc. ("Motorola"). Prior to and after the Petition Date, MFS provided the Debtors with telecommunications services. For their use of telecommunications services after the Petition Date, the Debtors owed MFS approximately $500,000.
On August 16, 1999, the Debtors' Chapter 11 action was converted to a Chapter 7 action. On August 18, 1999, a Chapter 7 Trustee was appointed. Shortly thereafter, on August 20, 1999, MFS notified the Debtors that they would be terminating its services due to the Debtors' post-petition payment defaults. At the request of Motorola, MFS agreed to provide the Debtors with telecommunications services until 4:00 p.m. on August 27, 1999. At that time, the Bankruptcy Court entered an Order requiring Motorola and the secured creditors' group to make certain funds available to use as cash collateral for the continued operations. (D.I. 7, Ex. 3 at 3). Although the Debtors' business was going to be discontinued, the Trustee and Motorola wanted MFS to extend its services to the Debtors in order to prevent claims from individuals who would have their paging service interrupted without notice and to provide the Debtors with an opportunity to sell their assets, particularly a lengthy subscriber list, to interested parties.
At approximately 3:45 p.m. on August 27, 1999, counsel for Motorola with the support of the Chapter 7 Trustee, orally moved the Bankruptcy Court for an injunction to prevent MFS from terminating its services to the Debtors. Specifically, Motorola sought an extension until August 31, 1999, so as to allow the Trustee a few more days to operate the Debtors' business. According to Motorola and the Trustee, the injunction was necessary for the same reasons that Motorola initially sought the extension of services. Particularly, Motorola believed that the extension of services would enhance the value of the *896 Debtors' subscriber list and avoid a public safety issue. According to Motorola, several suicide crisis lines in California utilized Conxus pagers, and a few additional days of service would allow another purchaser to buy the subscriber list, thereby preventing any interruption in services to customers like the suicide crisis lines. (D.I. 7, Ex. 3 at 14).
Opposing the injunction, MFS argued that it had the right to terminate services to the Debtors under 11 U.S.C. § 366 of the Bankruptcy Code. MFS further argued that the Debtors could not establish the requirements for an injunction, specifically a likelihood of success on the merits given the utility's rights under Section 366 and the Third Circuit's decision in Begley v. Philadelphia Electric Co., 760 F.2d 46 (3d Cir.1985). However, MFS admitted that it would incur no harm if the injunction were granted and the expenses were prepaid as Motorola and the Trustee represented they would be. (D.I. 7, Ex. 3 at 22).
In granting Motorola's request for an injunction, the Bankruptcy Court assumed that a utility had the right under Begley and Section 366 to terminate services. However, the Bankruptcy Court stated that "[b]ecause this case [Begley] says you have the right [to terminate] . . . does not address a [Section] 105 injunction request." (D.I. 7, Ex. 3 at 30). The Bankruptcy Court then considered the limited duration of the proposed injunction, that MFS would be pre-paid for any services it rendered for the four day period, the lack of harm to MFS, and the potential for irreparable harm to the Chapter 7 Trustee and the secured creditors who were in the process of negotiating with prospective purchasers interested in acquiring the Debtors' subscriber lists. Based on these factors, "the exigent circumstances and the limited nature of the injunction," the Bankruptcy Court granted Motorola's request for an injunction. (D.I. 7, Ex. 3 at 31).
Following the Bankruptcy Court's decision, MFS filed a Notice of Appeal (D.I.2) in this Court, and a motion to proceed on an expedited, emergency basis (D.I.1). The Court denied MFS's motion for an expedited hearing, but permitted MFS the opportunity to proceed with this appeal if it deemed that the action was warranted.
Shortly thereafter, Motorola filed a letter with the Court requesting the Court to dismiss the action as moot, or schedule a teleconference to discuss the matter (D.I.9). MFS filed a response indicating its position that the appeal was not moot. The Court conducted a teleconference shortly thereafter. MFS indicated that it would continue with its appeal, and the parties filed a stipulated briefing schedule.
Accompanying its Response To Opening Brief Of MFS Telecom and MFS Data Net (D.I.15), Motorola filed a letter (D.I.16) with the Court explaining that the parties had entered into an agreement by which MFS secured its right to continue this appeal (the "Agreement"). By the terms of the Agreement, Motorola agreed not to take a position on the merits of this appeal, unless the Court otherwise ordered. (D.I. 16, Agreement at ¶ 3). However, Motorola indicated that MFS would be filing a Reply Brief addressing the issue of mootness.
By the terms of the Agreement, the parties acknowledged that the injunction expired by its own terms on August 31, 1999, and that the Debtors incurred costs to MFS of approximately $38,400 during the injunction. In addition, the Agreement set forth the manner in which the $40,000 deposit made by Motorola would be applied in the event MFS prevailed or in the event MFS did not prevail on this appeal. (D.I. 16, Agreement at ¶ 4).
*897 DISCUSSION
I. Jurisdiction and Standard of Review
Pursuant to 28 U.S.C. § 158(a), the Court has jurisdiction to adjudicate appeals from final judgments, orders and decrees of bankruptcy judges. Pursuant to Federal Rule of Bankruptcy Procedure 8013, the Court "may affirm, modify, or reverse a bankruptcy judge's judgment, order or decree or remand with instructions for further proceedings." Fed. R. Bankr.P. 8013. The Court reviews the grant or denial of an injunction by a bankruptcy court for an abuse of discretion. Lone Star Steakhouse & Saloon, Inc. v. Alpha of Virginia, Inc., 43 F.3d 922, 939 (4th Cir.1995); McCrory Corp. v. State of Ohio, 212 B.R. 229, 231 (S.D.N.Y.1997); see also Penn Terra Limited v. Dep't of Envtl. Resources, 733 F.2d 267 (3d Cir. 1984). A bankruptcy court's factual determinations are subject to deference and shall not be set aside unless clearly erroneous. Fed. R. Bankr.P. 8013; see In re Gutpelet, 137 F.3d 748, 750 (3d Cir.1998). However, a bankruptcy court's conclusions of law are subject to plenary review and are considered de novo by the reviewing court. Meespierson, Inc. v. Strategic Telecom, Inc., 202 B.R. 845, 847 (D.Del.1996).
II. Whether MFS's Appeal Is Moot
Although Motorola has agreed, under the terms of the Agreement in this case, to refrain from asserting a position on this appeal, Motorola has contended previously that the instant appeal is moot, and MFS has addressed the issue of mootness in its Reply Brief. Accordingly, as a threshold matter, the Court will consider whether MFS's appeal is moot.
By its previous letter in this case, Motorola contended that the instant appeal is moot, because the injunction expired by its own terms on August 31, 1999, and upon notification from the Trustee, MFS terminated its telecommunications services to the Debtors. (D.I.9). In support of its argument, Motorola relied upon Judge Garth's dissent in Klein v. Califano, 586 F.2d 250 (3d Cir.1978).
In Klein, Judge Garth observed:
Where an appeal is taken from an injunction which has since expired by its own terms, it has been held that "no `actual matters in controversy essential to the decision of the particular case before it,'" remain for a court to decide.
Id. at 262 (citations omitted). However, as Motorola recognized and MFS points out, Judge Garth's position is not controlling.
In Klein, the Department of Health, Education and Welfare (the "Department") threatened to terminate federal funding to a nursing home, because the facility did not comply with federal quality standards. Id. at 250. Several residents of the nursing home and the commissioner of the state Medicaid agency filed a class action seeking to prevent the Department from terminating the facility's Medicaid funding. After granting summary judgment in favor of the plaintiffs on one count of the class action complaint, the district court entered an order enjoining the Department from terminating the nursing home's funding, and the Department appealed the injunction. Id. at 253-254. While the Department's appeal was pending, the nursing home was recertified which extinguished any threat that the Department could terminate its funding. Id. at 250, 255.
Examining whether the Department's appeal was moot, the Court of Appeals for the Third Circuit concluded that the appeal was moot insofar as the prospective application of the district court's order was concerned. However, the Third Circuit also concluded that the appeal was not moot insofar as the Department sought to recoup funds that were disbursed pursuant *898 to the injunction. Id. at 255-256. Recognizing that judicial economy would not be served because it was likely that the Department would challenge the injunction in a collateral proceeding to recoup its funds, the Third Circuit held that a party "who asserts a colorable claim to compensation from a wrongfully granted permanent injunction whose prospective application has been mooted [may] appeal directly the merits of the injunction, rather than be remitted to a collateral challenge of the injunction in a recoupment action." Id. at 256.
By its injunction order in this case, the Bankruptcy Court required Motorola to pay MFS a sum of $40,000, to be applied against charges incurred by the Debtors during the injunction's duration. By the terms of the Settlement Agreement in this case, MFS has a right, if it prevails in this appeal, to apply any portion of the $40,000 remaining after MFS has been paid for its services during the injunction to damages incurred by MFS in pursing this appeal, including MFS's costs, fees and attorneys' fees. Likewise, if MFS does not prevail, the Agreement provides that a certain portion of the $40,000 may be used to offset any administrative claim of MFS and any remaining funds will be returned to the Trustee. Thus, while the injunction in this case has long since expired, the question of disbursement of funds remains, and the parties are likely to contest this issue in a subsequent proceeding if it is not resolved at this time. See Marshall v. Whittaker Corp., 610 F.2d 1141, 1147 (3d Cir.1979) (recognizing that appeal will not be moot if parties are likely to contest same issue in subsequent proceeding). Accordingly, in light of the majority's opinion in Klein, the Court concludes that the instant appeal is not moot.[1]
III. Whether The Bankruptcy Court Erred In Issuing An Injunction Enjoining MFS From Terminating Its Services To The Debtors
The question presented by this appeal is whether the Bankruptcy Court erred in enjoining MFS under 11 U.S.C. § 105 from exercising its rights to terminate telecommunications services to the Debtors under 11 U.S.C. § 366. After reviewing the record in this case and the applicable law, the Court concludes that the Bankruptcy Court erred in issuing an injunction against MFS. Accordingly, the Court will reverse the Bankruptcy Court's injunction order.
In pertinent part, 11 U.S.C. § 105(a) provides:
The court may issue any order, process, or judgment that is necessary or appropriate *899 to carry out the provisions of this title.
While Section 105(a) gives a bankruptcy court general equitable powers, those powers are limited by the provisions of the Bankruptcy Code. In re Morristown & Erie R.R. Co., 885 F.2d 98, 100 (3d Cir. 1989) (recognizing that Section 105(a) must be "applied in a manner consistent with the Code"). Thus, Section 105(a) does not give a bankruptcy court "the power to create substantive rights that would otherwise be unavailable under the Code." Id. (citing Southern Ry. Co. v. Johnson Bronze Co., 758 F.2d 137, 141 (3d Cir. 1985)).
In this case, the section of the Bankruptcy Code at issue is 11 U.S.C. § 366. Pursuant to Section 366, a "utility" may not terminate or refuse service to a debtor "solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due." 11 U.S.C. § 366(a). However, the Third Circuit has recognized that Section 366 does not preclude a utility from terminating services based upon a debtor's post-petition default. Begley v. Philadelphia Electric Co., 760 F.2d 46, 50 (3d Cir.1985) (recognizing that utility may "commence termination procedures once a post-petition payment is missed, despite the prior security or `assurance' deposit").
At the hearing before the Bankruptcy Court, MFS contended, and neither the Trustee nor Motorola disputed, that the Debtors failed to pay MFS approximately $500,000 in post-petition services. Because the Debtors defaulted post-petition, MFS had the right under Section 366 to terminate service to the Debtors. Indeed, in issuing its ruling, the Bankruptcy Court expressly assumed that MFS had the right to terminate services, yet the Bankruptcy Court issued an injunction under Section 105. As the Court has recognized, Section 105 must be applied in a manner consistent with the Bankruptcy Code and may not be used to create substantive rights unavailable to a party under the Bankruptcy Code. In re Morristown & Erie Railroad Co., 885 F.2d at 100. In this case, the Bankruptcy Court utilized Section 105 to restrict, albeit for a short period of time, MFS's rights, while expanding the Debtors' rights beyond the protection afforded to the Debtors under Section 366. Accordingly, the Court cannot conclude that the Bankruptcy Court applied Section 105 appropriately. Id. (reversing bankruptcy court's application of Section 105, because it expanded contractual obligation of non-debtor party).
The Bankruptcy Court cited the exigent circumstances in the case to support its reason for the injunction; however, the Court is not persuaded that these circumstances justified a departure from the Bankruptcy Code. The exigent circumstances in this case were, in large part, of Motorola's own making. Motorola waited until the eleventh hour to pursue its request for an injunction, skirting the requirement that such proceedings be filed as an adversary proceeding, even though Motorola had notice several days before that the utility was going to terminate services. Indeed, that Motorola failed to file the required adversary proceeding was alone sufficient reason for the Bankruptcy Court to deny Motorola's request for an injunction. See Fed. R. Bankr.P. 7001(7); In re Best Products Co., 203 B.R. 51 (Bkrtcy.E.D.Va.1996) (holding that because debtor did not file adversary proceeding, court could not enjoin utility from pursing its rights under state law if debtor defaulted in its payments post-petition) (citing Begley v. Philadelphia Elec. Co., 760 F.2d 46 (3d Cir.1985)). Accordingly, *900 in these circumstances, the Court concludes that the Bankruptcy Court erred in enjoining MFS from terminating its services to the Debtors.
CONCLUSION
For the reasons discussed, the Court will reverse the Order Granting Oral Motion Of Motorola, Inc. For An Order Enjoining MFS Datanet, Inc. And MFS Telecom, Inc. From Terminating Telecommunications Services To The Estates dated August 27, 1999.
NOTES
[1] In support of its argument that the instant appeal is not moot, MFS contends that, in addition to its contractual right under the Agreement to recoup or set off against the $40,000 deposit, the instant action is not moot because it is "capable of repetition, yet evading review." (D.I. 17 at 5, citations omitted). While MFS is correct that the injunction order issued in this case was too short in duration to permit it to be fully litigated prior to its cessation, the Court disagrees with MFS contention that "there is a reasonable expectation that the same complaining party [MFS] would be subjected to the same action again." (D.I. 17 at 5, citations omitted). MFS contends that it is frequently subject to injunctions on an ex parte basis or inadequate notice in the bankruptcy courts in this district; however, MFS also recognizes that the bankruptcy courts in this district have begun to reconsider injunction orders that purportedly interfere with a utility's Section 366 termination rights. Further, the decision to issue an injunction is usually fact specific. Accordingly, the Court cannot conclude that there is a reasonable expectation that MFS would be subjected to the same action again, such that the subject of the instant appeal is capable of repetition, yet evading review. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550211/ | 262 B.R. 435 (2001)
In re Bobby Joe OSBORNE, Debtor.
Judy Fay Crawford, Plaintiff,
v.
Bobby Joe Osborne, Defendant.
Bankruptcy No. 00-33265. Adversary No. 00-3132.
United States Bankruptcy Court, E.D. Tennessee.
April 30, 2001.
*436 *437 Gail F. Wortley, Knoxville, TN, for Plaintiff.
Turner & Vittone, Jimmie D. Turner, Oliver Springs, TN, for Defendant.
MEMORANDUM
RICHARD STAIR, Jr., Bankruptcy Judge.
Before the court is the Plaintiff's Complaint to Determine Dischargeability of Debt (Complaint) filed on November 16, 2000. By her Complaint, the Plaintiff seeks a determination that three marital debts (the Marital Debts) assumed by the Defendant (Debtor) in the parties' Marital Dissolution Agreement are non-dischargeable pursuant to 11 U.S.C.A. §§ 523(a)(5) or (15) (West 1993 & Supp.2000). This matter was tried before the court on April 9 and 23, 2001.
This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(I) (West 1993).
I
Formerly husband and wife, the parties were divorced on October 27, 1998, pursuant to a Final Decree of Divorce entered in the Fourth Circuit Court for Knox County, Tennessee. The divorce decree incorporates by reference the parties' Marital Dissolution Agreement (MDA) dated October 26, 1998, which provides in material part:
4. Non-dischargeability. With respect to each party's responsibility for payment of certain debts and liabilities, and their obligation to hold the other harmless for the payment thereof, the parties understand and agree that their obligation is a non-dischargeable debt under the Bankruptcy Code, this obligation being part of the final financial support settlement for both parties.
. . . .
20. Alimony Waived. In consideration of Husband waiving all claims to the wife's [sic] PIA account, the assumption of certain marital debts by Husband, the stipulation for each party to retain their own retirement account and other good and valuable consideration, both party's [sic] agree that they waive any and all claims for alimony that they might have in this divorce action between them.
*438 21. Debts. Each party agrees to assume, pay and hold the other party harmless from any of the debts that were incurred in their own individual names during the marriage. Husband agrees to assume all liability and responsibility for all outstanding indebtedness associated with the following joint accounts:
(a) American General Finance Account # XXXXXXXXXXXXXXXX;
(b) Discover Card Account # XXXXXXXXXXXXXXXX; and
(c) Household Credit Service Account # XXXXXXXXXXXXXXXX.
Each party represents unto the other party that each party has no knowledge of any other outstanding joint or marital debt except that which might be associated with the parties' marital residence, which is provided for hereinafter. However, the parties agree that in the event a debt shall become known, that each party agrees that the party who incurred the debt shall be solely responsible for said debt and shall hold the other party harmless therefrom.
Each party agrees that any charges either party might have made or any liability that would result from either party's own individual credit cards, charge accounts, signature loans, lines of credit or other type of indebtedness shall become that individual party's sole and exclusive responsibility, and that party shall hold the other party harmless therefrom.
On August 17, 2000, the Debtor filed a Voluntary Petition under Chapter 7. He listed the Plaintiff as a co-debtor on the debt to Household Credit Service,[1] but did not schedule the Plaintiff as a co-debtor on the Discover Card account.[2] The American General Finance debt is not accounted for in the Debtor's schedules, and the testimony at trial indicated that the account had been paid in full.
II
The Plaintiff objects to the dischargeability of the American General Finance, Discover Card, and Household Credit Service accounts pursuant to § 523(a)(5) of the Bankruptcy Code. That section provides that a discharge under Chapter 7 does not discharge an individual debtor from any debt:
[T]o a spouse [or] former spouse . . . of the debtor, for alimony to, maintenance for, or support of such spouse . . . in connection with a separation agreement, divorce decree or other order of a court of record . . . but not to the extent that
. . . .
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support[.]
11 U.S.C.A. § 523(a)(5) (West 1993 & Supp.2000). The non-debtor spouse bears the burden of establishing non-dischargeability. See Long v. Calhoun (In re Calhoun), 715 F.2d 1103, 1111 n. 15 (6th Cir. 1983).
Alternatively, the Plaintiff asserts that the Marital Debts are non-dischargeable under § 523(a)(15), which excludes from discharge a debt:
[N]ot of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in *439 connection with a separation agreement, divorce decree or other order of a court of record . . . unless
(A) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor and, if the debtor is engaged in a business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business; or
(B) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor[.]
11 U.S.C.A. § 523(a)(15) (West Supp.2000). The non-debtor spouse bears the burden of proving that the debt is not of the kind described in § 523(a)(5) and that the debt was incurred by the debtor "in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record." See Armstrong v. Armstrong (In re Armstrong), 205 B.R. 386, 391 (Bankr. W.D.Tenn.1996); In re Smither, 194 B.R. 102, 107 (Bankr.W.D.Ky.1996). The burden then shifts to the debtor to prove one of the affirmative defenses set forth in § 523(a)(15)(A) or (B). See Armstrong, 205 B.R. at 391; Smither, 194 B.R. at 107; see also Patterson v. Patterson (In re Patterson), 132 F.3d 33, 1997 WL 745501, at *2 (6th Cir.1997).
III
As an initial matter, the court must first discuss the nature of the obligations assumed by the Debtor in light of the hold harmless provisions contained in the MDA. In McCracken v. LaRue (In re LaRue), 204 B.R. 531 (Bankr.E.D.Tenn.1997), this court held that §§ 523(a)(5) and (a)(15) were inapplicable to joint debts assumed in a manner similar to those in the present case because of the absence of a hold harmless agreement. See LaRue, 204 B.R. at 534-36.
The parties in LaRue were formerly husband and wife and were divorced pursuant to a Final Decree which imposed certain obligations on the defendant debtor. At issue in LaRue was the provision of the Final Decree directing that the defendant "shall pay the outstanding balances on the Lowe's charge card, Citi-Bank, in the approximate sum of $5,100.00, and the Tennessee Teacher's Credit Union account, in the approximate sum of $3,200.00." Id. at 532. The Final Decree contained no hold harmless language "requiring the Debtor to indemnify or reimburse the Plaintiff for any portion of the parties' joint obligations she is required to pay." Id.
Citing a portion of § 523(a)(5)'s legislative history, the court held that there was no debt "in connection with" the Final Decree, as required by § 523(a)(5), because obligations to third parties are within the statute's reach only if there is an "entitlement to indemnification or reimbursement in favor of the Plaintiff if the Debtor fails to make the payments required." Id. at 534-35. The debts at issue were thus "obligations to third party creditors, not his former spouse," and not subject to § 523(a)(5). Id. at 535. Similarly, and again citing legislative history, the court held that the debts fell outside the scope of § 523(a)(15) as well:
In sum, this court holds that, in the absence of a hold harmless agreement, § 523(a)(15) is inapplicable to joint debts that were incurred by the Debtor prior to the divorce proceeding. Moreover, § 523(a)(15) is also inapplicable to debts owing to third parties, despite the fact *440 that they were incurred in the divorce proceeding, since the statute, supported by its legislative history, makes it clear that this exception to dischargeability applies only to debts that are owed to a spouse or former spouse. Because all of the obligations at issue in the present proceeding are obligations owed by the Debtor to third party creditors as opposed to his former spouse, § 523(a)(15) is inapplicable to an action to render these debts nondischargeable.
LaRue, 204 B.R. at 536; accord Belcher v. Owens (In re Owens), 191 B.R. 669 (Bankr.E.D.Ky.1996).
In the present case, the Debtor argues that the Marital Debts are dischargeable under LaRue. In paragraph 21 of the MDA, the Debtor agrees to "assume all liability and responsibility" for the three disputed joint Marital Debts, but there is no mention of indemnification of the Plaintiff. In contrast, immediately preceding and following the Marital Debt provision, each party expressly agrees to hold the other harmless for debts incurred in their individual names during the marriage. Paragraph 4 of the MDA, addressing non-dischargeability in bankruptcy, is less than clear, stating that:
With respect to each party's responsibility for payment of certain debts and liabilities, and their obligation to hold the other harmless for the payment thereof, the parties understand and agree that their obligation is a non-dischargeable debt under the Bankruptcy Code, this obligation being part of the final financial support settlement for both parties[.][3]
This provision could be read as (A) an indemnification provision applying to all obligations of each party under the MDA; or (B) a reference to only those "certain debts and liabilities" that are directly referenced by a hold harmless provision. The court finds that the latter interpretation is the correct one. Thus, the Debtor's obligation under the MDA to pay the three joint debts at issue is not accompanied by a hold harmless agreement in favor of the Plaintiff.
The court's decision in LaRue therefore dictates that the Plaintiff's Complaint should be dismissed. However, subsequent to LaRue, the Bankruptcy Appellate Panel of the Sixth Circuit Court of Appeals in a well-reasoned decision has reached a contrary result. See Gibson v. Gibson (In re Gibson), 219 B.R. 195, 203 (6th Cir. BAP 1998).
In Gibson, the defendant agreed under the parties' Separation Agreement to "pay any and all debts to his parents, if any." Id. at 198. The defendant later filed bankruptcy with a $26,500.00 debt to his stepfather remaining unpaid. See id. at 197. The plaintiff then filed a non-dischargeability complaint under §§ 523(a)(5) and (a)(15). See id. at 198. The bankruptcy court granted summary judgment for the defendant due to the absence of a hold harmless provision and because the debt was not owed directly to the plaintiff. See id. The Bankruptcy Appellate Panel reversed.
Citing Sixth Circuit authority that "payments in the nature of support need not be made directly to the spouse or dependent to be nondischargeable,"[4] the panel noted *441 that the proper inquiry under § 523(a)(5) is whether "an assumption of joint debts is `in the nature of alimony, maintenance, or support[.]'" Id. at 199 (citing and quoting Long v. Calhoun (In re Calhoun), 715 F.2d 1103, 1107 (6th Cir.1983)). The determination is to be made according to federal bankruptcy law rather than state law or the labels used by the parties. See Gibson, 219 B.R. at 199.
As for § 523(a)(15), Gibson held that "the determination of whether a debtor incurs a debt in connection with a Separation Agreement or Dissolution Decree is not limited to the use of hold harmless or other specific indemnification language." Gibson, 219 B.R. at 203; see also Patterson v. Patterson (In re Patterson), 132 F.3d 33, 1997 WL 745501, at *2 (6th Cir. 1997) ("Under [§ 523(a)(15)], a debtor is not discharged from any marital debt that is not in the nature of alimony, maintenance or support unless (1) the debtor is unable to pay the debt, or (2) the benefit to the debtor of discharging the debt would outweigh the detriment to the debtor's former spouse.") (emphasis added); McCafferty v. McCafferty (In re McCafferty), 96 F.3d 192, 200 (6th Cir.1996) (Section 523(a)(15) "allow[s] exemptions from discharge for all obligations incurred as a result of a divorce decree."). Examining the language of the statute, the Gibson panel continued:
Section 523(a) governs the dischargeability of "any debt" that satisfies the provisions of one of its subsections, including subsection (a)(15). . . . "A `debt' is defined in the Code as `liability on a claim', a `claim' is defined in turn as a `right to payment,' and a `right to payment[]' . . . `is nothing more nor less than an enforceable obligation.' Those definitions `reflec[t] Congress' broad . . . view of the class of obligations that qualify as a `claim' giving rise to a `debt. . . . '"
. . . .
Notably absent from the qualifying language of § 523(a)(15) are the phrases "hold harmless" and "payable to a third party."
Gibson, 219 B.R. at 202 (internal citations omitted). The panel concluded that it must look beyond the presence or absence of indemnification language to applicable non-bankruptcy law in order to determine whether a debt was "incurred by" the debtor in the course of the marital dissolution. Id. at 203 (expressly "declin[ing] to adopt" the analysis of LaRue and Owens).
Gibson then considered Ohio domestic relations law to determine whether the defendant incurred a debt in connection with the parties' Separation Agreement. See id. at 203-05. Because Ohio law permitted the trial court to enforce the terms of their Separation Agreement, the agreement brought to the parties' relationship "significant new legal consequences." See id. at 203-04 ("The entry of the Dissolution Decree extinguished all pre-existing obligations of the parties to each other . . . [and] replaced those obligations with new ones fully enforceable as a judgment of the domestic relations court."). The panel also noted that the Separation Agreement gave *442 the plaintiff "a new right to payment and related enforcement rights." Id. at 205. For these reasons, the panel concluded that the debt in question satisfied § 523(a)(15)'s qualifying language, "notwithstanding that the debt is payable to a third party and the Separation Agreement lacks hold harmless or other indemnification language." Id.; accord Melton v. Melton (In re Melton), 228 B.R. 641, 645 (Bankr.N.D.Ohio 1998).
As in Ohio, Tennessee courts may incorporate into a judgment of divorce, by reference or by their specific terms, all or a portion of a marital dissolution agreement. See Brewer v. Brewer, 869 S.W.2d 928, 932 (Tenn.Ct.App.1993). The marital dissolution agreement then merges into the decree and may be enforced by the trial court. See id.; see also Vick v. Vick, No. 02A01-9802-CH-00051, 1999 WL 398115 (Tenn.Ct.App. June 16, 1999); Ely v. Ely, No. 03A01-9707-CH-00255, 1998 WL 2510 (Tenn.Ct.App. Jan.6, 1998). In addition, a marital dissolution agreement imposes standard contract duties of "good faith and fair dealing in its performance and enforcement, and there is an implied undertaking on the part of each party that nothing will be intentionally done which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Posner v. Posner, No. 02A01-9710-CV-00249, 1997 WL 796216, at *3 (Tenn.Ct.App. Dec.30, 1997).
The court is persuaded that Gibson is the better-reasoned decision and will therefore not follow its prior holding in LaRue. The court concludes that under Tennessee law, the MDA merged into the October 27, 1998 Final Decree of Divorce; that the Final Decree of Divorce imposed an additional obligation on the Debtor in favor of the Plaintiff to pay the parties' three joint obligations; and that the Plaintiff, under Tennessee law, obtained a new right to payment of the joint debts enforceable by the state court under the Final Decree of Divorce.
IV
The Sixth Circuit has provided a framework for analyzing whether a former spouse's assumption of marital debt, not designated as "alimony, maintenance, or support," can nonetheless be a support obligation non-dischargeable under § 523(a)(5). See Long v. Calhoun (In re Calhoun), 715 F.2d 1103 (6th Cir.1983). First, the bankruptcy court must determine whether the state court and the parties intended the obligation to be in the nature of support. See id. at 1109. "In making this determination the bankruptcy court may consider any relevant evidence including those factors utilized by state courts to make a factual determination of intent to create support." Id.[5] If the court determines that the state court and the parties did not intend for the obligation to be in the nature of support, its § 523(a)(5) inquiry is at an end. See id.
Factors particularly relevant to this proceeding are the structure and language of the MDA and the nature of the obligations assumed. The structure and *443 language of the MDA are inconclusive. Paragraph 4 ambiguously states that "each party's responsibility for payment of certain debts and liabilities . . . [is] part of the final financial support settlement for both parties," thereby referring to assumptions both as "support" and as part of a "settlement." By comparison, paragraph 2 terms the MDA "a full, final and complete settlement of the property, marital and other rights of the parties hereto," further suggesting that the Marital Debt assumption is merely a component of the parties' property settlement. In paragraphs 2 and 20, both spouses expressly waive all claims for alimony.
The Calhoun court noted that the assumption of a debt providing daily necessities indicates support. See Calhoun, 715 F.2d at 1108 n. 7. In contrast, the Marital Debts in the present proceeding are past consumer debts, the Debtor's payment of which does not provide daily necessities to the Plaintiff. Calhoun acknowledged that any assumption of marital debt provides at least indirect support in that "[t]he former spouse is relieved of payments on that debt and thus has funds for other purposes including necessary support," but that alone is insufficient to satisfy the qualifying language of § 523(a)(5). Id. at 1108-09.
Notwithstanding the ambiguities, the court is persuaded that the waiver of alimony language in paragraph 20 of the MDA expresses the parties' intention that the Debtor's assumption of the three disputed joint debts not be in the nature of support. Both parties were represented by counsel throughout the divorce proceedings who agreed on behalf of the Plaintiff and Debtor to the alimony waiver language.
In summary, the Plaintiff has failed to demonstrate that the Debtor's assumption of the Marital Debts was intended to be in the nature of alimony, maintenance, or support as required by § 523(a)(5). The court finds that the debt assumption was instead intended as a component of the parties' overall property settlement. With this finding, the court's § 523(a)(5) inquiry is at an end. See id. at 1109.
V
Section 523(a)(15) provides that a debtor is not discharged from a marital debt that is not in the nature of alimony, maintenance, or support unless the debtor is unable to pay the debt or the benefit to the debtor of discharging the debt outweighs the detriment to the former spouse. 11 U.S.C.A. § 523(a)(15); see also Patterson v. Patterson (In re Patterson), 132 F.3d 33, 1997 WL 745501, at *2 (6th Cir.1997). As discussed, the Plaintiff bears the burden of proving that the Marital Debts are not of the kind described in § 523(a)(5) and that they were incurred by the Debtor "in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record." See Armstrong v. Armstrong (In re Armstrong), 205 B.R. 386, 391 (Bankr. W.D.Tenn.1996). As the court has already found the Marital Debts not to be in the nature of alimony, maintenance, or support, and as the debts clearly were incurred "in the course of a divorce" and "in connection with a divorce decree," the Plaintiff has met her burden. The responsibility now shifts to the Debtor to prove that he is unable to pay the debts or that the benefit to him of discharging the debts would outweigh the resulting detriment to the Plaintiff. See id.
A. Ability to Pay Test
The Debtor's ability to repay the Marital Debts should be considered as of the date of trial, taking into account both present income and prospective earning capacity. See id.; In re Smither, 194 *444 B.R. 102, 107 (Bankr.W.D.Ky.1996). A debtor is able to repay a § 523(a)(15) obligation if he "has sufficient disposable income to pay all or a material part of a debt within a reasonable amount of time." Armstrong, 205 B.R. at 392. If a debtor has remarried, the new spouse's income should be included in the disposable income calculation. Id.
The Debtor's schedules show, at the time of filing, monthly income of $2,232.86 and monthly expenses of $2,560.24. The Debtor testified at trial that his take-home pay at the time of filing was actually higher (approximately $600.00 per week, which equals approximately $2,600.00 per month), and that his current income is nearly the same. No evidence was presented regarding any changes in the Debtor's monthly expenses. The Debtor testified that he has remarried and that his current wife earned $4,000.00 in the last quarter. No evidence was presented to show that the current wife has substantial monthly expenses beyond those scheduled by the Debtor. The Debtor further testified that he recently received a $937.00 tax refund.
Additionally, the Debtor's schedules reveal that he has income sufficient to support $100.00 in monthly recreation expenses, a $100.00 monthly phone bill, $100.00 in monthly storage fees, $50.00 per month in "personal care" expenses, and a $59.00 monthly cable bill. While not directly addressing the reasonableness or necessity of any individual expenditure, the court notes the existence of an opportunity for a certain degree of belt-tightening by the Debtor.
According to the Debtor's schedules, the Discover Card and Household Credit Service debts totaled $4,225.98 as of the date of filing. Based on the income and expenses revealed by the Debtor's schedules and testimony, he has failed to demonstrate the inability to pay this amount over a reasonable period of time. Accordingly, the Debtor may not use § 523(a)(15)(A) as a defense to the Plaintiff's non-dischargeability Complaint.
B. Balancing of Detriments Test
Section 523(a)(15)(B) requires that courts compare each party's financial condition and relative standard of living to "determine the true benefit of the debtor's possible discharge against any hardship the former spouse . . . would suffer as a result of a discharge." Patterson, 132 F.3d 33, 1997 WL 745501, at *3. The debt should be discharged under § 523(a)(15)(B) only if a debtor's standard of living will fall "materially" below the non-debtor spouse's standard of living if the debt is not discharged. Id., at *3 n. 1 (citing Smither, 194 B.R. at 111).[6]
The parties enjoyed similar incomes at the time of their divorce but the *445 Plaintiff is now on disability and receives only $1,200.00 per month, substantially less than the present combined income of the Debtor and his current wife. The Debtor introduced no evidence concerning the Plaintiff's monthly expenses or prospects for increased future income.
The Debtor did assert that the Plaintiff has two certificates of deposit in reserve which could be used to pay the debts at issue.[7] However, he also testified perhaps fatally that he and the Plaintiff were equally able to pay the disputed debts.
The Debtor has failed to demonstrate that the discharge of the Marital Debts would result in a benefit to him that would outweigh the hardship that the Plaintiff would encounter as a result of the discharge. He therefore may not employ § 523(a)(15)(B) as a shield to permit the discharge of the disputed debts.
VI
For the reasons stated herein, the Plaintiff's Complaint to Determine Dischargeability of Debt will be sustained to the extent the Plaintiff seeks to have the Marital Debts declared non-dischargeable under 11 U.S.C.A. § 523(a)(15). A judgment consistent with this Memorandum will be entered.
NOTES
[1] The Debtor's Schedule F lists the amount of Household Credit Service's claim at $3,482.41.
[2] The Debtor's Schedule F lists the amount of Discover Card's claim at $743.57.
[3] The court quotes this paragraph only in reference to the hold harmless language. The Plaintiff makes no assertion that the "nondischargeable" language of this paragraph is enforceable.
[4] It is unclear how broadly the Sixth Circuit intended for this statement to be taken because it is equally unclear whether that court was discussing any situation other than a debt accompanied by a hold harmless provision. The cited paragraph reads in full:
Bankruptcy court decisions have uniformly found hold harmless clauses to create nondischargeable obligations. We agree with these courts and hold that payments in the nature of support need not be made directly to the spouse or dependent to be nondischargeable.
Long v. Calhoun (In re Calhoun), 715 F.2d 1103, 1107 (6th Cir.1983) (internal citations omitted). Immediately before this passage, the Calhoun court quoted with approval a passage from a Second Circuit opinion that made no mention of an indemnification requirement. See id. at 1106-07 (quoting In re Spong, 661 F.2d 6, 10 (2d Cir.1981)).
[5] The state court factors include:
[T]he nature of the obligations assumed (provision of daily necessities indicates support); the structure and language of the parties' agreement or the court's decree; whether other lump sum or periodic payments were also provided; length of the marriage; the existence of children from the marriage; relative earning powers of the parties; age, health and work skills of the parties; the adequacy of support absent the debt assumption; and evidence of negotiation or other understandings as to the intended purpose of the assumption.
Calhoun, 715 F.2d at 1108 n. 7.
[6] The following non-exclusive list of factors is useful in balancing the potential detriment to each party:
1. The amount of debt and payment terms;
2. All parties' and spouses' current income;
3. All parties' and spouses' current expenses;
4. All parties' and spouses' current assets;
5. All parties' and spouses' current liabilities;
6. Parties' and spouses' health, job training, education, age, and job skills;
7. Dependents and their ages and special needs;
8. Changes in financial conditions since divorce;
9. Amount of debt to be discharged;
10. If objecting creditor is eligible for relief under the Code; and
11. Whether the parties have acted in good faith in filing bankruptcy and in litigation of § 523(a)(15).
Patterson, 132 F.3d 33, 1997 WL 745501, at *3 n. 1 (citing Smither, 194 B.R. at 111).
[7] The Debtor offered no proof in support of this unsubstantiated assertion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550197/ | 262 B.R. 719 (2001)
In re DAYTON TITLE AGENCY, INC., Debtor-In-Possession.
Dayton Title Agency, Inc., et al., Plaintiffs,
v.
The White Family Companies, Inc., et al., Defendants.
No. 99-35768. Adversary No. 99-3664.
United States Bankruptcy Court, S.D. Ohio, Western Division.
May 15, 2001.
*720 *721 *722 BOK Mortgage, Tulsa, OK, pro se.
Sharyn J. Bennett, Robert B. Berner, Stephen K. Dankof, Donald F. Harker, III, Ronald S. Pretekin, Walter Reynolds, Charles D. Shook, Dayton, OH, David S. Cupps, Frederick L. Ransier, Columbus, OH, Stewart H. Cupps, Roger E. Luring, De Wayne Smith, Troy, OH, William B. Fecher, Jerome J. Metz, Jr., Cincinnati, OH, James P. Hickey, Jr., Oakwood, OH, for creditors.
Alan A. Biegel, Kettering, OH, Robert J. Eilerman, Lawrence S. Walter, Dayton, OH, for Interested parties.
Courtney M. Brady, Dayton, OH, pro se.
Centex Home Equity, Dallas, TX, pro se.
Fifth Third Mortgage, Cincinnati, OH, pro se.
Anne M. Frayne, Dayton, OH, for debtor.
GMAC Mortgage Corp., Waterloo, IA, pro se.
Liberty Lending Services, Inc., Wilmington, OH, pro se.
Mary Stickelman, Franklin, OH, pro se.
WILLIAM A. CLARK, Bankruptcy Judge.
DECISION OF THE COURT:
1) GRANTING PARTIAL SUMMARY JUDGMENT TO DEFENDANTS THE WHITE FAMILY COMPANIES, INC. AND NELSON WENRICK ON THE ISSUE OF DAYTON TITLE AGENCY, INC. BUSINESS TRUST'S INELIGIBILITY FOR SEPARATE BANKRUPTCY TREATMENT;
2) GRANTING SUMMARY JUDGMENT TO DAYTON TITLE AGEN- *723 CY, INC. ON RECOVERY OF FRAUDULENT TRANSFERS UNDER OHIO'S UNIFORM FRAUDULENT TRANSFER ACT AND DENYING SUMMARY JUDGMENT TO DEFENDANTS ON SAME;
3) DETERMINING NATIONAL CITY BANK'S MOTION FOR SUMMARY JUDGMENT TO BE MOOT; AND
4) GRANTING DAYTON TITLE AGENCY, INC.'S REQUEST FOR PREJUDGMENT INTEREST AND COURT FILING COSTS.
The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334, and the standing General Order of Reference entered in this district. This matter is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(E) and (H). The following decision is determined in accordance with Fed.R.Bankr.P. 7056.
This matter is before the court upon the following three motions for summary judgment and responsive memoranda:
1) The Motion of Plaintiff National City Bank for Summary Judgment filed against Defendants The White Family Companies, Inc. and Nelson Wenrick [Adv.Doc. # 99-1], Defendants' Memorandum Contra [Adv.Doc. # 121-1] and Reply Memorandum of Plaintiff National City Bank [Adv. Doc. # 135-1];
2) The Motion of Plaintiffs Dayton Title Agency, Inc. and Dayton Title Agency, Inc. Business Trust for Summary Judgment Against Defendants The White Family Companies, Inc. and Nelson Wenrick [Adv.Doc. # 103-1], Defendants' Memorandum Contra [Adv.Doc. # 133-1] and Reply Memorandum of Plaintiffs Dayton Title Agency, Inc. and Dayton Title Agency, Inc. Business Trust [Adv.Doc. # 136-1]; and
3) The Defendants, White Family Companies, Inc. and Nelson Wenrick's, Motion for Summary Judgment Against Dayton Title Agency, Inc., Dayton Title Agency, Inc. Business Trust and National City Bank and Memorandum in Support [Adv. Docs.# 125-1 and 126-1], Memorandum of Plaintiff National City Bank in Opposition [Adv.Doc. # 134-1], Memorandum of Plaintiffs Dayton Title Agency, Inc. and Dayton Title Agency, Inc. Business Trust in Opposition [Adv.Doc. # 138-1], Defendants' Reply to National City Bank's Memorandum [Adv.Doc. # 140-1] and Defendants' Reply to Dayton Title's Memorandum [Adv.Doc. # 143-1].
FACTUAL AND PROCEDURAL BACKGROUND
Debtor-in-Possession, Dayton Title Agency, Inc. ("Dayton Title"), whose bankruptcy case is jointly administered with the related Dayton Title Agency, Inc. Business Trust ("DTABT") bankruptcy, was a Dayton area title agency founded in 1973. [Adv.Doc. # 67-1, Depo. of Alex Katona ("Katona Depo."), p. 42.] Beginning in 1996, Dayton Title conducted closing agent services on real estate transactions for Krishan Chari ("Chari"), a real estate broker affiliated with Don Wright Realty. [Adv.Doc. # 70-1, Depo. of Pam Folino ("Folino Depo."), pp. 25-27.] Many of these transactions involved Chari channeling funds through Dayton Title's trust accounts which were used primarily to hold third party escrow funds related to the title agency's real estate closings. [Id., pp. 17-18.]
Beginning in November of 1998, Dayton Title experienced difficulties collecting funds from Chari to cover disbursements made at his direction through the trust *724 accounts. In at least one transaction, Dayton Title disbursed funds on behalf of Chari before Chari made a deposit into its account. [Adv.Doc. # 129-1, Ex. 3.] In connection with this same transaction and many others, Chari's checks were returned for insufficient funds. [Id., Exs. 3, 5, 11-18, 20-21, 23-24.] Some of the bounced checks resulted in substantial overdrafts in a Dayton Title trust account. [Adv.Doc. # 130-1, Ex. 70 at NCB 00277 and Adv. Doc. # 131-1, Ex. 71 at NCB 00255.]
At the center of the present dispute are transactions conducted at Chari's direction through one of Dayton Title's trust accounts with National City Bank involving Chari's real estate investment enterprise, Invesco, LLC. [Folino Depo., pp. 27-28.] Invesco was run by Chari and his partner Michael Karaman. [Id.] Beginning in December of 1998, two separate entities, the White Family Companies, Inc. ("WFC") and Nelson Wenrick ("Wenrick") provided short term financing, called bridge loans, to Invesco for purported real estate transactions. [Adv.Doc. # 52-1, Depo. of Timothy White ("White Depo."), pp. 28-30; Adv.Doc. # 53-1, Depo. of Nelson Wenrick ("Wenrick Depo."), pp. 14-29.] The purpose of the loans, each involving over one million dollars, was to facilitate Invesco in the purchase of commercial real estate for attractive prices. [White Depo., p. 30; Adv.Doc. # 132-1, Ex. 95.] The duration of each loan was only 30 or 45 days, long enough for Invesco to procure permanent financing. [Adv.Doc. # 90-1, Depo. of Dave Alexander ("Alexander Depo."), p. 148; White Depo., pp. 30, 34-36; Wenrick Depo., p. 29.] These loan transactions were usually closed at Dayton Title's facilities [Alexander Depo., pp. 34-35, 53, 68, 87-88, 101, 113; Wenrick Depo., p. 16] and were evidenced by notes signed by Michael Karaman on behalf of Invesco [Adv.Doc. # 132-1, Ex. 95]. Each note carried a second signature of Michael Karaman as personal guarantor. [Id.]
Between December 1, 1998 and July 12, 1999, WFC made five bridge loans to Invesco ranging from $1,900,000.00 to $3,200,000.00. [Id.] In a completely separate transaction, Wenrick furnished a $1,200,000.00 bridge loan to Invesco on August 4, 1999. [Id.] Each loan transaction was carried out by the lender depositing the funds into one of Dayton Title's accounts. [Adv.Doc. # 132-1, Exs. 99-103, 105.] These loans were paid back in fall, but not always before the due dates. [Adv.Doc. # 132-1, Ex. 95; Adv.Doc. # 103-1, Exs. G, N, T, AA, GG; Wenrick Depo., pp. 235-236.]
On September 3, 1999, WFC and Wenrick each provided a final bridge loan to Invesco of $3,200,000.00 and $1,600,000.00 respectively. [Adv.Doc. # 132, Ex. 95.] The loans were made in connection with the supposed purchase of property containing a Staples retail office supply store. [Wenrick Depo., pp. 242-244; White Depo., pp. 144-145.] Like the previous loans, these were evidenced by notes containing Michael Karaman's signature as President of Invesco and a second signature of Michael Karaman as personal guarantor of the loans. [Adv.Doc. # 132-1, Ex. 95.] According to the notes, Invesco was to repay the principle and interest on the short-term loans on or before October 3, 1999. [Id.]
Soon after the loans were past due, WFC and Wenrick were repaid with checks drawn on a Texas IOLTA account of John Lewis. [Adv.Doc. #103-1, Ex. 00; Alexander Depo., pp. 118-119; Wenrick Depo. pp. 24-25.] Both checks were returned for insufficient funds. [Wenrick Depo. pp. 24-25; Alexander Depo., pp. 122-123.]
Subsequently, on October 19, 1999, Krishan Chari had a $5,000,000.00 check *725 deposited into Dayton Title's trust account with National City Bank for the purpose of paying WFC and Wenrick. [Adv.Doc. # 99-1, App. A, Ans. to Interrog. 3(c); Adv.Doc. # 132-1, Exs. 97 and 98.] The check was purportedly drawn on a DCW Investments account at Oak Hill Bank. [Id.] The teller at National City Bank did not place a hold on the check Chari deposited. [Adv.Doc. # 132-1, Ex. 109.] On that same day, pursuant to Chari's instructions, Dayton Title issued a check payable to WFC in the amount of $3,260,000.00 and a check payable to Wenrick in the amount of $1,625,000.00 from the trust account. [Adv.Doc. # 103-1, Ex. 2, Affidavit of Pam Folino ("Folino Aff."), ¶ 4; Adv.Doc. # 132-1, Ex. 111.] The remaining $115,000.00 from Chari's $5,000,000.00 check was to remain in Dayton Title's trust account for fees payable to Dayton Title for unrelated transactions. [Folino Aff., ¶ 4.]
On October 20, 1999, Tim White presented the WFC check to a teller at National City Bank and obtained an official bank check in return. [White Depo., pp. 154-155; Adv.Doc. # 99-1, App. A., Ans. to Interrog. 3(a).] Wenrick deposited his check in an account at Security National Bank. [Wenrick Depo., pp. 39-45.] Wenrick's check cleared the trust account at National City Bank on October 25, 1999. [Adv.Doc. # 99-1, App. A., Ans. to Interrog. 3(b).]
On or about October 26, 1999, National City Bank received notification that the check deposited by Chari in Dayton Title's trust account was being returned. [Adv. Doc. # 132-1, Ex. 97.] However, WFC and Wenrick's checks were honored by National City Bank prior to the bank's discovery that Chari's check was a forgery drawn on a non-existent account. [Adv. Doc. # 99-1, App. A, Ans. to Interrog. 3(a) through 3(c), 5 and 6.] Chari deposited two subsequent $5,000,000.00 checks into Dayton Title's trust account which also bounced. [Adv.Doc. # 131-1, Ex. 79; Adv. Doc. # 132-1, Exs. 97 and 118.] Consequently, National City Bank made the decision to freeze Dayton Title's accounts on November 4, 1999. [Adv.Doc. # 132-1, Ex. 119.]
Because Chari's checks were returned, the funds in Dayton Title's trust account did not cover the checks written to WFC and Wenrick that were already honored by National City Bank. This chain of events caused Dayton Title's trust account to be substantially overdrawn. According to an account statement, Dayton Title had a negative balance of $4,142,151.38 in the trust account as of November 19, 1999 [Adv.Doc. # 131-1, Ex. 80] indicating that approximately $742,848.62 of the funds transferred to WFC and Wenrick represent money that had been in Dayton Title's trust account at the time of the conveyance. No party disputes that the funds in the account represent third party escrow funds held in trust by Dayton Title. [Adv. Doc. # 129-1, Ex. 2; Folino Depo., pp. 17-18.]
After learning of the forgery and the loss of over $ 4,000,000.00 in the trust account, Dayton Title Agency, Inc. and Dayton Title Agency, Inc. Business Trust filed separate Chapter 11 bankruptcy petitions on November 8, 1999. On November 10, 1999, both entities initiated adversary proceedings[1] against WFC and Wenrick to recover the $4,885,000.00 paid out of Dayton Title's trust account as fraudulent *726 transfers under provisions of the Bankruptcy Code and Ohio statutory law. National City Bank has been joined as a plaintiff-intervenor in the recovery of the funds.
All of the parties have filed motions for summary judgment asserting that the essential facts to the resolution of this adversary proceeding are undisputed. After reviewing the motions for summary judgment, the responsive memoranda, and the oral arguments of counsel, the court is prepared to render its decision.
LEGAL ANALYSIS
A. Summary Judgment Standard
The appropriate standard to be used by the court to address the motions for summary judgment filed in this adversary proceeding is contained in Fed.R.Civ.P. 56(c) and incorporated in bankruptcy adversary proceedings by reference in Fed. R.Bankr.P. 7056. Rule 56(c) states in part that a court must grant summary judgment to the moving party if:
the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
Fed.R.Civ.P. 56(c). In order to prevail, the moving party, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). If the burden is on the non-moving party at trial, the movant must: 1) submit affirmative evidence that negates an essential element of the nonmoving party's claim; or 2) demonstrate to the court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim. Id. at 331-332, 106 S. Ct. 2548. Thereafter, the opposing party "must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986) (citations omitted); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-251, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita, 475 U.S. at 586-588, 106 S. Ct. 1348.
B. Dayton Title Agency, Inc. Business Trust's Ineligibility for Bankruptcy Protection
Initially, the court will discuss WFC and Wenrick's collateral argument that one of the debtors, Dayton Title Agency, Inc. Business Trust ("DTABT"), is ineligible for separate bankruptcy protection from Dayton Title because DTABT does not meet the definition of a true business trust.
Under § 109(a) of the Bankruptcy Code, only individuals defined as "persons" are eligible for bankruptcy relief. Persons include corporations and, as a subset of corporations, business trusts. 11 U.S.C. § 101(9)(A)(v) and (41). Trusts other than business trusts are not eligible for bankruptcy protection. Brady v. Schilling (In re Kenneth Allen Knight Trust), No. 96-5353, 1997 WL 415318, at *2 (6th Cir. July 22, 1997).
The Bankruptcy Code does not define "business trust" and the courts have not adopted a uniform definition of the term for bankruptcy eligibility. Knight, 1997 WL 415318, at *2-3. However, because the term is included in the Bankruptcy Code as a species of corporation, it must have attributes of a corporation to be a business trust. Id. at *3. One main *727 characteristic determining a business trust is whether it was created with the primary purpose of transacting business or carrying on commercial activity for a profit. Id. at *4 (relying on the analysis set forth in In re Treasure Island Land Trust, 2 B.R. 332 (Bankr.M.D.Fla.1980)). Trusts designed merely to preserve the trust res for beneficiaries do not meet this definition. Id.
In this case, DTABT has few, if any, attributes of a corporation separate from Dayton Title. DTABT has no written agreement or articles of incorporation memorializing its creation. [Katona Depo., pp. 89-92.] Furthermore, the trust has no principals, officers or tax identification number separate from Dayton Title. [Id., p. 90; Adv.Doc. # 132-1, Ex. 121.] Most significant to the Sixth Circuit's interpretation of business trust is the fact that DTABT generates no income. [Katona Depo., p. 90.] Instead, the business trust is a group of escrow accounts used by the title agency to collect and disburse funds for real estate closings. [Id., pp. 79-81.] It was created as a requirement of the underwriters issuing Dayton Title Agency, Inc.'s insurance policy to make certain that the escrow funds coming in for closings and related business were not commingled with the title agency's operating funds. [Id., p. 89.]
Although these activities may fall within the definition of "business trust" for the underwriters' purposes, they do not qualify the entity as a business trust for bankruptcy eligibility. As such, the business trust and its accounts are more properly considered within the context of Dayton Title's bankruptcy filing. The court grants summary judgment to WFC and Wenrick with regard to this issue.
While DTABT does not qualify as a business trust for bankruptcy purposes, the court finds no reason why this determination should effect proceedings related to the adversary complaint filed by Dayton Title. The two identical adversary proceedings initiated by Dayton Title and DTABT against WFC and Wenrick have been jointly administered until this juncture. Because no party disputes that Dayton Title is a proper debtor before the bankruptcy court and may maintain adversarial claims against WFC and Wenrick, the court will continue its analysis of the issues remaining on summary judgment with respect to Dayton Title disregarding DTABT as a separate debtor.
C. Recovery of the Transfers Under Ohio's Uniform Fraudulent Transfer Act
In its motion, Debtor-in-Possession Dayton Title requests summary judgment asserting that the funds transferred to WFC and Wenrick from the Dayton Title trust account are recoverable as fraudulent transfers under the Ohio Uniform Fraudulent Transfer Act ("UFTA"), Ohio Rev. Code §§ 1336.01 et. seq. Avoidance of a transfer under state fraudulent transfer laws is permitted by the "strong arm" provisions of the Bankruptcy Code found in 11 U.S.C. § 544. Corzin v. Fordu (In re Fordu), 201 F.3d 693, 697 n. 3 (6th Cir.1999). Under § 544, a bankruptcy trustee, or a debtor-in-possession acting with the powers of a trustee, steps into the shoes "of a creditor in order to nullify transfers voidable under state fraudulent conveyance acts for the benefit of all creditors." Id.
The significant provision of the UFTA is Ohio Rev.Code § 1336.04 which provides, in pertinent part:
(A) A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor, whether the claim of the creditor arose before or after the transfer *728 was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation in either of the following ways:
(1) With actual intent to hinder, delay, or defraud any creditor of the debtor;
(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and if either of the following applies:
(a) The debtor was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction;
(b) The debtor intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.
Ohio Rev.Code § 1336.04. While § 1336.04(A)(1) covers claims of actual fraud, § 1336.04(A)(2) has a broader scope encompassing claims of constructive fraud where the focus is on the effect of the transaction rather than the intent with which it was undertaken. Aristocrat Lakewood Nursing Home v. Mayne, 133 Ohio App. 3d 651, 667, 729 N.E.2d 768, 780 (Ohio Ct.App.1999). In fact, a constructive fraud claim under § 1336.04(A)(2) may exist even without any intent on the part of the debtor to hinder, delay, or defraud a creditor. Id.
Dayton Title focuses specifically on the unreasonably small asset theory of § 1336.04(A)(2)(a). Under this provision, the party attempting recovery must prove that the debtor transferred an interest in its property for less than reasonably equivalent value leaving it with unreasonably small assets compared to the debtor's "historical level of assets or cash flow and current needs." Mayne, 133 Ohio App.3d at 668, 729 N.E.2d at 780. This very broad provision does not require proof of any mental state on the part of the debtor. Id.
WFC and Wenrick dispute the existence of all three elements required to be proven under this section of the UFTA. First, because of the nature of Dayton Title's account as a trust account holding third party escrow funds, WFC and Wenrick dispute whether Dayton Title possessed a property interest in the funds transferred to WFC and Wenrick. Second, they dispute Dayton Title's assertion that it received no reasonably equivalent value in exchange for the checks paid to WFC and Wenrick. Finally, WFC and Wenrick question whether the transfer left the title agency with an unreasonably small amount of assets. The court will discuss each of these elements below.
1. Dayton Title has a "property interest" that was transferred through the checks paid to WFC and Wenrick
As a threshold issue, the UFTA requires proof that the transfer involved a property interest of the debtor. Ohio Rev. Code § 1336.01(L) (defining "transfer" to include any direct or indirect, absolute or conditional, and voluntary or involuntary method of parting with a debtor's interest in an asset). This threshold issue arises in the context of both fraudulent and preferential transfers in bankruptcy. See, e.g., In re Smith, 966 F.2d 1527 (7th Cir.1992); Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177 (11th Cir.1987). In this case, Dayton Title asserts that it has legal title to and, therefore, a property interest in, the funds transferred to WFC and Wenrick. In opposition, WFC and Wenrick note that the escrow funds in the account belong to third parties and were only held in trust by Dayton Title. As *729 such, they argue that Dayton Title had no real property interest in the funds and, consequently, the funds are not recoverable for the benefit of the bankruptcy estate and its creditors.
In general, where a debtor's account is a mere conduit through which third party funds exchange hands, the debtor does not have a property interest recoverable for a bankruptcy estate as either a fraudulent or preferential transfer. Chase & Sanborn, 813 F.2d at 1181-1182. See also McLemore v. Third National Bank in Nashville (In re Montgomery), 983 F.2d 1389, 1395 (noting that a debtor has no interest in borrowed funds specifically earmarked by the lender for payment to a designated creditor even if the funds pass through the debtor's hand in getting to the selected creditor). This situation generally arises when a third party lends money to the debtor for the intended purpose of paying a selected creditor. Montgomery, 983 F.2d at 1394-1395; Smith, 966 F.2d at 1533. In such circumstances, the transfer of "earmarked" funds does not involve property of the debtor because: 1) the debtor never exercised control over the third party funds; and 2) the debtor's property was not diminished by the transfer. Montgomery, 983 F.2d at 1394-1395; Smith, 966 F.2d at 1533.
This case would present an earmarking situation if Chari's check had cleared. The parties intended the Dayton Title trust account to be a mere conduit through which the $5,000,000.00 deposited by Krishan Chari would be channeled to WFC and Wenrick. However, the situation is distinguished by the unfortunate fact that Chari's check was a forgery. The check, drawn on a non-existent account, had no real value. All subsequent checks deposited by Chari also bounced. As such, the effect of the transfer was not the channeling of Chari's funds to WFC and Wenrick through Dayton Title's account.
Instead, Chari's fraudulent activities caused the unintended transfer of the following to WFC and Wenrick: 1) $742,848.62 in escrow funds held by Dayton Title in trust for the benefit of third parties and 2) approximately $4,142,151.38 from a provisional loan by National City Bank to Dayton Title needed to cover the overdraft created in the account after the escrow funds were exhausted. Because of the unique nature of this mistaken transaction involving the unintended transfer of escrow funds and a provisional loan rather than the intended transfer of Chari's funds, the court concludes that the transaction did involve a property interest of Dayton Title.
First, a debtor must exert control over funds transferred out of its account to demonstrate a property interest in them. Montgomery, 983 F.2d at 1394-1395 (noting that a debtor has a property interest in a bank's provisional loan, even if the loan is only an unauthorized extension of credit to cover an account overdraft created by kited checks, if the debtor exerts dominion and control over the funds); Chase & Sanborn, 813 F.2d at 1181; Smith, 966 F.2d at 1533. A debtor exercises control over funds when it makes the decision to use the funds to make a purchase or a payment to a creditor. Montgomery, 983 F.2d at 1395. When the debtor is not the entity directing the use of the funds, such as when borrowed funds are specifically earmarked for payment to a designated creditor, the funds are not within the debtor's control. Id.
WFC and Wenrick argue that because the escrow funds were to be paid out according to the direction of third parties who placed the funds in the trust account, Dayton Title had no control over the funds. They assert that Dayton Title's *730 lack of control over the funds is further supported by the fact that WFC and Wenrick were not creditors of Dayton Title when they received payment. For this proposition, they cite Chase & Sanborn in which the Eleventh Circuit notes that the presumption of a debtor controlling the payment of funds is not compelling when payment is to a non-creditor and the debtor receives no direct benefit from the transfer. 813 F.2d at 1181. In such circumstances, it is likely that the party providing the funds is controlling the transfer rather than the debtor. Id.
However, in this case, there is no question that the parties providing the funds did not control the transfer. Neither the third parties with escrow funds in the trust account nor National City Bank with its provisional loan of $4,142,151.38 directed payment of their funds to WFC and Wenrick. Instead, Dayton Title made the critical decision to write checks to WFC and Wenrick from the trust account, without waiting for Chari's $5,000,000.00 deposit to clear, thus setting in motion the provisional credit extended by National City Bank. The court concludes that by these acts, Dayton Title exerted clear control over the escrow funds and provisional loan from the bank.
Dayton Title's control over the transfer does not, by itself, establish a property interest in the funds. Rieser v. Bruck Plastics Co. (In re Trinity Plastics, Inc.), 138 B.R. 203, 208 (Bankr.S.D.Ohio 1992). As a second requirement, the transfer must diminish the value of the debtor's estate. Id.; Montgomery, 983 F.2d at 1394-1395; Smith, 966 F.2d at 1535-1536. This occurs if the transfer results in the depletion of funds generally available for distribution causing detriment to some or all of the debtor's creditors. Chase & Sanborn, 813 F.2d at 1181.
WFC and Wenrick argue that the funds in the trust account would never have been available for distribution to general unsecured creditors of Dayton Title. Therefore, the transfer of those funds to WFC and Wenrick did not effect the assets of Dayton Title's estate. Again, WFC and Wenrick would be correct about the effect of the transaction if it had occurred as planned resulting in the channeling of Chari's funds to WFC and Wenrick through Dayton Title's account. See Chase & Sanborn, 813 F.2d at 1181 (concluding that where third party funds simply pass through a debtor's possession without actually being property of the debtor, the transfer does not cause a depletion of the debtor's assets and the return of the money to the estate would create a windfall for creditors).
However, this is not the situation presented in this case. Because Chari's checks were forgeries with no value behind them, Dayton Title did not transfer Chari's funds. Instead, Dayton Title transferred the escrow funds of unrelated third parties and the funds loaned by National City Bank. This wrongful transfer of third party funds created $4,885,000.00 in new claims against Dayton Title that did not exist prior to the transfer. The newly created claims of the escrow account beneficiaries and National City Bank depleted the assets available to Dayton Title's other creditors. Thus, the transfer to WFC and Wenrick did diminish the Debtor's estate.
The court recognizes that in most circumstances involving a transfer of funds from an escrow account, the funds held in trust for third parties are not the debtor's property and are not recoverable by a debtor's estate as either a preference or fraudulent transfer. However, because of the unique circumstances of this case, the transfer from the account meets the two requirements establishing that Dayton Title *731 had a property interest in the funds. First, Dayton Title exerted control over the trust account funds by directing payment to WFC and Wenrick using the existing money in the account and National City Bank's provisional loan without waiting for Chari's check to clear. Second, the transfer created new claims against Dayton Title that did not exist prior to the transfer thus diminishing the amount of assets available to other creditors. For these reasons, the court concludes that a property interest of Dayton Title was transferred to WFC and Wenrick.
2. Dayton Title received no reasonably equivalent value in exchange for the transfer of funds to WFC and Wenrick
In order to prevail on its fraudulent transfer claim under Ohio's UFTA, Dayton Title must further establish that it received nothing of reasonably equivalent value in exchange for the transfer of funds to WFC and Wenrick. Ohio Rev.Code § 1334.06(A)(2). To assess whether a challenged transfer is supported by reasonably equivalent value, "courts generally compare the value of the property transferred with the value of that received in exchange for the transfer." Corzin v. Fordu (In re Fordu), 201 F.3d 693, 707 (6th Cir.1999). It is not necessary for there to be "mathematical precision" or a "penny-for-penny" exchange in order to establish reasonably equivalent value. Coan v. Fleet Credit Card Services, Inc. (In re Guerrera), 225 B.R. 32, 36 (Bankr. D.Conn.1998). However, courts should keep the equitable purposes behind fraudulent transfer law in mind, recognizing that any significant disparity between the value received and the value surrendered will significantly harm innocent creditors. Id.
Dayton Title demonstrated that the transfer created a negative balance in its trust account and $4,885,000.00 in claims against Dayton Title that did not exist prior to the transfer.[2] In exchange, Dayton Title asserts that it received nothing of value from WFC and Wenrick. WFC and Wenrick disagree noting that they deposited a total of $4,800,000.00 in Dayton Title's trust account on September 3, 1999 representing the proceeds from their final bridge loans to Invesco. They argue that no documentary evidence supports that Dayton Title disbursed that money. Thus, the funds they initially deposited constitute reasonably equivalent value to what they received in the transfer.
If Dayton Title failed to disburse the $4,800,000.00 in loan proceeds received from WFC and Wenrick, this could amount to reasonably equivalent value for Dayton Title's $4,885,000.00 loss. However, in response to WFC and Wenrick's argument, Dayton Title submits evidence, in the form of Pam Folino's affidavit, bank records and Dayton Title's Escrow Account Ledgers, demonstrating that the loan proceeds from WFC and Wenrick were, in fact, disbursed. [Adv.Doc. # 136-1, Folino Aff. attached at Ex. B and attached Exs. 1-6.] The $3,200,000.00 in Invesco loan proceeds which Dayton Title received from WFC on September 3, 1999 *732 was wire transferred from the trust account to John Lewis on the same day. [Id., Folino Aff. and attached Exs. 1 and 2.] In addition, Dayton Title disbursed the $1,600,000.00 in Invesco loan proceeds received in two wire transfers from Wenrick as follows: 1) $1,500,000.00 to John Lewis; 2) $34,000.00 to McDuffie Construction Management Group; and 3) $66,000.00 to Invesco. [Id., Folino Aff. and attached Exs. 3-6.] WFC and Wenrick have provided no evidence to contradict these facts. Because Dayton Title retained none of the funds loaned to Invesco by WFC and Wenrick, the loan proceeds do not constitute reasonably equivalent value for Dayton Title's loss.
Next, WFC and Wenrick request the court to consider indirect benefits received by Dayton Title as reasonably equivalent value. WFC and Wenrick note the significant value Dayton Title placed on its business relationship with Chari. Even before the transactions with WFC and Wenrick, Dayton Title allowed Chari to have substantial extensions of credit by floating returned checks with other funds in the trust account in exchange for Chari's continued business. They assert that the transaction involving WFC and Wenrick, channeled through the trust account, enabled Dayton Title to facilitate this business relationship with Chari believed to be financially advantageous.
WFC and Wenrick are correct that courts should analyze both direct and indirect benefits to a debtor in determining whether reasonably equivalent value has been received. Enwotwen Indus., Inc. v. Brookstone Limited Partnership (In re Newtowne), 157 B.R. 374, 378 (Bankr. S.D.Ohio 1993). However, the economic value of any indirect benefits must be fairly concrete and quantifiable to merit consideration by the court. SPC Plastics Corp. v. Griffith (In re Structurlite Plastics Corp.), 224 B.R. 27, 31 (6th Cir. BAP 1998) (noting that the speculative value of indirect benefits like the opportunity to acquire additional loans or new managerial talent does not constitute fair consideration); Leonard v. Norman Vinitsky Residuary Trust (In re Jolly's Inc.), 188 B.R. 832, 843 (Bankr.D.Minn.1995) (noting that the defendant-creditors carry "the burden of production as to the concreteness of the indirect benefit, and its reasonable equivalence of value.").
While goodwill and the continuation of business relationships can be indirect benefits to a business debtor, WFC and Wenrick have not attempted to measure or quantify the economic value of Dayton Title's continued relationship with Chari. Instead, they only speculate, without evidentiary support, that the value of Dayton Title's ongoing relationship with Chari is reasonably equivalent to the $4,885,000.00 loss experienced by Dayton Title forcing it to close its doors and seek bankruptcy protection. The court finds this assertion too speculative to merit consideration. Consequently, the court concludes Dayton Title received no reasonably equivalent direct or indirect benefit for the $4,885,000.00 transfer to WFC and Wenrick.
3. The Transfer Left Dayton Title with An Unreasonably Small Amount of Assets in Relation to the Transaction
The third requirement under Ohio's UFTA, requires Dayton Title to demonstrate that the debtor engaged in a transaction "for which the remaining assets of the debtor were unreasonably small in relation to . . . the transaction[.]" Ohio Rev.Code § 1336.04(A)(2)(a). The unreasonably small asset theory under this provision is the broadest kind of fraudulent conveyance claim applying when the "debtor *733 is left with unreasonably small assets, compared to his historical level of assets or cash flow and current needs." Aristocrat Lakewood Nursing Home v. Mayne, 133 Ohio App. 3d 651, 668, 729 N.E.2d 768, 780 (Ohio Ct.App.1999). Care must be taken, however, not to invalidate "all transfers simply because a debtor subsequently happened to encounter financial problems." Id.
Dayton Title's financial problems did not simply occur as a coincidence after the transfer to WFC and Wenrick. Its problems were a direct result of the transfer of funds from the trust account creating $4,885,000.00 in new claims against Dayton Title that did not exist prior to the transfer. The transfer not only depleted Dayton Title's assets, but left it unable to continue in business. The court concludes that the transfer of funds left Dayton Title with unreasonably small assets, so that Dayton Title meets this final element of a fraudulent conveyance under Ohio's UFTA.
D. Prejudgment Interest, Costs and Attorney Fees
Upon prevailing on its motion for summary judgment, Dayton Title asserts that the estate should be entitled to costs, attorney fees and interest on the award, at a rate of 10% per annum, calculated from October 19, 1999, the date of the fraudulent transfer to WFC and Wenrick. WFC and Wenrick do not respond to Dayton Title's request in their memoranda.
With respect to prejudgment interest, the Bankruptcy Code does not address such an award in actions to avoid fraudulent transfers. In the absence of a statutory prohibition, a trial court may exercise its discretion to award prejudgment interest taking into consideration the relative equities of the parties and the need to fully compensate the debtor's estate for the use of funds for the period of time they were withheld from the estate. Yoder v. T.E.L. Leasing, Inc. (In re Suburban Motor Freight, Inc.), 124 B.R. 984, 1005-1006 (Bankr.S.D.Ohio 1990). The good faith dispute over the funds being property of the estate does not warrant a different result. Hunter v. Patton (In re Patton) 200 B.R. 172, 178 (Bankr. N.D.Ohio 1996). For these reasons, the court will award Dayton Title prejudgment interest to compensate the estate for its loss of the use of the funds transferred to WFC and Wenrick while this litigation proceeded.
Although Dayton Title requests prejudgment interest to run from the date of the transfer to WFC and Wenrick, prejudgment interest is generally awarded from the date of the demand on the defendants or, absent this, the date the adversary proceeding was filed. Suburban Motor Freight, 124 B.R. at 1006. In this case, Dayton Title provides no demand date. Thus, the court concludes that the appropriate date for the accrual of prejudgment interest to begin is the date the adversary proceeding was initiated.
In conclusion, the court grants prejudgment interest to the Plaintiff, Dayton Title, running from the date the adversary complaint was filed on November 10, 1999. The applicable rate of interest shall be the rate set forth in 28 U.S.C. § 1961(a). See Id. at 1006; Hunter v. Patton (In re Patton), 200 B.R. at 178; Sicherman v. Jelm (In re Harvard Manufacturing Corp.), 97 B.R. 879, 884 (Bankr.N.D.Ohio.1989).
Furthermore, Plaintiff Dayton Title is awarded court filing costs. The court deems an award of attorney fees or other costs to the Plaintiff to be inappropriate.
CONCLUSION
The court grants partial summary judgment to Defendants The White Family *734 Companies, Inc. and Nelson Wenrick with respect to Dayton Title Agency, Inc. Business Trust's ineligibility for separate bankruptcy protection from Dayton Title Agency, Inc.
The court grants summary judgment to Plaintiff Dayton Title Agency, Inc., as Debtor-in-Possession, on its claim for recovery of the $3,260,000.00 transferred to Defendant The White Family Companies, Inc. and the $1,625,000.00 transferred to Defendant Nelson Wenrick under 11 U.S.C. § 544 and Ohio Rev.Code § 1336.04.[3] Summary judgment to Defendants on the same issue is hereby denied.
The Plaintiffs are entitled to only one recovery from WFC and Wenrick. Therefore, the court deems National City Bank's motion for summary judgment to be moot. For this reason, the court need not reach National City Bank's separate claims for recovery nor the Defendants' separate defenses to recovery by the bank.
The court awards prejudgment interest to Plaintiff Dayton Title Agency, Inc. from November 10, 1999 at the rate prescribed in 28 U.S.C. § 1961(a) and court filing costs.
It is so ordered.
NOTES
[1] Because they contain identical claims against WFC and Wenrick, the two adversary proceedings of Dayton Title Agency, Inc. (Adv. # 99-3664) and Dayton Title Agency, Inc. Business Trust (Adv.# 99-3663) have been jointly administered for procedural purposes with filings located in Adv. # 99-3664.
[2] With respect to whether Dayton Title received reasonably equivalent value for the transfer, WFC and Wenrick again argue that the Debtor's estate experienced no loss as a result of the transfer of funds from the trust account because the funds belong to third parties. As noted previously, the wrongful transfer of those funds, as well as the transfer of the provisional loan from National City Bank, created $4,885,000.00 in new claims against Dayton Title that would not exist except for the transfer to WFC and Wenrick. Consequently, the court rejects WFC and Wenrick's continued argument that the transfer did not effect Dayton Title's net worth.
[3] The court, having concluded that Dayton Title is entitled to recovery under Ohio Rev. Code § 1336.04, will not address Dayton Title's alternative claim for recovery of the fraudulent transfers under Bankruptcy Code § 548. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1644818/ | 4 So. 3d 598 (2007)
EX PARTE LARRY PATTERSON.
No. CR-06-0959.
Court of Criminal Appeals of Alabama.
March 15, 2007.
Decision of the alabama court of criminal appeals without opinion. Mand. pet. denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550112/ | 97 F.2d 360 (1938)
STROHMEYER & ARPE CO.
v.
AMERICAN LINE S. S. CORPORATION et al.
No. 327.
Circuit Court of Appeals, Second Circuit.
June 6, 1938.
Bigham, Englar, Jones & Houston, of New York City (Henry N. Longley and *361 Ezra G. Benedict Fox, all of New York City, of counsel), for appellant.
Burlingham, Veeder, Clark & Hupper, of New York City (John L. Galey and Norman M. Barron, both of New York City, of counsel), for appellees.
Before MANTON, L. HAND, and AUGUSTUS N. HAND, Circuit Judges.
MANTON, Circuit Judge.
Appellant, a distributor of olive oil, filed this libel to recover damages for non-delivery of its shipments. It employed a trucking company to haul three shipments of olive oil to Pier 61, N.R., New York, for ocean transportation to Los Angeles, Cal., there to be delivered to a consignee.
The driver of the truck in each instance and a checker in the employ of the Atlantic Transport Co., by a scheme or plan diverted ten cases of the first shipment, 25 of the second and 50 of the third, and sold these to a third party in the manner herein described, and misappropriated the proceeds. On each occasion the truck driver drove to the pier where he delivered to the appellees' receiving clerk, 3 colored copies of the dock receipt (blue, pink and yellow) prepared by the appellant. A blue receipt was handed back to the driver and the other two were retained by the receiving clerk. Upon showing the blue receipt to the gateman, the driver was allowed to enter the dock. On each occasion he informed the gateman that all of the cases on the truck were to be delivered on the dock and the gateman made such entry in his book. After entering the dock, he was met by the appellees' checker whose duty it was to tally the shipment delivered and make a record of the quantities received from the shipper on the reverse side of the blue receipt which the driver had retained. Part of the shipment would then be unloaded, but the part to be misappropriated was allowed to remain on the driver's truck. The checker then filled out on the blue receipt that the full quantity of merchandise described therein had been delivered by the appellant. The checker then gave the driver passes so that he could drive off the dock with part of the shipment of olive oil on his truck. The driver would give the pass to the gateman and then surrender the blue dock receipt with the tally record to the receiving clerk. The clerk, after comparing the tally records with the quantities set forth on the face of the dock receipts which had been retained by him, signed a pink receipt and gave it to the driver. This pink slip, acknowledging the full shipment, was turned over by the driver to the appellant. Subsequently, appellant gave these pink receipts to the appellees and the latter issued bills of lading acknowledging receipt of each full shipment.
Appellant attempts to impose liability on the appellees, contending that all the merchandise described in the bills of lading was delivered into the custody of appellees, which as common carriers, became liable for the nondelivery of merchandise diverted by the dishonesty of their representative. But the misappropriated cases of olive oil were never taken off the truck and therefore no delivery was ever made to the appellees. The driver stated that he never delivered the missing cases and it is undisputed that they were misappropriated and sold in the manner described. They at all times remained in the custody of the truckman and since there was no delivery to the carrier there was no contract of carriage with respect to these cases. To charge the carrier with liability for the merchandise the cases must actually be delivered to it. The delivery must be complete so that the shipper would have full dominion over the cases. Mo. Pac. R. v. McFadden, 154 U.S. 155, 14 S.Ct. 990, 38 L.Ed. 944; Pollard v. Vinton, 105 U.S. 7, 26 L.Ed. 998; Crenshawe v. Pearce, D.C., 37 F. 432.
The bill of lading delivered has not the legal effect contended for by the appellant. It imports a receipt of goods to be transported and delivered at the place of destination, but it extends only to goods actually received or within the control of the carriers or their representatives. Parol evidence is admissible to show that only part of the shipment was received and the missing cases never received. Inland Waterways Corp. v. Standard Commercial Tobacco Co., 5 Cir., 65 F.2d 715. Such was the proof here. When the tallies were signed both the driver and the checker intended that possession of the cases should remain on the truck with the driver. The false tallies and receipts were no more effective than if they had been signed before the truck came to the pier and while the cases were in appellant's warehouse. The receipt is subject to the same explanation to which a false bill of lading acknowledging receipt of the goods might be subject. The truckman was not entitled to a receipt for the cases until they had left his custody *362 and were placed on the pier. Since the contract to carry never attached to the cases not delivered, there may be no recovery on the basis of non-delivery by appellees.
It is argued, however, that recovery may be had under § 22 of the Bill of Lading Act (49 U.S.C. § 102, 49 U.S.C.A. § 102). That act provides:
"Liability for nonreceipt or misdescription of goods. If a bill of lading has been issued by a carrier or on his behalf by an agent or employee the scope of whose actual or apparent authority includes the receiving of goods and issuing bills of lading therefor for transportation in commerce among the several States and with foreign nations, the carrier shall be liable to (a) the owner of goods covered by a straight bill subject to existing right of stoppage in transitu or (b) the holder of an order bill, who has given value in good faith, relying upon the description therein of the goods, or upon the shipment being made upon the date therein shown, for damages caused by the nonreceipt by the carrier of all or part of the goods upon or prior to the date therein shown, or their failure to correspond with the description thereof in the bill at the time of its issue. (As Amended Mar. 4, 1927, c. 510, § 6, 44 Stat. 1450.)"
Section 22 applies in instances where the goods have not been delivered to the carrier and the bill of lading represents that they had been so delivered and where one "in good faith, relying upon the description therein of the goods, or upon the shipment being made upon the date therein shown," has suffered damages caused by "nonreceipt by the carrier of all or part of the goods upon or prior to the date therein shown." There is no proof in this record that the appellant has given value in good faith relying upon the description or number of cases specified in the bill of lading as required to be shown by this statute. The appellant was the shipper and it shipped under a straight bill of lading to its own agent at Los Angeles. The phrase of the statute "who has given value in good faith" clearly applies to both straight and order bills of lading. Congress did not mean to confine the expression "who has given value in good faith" to order bills of lading or to change the well settled rule that as against a shipper or anyone who has not advanced value on the faith of the bill of lading, the carrier is entitled to parol evidence to show that the goods were never received. This has long been the rule of the federal courts. Pollard v. Vinton, 105 U.S. 7, 26 L.Ed. 998; The Lady Franklin, 8 Wall. 325, 19 L.Ed. 455; Vanderbilt v. Ocean S. S. Co., 2 Cir., 215 F. 886; Clark v. Clyde S. S. Co., D.C., 148 F. 243; Planters' Fertilizer Mfg. Co. v. Elder, 5 Cir., 101 F. 1001.
The statute was intended to protect one who in reliance on the recitals of the bill of lading had acquired the same or the property represented thereby for value or who had otherwise altered his position to his detriment by reason thereof. Josephy v. P. & S. F. Ry., 235 N.Y. 306, 139 N.E. 277; Louisville & N. R. R. Co. v. Cullman Warehouse, 226 Ala. 493, 147 So. 421; Missouri Pac. R. Co. v. Askew Saddlery Co., 215 Mo.App. 277, 256 S.W. 566. Therefore, as between the consignor of goods and a receiving carrier, recitals in a bill of lading as to goods shipped raise only a rebuttable presumption that such goods were delivered for shipment. And as between the consignor and a receiving carrier, the facts may outweigh the recital. Where this situation exists, it would be unjust to compel the carrier to pay for cases not received.
By this libel there may not be a recovery for the unfaithfulness of appellees' checker at the pier. Whatever liability there may be for tort, there cannot be any in this suit in admiralty against the appellee. It was under no duty to protect the shipper against depredations of truckmen employed by appellant in respect to cases never delivered to it and we need not consider if an actionable tort was committed by the checker for the admiralty court has no jurisdiction, since its occurrence was on land. Atlantic Transport Co. v. Imbrovek, 234 U.S. 52, 34 S.Ct. 733, 58 L.Ed. 1208, 51 L.R.A.,N.S., 1157; The Plymouth, 3 Wall. 20, 18 L.Ed. 125; Louis-Dreyfus v. Paterson S. S. Co., 2 Cir., 43 F.2d 824, 72 A.L.R. 242.
Decree affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/861927/ | IN THE SUPREME COURT OF MISSISSIPPI
NO. 94-KA-00528-SCT
KAY LYNN TERRY, WILLARD L. McILWAIN, JR.
AND TRACI RENEE EVANS, a/k/a TRACY EVANS
v.
STATE OF MISSISSIPPI
CONSOLIDATED WITH
94-KA-00546-SCT
KAY LYNN TERRY, WILLARD L. McILWAIN, JR.
AND TRACI R. EVANS
v.
STATE OF MISSISSIPPI
DATE OF JUDGMENT: 06/01/94
TRIAL JUDGE: HON. EUGENE M. BOGEN
COURT FROM WHICH APPEALED: WASHINGTON COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANTS: LOUIS G. BAINE, III
E. TUCKER GORE
PRO SE
ATTORNEY FOR APPELLEE: OFFICE OF THE ATTORNEY GENERAL
BY: DEIRDRE McCRORY
DISTRICT ATTORNEY: FRANK CARLTON
NATURE OF THE CASE: CRIMINAL - MISDEMEANOR
DISPOSITION: REVERSED AND RENDERED - 8/6/98
MOTION FOR REHEARING FILED:
MANDATE ISSUED: 8/27/98
EN BANC.
ROBERTS, JUSTICE, FOR THE COURT:
STATEMENT OF THE CASE
¶1. Kay Terry, Willard L. McIlwain, Jr., and Traci Renee Evans, a/k/a Tracy Evans were found guilty
of contempt in the Circuit Court of Washington County. Terry and Evans were sentenced to serve
90-day terms in county jail, and McIlwain was sentenced to a term of 3 days in jail. Each defendant
was ordered to pay a fine of $1,000. All three defendants have perfected an appeal to this Court.
They assign as error the following issues:
ASSIGNMENTS OF ERROR
of Kay Terry and Willard L. McIlwain, Jr.
I. THE TRIAL COURT COMMITTED REVERSIBLE ERROR IN FINDING KAY
TERRY IN CONTEMPT WHEN THERE WAS NO EVIDENCE OF ANY ACT ON
HER PART WHICH LED TO THE SUBJECT ARTICLE BEING PUBLISHED.
II. THE TRIAL COURT WAS IN ERROR IN FINDING KAY TERRY'S ATTORNEY,
WILLARD L. McILWAIN, JR., IN CONTEMPT WHEN THERE WAS NO ACT ON
HIS PART WHICH LED TO THE SUBJECT ARTICLE BEING PUBLISHED AND HE
WAS UNDER NO OBLIGATION TO STOP THE ARTICLE BEING PRINTED BY A
THIRD-PARTY OVER WHOM HE HAD NO CONTROL.
III. THE TRIAL COURT WAS IN ERROR IN FAILING TO ALLOW THE "RULE"
TO BE INVOKED.
IV. THE TRIAL COURT WAS IN ERROR IN HEARING THIS MATTER ITSELF IN
LIGHT OF THE FACT THAT IT SHOULD HAVE BEEN REFERRED TO ANOTHER
JUDGE.
ASSIGNMENTS OF ERROR
of Traci Evans
I. THE TRIAL COURT ERRED IN HEARING THIS MATTER ITSELF, IN LIGHT
OF THE FACT THAT IT WAS A CONSTRUCTIVE CRIMINAL CONTEMPT
CHARGE AND HEARING, AND SHOULD HAVE BEEN REFERRED TO ANOTHER
JUDGE.
II. THE TRIAL COURT WAS IN ERROR IN A CONSTRUCTIVE CRIMINAL
CONTEMPT HEARING BY VIOLATING APPELLANT'S DUE PROCESS RIGHTS
IN DENYING APPELLANT'S RIGHT TO COUNSEL.
III. THE TRIAL COURT COMMITTED REVERSIBLE ERROR DUE TO THE
STATE'S FAILURE TO SUFFICIENTLY PROVE THE ELEMENTS OF
CONSTRUCTIVE CRIMINAL CONTEMPT AND THAT THE APPELLANT WAS
GUILTY BEYOND A REASONABLE DOUBT.
¶2. This Court holds that the contempt proceedings against Terry, McIlwain, and Evans should not
have been heard by Judge Bogen, as he initiated the constructive contempt charges against the three.
His failure to recuse is reversible error. The failure of Judge Bogen to "invoke the rule" was not
reversible error because the appellants did not show how they were prejudiced by his failing to do so.
Evans was erroneously charged because she did fall under the authority of URCCC 9.01. Finally,
although moot, Evans was denied her right to counsel because Judge Bogen proceeded without
informing her of her right to seek the advice of an attorney and the ramifications if she did not seek
one. Therefore, this case is reversed and rendered.
STATEMENT OF FACTS
¶3. This case came before the court on Petitions for Contempt Citation, some of which were brought
by the State and some of which were brought by the trial court Circuit Judge Eugene M. Bogen. The
contempt charges arose as a result of an article sent to the Delta Democrat Times, which was
published on May 22, May 23, and May 24, 1994. The article was purchased by Traci Evans, a friend
of Kay Terry, who had been following the criminal proceedings against Terry subsequent to her
indictment for embezzlement from Friedman Iron and Metal Company. The article ran several days
prior to Terry's second trial set to begin on May 25, 1994.
¶4. Terry's first trial regarding the embezzlement ended in a mistrial in January of 1994. On January
7, 1994, the Circuit Court sent out a notice that the embezzlement charge had been re-set for trial on
February 17, 1994 at 9:00 a.m. Shortly thereafter, Evans wrote a letter to the editor of the paper,
expressing her objection to the retrial of Terry because it was a waste of taxpayers' money. This letter
was printed in the Delta Democrat Times on January 21, 1994.
¶5. On February 8, 1994, Evans submitted to the Delta Democrat Times a version of the article
which is the subject of the contempt. The article contained a portion of a letter written by the
Defendant's attorney to the District Attorney and a copy of a polygraph examiner's report. The article
was submitted, according to Terry, without Terry's knowledge, other than Evans saying that she was
going to write some letters to the editor. Evans claims that her intent was to draw attention to the
proceedings that were to take place and to hopefully accumulate an audience to view the same. Evans
states that she did not intend to sway anyone's mind or influence the proceedings. The ad was not
published in February because of the continuance of court as a result of the February ice storm.
¶6. Evans stated that she had never met Terry's attorney, but had seen him in the courtroom in Terry's
first trial. She further stated that she had never communicated with him prior to the time she took the
article to the paper. She testified that the paper notified her that she would have to inform Terry that
she was submitting an article. Evans said she called Terry and said, "I have submitted an article to the
paper with your name in it. Do you have any objections?" To which Terry replied, "No." Evans stated
she would come by later and explain to Terry what the article was about, but she did not do so. The
article was a compilation of the results of the polygraph test Terry had taken and a letter from Terry's
attorney written to the prosecutor in the embezzlement case. Evans stated that she took the letter
without Terry's knowledge and had received a copy of the polygraph examination report from Terry.
Evans did not talk to Terry's attorney prior to her submission of the article, according to her
testimony. Evans left town Friday afternoon, before the article was published on Sunday at
approximately 2:00 p.m., and did not return home until 9:00 p.m. Sunday evening.
¶7. On Monday morning, May 23, 1994, Evans was contacted by Terry's attorney, Willard L.
McIlwain, Jr. Evans confirmed that she was the person who placed the ad in the paper, and further
confirmed that Terry did not have anything to do with the ad having been published. Later that
Monday she received a letter from McIlwain requesting that she not write any more letters to the
editor or publish any more articles in the paper. That letter was introduced into evidence. Evans said
that the letter written to her from McIlwain did not say anything about not appearing on television, so
she gave an interview to the television station. Evans said she felt that she had a right to discuss the
matter regardless of any request by Terry's attorney.
¶8. On that same Monday, May 23, 1994, the Circuit Court for Washington County, Mississippi
granted the State's Motion for a Continuance, and the embezzlement trial of Terry was continued
without date. Judge Bogen issued a summons for Kay Terry and Willard L. McIlwain, Jr. to appear
before the Circuit Court of Washington County, Mississippi at 10:00 a.m. on the 1st day of June,
1994, to show cause why they should not be held in contempt of court for violating Rules 4.01(3)
and (6) of the Uniform Rules of Circuit Court Practice by causing to be published or failing to
prevent the publication of the subject advertisement. Additionally, on May 25, 1994, Judge Bogen
had summons issued for Traci Evans to appear before the Circuit Court of Washington County,
Mississippi at 10:00 a.m. on the 1st day of June, 1994, to also show cause as to why she should not
be held in contempt of Court for violating the same rules enumerated above.
¶9. On June 1, 1994, the Circuit Court of Washington County, Mississippi convened with Judge
Bogen presiding. The State was represented by Frank Carlton and Gaines Dyer. Willard L. McIlwain,
Jr. and Kay Terry were represented by Martin A. Kilpatrick. Traci Evans also appeared, but without
counsel. After tending to preliminary matters, Judge Bogen opened the contempt proceedings with
the following statement:
THE COURT:
All right, the Court, on its own, scheduled this hearing on contempt citations issued for Willard
L. McIlwain, Jr., Kay Terry, and Traci Evans.
On Sunday, May 22, 1994, and on the following two days, there appeared in the Delta
Democrat Times an advertisement pertaining to a matter set for trial on May 25, 1994. The trial
scheduled for that day was the State of Mississippi versus Kay Terry, Cause No. 23, 502, and
arose from an indictment charging Ms. Terry with embezzlement from her former employer,
Friedman Iron and Metal Company.
I thought the advertisement was extraordinary. In 26 years at the bar and bench, I've never seen
anything like it. It appeared to me to constitute a violation of the Uniform Criminal Rules of the
Circuit Court practice regarding pretrial publicity and further appeared to me to constitute an
attempt to influence the jury pool to be called for jury duty during the week of May 23, and I
have previously granted the State's motion for a continuance of the trial. The case will be reset
for a later date.
We are here today at my direction to fully explore the circumstances and background and
facts surrounding the publication of the advertisement, the effect of which has been
compounded by further coverage in the news and the appearance on television, and I'm told
radio as well, by Ms. Evans and perhaps others. We'll more fully develop that today.
(emphasis added).
¶10. Also, at the beginning of the proceedings Judge Bogen asked if the parties were represented by
counsel. Terry and McIlwain stated that Mr. Kilpatrick was representing them. Evans responded to
Bogen's question in the negative. However, he proceeded with the case. After receiving testimony
and evidence, the court then made its ruling.
¶11. During the course of the proceedings, Evans testified that she bought and paid for the ad with
her own money. She stated the money used for the ad was 95% of her money, and she had gotten the
rest from her friends. Evans stated that after the first trial in January, she had a conversation with
Terry and said she was going to write letters to the editor, to which Terry replied that she did not
care, as long as what was stated in the letters was the truth. Evans testified her purpose for placing
the ad in the paper was to allow people to read over the polygraph examination, but not to sway any
potential jurors because they should make up their own mind, regardless of what they read in the
paper. Evans also testified that she thought her article was not polluting the jury pool. Evans stated
she merely wanted to arouse public interest in the case. On cross-examination, Evans reiterated that
the ad was not necessarily for the public to know Terry had passed a polygraph test, but to arouse the
curiosity of people so they would attend the trial.
¶12. The first communication Terry had with her attorney concerning this matter was on Friday
afternoon after her attorney had received a letter about the article from Mr. Dyer stating that Terry
had placed the article. Her attorney inquired as to whether she had placed the article or had any
connection with its placement, to which she responded in the negative. Terry realized that her
attorney was upset and left work to go to his office. When she arrived he had gone to the newspaper.
Upon his return, she went with her attorney to his library while he attempted to do some quick
research on the issue to see whether or not the article could be stopped. Terry had given an affidavit
stating that she had nothing to do with the ad or its being published.
¶13. McIlwain testified that he had never met Traci Evans, until he confronted her subsequent to the
article's publication, nor had he ever communicated with her, in any form until after the publication of
the article. McIlwain testified that he had closed his office for the week around noon on Friday so
that he and his staff could go to the Cotton Club Casino to celebrate the settlement of a case. He
stated that while at the casino the secretary from the Dyer Law Firm came in and handed him a letter
indicating Terry had sent an article to the newspaper. McIlwain was concerned about the allegations
in the letter and went back to his office around 3:00 to 3:30 p.m. This was the first time he had any
knowledge that a letter or article had been sent to the newspaper, other than there having been
statements that some friends of Kay's had written letters to the editor. He stated he immediately went
to his office and called Kay Terry and asked her if she had sent a letter to the editor, which is what he
thought at that point had been done. Terry responded that some of her friends might have sent
something, but she did not know what it was about.
¶14. McIlwain testified he had never given the letter to anyone other than his client. This letter was
simply copied to his client when it was written. McIlwain then went to the newspaper to talk to the
editor and stated, "I have been told that my client sent a letter or article up here, and I would like to
see if that is, in fact, true." He was shown the article. McIlwain testified he never authorized,
encouraged, or invited in any way the dissemination of the letter to third parties.
¶15. McIlwain stated that when he went to the newspaper, he was advised there was a 5:00 p.m.
deadline and if the article was not stopped by 5:00 p.m. on Friday, it would come out in the Sunday
paper. An employee at the newspaper told him Terry had not sent the article, but a friend of hers had,
and she thought Terry knew about it. According to his testimony, it was at this time that McIlwain
first learned Traci Evans had sent the article, although he still did not know who she was. The person
at the paper told McIlwain she had instructed Evans to inform Terry about the article.
¶16. McIlwain returned to his office around 4:00 p.m. in order to conduct research to determine if
the paper could run the advertisement. His research indicated that the newspaper could basically print
what they wanted and could contract with whomever they pleased. Their only real obligation was to
tell the truth. Based on this research, McIlwain did not feel he had any authority to demand the
newspaper breach a contractual obligation which they had with a third party and with whom he had
no contact, and no relationship. At some point that afternoon, McIlwain went to the Dyer law firm
and had a three-way conversation between himself, Gaines Dyer, and Frank Carlton. During that
conversation, he was asked what he was going to do about the article.
¶17. McIlwain wrote a letter to the editor of the newspaper emphasizing that his client had nothing to
do with the ad. He testified that he also attempted to call Traci Evans, the lady who sent the ad, but
was unable to reach her. McIlwain stated he did not feel he was in a position or had any authority to
do anything about the contract or agreement between a third party (Evans) and the newspaper. He
had determined the statement in Dyer's letter, alleging that his client had placed the ad, was not true,
and his brief research indicated he had no power or authority to tell the newspaper not to run the ad.
¶18. McIlwain's letter to the editor, Cazalas, went out after the 5:00 p.m. deadline on Friday. Cazalas
received the letter on Monday, and another letter was hand delivered on Monday requesting that he
publish no further articles. This letter was disregarded, and the paper continued to publish the ad.
Cazalas testified that McIlwain could not have stopped the ad, since he was not the person who
bought it.
¶19. On that Monday, McIlwain talked to Evans for the first time. It was at this point that McIlwain
learned from Evans that Terry had no involvement with the article and what her true intent was.
When McIlwain was asked on the witness stand if he could change things, would he have done
anything differently on that Friday afternoon, he responded he would possibly have asked for a
temporary restraining order, or an injunction, but he still was not sure of any legal basis for that.
¶20. Judge Bogen brought some of the criminal contempts himself alleging Terry and McIlwain either
caused the article to be printed or failed to stop it. Judge Bogen was aware that Traci Evans did not
have an attorney to represent her. Terry and McIlwain invoked the "rule." The court refused to allow
it to be invoked because some of the witnesses were from the news media.
¶21. Evans acknowledged that she delivered and paid for the ad. The court found her guilty of three
separate acts of contempt. Evans was ordered to spend 90 days in the county jail and to pay $1,000.
Terry was held in contempt because she distributed copies of the polygraph examination to some of
her friends and had been told by Evans that she was sending an article to the newspaper. The court
concluded that Terry must have known what was taking place. The court revoked her bond,
remanding her to the custody of the Washington County sheriff and additionally ordered that she
spend 90 days in jail and pay $1,000 for her participation in the publication of the advertisement.
¶22. McIlwain was found in contempt based on what it concluded were "sins of omission rather than
sins of commission" and his contempt was his failure to object to or attempt to stop the publication.
McIlwain was fined $1,000 and sentenced to serve 3 days in the county jail.
DISCUSSION OF THE ISSUES
of Kay Terry and Willard L. McIlwain, Jr.
¶23. First, it should be noted that this was a constructive criminal contempt proceeding. Conduct
directed against the court's dignity and authority is criminal contempt. Lawson v. State, 573 So. 2d
684, 686 (Miss. 1990). It involves an act which brings the court into disrepute or disrespect. Purvis
v. Purvis, 657 So. 2d 794, 797 (Miss. 1994) ( citing Lawson, 573 So. 2d at 686). "Constructive
contempt is an 'act calculated to impede or embarrass, obstruct, defeat, or corrupt administration of
courts of justice when the act is done beyond the presence of the court."' Lawson, 573 So. 2d at 686
(quoting Coleman v. State, 482 So. 2d 221, 222 (Miss. 1986)).
I. THE TRIAL COURT COMMITTED REVERSIBLE ERROR IN FINDING KAY
TERRY IN CONTEMPT WHEN THERE WAS NO EVIDENCE OF ANY ACT ON
HER PART WHICH LED TO THE SUBJECT ARTICLE BEING PUBLISHED.
¶24. [T]his Court proceeds ab initio to determine whether the record proves the appellant guilty of
contempt beyond a reasonable doubt." Purvis, 657 So. 2d; citing Lamar v. State, 607 So. 2d 129,
130 (Miss. 1992)). The burden of proof to establish that contempt has been committed is on the party
that is asserting that it has. In Interest of Holmes, 355 So. 2d 677, 679 (Miss. 1978). In a
proceeding for criminal contempt, evidence of guilt must be established beyond a reasonable doubt.
Id.
¶25. The State must prove that Terry acted in such a manner that was calculated to impede,
embarrass, obstruct, defeat or corrupt the administration of justice, when the act is done beyond the
presence of the court. Boydstun v. State, 259 So. 2d 707, 708 (Miss. 1972). In the proceeding below
there is no proof showing that Terry's actions "were calculated to have any real and substantial
tendency to impede the administration of the court". Id. at 709.
¶26. The only thing that was proven was that Terry gave copies of a polygraph examiner's report to
some of her friends and had some general knowledge that some friends were going to write letters to
the editor. The Prosecutor failed to show beyond a reasonable doubt that Terry actually had anything
to do with the advertisement being placed in the paper. The conclusions reached by the trial court
were based on suspicion and inferences from circumstantial evidence. These conclusions did not rise
to the level of "beyond a reasonable doubt." Therefore, the decision by the lower court is reversed
and rendered.
II. THE TRIAL COURT WAS IN ERROR IN FINDING KAY TERRY'S ATTORNEY,
WILLARD L. McILWAIN, JR., IN CONTEMPT WHEN THERE WAS NO ACT ON
HIS PART WHICH LED TO THE SUBJECT ARTICLE BEING PUBLISHED AND HE
WAS UNDER NO OBLIGATION TO STOP THE ARTICLE BEING PRINTED BY A
THIRD-PARTY OVER WHOM HE HAD NO CONTROL.
¶27. The discussion above sufficiently details the burden of proof and on whom such burden is placed
when proving constructive criminal contempt.
¶28. There is an implication for a requirement of intentional defiance of the court or a willful act on
the part of the contemnor. Prestwood v. Hambrick, 308 So. 2d 82, 84 (Miss. 1975) (emphasis
added). McIlwain was not willful in allowing the advertisement to be published. Judge Bogen in the
contempt proceeding called the act by McIlwain to be "sins of omission, rather than sins of
commission."
¶29. However, McIlwain conducted research to see what, if anything, could be done to stop the
article from running. The deadline was 5:00 p.m., and McIlwain only found out about the
advertisement around 3:00-3:30 p.m. Needless to say, he was pressed for time and unable to conduct
thorough and extensive research.
¶30. His research was confined mainly to a legal encyclopedia, Corpus Juris Secundum. There he
found "authority" that stated,
A newspaper is free to publish such matter as it regards as possessing news value. . .and may
publish whatever advertisements it desires. . .while a newspaper is under the moral obligation to
publish nothing that is not true. . .publishers are free to contract and deal or refuse to contract
and deal regarding advertising with whom they please. . .
66 C.J.S. Newspapers, § 21, p. 47.
¶31. McIlwain claims on appeal that in his opinion he did not have the authority to interfere with the
newspaper's contractual arrangement with a third party with whom he had no connection. The
newspaper took this same position when the editor told McIlwain that only the person who bought
the ad, Evans, could stop it from running.
¶32. This Court holds that McIlwain did not act in willful defiance of the court or of justice. His
actions suggest and imply good faith on his part. He did not "release nor authorize for release"(1)the
polygraph examination or the letter he had written to the District Attorney. The fact that McIlwain
had given his client, Terry, a copy of the letter does not mean he was releasing it for dissemination(2),
rather it is just good practice for an attorney to keep his client informed.
¶33. The Court finds that proof presented by the State did not rise to the level of "beyond a
reasonable doubt." There was mere suspicion and innuendo on the part of the State and the trial
judge. For these reasons, this Court reverses and renders the decision of the lower court because
McIlwain's acts or failure to act did not rise to the level of impeding the administration of the court.
III. THE TRIAL COURT WAS IN ERROR IN FAILING TO ALLOW THE "RULE"
TO BE INVOKED.
¶34. Terry and McIlwain claim that the trial court was in error by failing to invoke the "Rule",
meaning Miss. R. Evid. 615. However, neither Terry nor McIlwain identified any prejudice flowing
from the court's ruling. This Court has addressed this issue by holding when a violation of the
sequestration rule is assigned as error on appeal, the failure of the judge to order a mistrial or to
exclude testimony will not justify a reversal on appeal absent a showing of prejudice sufficient to
constitute an abuse of discretion. Gerrard v. State, 619 So. 2d 212, 217 (Miss. 1993). Because there
has been no prejudice identified by the appellants in the court's failure to invoke the "Rule", we find
this assignment of error without merit.
IV. THE TRIAL COURT WAS IN ERROR IN HEARING THIS MATTER ITSELF IN
LIGHT OF THE FACT THAT IT SHOULD HAVE BEEN REFERRED TO ANOTHER
JUDGE.
¶35. As stated earlier in the facts of this opinion, Judge Bogen issued the summons for Terry,
McIlwain, and Evans, for supposed actions that took place outside of his presence and outside of his
courtroom. The supposed actions took place prior to the June 1, 1994, hearing on contempt.
Therefore, this cause was certainly constructive contempt.
¶36. Terry and McIlwain argue on appeal that because Judge Bogen was monumental in the
contempt charges being brought against them, he should not have been the judge to hear the
proceedings. The appellants state that Judge Bogen committed reversible error by not recusing
himself and letting another judge preside over this matter. We agree.
¶37. This Court has held that direct contempt may be handled by the sitting judge instantly. Purvis,
657 So. 2d at 798. Judge Bogen waited until June 1, 1994, to bring the contempt proceedings against
Terry and McIlwain. The actions that gave rise to the contempt charge occurred earlier than the
publication of the advertisement in the newspaper, but at the very latest, when the newspaper was
published on May 22, May 23, and May 24, 1994. Further, Judge Bogen made his decision based on
acts that took place outside of his presence. It is necessary for the individual to be tried by another
judge in cases of constructive contempt where the trial judge has substantial personal involvement in
the prosecution. Id.; (citing Varvaris v. State, 512 So. 2d 886, 888 (Miss. 1987). In re Murchison,
349 U.S. 133 (1955), was a case where a judge acted under state law as a one-man grand jury and
later tried witnesses for contempt who refused to answer questions propounded by the "judge-grand
jury." The United States Supreme Court held that since the judge who sat as a one-man grand jury
was part of the accusatory process he "cannot be, in the very nature of things, wholly
disinterested in the conviction or acquittal of those accused." Id., at 137 (emphasis added). "Fair
trials are too important a part of our free society to let prosecuting judges be trial judges of the
charges they prefer." Id.
¶38. Because Judge Bogen was instrumental in the initiation of the constructive contempt
proceedings, this Court holds that he should not have heard the contempt proceedings. He should
have turned over those proceedings to another judge. There can be no arguments by the State that
the charges had to be heard immediately because (1) Judge Bogen did not hear the charges until June
1, 1994; and (2) the underlying trial on the merits of Terry's embezzlement trial had been continued
"until a future date."
ASSIGNMENTS OF ERROR
of Traci Evans
I. THE TRIAL COURT ERRED IN HEARING THIS MATTER ITSELF, IN LIGHT
OF THE FACT THAT IT WAS A CONSTRUCTIVE CRIMINAL CONTEMPT
CHARGE AND HEARING, AND SHOULD HAVE BEEN REFERRED TO ANOTHER
JUDGE.
III. THE TRIAL COURT COMMITTED REVERSIBLE ERROR DUE TO THE
STATE'S FAILURE TO SUFFICIENTLY PROVE THE ELEMENTS OF
CONSTRUCTIVE CRIMINAL CONTEMPT AND THAT THE APPELLANT WAS
GUILTY BEYOND A REASONABLE DOUBT.
¶39. This Court holds that Traci Evans was improperly charged with contempt as she did not fall
under the authority of Uniform Circuit and County Court Rule 9.01. As such, Evans cannot be guilty
of a violation and the points of error raised above are moot.
¶40. Rule 9.01 concerning pretrial publicity reads in relevant part:
Prior to conclusion of the trial, no defense attorney, prosecuting attorney, clerk, deputy
clerk, law enforcement official or other officer of the court, may release or authorize release
of any statement for dissemination by any means of public communication on any matter. . . .
URCCC 9.01(emphasis added).
¶41. Evans did not fall under the class of people designated in Rule 9.01 because she had no
connection with the proceedings save her friendship with the defendant. In the present case, the trial
court erroneously charged Evans with contempt because she was not involved in any aspect of the
matter before the court.
III. THE TRIAL COURT WAS IN ERROR IN A CONSTRUCTIVE CONTEMPT
HEARING BY VIOLATING APPELLANT'S RIGHT TO COUNSEL.
¶42. Although this issue is also rendered moot by the application of Rule 9.01, it merits discussion in
order to provide future instruction to the trial courts.
¶43. At the beginning of the contempt proceeding, Judge Bogen inquired as to whether Terry and
McIlwain were represented by counsel. McIlwain responded that both were represented by
Kilpatrick. Judge Bogen then inquired as to whether Traci Evans was represented by counsel.
THE COURT: Is your name Traci Evans?
MS. EVANS: Yes, sir, it is.
THE COURT: Do you have a lawyer?
MS. EVANS: No, I do not.
THE COURT: All right. State ready to proceed?
¶44. Judge Bogen proceeded with the contempt proceedings with full knowledge that Evans did not
have an attorney and that the possible sentence to be imposed would be incarceration in the county
jail. This was a blatant disregard for Evans' Sixth Amendment right to counsel, which has been
enumerated to the States by way of the Fourteenth Amendment. Argersinger v. Hamlin, 407 U.S.
25, 27 (1972).
¶45. The State erroneously responds to Evans' assignment of error by misreading her argument and
Argersinger to address the government's duty to provide counsel to an indigent defendant. Id. at 26-
37. Evans is not contending on appeal she should have had counsel appointed for her. Judge Bogen
at no time advised her that she had a legal right to seek the advice and be represented by legal
counsel, or that her punishment might include incarceration.
¶46. In Powell v. Alabama, 287 U.S. 45, 68-69 (1932), the United States Supreme Court said:
The right to be heard would be, in many cases, of little avail if it did not comprehend the right
to be heard by counsel. Even the intelligent and educated layman has small and sometimes
no skill in the science of law. If charged with crime, he is incapable generally, of determining
for himself whether the indictment is good or bad. He is unfamiliar with the rules of evidence.
Left without the aid of counsel he may be put on trial without a proper charge, and convicted
upon incompetent evidence, or evidence irrelevant to the issue or otherwise inadmissible. He
lacks both the skill and knowledge adequately to prepare his defense, even though he have a
perfect one. He requires the guiding hand of counsel at every step in the proceedings against
him. Without it, though he be not guilty, he faces the danger of conviction because he does not
know how to establish his innocence. If that be true of men of intelligence, how much more
true is it of the ignorant and illiterate, or those of feeble intellect.
(emphasis added).
¶47. Here the Court spoke in terms of all persons having a right to counsel, those who were educated
and intelligent, as well as those who were ignorant and illiterate. Nothing is mentioned about the
"right to counsel" being conditioned on economic status as the State argues. Again, Evans does not
argue that she should have had counsel provided for her, but that she be informed of the charges and
of her right to consult with an attorney.
¶48. The holding and rationale in Powell has relevance to any criminal trial, where an accused is
deprived of her liberty. Argersinger, 407 U.S. at 32. One charged with an offense against the criminal
laws of a state has a right to effective assistance of counsel in making his or her defense as secured by
the Sixth and Fourteenth Amendments to the Constitution of the United States. Read v. State, 430
So. 2d 832, 837 (Miss. 1983) (citing Gideon v. Wainwright, 372 U.S. 335 (1963)). "The right to
counsel guaranteed by the Sixth Amendment is a fundamental right." Vielee v. State, 653 So. 2d 920,
922 (Miss. 1995) (citing Argersinger, 407 U.S. at 25.
¶49. Fundamental rights are guaranteed to all persons, without regard of race, color, creed, religion
or socio/economic status because of the Equal Protection Clause of the Fourteenth Amendment to
the Constitution of the United States. The State responds by claiming the court's statement, "Do you
have a lawyer?" should have been taken by any reasonably intelligent person to mean that she was
entitled to counsel if she desired representation. This argument is without merit and shows a blatant
disregard for the United States Constitution and over 60 years of interpretations of that sacred
document by the United States Supreme Court and this Court. To say that a reasonably intelligent
person would know they needed a lawyer goes completely against the decision of the United States
Supreme Court. Powell, 287 U.S. at 68-69.
¶50. Judge Bogen should have informed Evans of her right to seek the advice of an attorney before
proceeding with the contempt proceeding. The right to effective assistance of counsel, like any other
constitutional right, may be waived. Read, 430 So. 2d at 838 (citing Matthews v. State, 394 So. 2d
304, 309 (Miss. 1981)). "But before there can be a waiver, the defendant must be given a meaningful
and realistic opportunity to assert the right." Id. "If he is given that opportunity and he intelligently
and voluntarily declines to assert the right, it is then waived. Id. The record is void of any explanation
by the trial judge to Evans as to the ramifications of the charges against her and the possible sentence
to be imposed if she were found guilty of the constructive contempt charges. Therefore, Evans was
deprived of her opportunity to assert her right to counsel and could not make an intelligent and
voluntary waiver of that right.
¶51. Although this issue is moot, the right to counsel is a fundamental right. The trial courts should
exercise due diligence to ensure that all parties are informed of this right before a proceeding
continues.
CONCLUSION
¶52. The contempt proceedings against Terry, McIlwain, and Evans should not have been heard by
Judge Bogen because he was instrumental in bringing the constructive contempt charges against the
three, and because of the discussion of his need to recuse himself. The failure of Judge Bogen to
"invoke the rule" was not reversible error because the appellants did not show how they were
prejudiced by his failing to do so. Evans was improperly charged with contempt because she did not
fall under the contempt power of the court as a detached third party. Additionally, Evans was denied
her right to counsel because Judge Bogen proceeded without informing her of her right to seek the
advice of an attorney and the ramifications if she did not seek one.
¶53. REVERSED AND RENDERED AS TO ALL APPELLANTS.
PRATHER, C.J., SULLIVAN AND PITTMAN, P.JJ., BANKS, McRAE, SMITH, MILLS AND
WALLER, JJ., CONCUR.
1. McIlwain was being held in contempt for violation of Rule 4.01 of the Uniform Criminal Rules of
Circuit Court Practice, which provides:
The defense counsel, prosecuting attorneys, law enforcement officials, clerks, deputy clerks,
and other officers of the court, shall not release nor authorize release of any statement for
dissemination by any means of public communication any matter concerning:
***
(3) The performance on any examinations or tests, or the defendant's refusal or failure to
submit to an examination or test;
***
(6) The defendant's guilt or innocence, or other matters relating to the merits of the case, or
the evidence in the case.
(emphasis added).
2. See the above footnote; McIlwain was not disseminating the letter by a means of public release by
giving a copy to his client. Evans testified that she took the letter without Terry's knowledge. | 01-03-2023 | 04-26-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550119/ | 262 B.R. 290 (2001)
In re PHYSICIAN HEALTH CORPORATION, et al., Debtor.
No. 00-4482 MFW.
United States Bankruptcy Court, D. Delaware.
May 9, 2001.
*291 Norman L. Pernick, J. Kate Stickles, Saul Ewing Remick & Saul LLP, Wilmington, DE, Jeff J. Marwil, Mark K. Thomas, Dawn M. Canty, Katten Muchin Zavis, Chicago, IL, for debtors.
David M. Fournier, Pepper Hamilton, LLP, Wilmington, DE, Peter D. Kerth, Gallop, Johnson & Neuman, L.C., St. Louis, MO, for HHC Medical Group.
Bonnie Glantz Fatell, Blank Rome Comisky & McCauley, LLP, Wilmington, DE, Michael S. Fox, Adam H. Friedman, Traub, Bonacquist & Fox LLP, New York City, for the Official Committee of Unsecured Creditors.
Mark D. Collins, Christopher D. Loizides, Richards Layton & Finger, Wilmington, DE, Jacqueline Marcus, Weil Gotshal & Manges LLP, New York City, for BNP Paribas.
Richard Schepacarter, Philadelphia, PA, Office of U.S. Trustee.
*292 OPINION[1]
MARY F. WALRATH, Bankruptcy Judge.
Before the Court is the Motion of HHC Medical Group, Inc. ("HHC") to compel Physician Health Corporation and its affiliates ("the Debtors") to Assume or Reject the Practice Management Agreement between the Debtors and HHC. The Motion is opposed by the Debtors, the pre- and post-petition lenders, and the Official Committee of Unsecured Creditors ("the Committee"). For the reasons set forth below, we deny the Motion.
I. FACTUAL BACKGROUND
The Debtors filed voluntary petitions under chapter 11 on December 7, 2000. The Debtors are in the business of managing physician practice groups. As of the filing of their petitions, the Debtors managed 28 practice groups. Since the filing, the Debtors have entered into agreements with many of the practice groups to reject or terminate the management agreements.
On March 13, 2001, HHC filed a Motion seeking to compel the Debtors to decide whether to assume or reject their Practice Management Agreement ("the PMA"). The PMA had been executed by the Debtors and HHC on or about April 11, 1997, and had been amended several times since then.
A hearing was held on the Motion on April 5, 2001, and post-trial submissions, including designations from depositions, were submitted by the parties.
II. DISCUSSION
Section 365(d)(2) permits a debtor to assume or reject an executory contract at any time before confirmation of a plan of reorganization. "Permitting the debtor to make its decision as late as the plan confirmation date enables the debtor to carefully evaluate the possible benefits and burdens of an [executory contract]. It is vitally important to all interested parties that the debtor make a prudent assumption or rejection decision. . . ." In re Wheeling-Pittsburgh Steel Corp., 54 B.R. 385, 388 (Bankr.W.D.Pa.1985). However, the court, on request of a party to that contract, may order the debtor to decide earlier. 11 U.S.C. § 365(d)(2). In deciding whether to accelerate the debtor's decision, the court must balance the interests of the contracting party against the interests of the debtor and its estate. See, e.g., Mayer Pollock Steel Corp. v. London Salvage & Trading Co., Ltd. (In re Mayer Pollock Steel Corp.), 157 B.R. 952, 965 (Bankr.E.D.Pa.1993); In re Dunes Casino Hotel, 63 B.R. 939, 949 (D.N.J.1986) (citing In re GHR Energy Corp., 41 B.R. 668, 676 (Bankr.D.Mass.1984)).
HHC asserts that the Debtors should be ordered to decide whether to assume or reject its PMA within fifteen days. It offers several reasons for granting this relief. First, it asserts that the Debtors are, and have been, in default of the PMA. Second, HHC asserts that the Debtors have been negotiating with several other practice groups and have agreed to reject their PMAs in exchange for a settlement payment. Since HHC may terminate its PMA in May, 2002, HHC asserts that it is clear that the Debtors will also reject HHC's PMA. In the meantime, HHC asserts that the Debtors continue to collect a management fee without performing any of the required services under the PMA.
The Debtors oppose the Motion. In particular, they dispute the allegations *293 of HHC regarding their alleged defaults of the PMA. They also assert that they are acting expeditiously to determine how to deal with their various practice groups and that they should be permitted to proceed with this process in accordance with their business judgment rather than at the whim of the other contract parties. They assert that HHC has failed to establish any compelling reason why the Debtors should deal with their contract first.
A. Breach of Contract
1. Pre-petition breaches
At trial, HHC presented testimony of numerous allegations of default of the PMA by the Debtors. However, each allegation was refuted by testimony presented by the Debtors. Essentially, HHC asserts that the management services being performed by the Debtors under the PMA are the same services which HHC did itself with the same employees and same assets before the PMA was executed. However, the PMA itself contemplated that many of the services would continue to be performed by the same individuals, who became employees of the Debtors. HHC asserted that it had expected additional services because of the Debtors' purported expertise in the area. However, HHC could point to no obligation under the PMA that the Debtors were not performing.
In contrast, the Debtors presented evidence of additional work being performed by their employees for HHC, particularly in the accounting area. Although HHC stated that it does not find the financial statements prepared by the Debtors to be helpful, it did not dispute that those statements were being prepared. Further, HHC conceded that the Debtors had presented it with an opportunity to participate in an oncology trial, which HHC had declined.
HHC asserted that, under the PMA, they transferred ownership in their own equipment and accounts receivable to the Debtors, without any investment by the Debtors in their practice group. This was refuted by the Debtors, who presented testimony that they purchased in excess of $600,000 in new equipment for HHC. In addition, the Debtors testified that they did honor their obligations to HHC by using the accounts receivable generated by the practice group to cover all its expenses, although under the PMA the accounts receivable belong to the Debtors. In fact, the Debtors testified that, according to their records, there is owed over $860,000 to the Debtors under the PMA which reflects that they have been exceeding their obligations to HHC.
The Debtors also presented compelling evidence to refute HHC's allegations that the Debtors have been in default of the PMA since it was executed in 1997. In August, 2000, the PMA was amended by the parties to increase the management fee that HHC was to pay to the Debtors from $367,500 to $750,000 per year. (See Exhibits M-1 and M-2.) This change was made at the suggestion of HHC, in exchange for the issuance of additional stock of the Debtors to HHC and HHC's right to terminate the agreement early. (See Exhibit R-1.) The Debtors posit that, if the Debtors were in default of the PMA, HHC would not have agreed to increase the management fees it was paying to the Debtors.
We agree with this conclusion. The amendment was executed by the parties after the Debtors were allegedly in default (HHC asserts that the Debtors have been in default of the PMA since it was executed). There is no suggestion in the amendment that the Debtors were in default; in fact, the agreement by HHC to increase *294 the management fees it was paying (and to increase its stock in the Debtors) suggests the contrary.
Further, even if HHC had established a pre-petition default of the PMA, that fact would not be a reason to compel the Debtors to decide more quickly whether to assume or reject the contract. If there were a breach of the PMA pre-petition, HHC would have a claim for that breach. If the Debtors determined to assume that contract, they would be obligated to cure any defaults or provide adequate assurance that the defaults would be cured. 11 U.S.C. § 365(b)(1). If the Debtors determined to reject the contract, HHC would simply have a pre-petition claim for the default. 11 U.S.C. § 365(g)(1).
We find insufficient evidence of any pre-petition breach of the PMA by the Debtors. Further, we conclude that, even if the Debtors were in default of the PMA pre-petition, it is not a legally cognizable reason to compel the Debtors to decide on an expedited basis whether to assume or reject that agreement.
2. Post-petition breaches
With respect to the allegations of cost-petition continuing breach of the PMA, we do not find convincing evidence that the Debtors are not performing under that contract.[2] Until the bankruptcy petition was filed, HHC appears to have been satisfied with the Debtors' performance, as evidenced by the lack of any notice of default and by the fact that HHC entered into an amendment whereby it agreed to pay more in management fees. HHC has presented no convincing evidence of a change in the Debtors' performance of the PMA postpetition. Every allegation of post-petition breach was met with convincing testimony by the Debtors of performance.
It appears that HHC is now simply dissatisfied with the bargain it struck with the Debtors, which gave it stock in the Debtors (apparently worthless now that the Debtors are in bankruptcy). However, this is no reason to grant the relief requested. As the Court in Wheeling-Pittsburgh Steel concluded in similar circumstances: "[The non-debtor] cannot be permitted to extricate itself from what it now apparently finds to be an unfavorable agreement by forcing [the debtor] to precipitously assume or reject the Lease Agreement when [the non-debtor] is receiving precisely what it bargained for." 54 B.R. at 389.
We find insufficient evidence of a post-petition breach of the PMA to compel the Debtors to make an earlier decision on whether to assume or reject the contract.
B. Settlements with other Practice Groups
HHC asserts that, given the settlements that the Debtors are negotiating with other practice groups, and the fact that its PMA may be terminated in May, 2002, it is clear that the Debtors will reject its PMA. Therefore, HHC asks that we compel the Debtors to do so quickly, thereby saving HHC the $62,000 management fee it pays the Debtors each month.
The Debtors acknowledge that they are negotiating with other practice groups. However, they assert that these negotiations are occurring in the context of the Debtors' overall assessment of the market and their business plan. They ask for sufficient time to make a reasoned analysis. *295 While the Debtors acknowledge that they do have to divest some of their practice groups in order to reduce their debt level, they state that the determination of which groups to divest involves numerous business factors and should not be reliant on which practice group wants to have its contract dealt with first. In the interim, the Debtors testified that the fees being received from HHC represent 15% of their revenues and are necessary for their cash flow while in bankruptcy, if not for their successful emergence from bankruptcy.
We agree with the Debtors that HHC has failed to establish a compelling reason for the Debtors to decide whether to assume or reject its contract now. The Debtors are performing under the contract. The Debtors are evaluating and analyzing their businesses and making progress in deciding which contracts to keep and which to divest.[3] The bankruptcy case is only five months old. There is no evidence that the Debtors are being dilatory in addressing these issues, which must be resolved before a plan of reorganization can be filed. Further, there is no evidence that HHC is being prejudiced by the delay in the Debtors' decision. Cf. In re Taber Farm Assoc., 115 B.R. 455, 457 (Bankr.S.D.N.Y.1990) (court granted debtor an additional 120 days to decide whether to assume or reject contract, even though other party to the contract was receiving no income and was unable to sell its land until the debtor's decision was made).
The desire to be first is not a convincing reason to compel the Debtors to accelerate their decision. See, e.g., Public Svc. Co. of New Hampshire v. New Hampshire Elec. Coop., Inc. (In re Public Svc. Co. of New Hampshire), 884 F.2d 11, 14-15 (1st Cir. 1989) ("interests of the creditors collectively and the bankrupt estate as a whole will not yield easily to the convenience or advantage of one creditor out of many"); Hiser v. Blue Cross of Greater Philadelphia (In re St. Mary Hosp.), 89 B.R. 503, 513-14 (Bankr.E.D.Pa.1988) (after balancing the respective harms to the debtor and other contracting party, the court concluded that "the interests of the Debtor here in denying a precipitous assumption or rejection appear to us much greater than the interests of HHS in forcing a prompt resolution").
HHC also asserts that, since it can terminate the agreement in May, 2002, there is no possibility of a long term relationship with the Debtors.[4] While this may be true, it is irrelevant to a determination of whether to compel the Debtors to assume or reject the agreement. Section 365 applies to all executory contracts, regardless of the length of time left on the contract.
III. CONCLUSION
For the foregoing reasons, we deny the motion of HHC to compel the Debtors to assume or reject its PMA.
An appropriate order is attached.
*296 ORDER
AND NOW, this 9TH day of MAY, 2001, upon consideration of the Motion of HHC Medical Group, Inc. to compel the Debtors to Assume or Reject the Practice Management Agreement between the Debtors and HHC, it is hereby
ORDERED that the Debtors' Motion is DENIED.
NOTES
[1] This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Federal Rule of Bankruptcy Procedure 7052, which is made applicable to contested matters by Federal Rule of Bankruptcy Procedure 9014.
[2] Some courts have held that even a post-petition breach of an executory contract is not sufficient cause to compel a debtor to assume or reject the contract before confirmation. See, e.g., In re El Paso Refinery, L.P., 220 B.R. 37, 44 (Bankr.W.D.Tex.1998) (quoting Krafsur v. UOP (In re El Paso Refinery, L.P.), 196 B.R. 58, 72 (Bankr.W.D.Tex.1996)).
[3] As of the hearing, the Debtors had already filed ten motions for approval of settlements with practice groups.
[4] HHC also asserts that the Third Amendment to the PMA gave it the right to terminate early and to acquire back its equipment in exchange for the Debtors' stock. It fears that the Debtors will eliminate this right by rejecting the PMA. It does not dispute the Debtors' right to reject the contract but complains about paying the Debtors $750,000 in management fees between now and May, 2002, when it knows the Debtors will ultimately reject the PMA. However, the Debtors note that to obtain the management fees, they will have to continue to perform under the PMA. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550120/ | 97 F.2d 302 (1938)
R. J. REYNOLDS TOBACCO CO.
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 4290.
Circuit Court of Appeals, Fourth Circuit.
June 6, 1938.
J. G. Korner, Jr., of Washington, D. C. (D. H. Blair, of Washington, D. C., and M. A. Braswell, of Winston-Salem, N. C., on the brief), for petitioner.
Morton K. Rothschild, Sp. Asst. to the Atty. Gen. (James W. Morris, Asst. Atty. Gen., and J. Louis Monarch, Sp. Asst. to the Atty. Gen., on the brief), for respondent.
*303 Cravath, DeGersdorff, Swaine & Wood, of New York City (Wm. D. Whitney, of New York City, Richard H. Wilmer, of Washington, D. C., and Joseph C. White, of New York City, on the brief), amici curiæ.
Before PARKER and SOPER, Circuit Judges, and WAY, District Judge.
SOPER, Circuit Judge.
The petition in this case seeks a review of a decision of the Board of Tax Appeals wherein a deficiency in income tax of R. J. Reynolds Tobacco Company in the amount of $37,865.62 for the year 1929 was determined. The determination was based upon a profit of $286,581.21 realized by the corporation during the year from sales of its own class B common stock and was in conformity with the 1934 amendment of Article 66 of Treasury Regulations 74 relating to the Revenue Act of 1928, 45 Stat. 791. The original regulation which was in force from 1918 to 1934 broadly declared[1] that a corporation realizes no gain or loss from the purchase or sale of its own stock; but the amendment of May 2, 1934[2] stated that the real nature of the transaction determines the question whether the acquisition or disposition by a corporation of shares of its own stock gives rise to taxable gain or deductible loss; and where a corporation deals in its own shares as it might in the shares of another corporation, the resulting gain or loss is to be computed in the same manner as though the corporation were dealing in the shares of another.
The cause originated in a 60 day notice of deficiency mailed to the taxpayer on April 3, 1933, upon which the taxpayer filed a petition for review with the Board. The matter involved had no relation to the present controversy and was adjusted by agreement; but in 1936 before the agreement was formally filed with the Board, the Commissioner filed an amended answer wherein he set up his present contention as an affirmative issue. The majority of the Board was of the opinion that the broad statement in the original regulation that a corporation realizes no gain or loss from the purchase or sale of its own stock was at variance with section 22 (a)[3] of the Revenue Act of 1928, 26 U.S.C.A. § 22(a) which defines gross income *304 to include gains, profits and income derived from sales or dealings in property, or from any source whatever; and that the amended regulation was a correct interpretation of the statute. The evidence showed that the corporation had engaged in the purchase and sale of its own stock, usually to its own profit, on numerous occasions during the period 1921 to 1929, and the Board therefore held that the gain derived from this source in 1929 was taxable.
The taxpayer in this petition for review contends (1) that the regulation in force in 1929 was in harmony with established principles of law and of accountancy and constituted a correct interpretation of section 22 (a) of the Revenue Act of 1928; and (2) that even if this interpretation was open to doubt, it was not so patently wrong as to be without a reasonable basis; and therefore it should be applied to a transaction which occurred in 1929, because it represented the administrative construction uniformly given to the Act from 1918 to 1934, during which period the definition of income was reenacted in succeeding federal revenue acts[4] in substantially the same form as it is found in the Revenue Act of 1918, so that we should infer that the regulation correctly expressed the legislative intent.
The facts, set out in detail in the findings of the Board, 35 B.T.A. 949, may be summarized for our present purposes: The Tobacco Company has been engaged in the manufacture and sale of tobacco products in North Carolina since 1899. The capital structure has been changed from time to time by increases in the capital stock, the issuance of a class of common stock known as Class B, by stock dividends and by the reduction in par value of the common stock. The capital in 1929 was $100,000,000 consisting of $10,000,000 of $10 par common stock and $90,000,000, of $10 par Class B common stock. The latter class has no voting power and is not considered in the company's plan for profit sharing by its officers and employees.
The founder and principal stockholder at the beginning was R. J. Reynolds, whose policy was to bring as many employees as possible into the company as shareholders, entitled as such to a special annual distribution based on the profits realized. After 1912 the extension of the business was so rapid that new capital was necessary, but at the same time the management desired to protect the reputation of the company and the behavior of the stock on the market. The Class B common stock was first issued in 1918. In the same year Reynolds died and the sale of a substantial portion of his stock to several stockholders became necessary. In 1921 this stock was finally concentrated in a single corporation that was a large distributor of Reynolds products. Thereby a situation disturbing to other distributors was created, and the management determined to buy the stock and sell it to the public, thus ridding itself of a harmful influence and broadening its stockholding base at one and the same time. Accordingly, the stock was bought and as the result of this purchase and certain subsequent transactions the company came into possession of 75,000 shares of Class B common stock which it held until January 31, 1929.
During the years 1921 to 1929 the company availed itself of all opportunities of broadening its stockholding base. The result was that the number of stockholders of all kinds of stock was increased from less than 2,000 in 1922 to 9,136 holders of Class B stock alone in 1929; and this number was increased to 52,000 in 1936.
Portions of the Class B stock that were bought in 1921 were sold as follows: 21,067 shares in 1924 and 11,000 shares in 1925, both on a rising market. In 1926, in order to protect the reputation of the stock and to prevent wide variations in prices that were feared, the taxpayer bought 21,400 shares of its stock; and later gradually fed it back into the market. In 1928 the price of cigarettes was reduced and the volume of stock offered for sale by stockholders was greatly increased. In order to protect the stock, the taxpayer bought 43,300 shares and after the market steadied, fed them back, together with 1,240 shares which had been bought in *305 1921. During each of the years 1924 to 1928, the taxpayer reissued for cash, shares of Class B common stock theretofore acquired for cash, in the manner similar to that set forth below with respect to the year 1929, and for like reasons, and the income tax return for each year showed a substantial profit on the transactions which was carried in the return as non-taxable income.
As has been stated, the taxpayer had 75,000 shares of Class B common stock by January 31, 1929. A certificate for 15,000 shares of this stock was cancelled and new certificates were issued to various persons who paid therefor $708,690. These shares had been acquired in 1921 at a cost of $121,440.19. During 1929 the taxpayer also sold 194,000 shares which it had purchased in that year 94,500 shares at $4,506,497, which had cost $4,908,966.17, and 99,500 shares at $4,703,608, which had cost $4,601,807.43. On December 18, 1929 23% of the total outstanding shares of Class B common stock were in the hands of brokers subject to trading or speculation and were in a position to do great injury to the taxpayer and its business. At the time of the break in the market in 1929 the company had $29,000,000 in cash and government securities, and the management determined to use these funds in purchasing the taxpayer's stock offered on the market during October and November, 1929. By purchasing 90% of its stock thus offered, the taxpayer was able to hold the market price at $50. As the panic eased, the prices were scaled down to $40 and $39. During the year it purchased a total of 574,880 shares of its own stock.
At all times during 1929, the stock books and records of the taxpayer indicated that the number of Class B common stock issued and outstanding was 9,000,000 shares. When shares of this stock were purchased by the company, the certificates were regularly entered on the balance sheets of the financial statement of the taxpayer under the entry "investments in Non Competitive Companies" at the amount of cash for which they were acquired; and they were so carried until the certificates were cancelled and new certificates were issued to purchasers in lieu thereof. The transactions of purchase and sale were not recorded so as to indicate either an increase or a reduction of the number of the outstanding shares. The cash of the taxpayer was reduced by the amounts expended in the purchases, and increased by the amounts received in the sales of the stock. At the close of the taxable year 1929, the taxpayer had on hand 431,929 shares of its Class B common stock; and these shares represented $19,270,690.98 out of a total of $19,601,594.77 appearing on the taxpayer's books as investments in non-competitive companies. The taxpayer's income tax return for the year indicated a non-taxable profit from dealings in its own stock of $436,581.21 which was carried on the books as a cash item in the surplus account in accordance with the taxpayer's understanding of the situation and the Treasury Department regulation in force at the time. It is stipulated that the amount of the item should be reduced to $286,581.21.
During a period of sixteen years from 1918 to 1934, the regulations, rulings, and decisions of the Treasury Department and the decisions of the Board of Tax Appeals supported the interpretation of the statute for which the taxpayer now contends. They were based upon the theory that when a corporation issues shares of its stock for the money or property of another person, or acquires such stock in exchange for its own money or property, there takes place a capital transaction which involves a readjustment of the capital structure, but neither a taxable gain nor a deductible loss. Thus the regulations in force during the period expressly declared that "a corporation realizes no gain or loss from the purchase or sale of its own stock";[5] the rulings and decisions of the Treasury Department were in harmony with this pronouncement;[6] and the *306 Board of Tax Appeals in a leading decision, Appeal of Simmons & Hammond Mfg. Co., 1925, 1 B.T.A. 803, held that a corporation which had 323 shares of stock outstanding experienced no deductible loss in the sale of 94 shares for less than the price at which they had been bought by the corporation a few months before.[7]
Writers upon the theory of accounting have given much consideration to the proper method of entering upon the records of a corporation purchases and sales by it of its own stock. It is quite generally said that stock purchased and held as treasury stock without retirement should not be treated as an asset but should be carried in the balance sheet as a reduction of capital or of surplus.[8] But it is freely admitted that the actual practice of many important businesses has been to the contrary;[9] and it has been suggested that the correct accounting for stock held in the treasury may be affected in a given case by attendant circumstances, as for instance, that the amount involved is small in comparison with the total stock outstanding, or that marketable stock is being temporarily held for resale, as indicating that from a practical standpoint the *307 capital structure is not materially affected. This viewpoint has all along been held by Montgomery.[10]
When we come to the decisions of the courts we find support both for the view that treasury stock is in truth not an asset in the hands of a corporation; and also for the opinion that the real nature of the situation must be examined in order to determine whether gain or loss, recognizable by the taxing statutes, has occurred in the purchase or sale by a corporation of its own stock. Thus it was said by Judge Learned Hand in speaking of treasury shares in Borg v. International Silver Co., 2 Cir., 11 F.2d 147, 150:
"Such shares are of necessity retired in this sense: That they constitute no longer any liability of the defendant. A corporation can have no right of action against itself, as must be if the share is truly a liability. Indeed, the only difference between a share held in the treasury and one retired is that the first may be resold for what it will fetch on the market, while the second has disappeared altogether. * * * To carry the shares as a liability, and as an asset at cost, is certainly a fiction, however admirable. They are not a liability, and on dissolution could not be so treated, because the obligor and obligee are one. They are not a present asset, because, as they stand, the defendant cannot collect upon them. What in fact they are is an opportunity to acquire new assets for the corporate treasury by creating new obligations. In order to indicate this potentiality, it may be the best accounting to carry them as an asset at cost, providing, of course, all other assets are so carried. Even so, a company which revalued its assets might properly carry them at their sale value when the revaluation was made. In any event there can be no ambiguity in stating the facts more directly as the defendant did; that is, in treating the shares as not in existence while held in the treasury, except as a possible source of assets at some future time, when by sale at once they become liabilities and their proceeds assets. It makes no difference whether this satisfies ideal accounting or not."
The holding of the Board in S. A. Woods Machine Co. v. Commissioner, 21 B.T.A. 818, that in accordance with Regulations 65, Article 543, no taxable income resulted when a corporation accepted shares of its own stock in payment of damages due it for patent infringement was reversed in 1 Cir., 57 F.2d 635. Adopting the realistic view of the problem the court said (page 636):
"Whether the acquisition or sale by a corporation of shares of its own capital stock gives rise to taxable gain or deductible loss depends upon the real nature of the transaction involved. Walville Lumber Co. v. Com'r of Internal Revenue (C. C.A.) 35 F.2d 445; Spear & Co. v. Heiner (D.C.) 54 F.2d 134. If it was in fact a capital transaction, i. e., if the shares were acquired or parted with in connection with a readjustment of the capital structure of the corporation, the Board rule applies. Doyle v. Mitchell Bros. Co., 247 U.S. 179, 184, 38 S.Ct. 467, 62 L.Ed. 1054; Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521, 9 A.L.R. 1570. But where the transaction is not of that character, and a corporation has legally dealt in its own stock as it might in the shares of another *308 corporation, and in so doing has made a gain or suffered a loss, we perceive no sufficient reason why the gain or loss should not be taken into account in computing the taxable income. The view taken by the Board of Tax Appeals (see Houston Brothers Co. v. Commissioner, 21 B.T.A. 804) presses accounting theory too far in disregard of plain facts. It is not supported by any decision which has come to our attention except those of the Board. * * *
"The transaction involved in this case was equivalent to the payment of the debt in cash and the investment of the proceeds by the corporation in its own stock. If that had been done clearly the cash received would have been taxable income. The transaction was not changed in its essential character by the fact that, as the debtor happened also to own the stock, the money payment and the purchase of stock were by-passed, and the stock was directly transferred in payment of the debt. The stock was the medium in which the debt was paid. The wide door to evasion of taxes opened by the decision of the Board is an additional reason, and a weighty one, against it."
See, also, Commissioner v. Boca Ceiga Development Co., 3 Cir., 66 F.2d 1004; Allyne-Zerk Co. v. Commissioner, 6 Cir., 1936, 83 F.2d 525; Dorsey Co. v. Commissioner, 5 Cir., 1935, 76 F.2d 339, certiorari denied 296 U.S. 589, 56 S.Ct. 101, 80 L.Ed. 416; Burnet v. Riggs Nat. Bank, 4 Cir., 1932, 57 F.2d 980. See, also, the comment on Taxability of Transactions by a Corporation in Its Own Stock, 47 Yale L.J. 111.
It is manifest that the decision of the court in S. A. Woods Machine Co. v. Commissioner, supra, led to the promulgation of the amended regulation by the Secretary of the Treasury which now appears as Regulations 77, Article 66, wherein the Board revised its former position and adopted the view that "whether the acquisition or disposition by a corporation of shares of its own capital stock gives rise to taxable gain or deductible loss depends upon the real nature of the transaction which is to be ascertained from all its facts and circumstances; * * * and "where a corporation deals in its own shares as it might in the shares of another corporation, the resulting gain or loss is to be computed in the same manner as though the corporation were dealing in the shares of another."[11]
Enough has been said to suggest that neither interpretation of the Act is without a reasonable basis. On the one hand, it is reasonable to say that when a corporation buys or sells its own stock, a change in its capital structure takes place; and that the change may be of material significance although purchases are followed by sales, if substantial amounts of stock are involved and the stock is held in the treasury for substantial periods of time. On the other hand it may be said that the increase or decrease of net resources which often accompanies the purchase and sale of marketable stock bears strong resemblance to the gain or loss which the taxing statutes recognize; and this appears to be the more manifest when the change in the amount of outstanding stock is relatively small and the period during which it is held by the corporation as treasury stock is short. There is room for debate, and this situation determines the rationale of our decision in the pending case.
We do not undertake to say that the present regulation would not have been a correct interpretation of the statute, as applied to such facts as are now before us, if it had been promulgated in 1918. But, as we have seen, the prevailing opinion in that year and thence continuously until 1934 forbad the taxation of such a profit as the Tobacco Company earned in 1929 in the sale of its own stock; and Congress in the light of this interpretation of its intent reenacted in substantially the same words the definition of income subject to tax in five successive carefully considered revenue acts. Our path is therefore clear; for the rule is well settled that if a statute is reasonably susceptible of two constructions, its reenactment after an interpretative ruling by responsible officials amounts to a legislative sanction of the course pursued. Especially *309 is this true when the construction has been long maintained and several re-enactments of the language in dispute have taken place. The rule has been frequently applied in cases under the revenue acts when the statutory language is in general terms and susceptible of different interpretation as applied to the relevant facts; and in Johnson v. Commissioner, 5 Cir., 1932, 56 F.2d 58, it was applied to the very regulation now under consideration as set out in Regulations 62, Article 543 relating to the Revenue Act of 1921. See, also, United States v. Alabama Great Southern Ry. Co., 142 U. S. 615, 12 S.Ct. 306, 35 L.Ed. 1134; Copper Queen Consol. Mining Co. v. Territorial Board of Arizona, 206 U.S. 474, 27 S.Ct. 695, 51 L.Ed. 1143; United States v. Cerecedo, 209 U.S. 337, 28 S.Ct. 532, 52 L.Ed. 821; Brewster v. Gage, 280 U. S. 327, 50 S.Ct. 115, 74 L.Ed. 457; McFeely v. Helvering, Com'r, 296 U.S. 102, 56 S.Ct. 54, 80 L.Ed. 83, 101 A.L.R. 304; Helvering v. Richmond, F. & P. R. Co., 4 Cir., 90 F.2d 971.
In Massachusetts Mutual Life Ins. Co. v. United States, 288 U.S. 269, 273, 53 S. Ct. 337, 339, 77 L.Ed. 739, the court said:
"The Congress in the Revenue Acts of 1928 and 1932 re-enacted Section 245 without alteration. This action was taken with knowledge of the construction placed upon the section by the official charged with its administration. If the legislative body had considered the Treasury interpretation erroneous, it would have amended the section. Its failure so to do requires the conclusion that the regulation was not inconsistent with the intent of the statute (National Lead Co. v. United States, 252 U.S. 140, 146, 40 S. Ct. 237, 64 L.Ed. 496; Poe v. Seaborn, 282 U.S. 101, 116, 51 S.Ct. 58, 75 L.Ed. 239; McCaughn v. Hershey Chocolate Co., 283 U.S. 488, 492, 51 S.Ct. 510, 75 L.Ed. 1183; Costanzo v. Tillinghast, 287 U.S. 341, 53 S.Ct. 152, 77 L.Ed. 350), unless, perhaps, the language of the act is unambiguous and the regulation clearly inconsistent with it. Compare Louisville & N. R. Co. v. United States, 282 U.S. 740, 757, 758, 51 S.Ct. 297, 75 L.Ed. 672." Cf. Manhattan Co. v. Commissioner, 297 U.S. 129, 135, 56 S.Ct. 397, 400, 80 L. Ed. 528; Koshland v. Helvering, 298 U.S. 441, 446, 56 S.Ct. 767, 769, 80 L.Ed. 1268, 105 A.L.R. 756; Burnet v. S. & L. Bldg. Corporation, 288 U.S. 406, 53 S.Ct. 428, 77 L.Ed. 861; Murphy Oil Co. v. Burnet, 287 U.S. 299, 53 S.Ct. 161, 77 L.Ed. 318; Helvering v. Safe Deposit & Trust Co., Executor of Will of Henry Walters, 4 Cir., 95 F.2d 806.
The decision of the Board of Tax Appeals is reversed.
NOTES
[1] Sale By Corporation of Its Capital Stock. The proceeds from the original sale by a corporation of its shares of capital stock, whether such proceeds are in excess of or less than the par value of the stock issued, constitute the capital of the company. If the stock is sold at a premium, the premium is not income. Likewise, if the stock is sold at a discount, the amount of the discount is not a loss deductible from gross income. If, for the purpose of enabling a corporation to secure working capital or for any other purpose, the shareholders donate or return to the corporation to be resold by it certain shares of stock of the company previously issued to them, or if the corporation purchases any of its stock and holds it as treasury stock, the sale of such stock will be considered a capital transaction and the proceeds of such sale will be treated as capital and will not constitute income of the corporation. A corporation realizes no gain or loss from the purchase or sale of its own stock. Treasury Regulations 74, Article 66.
[2] Acquisition or Disposition By a Corporation of Its Own Capital Stock. Whether the acquisition or disposition by a corporation of shares of its own capital stock gives rise to taxable gain or deductible loss depends upon the real nature of the transaction, which is to be ascertained from all its facts and circumstances. The receipt by a corporation of the subscription price of shares of its capital stock upon their original issuance gives rise to neither taxable gain nor deductible loss, whether the subscription or issue price be in excess of, or less than, the par or stated value of such stock.
But where a corporation deals in its own shares as it might in the shares of another corporation, the resulting gain or loss is to be computed in the same manner as though the corporation were dealing in the shares of another. So also if the corporation receives its own stock as consideration upon the sale of property by it, or in satisfaction of indebtedness to it, the gain or loss resulting is to be computed in the same manner as though the payment had been made in any other property. Any gain derived from such transactions is subject to tax, and any loss sustained is allowable as a deduction where permitted by the provisions of applicable statutes. Treasury Regulations 77, Article 66 as amended by T. D. 4430.
[3] "§ 22. Gross income. (a) General definition. `Gross income' includes gains, profits, and income derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever." 45 Stat. 791, 797.
[4] Sec. 213 (a) of the Revenue Acts of 1918, 1921, 1924 and 1926, 40 Stat. 1057, 1065, 42 Stat. 227, 237, 43 Stat. 253, 267, 44 Stat. 9, 23. Sec. 22 (a) of the Revenue Acts of 1928, 1932 and 1934, 45 Stat. 791, 797, 26 U.S.C.A. § 22(a), 47 Stat. 169, 178, 26 U.S.C.A. § 22(a), 48 Stat. 680, 686, 26 U.S.C.A. § 22(a).
[5] Regulations 45, Arts. 542 and 563, Rev.Act of 1918; Regulations 62, Arts. 543 and 563, Rev.Act of 1921; Regulations 65, Arts. 543 and 563, Rev.Act of 1924; Regulations 69, Arts. 543 and 563, Rev.Act of 1926; Regulations 74, Arts. 66 and 176, Rev.Act of 1928; Regulations 77, Arts. 66 and 176, Rev.Act of 1932; Regulations 33, revised, Article 98 promulgated under the Revenue Acts of September 8, 1916 and October 3, 1917 contained the statement that if treasury stock is resold at a price in excess of its cost upon repossession, such excess shall be returned as income.
[6] Law Opinion 296, 5 C.B. 210; Law Opinion 426, 5 C.B. 210; Law Opinion 1035, 2 C.B. 132, 133; Law Opinion 1035, revised, 3 C.B. 160, 162; A.R.R. 693, 5 C.B. 207; A.R.R. 799, C.B. I-1, 374; A.R.R. 8159, C.B. III-2, 256; I. T. 1198, C.B. I-1, 275; I.T. 1736, C.B. II-2, 274; I.T. 1802, C.B. II-2, 267; Solicitor's Memorandum 2205, C.B. III-2, 244.
[7] To the same effect was Appeal of Co-operative Furniture Co., 2 B.T.A. 165. Similar rulings were made with regard to the purchase or sale by a corporation of its shares although at a price varying from that at which they had been previously issued or purchased by the corporation. Appeal of Atlantic Carton Corporation, 2 B.T.A. 380; Appeal of Hutchins Lumber & Storage Co., 4 B.T. A. 705; Appeal of Liberty Agency Co., 5 B.T.A. 778; J. H. Johnson v. Com'r, 19 B.T.A. 840, affirmed 5 Cir., 56 F.2d 58; American Cigar Co. v. Com'r, 21 B.T.A. 464, affirmed 2 Cir., 66 F.2d 425; Carter Hotel Co. v. Com'r, 25 B.T.A. 933, affirmed 4 Cir., 67 F.2d 642; Ohio Central Telephone Co. v. Com'r, 28 B.T.A. 96; and with regard to costs and expenses incurred in an issue of stock, Appeal of Emerson Electric Co., 3 B.T.A. 932; Simmons Co. v. Com'r, 8 B.T.A. 631, affirmed 1 Cir., 33 F.2d 75; and with regard to partial payments forfeited to the corporation upon default in the payment of the full purchase price of stock, Appeal of Illinois Rural Credit Ass'n, 3 B. T.A. 1178; Inland Finance Co. v. Com'r, 23 B.T.A. 199, affirmed 9 Cir., 63 F.2d 886; see, also, 105 W. 55th St., Inc., v. Com'r, 15 B.T.A. 210, affirmed 2 Cir., 42 F.2d 849.
The Board also applied the rule to the purchase by a corporation of the stock of an affiliated corporation, regarding them as a single entity under the statutes. Appeal of Farmers Deposit Nat. Bank, 5 B. T.A. 520; Appeal of Interurban Construction Co., 5 B.T.A. 529; Union Trust Co. of N. J. v. Com'r, 12 B.T.A. 688. Recently similar decisions of the Board have been reversed by the courts on the ground that affiliated corporations are separate entities in law. Commissioner v. Van Camp Packing Co., 7 Cir., 67 F. 2d 596; Commissioner v. General Gas & Elec. Corporation, 2 Cir., 72 F.2d 364; Founders General Corporation v. Commissioner, 2 Cir., 79 F.2d 6. The rule of the Board was also applied in the later cases when the transactions involved a transfer of property as well as stock. Houston Bros. Co. v. Com'r, 21 B.T.A. 804, overruling Behlow Estate Co. v. Com'r, 12 B.T.A. 1365 and New Jersey Porcelain Co. v. Com'r, 15 B.T.A. 1059; S. A. Woods Machine Co. v. Com'r, 21 B. T.A. 818. Cf. Haskell & Barker Car Co. v. Com'r, 9 B.T.A. 1087; see also Riggs Nat. Bank v. Com'r, 17 B.T.A. 615, affirmed Burnet v. Riggs Nat. Bank, 4 Cir., 57 F.2d 980. The decision of the Board in S. A. Woods Machine Company v. Com'r was reversed on appeal as will hereinafter appear.
[8] George S. Hills on Stated Capital and Treasury Shares, Journal of Accountancy, Vol. 57, Jan. to June, 1934, 202, 212, 213; Dickinson Accountancy Practice and Procedure, 130; Paton, Accountant's Hand Book, 931, 932, 980, 981; Wildman and Powell, Capital Stock Without Par Value, 93, 94; Marple Treasury Stock, Journal of Accountancy, Vol. 57, Jan. to June, 1934, 257, 262, 263; Sunley and Pinkerton, Corporation Accounting, 121; Kester, Accounting Theory and Practice, 17.
[9] See the articles by Hills and Marple, Supra. On May 10, 1938 the Federal Securities and Exchange Commission ruled that the excess of the proceeds of the sale of reacquired shares of a corporation's own stock over the cost thereof should be accounted for as capital since a transaction of this nature does not result in profit or surplus; and that from an accounting standpoint no distinction should be made between such a transaction and the reacquisition and retirement of such stock together with the subsequent issue of stock of the same class.
[10] Montgomery, Auditing Theory and Practice, 4th Ed. 1927, 245, 347. In the 5th Ed. 1934, 402, the author stated: "Proceeds of Sale of Treasury Stock. When capital stock is donated to a corporation, the proceeds of its subsequent sale are capital. In the author's opinion, provided the laws of the state of incorporation permit, when stock is purchased in the open market and resold, the profit or loss may be reflected in earned surplus since in such a case there is virtually no difference between dealing in its own stock and in the stocks or securities of other corporations. It has been urged that when a corporation purchases part of its stock, it is a capital transaction because its outstanding stock is reduced and its surplus increased or decreased; if stock is purchased below par, surplus is increased; if stock is purchased above par, surplus is reduced. When stock is purchased or acquired for permanent holding or for formal reduction of outstanding issues, it is proper to treat it as a capital transaction; but when a corporation buys a relatively small number, say 100 shares, of its own stock at $80. a share and immediately sells it for $90. a share, the gain of $1,000 is no more a capital gain than if the purchase and resale were of any other security or commodity." See, also, Sunley and Pinkerton on Corporate Accounting, 123, 124; Dickinson, Accountancy Practice and Procedure, 117; R. E. Payne on Treasury or Reacquired Stock in the Certified Public Accountant February, 1936, Vol. 16, 98-105; Esquerre, Practical Accounting Problems, Part II, 1922, 6-81.
[11] The change had perhaps been foreshadowed in Houston Brothers Co. v. Commissioner, 21 B.T.A. 804, 815, upon which the conclusion reached by the Board on the same day in S. A. Woods Machine Company v. Com'r, supra, was based, when the Board expressly declined to decide what rule should be applied in the case of a casual purchase and sale in the open market by a corporation of its own shares, nothing more being intended or accomplished than a temporary holding of the stock. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550125/ | 97 F.2d 182 (1938)
STORY
v.
RIVES, Superintendent of Asylum and Jail.
No. 7035.
United States Court of Appeals for the District of Columbia.
Decided April 4, 1938.
Rehearing Denied May 9, 1938.
*183 James J. Laughlin and Ralph A. Potts, both of Washington, D. C., for appellant.
Leslie C. Garnett, U. S. Atty., and John J. Wilson, Asst. U. S. Atty., both of Washington, D. C., for appellee.
Before GRONER, STEPHENS, and MILLER, Associate Justices.
MILLER, Associate Justice.
This appeal comes to us from an order of the District Court dismissing a petition for a writ of habeas corpus and discharging the writ which had been theretofore issued and directed to appellee Rives in his capacity as Superintendent of the Washington Asylum and Jail.
On January 20, 1933, appellant pleaded guilty to the crime of robbery in the Supreme Court (now the District Court of the United States for the District of Columbia); was sentenced to serve a term of from two years and seven months to five years; and thereupon was committed to the District of Columbia Reformatory at Lorton, Virginia. Subsequently, he was transferred to the United States Northeastern Penitentiary and thereafter to the United States Hospital for Defective Delinquents at Springfield, Missouri.
On September 30, 1936, having served the maximum sentence imposed, less deductions allowed for good conduct, appellant was conditionally released under the Act of March 3, 1875, 18 Stat. 479, as amended by the Act of June 21, 1902, 32 *184 Stat. 397, 18 U.S.C.A. §§ 710-713, the pertinent parts of which appear in the margin.[1]
On November 5, 1936, the United States Board of Parole, upon information that he had violated the conditions of his release, caused a warrant to be issued for the retaking of appellant. Several days later, on November 12, 1936, appellant was indicted for the commission of another crime, and, after waiving a jury trial, was convicted and sentenced by the District Court of the United States for the District of Columbia to nine months' imprisonment in the Washington Asylum and Jail. The warrant of the Parole Board was filed in the office of appellee as a detainer, thereby preventing the release of appellant after the service of his nine months' sentence. It was from custody under this warrant that appellant sought release by a writ of habeas corpus. The important question for decision, therefore, is whether the United States Board of Parole had authority to issue its warrant under the circumstances of this case. In our opinion it did.
According to the provisions of the Act of June 29, 1932, 47 Stat. 381, 18 U.S.C.A. § 716b, any prisoner sentenced after that date and who is not paroled but instead is released after serving the term for which he was sentenced, less deductions allowed therefrom for good conduct, is required to "be treated as if released on parole." Prisoners released by the Parole Board, 18 U. S.C.A. §§ 723a, 723b may be retaken for violation of the conditions of parole on warrants issued by it, or by any one of its members. 18 U.S.C.A. § 723c. In that event, the unexpired term of imprisonment of any such prisoner begins to run from the date of his return to the institution, and the time he was on parole does not diminish the time he was originally sentenced to serve. 18 U.S.C.A. § 723c.
Although release following the allowance of deductions for good conduct, as provided by statute, cannot be denied a prisoner,[2] nevertheless its granting in the first instance is in the nature of a privilege bestowed by the legislature (Aderhold v. Hudson, 5 Cir., 84 F.2d 559), and, consequently, is subject to all conditions properly attached thereto. By section 4 of the Act of June 29, 1932, 47 Stat. 381, 18 U.S. C.A. § 716b, Congress attached as a condition to the early release of any prisoner, on account of good conduct allowances, the limitation that he should be "subject to all provisions of law relating to the parole of United States prisoners." In other words, he is thereby placed under the supervision of the United States Board of Parole and becomes a ward of such Board automatically upon release.
Without more, the law as just stated is sufficient to establish the authority of the United States Board of Parole and the validity of its warrant in the present case. Appellant contends, however, (1) that as he was originally convicted in the District of Columbia he could not be lawfully incarcerated in a Federal penitentiary; (2) that he is subject exclusively to the parole laws of the District of Columbia, and that those laws give to the United States Board of Parole no authority to issue a warrant for his retaking; hence, that his detention under such a warrant is illegal and properly subject to attack by writ of habeas corpus. Both contentions are without merit. All persons convicted of offenses against the United States are committed to the custody of the Attorney General of the United States, who may designate the places of original confinement and order transfers from one institution to another. Act of May 14, 1930, 46 Stat. 326, § 7, 18 U.S.C.A. § 753f; Bailey v. United States, 10 Cir., 74 F.2d 451. A robbery *185 committed in the District of Columbia is a crime against the United States, and, consequently, the offender comes within the provisions of the conditional release statute.[3]
The cases cited by appellant[4] are not in conflict with this well established view. Those cases do not involve violations of criminal statutes; all that they hold is that the laws of the District of Columbia, as enacted by Congress and embodied in its Code, are not general laws of the United States, having operation throughout the nation, but special enactments applicable only to the District of Columbia. The problem herein involved is neither referred to nor discussed.
In Tyner v. United States, 23 App.D.C. 324, 360, we held that the violation of a criminal law may constitute an offense against the United States although the act committed was a crime only in the District of Columbia. That the decision is sound we have no doubt.[5] Moreover, in Aderhold v. Lee, 5 Cir., 68 F.2d 824, certiorari denied 292 U.S. 633, 54 S.Ct. 718, 78 L.Ed. 1486, and Bracey v. Hill, D.C.M.D.Pa., 11 F.Supp. 148, affirmed, 3 Cir., 77 F.2d 970, the power of the Attorney General over the place of confinement of District of Columbia prisoners was sustained. The court said in the latter case (page 149): "The authority of the Attorney General to transfer prisoners from the District of Columbia to other penal institutions has existed and has been exercised and recognized for a long time prior to the Indeterminate Sentence and Parole Act. This act, as amended [section 10, enacted June 5, 1934, D.C. Code Supp. II, 1935, § 459], is not inconsistent therewith, but in fact recognizes and aids the exercise of that authority." Furthermore, it is provided by statute, Act of March 3, 1915, 38 Stat. 869, 18 U.S.C.A. § 704, that "The cost of the care and custody of District of Columbia convicts in any Federal penitentiary shall be charged against the District of Columbia * * *." This section impliedly recognizes the fact that District of Columbia prisoners may be incarcerated in Federal institutions. Nor is section 402, title 6, D.C.Code 1929, inconsistent with this position, as appellant contends, or with the statute in question.[6] Section 402, so far as applicable, provides: "Whenever any person has been convicted of crime in any court in the District of Columbia and sentenced to imprisonment for more than one year by the court, the imprisonment during the term for which he may have been sentenced or during the residue of said term may be in some suitable jail or penitentiary or in the reformatory of the District of Columbia; and it shall be sufficient for the court to sentence the defendant to imprisonment in the penitentiary without specifying the particular prison or the reformatory of the District of Columbia and the imprisonment shall be in such penitentiary, jail, or the reformatory of the District Columbia as the Attorney General shall from time to time designate: * * *" (Italics supplied.)
In support of his contention that he is subject exclusively to the parole laws of the District of Columbia, appellant relies particularly upon two Acts of Congress affecting prisoners convicted in the District. The first was approved July 15, 1932 subsequent to the date of the Act of June 29, 1932, 47 Stat. 381, 18 U.S.C.A. § 716b, which subjected all United States prisoners to the supervision of the United States Board of Parole. The Act of July 15, 1932 created a Board of Indeterminate Sentence and Parole for the penal institutions of the District of Columbia, and transferred to it all powers of the United States Board of Parole over "prisoners confined in the penal institutions of the District of Columbia."[7]*186 The second act upon which appellant relies was passed in June, 1934, amending the Act of July 15, 1932 so as to give to the United States Board of Parole "the same power and authority over prisoners convicted in the District of Columbia of crimes against the United States and now or hereafter confined in any United States penitentiary or prison (other than the penal institutions of the District of Columbia) as is vested in the Board of Indeterminate Sentence and Parole over prisoners confined in the penal institutions of the District of Columbia."[8]
Appellant contends that the effect of these two acts July 15, 1932 and June 5, 1934 was to express a legislative intent that no prisoner convicted in the District of Columbia should be subjected to the supervision of the United States Board of Parole under the provisions of section 4 of the Act of June 29, 1932, 18 U.S.C.A. § 716b, pertaining to the release of prisoners for good conduct. Such an intent is neither expressed nor implied in either of the Acts involved.
It will be noted that (1) these two acts relate exclusively to the parole of prisoners and do not purport to affect prisoners otherwise released; (2) they give to the District of Columbia Board power only over prisoners confined in the penal institutions of the District of Columbia[9] and, similarly, restrict the powers of the United States Board only as to prisoners so confined; (3) the Act of June 5, 1934 recognizes that prisoners convicted in the District of Columbia may be and are confined in other Federal penal institutions than those of the District of Columbia, and gives to the United States Board the same power over prisoners convicted in the District and confined elsewhere, as the District Board has over such prisoners confined in the District.
The Act of June 5, 1934 constituted an important extension of power in the United States Board over District of Columbia prisoners in that it permitted the Board to release such prisoners on parole from non-District institutions after serving only one-fifth of their maximum terms, while other United States prisoners could be released on parole only after serving one-third of the maximum.[10]
But neither Act has any bearing upon the release of prisoners other than on parole, and neither restricts in any way the power of the United States Board to supervise prisoners so released from institutions other than in the District under the provisions of section 4 of the Act of June 29, 1932, 18 U.S.C.A. § 716b. Appellant's contention is based, apparently, upon the misconception that the procedure of conditional release, created by that act, is incorporated into and made a part of the Federal parole procedure in other words, that conditional release, following service of the full term of the sentence, less deductions for good conduct, is in fact parole. But it is not parole any more than is probation or pardon, or the relaxed discipline of the honor camps maintained by the Attorney General.[11] It is instead a new procedure of conditional release. It is true the new law provides that a prisoner so released shall "be treated as if released on parole."[12] For convenience of administration, Congress adopted, and made applicable to it, certain portions of the procedure of parole. This did not make the new procedure identical with parole, any more than does the fact that the Federal probation officers supervise both probationers and parolees make probation and parole identical. As a matter of fact, in one of its most important characteristics, parole differs irreconcilably from the new procedure of conditional release. A prisoner is released on parole by the United States Board of Parole wholly as a matter of discretion[13] when it is made to appear to said Board, from a report by the proper officers of any United States prison, or upon application by a prisoner for release on parole, "that there is a reasonable probability that such applicant will live and remain at liberty without violating the laws, and if [when] in the opinion of the board such release is not incompatible with the welfare of society * * *."[14] On the other hand, *187 prisoners who come out under the new procedure of conditional release after having served the maximum sentence less good conduct allowances, are those who have been rejected by the Parole Board as unsafe risks; or, in other words, as to whom there is no reasonable probability that they will live and remain at liberty without violating the laws and whose release is incompatible with the welfare of society. Nevertheless, under the provisions of section 1 of the Act of March 3, 1875, 18 U.S.C.A. § 710, such a prisoner is entitled to deductions from his sentence when his prison record "shows that he has faithfully observed all the rules and has not been subjected to punishment" for infraction of prison regulations, and the duty to release him is mandatory.[15] Congress undoubtedly created this new procedure of conditional release because it realized that society would be better served if such prisoners were subjected to the same supervision as parolees, even though they had failed to convince the prison officials and the Parole Board that their release was sufficiently compatible with the welfare of society to justify parole.
Appellant further contends that, in any event, the statute providing for release of prisoners for good conduct[16] is not applicable to prisoners convicted in the United States courts in the District of Columbia because it is limited in its application to prisoners sentenced for definite terms;[17] and that an indeterminate sentence, the imposition of which is compulsory in the District since the Act of July 15, 1932, does not come within its purview. Consequently, appellant contends that as he was sentenced under the Act of July 15, 1932, he is controlled by it alone. The argument is without merit, being founded upon an erroneous conception of the nature of an indeterminate sentence.
An indeterminate sentence is one for the maximum period imposed by the court, subject to termination by the Parole Board at any time after service of the minimum period. In United States ex rel. Paladino v. Commissioner of Immigration, 2 Cir., 43 F.2d 821, 822, it was said: "Indeterminate sentences have long been held sentences for the maximum term for which the defendant might be imprisoned. This is the construction not only placed upon sentences where a maximum and minimum period of imprisonment appears in the sentence, but also upon sentences where no term is mentioned and the statute sets the maximum. People ex rel. Haupt v. Lasch, 122 Misc. Rep. 223, 202 N.Y.S. 416; People ex rel. Clark v. Warden, 39 Misc.Rep. 113, 78 N. Y.S. 907; Ex parte Lee, 177 Cal. 690, 171 P. 958; State v. Perkins, 143 Iowa 55, 120 N.W. 62, 21 L.R.A.(N.S.) 931, 20 Ann. Cas. 1217; Commonwealth v. Brown, 167 Mass. 144, 45 N.E. 1; Commonwealth v. Kalck, 239 Pa. 533, 87 A. 61; Woods v. State, 130 Tenn. 100, 169 S.W. 558, L.R.A. 1915F, 531; State v. Page, 60 Kan. [664] 669, 57 P. 514; People v. Connors, 291 Ill. 614, 126 N.E. 595; Hulbert v. Fenton, 115 Neb. 818, 215 N.W. 104; In re Smith, 212 Mich. 78, 179 N.W. 346."[18]
Appellant next contends in support of the writ, first, that the sentence imposed on December 17, 1936 was illegal, and, second, that the trial on December 17, 1936 "did not constitute a valid waiver of jury trial." These contentions are without merit. The return and answer to the writ discloses that the warrant under which appellant is held was issued by a member of the United States Board of Parole, and the warrant shows clearly upon its face that it is based upon appellant's violation of the conditions of his release from custody under his sentence for robbery. It was issued upon "reliable information," given to a member of the Parole Board,[19] to the effect that appellant was found drunk in a room with a woman whom he was attempting to rape. This, being sufficient cause for revocation of parole,[20] was sufficient cause for his detention in the present case. Consequently, whether appellant was indicted and convicted for *188 assault becomes immaterial. Furthermore, a petition for a writ of habeas corpus challenges only the lawfulness of the custody and detention of the prisoner. It cannot be used as a means of securing the judicial determination of any other question, or as a writ of error, or to modify or revise even the judgment of conviction upon which his custody and detention are based. See Riddle v. Dyche, 262 U.S. 333, 43 S.Ct. 555, 67 L.Ed. 1009; McNally v. Hill, 293 U.S. 131, 139, 55 S.Ct. 24, 27, 79 L.Ed. 238. In the present case appellant seeks to go even farther and attack the proceedings and judgment in a case other than the one upon which his present custody and detention are based. This is clearly improper. Compare Bowles v. Laws, 59 App.D.C. 399, 402, 45 F.2d 669, 672.
It is also contended that the warrant issued by the United States Board of Parole was violative of the Fourth, Fifth and Sixth Amendments of the Constitution of the United States because it was not under oath, was not issued upon probable cause, and did not acquaint appellant with the nature of the offense committed.
Appellant completely misconstrues the nature and purpose of the laws governing parole[21] and conditional releases.[22] A warrant issued for the retaking of a person under these laws proceeds upon an entirely different premise and serves a different purpose than in the case of a warrant for the arrest of a person charged with the commission of a crime. A released prisoner is not a free man. Prior to the expiration of his maximum term he is a ward of the Parole Board, subject to its control and care. The Supreme Court has characterized the violation of a condition of parole as being, in legal effect, on the same plane as an escape from the custody of the warden. "His status and rights were analogous to those of an escaped convict." Anderson v. Corall, 263 U.S. 193, 44 S.Ct. 43, 45, 68 L.Ed. 247. See Stockton v. Massey, 4 Cir., 34 F.2d 96; Morgan v. Aderhold, 5 Cir., 73 F.2d 171. Consequently, it cannot be said that the retaking of a prisoner who is already within the legal custody of the authorities constitutes an arrest within the meaning of the constitutional provisions.
Nor need the warrant be under oath, for the same reasons. See Jarman v. United States, 4 Cir., 92 F.2d 309. There it is said (page 311): "We think, however, that it is proper to observe that the warrant in question was not a warrant for the arrest of one to be charged with and tried for a crime, nor for search and seizure of property, as contemplated in the Fourth Amendment to the Constitution. * * * Since he was not to be tried upon any charge contained in the warrant for his arrest, the issuance of the warrant was only for two purposes, first, to restore him to actual custody and, second, to advise him of the purpose of his reincarceration within the walls of the penitentiary. As stated he was already not merely in custody but in charge of the officials * * *."
The same argument disposes of appellant's contention that the Act of June 29, 1932, requiring him to serve the remainder of the original sentence without deducting the time he was out on release, is a bill of attainder.[23] The act does not attempt "to inflict punishment without a judicial trial," or otherwise. The penalty suffered by a prisoner who is returned to custody following violation of the conditions of his release is the serving of the balance of his sentence, for which credit for good conduct was provisionally allowed. The rule applicable is the same as that which controls when a prisoner is returned to custody following a breach of parole. The sentence originally imposed was merely suspended during the period of parole. Anderson v. Corall, supra.
We have considered carefully appellant's other contentions and find them to be without merit.
Affirmed.
NOTES
[1] Section 1 provides: "Each prisoner who has been or shall hereafter be convicted of any offense against the laws of the United States, and is confined, in execution of the judgment or sentence upon any such conviction, in any United States penitentiary or jail, or in any penitentiary, prison, or jail of any State or Territory, for a definite term, other than for life, whose record of conduct shows that he has faithfully observed all the rules and has not been subjected to punishment, shall be entitled to a deduction from the term of his sentence to be estimated as follows, * * *
* * * *
"Each prisoner entitled to the deduction provided for * * * shall be discharged at the expiration of his term of sentence less the time so deducted, and a certificate of the warden or keeper of the prison or penitentiary of such deduction shall be entered on the warrant of commitment. * * *" 18 U.S.C.A. §§ 710, 713.
[2] See United States ex rel. Anderson v. Anderson, 8 Cir., 76 F.2d 375; Howard v. United States, 6 Cir., 75 F. 986, 994, 34 L.R.A. 509; 1916, 30 Op.Attys.Gen. 569; 1909, 28 Op.Attys.Gen. 109.
[3] Metropolitan R. Co. v. District of Columbia, 132 U.S. 1, 9, 10 S.Ct. 19, 33 L. Ed. 231; Geist v. United States, 26 App. D.C. 594; United States v. Cella, 37 App.D.C. 423; Fletcher v. United States, 42 App.D.C. 53; Arnstein v. United States, 54 App.D.C. 199, 296 F. 946.
[4] Washington A. & Mt. Vernon Ry. Co. v. Downey, 236 U.S. 190, 35 S.Ct. 406, 59 L.Ed. 533; American Security & Trust Co. v. District of Columbia, 224 U.S. 491, 32 S.Ct. 553, 56 L.Ed. 856; Newman v. United States ex rel. Frizzell, 238 U.S. 537, 35 S.Ct. 881, 59 L. Ed. 446; American Security & Trust Co. v. Rudolph, 38 App.D.C. 32.
[5] See Kennedy v. United States, 265 U. S. 344, 44 S.Ct. 501, 68 L.Ed. 1045; 9 Hughes, Federal Practice, 1931, §§ 6740-6742. See, also, Fort Leavenworth R. Co. v. Lowe, 114 U.S. 525, 528 et seq., 5 S.Ct. 995, 29 L.Ed. 264; O'Donoghue v. United States, 289 U.S. 516, 538-539, 545-546, 53 S.Ct. 740, 745, 746, 748, 77 L.Ed. 1356.
[6] Aderhold v. Lee, 5 Cir., 68 F.2d 824, 825, certiorari denied 292 U.S. 633, 54 S.Ct. 718, 78 L.Ed. 1486.
[7] Sections 451-458, Tit. 6, D.C.Code, Supp. III, 1937, 47 Stat. 696-698.
[8] Section 459, tit. 6, D.C.Code, Supp. III, 1937, 48 Stat. 880.
[9] Aderhold v. Lee, supra, note 6.
[10] See ibid; Bracey v. Hill, D.C.M.D. Pa., 11 F.Supp. 148, affirmed, 3 Cir., 77 F.2d 970.
[11] 18 U.S.C.A. § 851; Morgan v. Aderhold, 5 Cir., 73 F.2d 171, 173.
[12] 18 U.S.C.A. § 716b.
[13] United States ex rel. Anderson v. Anderson, supra note 2.
[14] 18 U.S.C.A. § 716; see Redman v. Duehay, 9 Cir., 246 F. 283.
[15] United States ex rel. Anderson v. Anderson, supra note 2.
[16] See note 1, supra.
[17] Ibid.
[18] See, also, Lee Lim v. Davis, 75 Utah 245, 284 P. 323, 76 A.L.R. 460; People v. Washington, 264 N.Y. 335, 191 N. E. 7; Haley v. Hollowell, 208 Iowa 1205, 227 N.W. 165; People v. Peters, 246 Ill. 351, 92 N.E. 889.
[19] See Christianson v. Zerbst, 10 Cir., 89 F.2d 40, holding that when the warrant is issued upon some information, the reliability of such information cannot be looked into.
[20] 18 U.S.C.A. §§ 716, 717; Christianson v. Zerbst, supra note 19; Morgan v. Aderhold, supra note 11.
[21] 18 U.S.C.A. §§ 714-722.
[22] 18 U.S.C.A. §§ 710-713, 716b.
[23] U.S.Const. Art. 1, § 9. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550135/ | 262 B.R. 825 (2001)
In re PATE, Jerry, Debtor.
Gay-Emily Massie, Plaintiff,
v.
Jerry Pate, Defendant.
Bankruptcy No. 00-00335. Adversary No. 00-6297.
United States Bankruptcy Court, D. Idaho.
May 17, 2001.
*826 *827 Marc S. Tanner, Boise, Idaho, for debtor.
MEMORANDUM OF DECISION
TERRY MYERS, Bankruptcy Judge.
BACKGROUND AND FACTS
Defendant, Jerry Pate, filed a chapter 7 proceeding on February 10, 2000. Creditor Gay-Emily Massie timely filed a complaint contending that an obligation Defendant owes her should be excepted from discharge pursuant to §§ 523(a)(2)(A), 523(a)(2)(B), 523(a)(4) and 523(a)(6). Defendant responded with a general denial.
Plaintiff moved on February 15, 2001 for "summary judgment against Defendant Jerry Pate in her favor on her claims asserted pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(6) in this case." Motion for Summary Judgment and Notice, at p. 1. This reflects, as does Plaintiff's "Memorandum in Support of Motion for Summary Judgment" at p. 2, n. 1, that she does not seek summary judgment on any of the other § 523 theories alleged in the complaint.
The motion is supported by an affidavit of Plaintiff in which she testifies that she had paid Defendant $2,500.00 in 1998 and $15,000.00 in February 1999, and that Defendant promised to invest those funds on her behalf. She states that only a portion of the money was repaid. She further testifies that, in relation to these funds, Mr. Pate was tried and convicted on two counts of grand theft by deception under Idaho Code §§ 18-2403(2)(a) and 18-2407(1)(B).[1]
The state court, in addition to the criminal conviction and sentence (Exhibit B to the affidavit), imposed an "Order for Restitution and Judgment" in favor of Plaintiff in the amount of $10,273.59 plus interest at 12% per annum from the date of entry. See Affidavit, Exhibit C. This judgment is expressly characterized as a "civil" judgment[2].
Though Plaintiff scheduled her summary judgment motion for hearing, the Court on March 8, 2001 vacated the hearing and established a procedure for submission of *828 this matter. Plaintiff opted, under the March 8 Order, to submit the question of summary judgment upon the written record without oral argument. Defendant on April 24, 2001 filed his submissions in opposition to the motion for summary judgment. See Fed.R.Civ.P. 56(e), Fed. R.Bankr.P. 7056.
Defendant's affidavit is in an unusual form. It first poses several questions to Plaintiff, almost in the nature of discovery, and then follows with a more traditional testimonial form of affidavit. However, the affidavit, at p. 1, ¶ 4, asserts that the several questions asked Plaintiff represent a true, factual chronology of the events. Defendant's affidavit generally denies any intent to deceive Plaintiff, and alleges that the debt to her arose from investment strategies of Defendant which failed.
It is upon this record that the motion for summary judgment is presented.
APPLICABLE STANDARDS
1. Summary judgment
In Esposito v. Noyes (In re Lake Country Investments), 255 B.R. 588, 597, 00.4 I.B.C.R. 175, 178-79 (Bankr.D.Idaho 2000), the Court stated:
Summary judgment may be granted if, when the evidence is viewed in a light most favorable to the non-moving party, there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(e); Fed.R.Bankr.P. 7056. Anguiano v. Allstate Insurance Company, 209 F.3d 1167, 1169 (9th Cir.2000); Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir.1998).
The Court does not weigh the evidence in considering summary judgment. Rather, it determines only whether a material factual dispute remains for trial. Covey v. Hollydale Mobilehome Estates, 116 F.3d 830, 834 (9th Cir.1997).
2. Collateral estoppel
Plaintiff relies in significant part on the state court judgment as the basis for entry of summary judgment. The preclusive effect of prior judgments is analyzed under principles of collateral estoppel (issue preclusion). See Baldwin v. Kilpatrick (In re Baldwin), 249 F.3d 912, 916-18 (9th Cir. May 9, 2001), citing Grogan v. Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).[3] As stated by the court in In re Baldwin, 245 B.R. 131 (9th Cir. BAP 1995):
The doctrine of collateral estoppel, or issue preclusion, is intended to protect parties from multiple lawsuits and the possibility of inconsistent decisions, and to preserve judicial resources. See Kelly v. Okoye (In re Kelly), 182 B.R. 255, 258 (9th Cir. BAP 1995), aff'd, 100 F.3d 110 (9th Cir.1996).
Collateral estoppel applies in dischargeability proceedings. See Grogan v. Garner, 498 U.S. 279, 284-85, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). The burden of proof is on the party seeking to assert collateral estoppel and in order to sustain this burden, "a party must introduce a record sufficient to reveal the controlling facts and pinpoint the exact issues litigated in the prior action." [In re Kelly, 182 B.R. 255, 258 (9th Cir. BAP1995)]. "Any reasonable doubt as *829 to what was decided by a prior judgment should be resolved against allowing the collateral estoppel effect." Id.
245 B.R. at 134.
Additionally, the preclusive effect of a state court judgment in subsequent federal litigation is determined by the law of the state in which the judgment was entered. Id., citing Gayden v. Nourbakhsh (In re Nourbakhsh), 67 F.3d 798, 800 (9th Cir.1995). In Idaho, consideration of the following five factors guide the application of collateral estoppel: 1) the issue to be precluded must be identical to the issue decided in the prior proceeding; 2) the issue must have actually been litigated in the prior proceeding; 3) the court in the prior proceeding must have issued a final judgment on the merits; 4) the determination of the issue must have been essential to the prior judgment; and 5) the party against whom the doctrine is asserted must have been a party to or in privity with a party to the earlier proceeding. State v. Gusman, 125 Idaho 810, 874 P.2d 1117, 1119 (1993); Anderson v. City of Pocatello, 112 Idaho 176, 731 P.2d 171, 178-79 (1986).
3. Dischargeability issues
While under Nourbakhsh the Court looks to state law to determine preclusive effect under principles of collateral estoppel, the question of dischargeability of a debt is a question of federal bankruptcy law. Comer, 723 F.2d at 739 (holding that neither collateral estoppel nor res judicata "bar the bankruptcy court from looking beyond the state court judgment to determine whether the debt came within one of the exceptions to discharge"). Two nondischargeability provisions are presently at issue.
a. Section 523(a)(6)
To except a debt from discharge under § 523(a)(6), a creditor must prove that the debt arose through "willful and malicious injury by the debtor." Spokane Railway v. Endicott (In re Endicott), 254 B.R. 471, 475, 00.1 I.B.C.R. 199, 200 (Bankr.D.Idaho 2000); East Idaho Federal Credit Union v. Thomason (In re Thomason), 225 B.R. 751, 98.3 I.B.C.R. 77 (Bankr.D.Idaho 1998).
Pursuant to the Ninth Circuits decision in Petralia v. Jercich (In re Jercich), 238 F.3d 1202 (9th Cir.2001), reversing In re Jercich, 243 B.R. 747 (9th Cir. BAP 2000), "willful" and "malicious" are separate concepts which have their own elements and require separate analysis. In order to determine whether a debtor has acted willfully, it must be "shown either that the debtor had a subjective motive to inflict the injury or that the debtor believed that the injury was substantially certain to occur as a result of his conduct." Id. at 1207.[4] To prove the malicious element, it must be shown that the debtor wrongfully and intentionally harmed another "without just cause or excuse." Id. at 1209. See also, Endicott, 254 B.R. at 477-78.
b. Section 523(a)(2)(A)
Section 523(a)(2)(A) provides for nondischargeability of debts incurred through "false pretenses, a false representation, or actual fraud." This cause of action mirrors the concept of common law fraud, and requires a showing of: 1) misrepresentation of a material fact; 2) knowledge of the falsity of the representation; 3) intent to induce reliance; 4) justifiable reliance; and 5) damages. In re *830 Tobin, 258 B.R. 199, 203 (9th Cir. BAP 2001).[5]
DISCUSSION AND DISPOSITION
Defendant's affidavit asserts an absence of intent to injure Plaintiff. And he testifies specifically of investment strategies which failed, bespeaking a lack of substantial certainty of injury. Thus Defendant creates a genuine issue of material fact as to § 523(a)(6) and summary judgment would be inappropriate. In reviewing the entirety of his affidavit and that of Plaintiff, the Court finds similar issues as to the existence of all five required elements of § 523(a)(2)(A).[6]
Plaintiff obviously relies upon the state court criminal conviction as the linchpin to her summary judgment motion. But she provides only the sentencing disposition and the restitution judgment. She apparently believes that these documents and the fact that Defendant's conviction was for theft "by deception" is sufficient for summary judgment purposes. The Court disagrees.
Where, as here, Plaintiff relies upon state court litigation under principles of collateral estoppel as establishing the factual predicate for a finding of nondischargeability, she must provide "a record sufficient to reveal the controlling facts and pinpoint the exact issues litigated in the prior action", thus proving that each element required under § 523 was in fact presented and adjudicated in the state court action. Baldwin, supra, 245 B.R. at 134, quoting Kelly, 182 B.R. at 258. Any reasonable doubt as to what was decided in the prior litigation should be resolved against allowing collateral estoppel effect.Id.
Under Idaho law, the proponent of collateral estoppel must show that the issue to be precluded is identical to an issue actually litigated and decided in the prior proceeding. Gusman, 874 P.2d at 1119. Plaintiff's showing under Gusman and Baldwin falls short. It does not establish, in regard to § 523(a)(6), conduct undertaken with actual intent or motive to injure or with substantial certainty of injury, done without just cause or excuse. In regard to § 523(a)(2)(A), it does not establish the knowingly false representation of material fact upon which Defendant intended Plaintiff to rely and on which she justifiably relied to her injury. Plaintiff asks the Court to presume too much from the fact of conviction of the offense. Cf., Itano Farms, Inc. v. Fred Currey (In re Currey), 154 B.R. 977, 93 I.B.C.R. 152, 155 (Bankr.D.Idaho 1993).[7]
*831 Based upon the showings made, the Court cannot find on this record that Plaintiff is entitled to summary judgment on the two theories she advances. The motion must therefore be denied.[8]
CONCLUSION
Plaintiff's Motion for Summary Judgment will be denied without prejudice, and the Court will issue a separate order so providing.
NOTES
[1] Idaho Code § 18-2403 provides in part:
(1) A person steals property and commits theft when, with the intent to deprive another of property or to appropriate the same to himself or to a third person, he wrongfully takes, obtains or withholds such property from an owner thereof.
(2) Theft includes a wrongful taking, obtaining or withholding of another's property, with the intent prescribed in subsection (1) of this section, committed in any of the following ways:
(a) By deception obtains or exerts control over property of the owner.
"Deception" is defined in § 18-2402(2) in several different ways, but the record does not make clear which approach was applied at trial. The other referenced provision, § 18-2407(1)(B), relates to whether the theft was grand or petit in degree
[2] Another individual was also awarded restitution under this same judgment. That aspect is not here at issue.
[3] Res judicata (claim preclusion) is unavailable since the dischargeability issues arise for the first time in this Court. See, Teater v. Volz (In re Teater), 86 I.B.C.R. 290, 292 (Bankr.D.Idaho 1986), citing, Brown v. Felsen, 442 U.S. 127, 134, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979). See also, Comer v. Comer (In re Comer), 723 F.2d 737, 739-740 (9th Cir.1984).
[4] Su v. Carrillo (In re Su), 259 B.R. 909 (9th Cir. BAP 2001) discusses and rejects the articulation of an "objective substantial certainty" standard. 259 B.R. at 913-14. This question was previously addressed in Endicott, 254 B.R. at 476, 00.1 I.B.C.R. at 201, n. 9.
[5] It can also be noted, in regard to all the § 523(a) causes, that the standard of proof at trial is that of a preponderance of the evidence. Grogan, 498 U.S. at 287-88, 111 S.Ct. 654. However, consistent with the Bankruptcy Code's strong policy in favor of a fresh start, dischargeability exceptions are narrowly construed. Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154 (9th Cir.1992).
[6] Both causes at issue have intent elements. As noted in Mendocino Environmental Center v. Mendocino County, 192 F.3d 1283 (9th Cir. 1999), "[q]uestions involving a person's state of mind . . . are generally factual issues inappropriate for resolution by summary judgment". Id. at 1302, quoting Braxton-Secret v. Robins Co., 769 F.2d 528, 531 (9th Cir.1985).
[7] The debtor-defendant in Itano Farms had been convicted under Idaho Code § 18-3106(b) for writing bad checks and, as a result, the plaintiff was awarded restitution. A § 523(a)(2)(A) action was filed to prevent discharge of that debt. Plaintiff moved for summary judgment based on the conviction. Because Idaho Code § 18-3106(b) adequately set forth the elements required under § 523(a)(2)(A), see 93 I.B.C.R. at 155, the Court granted the plaintiff's motion. Here, however, the Court concludes the theft by deception statute, Idaho Code § 18- 2403(2)(a), does not itself similarly set forth all five of the requisite § 523(a)(2)(A) elements, and Plaintiff has not presented a record showing they were otherwise established at trial.
[8] The Court recognizes that the Complaint and criminal conviction for "theft" raise a prima facie issue under the larceny provisions of § 523(a)(4). However, Plaintiff expressly moved for summary judgment on only two of the many theories set forth in her complaint, and § 523(a)(4) is not one of them. The Court deems it inappropriate to address this theory until the same is properly before it, and until Defendant has had an opportunity to raise such arguments and defenses as he might have to that claim. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550144/ | 97 F.2d 471 (1938)
MOYNIER
v.
WELCH, Former Collector of Internal Revenue.
No. 8684.
Circuit Court of Appeals, Ninth Circuit.
June 16, 1938.
J. Wiseman MacDonald and W. W. Wallace, both of Los Angeles, Cal., for appellant.
James W. Morris, Asst. Atty. Gen., Sewell Key, Lester Gibson, and Warren F. Wattles, Sp. Assts. to Atty. Gen., and Ben Harrison, U. S. Atty., and E. H. Mitchell, Asst. U. S. Atty., both of Los Angeles, Cal., for appellee.
Before GARRECHT, HANEY, and STEPHENS, Circuit Judges.
STEPHENS, Circuit Judge.
This case comes to us on appeal by the plaintiff, a taxpayer, from a judgment of the district court for the defendant, the Collector of Internal Revenue. The appellee *472 presents a motion to strike from the record the Bill of Exceptions. We shall go directly to that motion. The judgment was entered March 30, 1937; the term of court in which the judgment was entered ended Sept. 12, 1937. Judicial Code, § 72 (as amended), 28 U.S.C.A. § 145. The proposed Bill of Exceptions was presented to the court Sept. 21, 1937, and not before, and was signed and allowed Sept. 24, 1937. There is no issue upon these facts.
It was said in Exporters v. Butterworth-Judson Co., 258 U.S. 365, 368, 369, 42 S.Ct. 331, 332, 66 L.Ed 663, quoting from O'Connell v. United States, 253 U.S. 142, 146, 40 S.Ct. 444, 445, 64 L.Ed. 827,
"`* * * After the term [of court] has expired, without the court's control over the case being reserved by standing rule or special order, * * * all authority of the court below to allow a bill of exceptions then first presented, or to alter or amend a bill of exceptions already allowed and filed, is at an end.' * * *
"In the present cause the terms as extended had expired before any action concerning the bill of exceptions was taken by either court or counsel. In such circumstances the court had no power to approve it, unless this could be conferred by mere consent of counsel. This they could not do."
The same point was raised in the case of United States v. Payne, 9 Cir., 72 F.2d 593, and decided the same way. The authorities are collected therein.
The only reason given here for not striking the Bill of Exceptions is that the parties entered into a stipulation that the Bill was correct and that the court might settle, allow and approve it. The Bill must be and is stricken, for neither stipulation nor court order nor both can revivify the court's power once it has expired. The rule is harsh but binding upon us.
The Bill of Exceptions having been eliminated from the case we proceed to examine the pleadings to see whether or not they support the judgment. Reilly v. Beekman, 2 Cir., 1928, 24 F.2d 791; United States v. Payne, supra, page 594. The pleadings are voluminous but for our purposes they may be stated as establishing through allegations of the plaintiff and admissions of the defendant the following situation:
The plaintiff owned a ten acre lot in a subdivision called "Moynier Tract", Los Angeles County, California, upon which an oil company, having leased the land, drilled a well. Oil was secured in paying quantities. The only business in which the plaintiff was engaged was that of collecting his oil royalties and paying the taxes on the property he owned in said tract.[1] All of the income upon which he paid taxes came from such royalties. Serious litigation arose over his right to such royalties. The producing oil company sued to have settled whether it should pay the provided royalties wholly to plaintiff or divide it with others, who owned other lots in the same tract. The others claimed that the lease contemplated a division of the royalties. Appellant expended the sum of $36,937.10 in attorney fees and litigation costs in relation thereto. There is no question raised here as to the appropriateness or reasonableness of such expenditures. In turning in his income tax statement for the calendar year of 1929, appellant deducted the whole of such expenditure claiming the right to do so by virtue of section 23(a), Revenue Act of 1928, 26 U.S.C.A. § 23(a), which authorizes the deduction from gross income of "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business."
The Commissioner of Internal Revenue disallowed such deduction because, as he held, such expenditure was a capital item. The appellant waived his right to petition the United States Board of Tax Appeals for a redetermination; paid the tax assessed without the claimed deduction; made the proper claim for refund and brought suit in the United States District Court against the Collector of Internal Revenue for the sum he claimed should be refunded, amounting in taxes and interest to $9,973.02.
The authorities leave no doubt in the matter. Attorney fees and litigation costs in such circumstances are capital expenditures and are not deductible. Such expenditures were not "ordinary and necessary expenses paid * * * in carrying on any trade or business."
We hold in accord with Croker v. Helvering, 67 App. D.C. 226, 91 F.2d 299, *473 that receiving royalties by the owner of land for oil produced by a company under an oil lease of the land is not within the intendment of the statutory expression "carrying on any trade or business." The receipt of money from the oil company which produced the oil under a lease of plaintiff's ground was no more a "business" than the selling of one's own real estate is a "business." The cited case holds that merely selling one's own real estate does not constitute a "business". Cf., Van Wart v. Commissioner, 295 U.S. 112, 55 S.Ct. 660, 79 L.Ed. 1336.
The payment of the attorney fees and litigation expenses is as much of a capital expenditure in this case as it was in Murphy Oil Co. v. Burnet, 9 Cir., 55 F.2d 17, 26, wherein this court affirmed the decision of the Board and quoted from its opinion with approval, as follows:
"To the extent that the expenses and payment were incurred and made in defense of the claim against the oil properties they were capital expenditures. We have repeatedly held that the cost of defending title, whether in the form of legal fees or compromise payments, is a capital expenditure representing additional cost of the property. * * *"
The case of Kornhauser v. United States, 276 U.S. 145, 48 S.Ct. 219, 72 L.Ed. 505, does not help the appellant. It holds that attorney fees are necessary and ordinary expenditures and are deductible where they proximately resulted from the taxpayer's business.
Affirmed.
NOTES
[1] This last sentence is taken from plaintiff's amended complaint, and although the answer denies it, the allegation was admitted to be true by counsel for the defendant at the oral argument. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550147/ | 97 F.2d 623 (1938)
In re SOLL.
Patent Appeal No. 3964.
Court of Customs and Patent Appeals.
June 27, 1938.
Gordon C. Mack, of Akron, Ohio (R. H. Waters, of Akron, Ohio, of counsel), for appellant.
R. F. Whitehead, of Washington, D. C. (Howard S. Miller, of Washington, D. C., of counsel), for the Commissioner of Patents.
Before GARRETT, Presiding Judge, and BLAND, HATFIELD, LENROOT, and JACKSON, Associate Judges.
BLAND, Associate Judge.
Ten claims of appellant's application for a patent relating to a certain process and product more particularly described hereinafter were allowed by the Primary Examiner of the United States Patent Office, and claims 13 to 25, inclusive, were rejected. Upon appeal to the Board of Appeals, the decision of the examiner was affirmed. After appealing to this court, appellant moved to dismiss the appeal as to claims 22 and 23, which motion will be allowed.
Claims 13, 14, 17, and 21 are illustrative of the remaining appealed claims and follow:
"13. In a process for producing a compound of a hydrogen halide and a butadiene body, the step of subjecting said butadiene body directly to the action of liquefied hydrogen halide.
"14. The process of preparing a hydrohalide addition product of a butadiene body, which comprises reacting a butadiene body with a dry hydrogen halide in the presence of an excess of said hydrogen halide and in the absence of a solvent to form the hydrohalide addition product of said butadiene body and evaporating off any unreacted hydrogen halide to isolate said addition product."
"17. As a new product, a butadiene hydrohalide addition product obtained in accordance with the process defined by claim 14."
"21. In a process for producing a compound of hydrogen halide and rubber, the step of subjecting rubber to the action of liquefied hydrogen halide for a time sufficient to produce only a partial reaction between the hydrogen halide and the rubber."
The invention relates to plastic materials and discloses, as is shown by allowed claim 1, a process which comprises reacting upon rubber with hydrofluoric acid. Claim 1 follows:
"1. The process which comprises reacting upon rubber with hydrofluoric acid of a strength above about 40% by weight."
Four of the claims on appeal are drawn to cover the product of the said process and seven of the claims relate to the process. Some of the claims at bar were copied from the patent to Gebauer-Fuelnogg, 1,980,396, of November 13, 1934, for the purpose of interference, and while this patent is referred to in the decisions of the tribunals below, it is not used as a reference in the rejection of the claims.
The examiner rejected some of the claims upon four different grounds. The board disagreed with two of the grounds. The two remaining grounds of rejection are that claims 13, 14, 16, 17 and 18 "recite *624 broadly the reacting of a `butadiene body' with a hydrogen halide." These claims were rejected as being broader than the invention for the reason that the term "butadiene body" is broader than the disclosure of appellant's application. Appellant discloses only the reacting of natural rubber with hydrofluoric acid. The second ground of rejection went to all the claims and was to the effect that they were broader than the invention in that they recite that the butadiene body or the rubber is reacted with a "hydrogen halide" which term is broader than the term "hydrofluoric acid." In view of our conclusion, it will only be necessary for us to consider the last ground of rejection.
The examiner's second ground of rejection is given in the quoted language which follows:
"Claims 13 to 25 have been rejected as not supported by the disclosure, and as broader than the invention. All these claims are characterized by reciting that the butadiene body or the rubber is reacted with a `hydrogen halide;' applicant has disclosed that he can use only hydrogen fluoride, since no implied or direct statements can be found in the application, as originally filed, that the other hydrogen halides will react similarly to give the same product. The application deals with an apparently obscure and complex reaction in which the hydrogen fluoride appears to effect an intermolecular rearrangement in the rubber molecule, acting probably as catalytic agent. On the other hand, there is ample evidence that when the hydrogen chloride, bromide, or iodide reacts with rubber, there is obtained a rubber hydrochloride, bromide, or iodide which are definite chemical compounds. * * *"
The board stated:
"Taking up first the question of breadth of invention, appellant has referred only to rubber and hydrofluoric acid in his application as filed. He has undertaken to show by affidavits, however, that his process is applicable to other hydrogen halides and to other butadiene bodies.
"As a general rule, it is our opinion that in chemical cases, where an applicant does not refer to any substitutes for the particular material disclosed or give any indication that he regards his invention as generic in the application as filed, he is not entitled to broader claims than for the material originally disclosed. This question was discussed somewhat in Ex parte Sloane, 22 U.S.Pat.Q. 222. We consider, therefore, that the examiner's action in rejecting the claims as broader than his invention was clearly justified."
It is the contention of appellant here, in substance, that the class of hydrogen halides (sometimes called hydrohalides) includes hydrogen chloride, hydrogen fluoride, hydrogen bromide and hydrogen iodide, and that these in turn are sometimes called hydrochloric acid, hydrofluoric acid, hydrobromic acid and hydroiodic acid, respectively; that there are only four hydrogen halides; that they form a clearly defined group well known to all chemists; that rubber reacts with them to form the rubber hydrohalides, viz., rubber hydrochloride, rubber hydrofluoride, rubber hydrobromide and rubber hydroiodide; that the prior art shows that when rubber and other butadiene bodies are treated with hydrogen halides, certain compounds known in chemistry as "addition products" are formed and that the prior art establishes that all the hydrogen halides are equivalents and have the same action. Appellant claims that since he has disclosed one (hydrofluoric acid) of the small group to which it belongs and that since chemists understand that the other three hydrogen halides are equivalents in their action, he is entitled to claim in his application the whole group of hydrogen halides broadly. In other words, it is argued that having disclosed only one species of a well-known group of chemicals, applicant is entitled to the allowance of claims covering the whole group. If he is not allowed to claim the whole group broadly, it is argued that he will have no protection for his invention.
The Solicitor for the Patent Office asserts that the disclosure of one species only is not sufficient to entitle an applicant to claims covering all the members of a group, citing In re Walker, 70 F.2d 1008, 21 C.C.P.A., Patents, 1121; In re Burk, 74 F.2d 547, 22 C.C.P.A., Patents, 857; and In re Steenbock, 83 F.2d 912, 23 C.C. P.A., Patents, 1244. In the solicitor's argument, no distinction seems to be made in applying the rule in mechanical applications and chemical applications.
We think the rule relating to the allowance of generic claims upon a disclosure of one or more species has been given particular application in chemical cases and is referred to by the appellant as the so-called "rule in chemical cases." The *625 rule is properly stated in the above-quoted language of the board.
Appellant argues that where the rule has been announced in chemical cases, it has been in connection with the patentability of claims which were then under consideration, and that since some of the claims on appeal here have been allowed in the Gebauer-Fuelnegg patent, patentability is not involved, and the decisions relied on therefore are not pertinent.
We agree with the Solicitor for the Patent Office in his answer to this argument that the patentability of the claims at bar is involved here. But, of course, the issue now at hand relates only to the patentability of the claims upon a particular disclosure.
We think the rule is well settled that in a chemical case where an applicant discloses that one species of a class of chemicals will accomplish a certain purpose without naming any others of the class to which it belongs or without so describing the species and its mode of operation as to call attention to the fact that other members of the class are its equivalents and will perform the same function, he is not entitled to broaden the scope of his disclosed invention by claiming the whole group, even though those skilled in the art may know that in some respects at least the different members of the group are equivalents. Certain members of a well-defined group of chemicals may be equivalents for one purpose and not equivalents for another. Experimentation is required to ascertain the particular action of a member of the group upon the particular material to be treated. Appellant's application is barren of any suggestion that anything but hydrofluoric acid will react upon rubber in the desired manner. There is no teaching in the application of the equivalency of the members of the group nor is there any member of the group named other than hydrofluoric acid. As far as the application discloses, the art was not taught that it could use anything but hydrofluoric acid and it would seem improper to now permit applicant to broaden the scope of his invention since others, presumably after experimentation, have discovered that any member of the hydrogen halide family will do the work.
In Re Steenbock, supra, where the applicant disclosed a process involving subjecting yeast to irradiation, this court held that he was not entitled to a claim for a process applied broadly to fungus material. In discussing the question the court said (page 913):
"The principle is well established in chemical cases, and in cases involving compositions of matter, that the disclosure of a species in a cited reference is sufficient to prevent a later applicant from obtaining generic claims, although the disclosure in an application of a species may not be a sufficient basis for a generic claim. See In re Ellis, 37 App.D.C. 203; In re Dosselman, 37 App.D.C. 211; In re Langmuir, 62 F.2d 93, 20 C.C.P.A.(Patents) 733; In re Walker, 70 F.2d 1008, 21 C.C.P.A. (Patents) 1121, 1127; In re Burk, 74 F.2d 547, 22 C.C.P.A. (Patents) 857.
"Although appellant's involved application was originally alleged to be a true division of his application No. 157,430, filed December 27, 1926, which matured into patent No. 1,871,136, August 9, 1932, there was no disclosure in that application of the involved process as applied to fungus material generally the process there disclosed being limited, so far as fungus material is concerned, to yeast. Accordingly, although described as a true division of his original application, appellant, by an amendment to the involved application, dated December 7, 1933, substituting the language `continuation in part' for the word `division,' conceded that it was not a true division, and that his original disclosure was limited to a process involving yeast only.
"Applying the rule hereinbefore stated, it is perfectly clear that appellant is not entitled to the broad claims here on appeal."
The rule as above stated is so well settled that extended discussion of the authorities is deemed unnecessary. The Steenbock Case, supra, seems to be squarely in point and the other cases cited by the Solicitor for the Patent Office clearly support the conclusion herein reached.
The decision of the Board of Appeals, affirming that of the examiner, for the reasons stated, we think, was without error. The appeal as to claims 22 and 23 is dismissed. As to the remaining claims 13 to 21, inclusive, 24 and 25 the decision of the Board of Appeals is affirmed.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550160/ | 262 B.R. 871 (2001)
In re Todd Ashley STEPHENSON, Debtor.
No. 01-10203-BH.
United States Bankruptcy Court, W.D. Oklahoma.
April 27, 2001.
*872 Joel C. Hall, Trustee, Oklahoma City, Oklahoma, for trustee.
Joe D. Tate, Oklahoma City, Oklahoma, for debtor.
ORDER DENYING DEBTOR'S MOTION TO DISMISS
RICHARD L. BOHANON, Bankruptcy Judge.
This matter comes before the Court on the Debtor's motion to dismiss *873 the petition. The Trustee objected,[1] and the Court heard arguments from both sides and took the matter under consideration. For reasons outlined below, the Court denies the Debtor's motion.
FACTS
The meeting of creditors held pursuant to 11 U.S.C. § 341 was conducted, and at that meeting, the Trustee learned that the Debtor was to receive a federal tax refund of approximately $4,000 and a state tax refund of about $ 1,600. When the Trustee demanded that these refunds be turned over to him, the Debtor filed his motion to dismiss, which contained no supporting authority.
DISCUSSION
The Debtor's motion states that he wishes to seek "an alternative method to resolve his current financial status thus attempting to satisfying [sic] his debts with all creditors." The Trustee argues that dismissal would prejudice the creditors for they will receive some distribution from the tax refunds if the case is administered. Conversely, the creditors are not assured any distribution if the petition is dismissed.[2]
This case represents a current objectionable trend in bankruptcy cases in this district where debtors initially seek the benefits of the Bankruptcy Code but later move to dismiss their petitions when an asset, usually valuable, is discovered. Debtors should be cautioned that although they have an absolute right to file a bankruptcy petition, there is no absolute right to dismiss it. See Laura A. Pawloski. The Debtor Trap: the Ironies of Section 707(a), 7 Bankr.Dev.J. 175, 180-81 (1990). See also, In re Blackmon, 3 B.R. 167, 169 (Bankr.S.D.Ohio 1980) ("While the debtor may choose to place himself in bankruptcy by voluntarily filing a petition with this Court to commence his case, he does not have the same degree of discretion in deciding whether he will terminate the proceedings once they are started."); In re Klein, 39 B.R. 530, 532 (Bankr.E.D.N.Y. 1984) ("A debtor who has filed a petition under Chapter 7 does not have an absolute right to dismiss his petition."); In re Schwartz, 58 B.R. 923, 925 (Bankr. S.D.N.Y.1986) (quoting In re Klein).
The applicable section provides:
a) The court may dismiss a case under this chapter only after notice and a hearing and only for cause, including
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees or charges required under chapter 123 of title 28, and
(3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of section 521, but only a motion by the United States trustee.
11 U.S.C. § 707(a) (emphasis added). While the Bankruptcy Code does not specify who may move to dismiss a petition under § 707(a), most courts allow a debtor to move to dismiss only where "cause" *874 exists. See In re Schwartz, 58 B.R. at 925. The situations listed in § 707(a)(1)-(3) are only illustrative, and a court may dismiss a petition on other grounds where cause exists. See Collier on Bankruptcy, supra, ¶ 707.03[1] at 707-7. See also, 11 U.S.C. § 102(3).
What constitutes "cause" within the meaning of § 707(a) has been the source of much judicial opining and scholarly debate. See generally, Pawloski, supra, at 180-93 (discussing how courts have developed different tests to determine dismissal under § 707(a)). The predominant approach, at a minimum, requires that dismissal not cause prejudice to the creditors. See Collier on Bankruptcy, supra, ¶ 707.03[3] at 707-13. See also, In re Schwartz, 58 B.R. at 925 ("[T]he test is whether dismissal is in the best interest of the debtor and his creditors."); In re Klein, 39 B.R. at 531 (stating that the applicable test is whether "dismissal will cause no legal prejudice to interested parties.")
Hence, the core issue here is whether dismissal would cause the creditors prejudice. The Debtor made the motion and, accordingly, has the burden of proof to show that dismissal would not prejudice the creditors.
Generally, a debtor's interest is in securing a fresh start through a discharge. See In re Schwartz, 58 B.R. at 925. On the other hand, creditors may suffer prejudice in many forms. Prejudice has been defined as an "injury, detriment, or damage, caused by judgement or action in which his rights are disregarded." Oxford English Dictionary. http://dictionary.oed.com. Thus, it can be said that dismissal is not appropriate where a creditor will suffer some legal harm or injury.
Debtors may have several reasons for asking that their petitions be dismissed. They may wish to avoid the stigma of bankruptcy; they may wish to avoid harm to credit reports; or they may have received poor advice from counsel. They may also wish to take advantage of some newly discovered asset or to refile later so as to receive a discharge for additional debt.[3]See Pawloski, supra, at 179-80.
Regardless of a debtor's intent, dismissal is not proper where harm will befall the creditors. See In re MacDonald, 73 B.R. 254, 256 (Bankr.N.D.Ohio 1987) (denying debtor's motion to dismiss where creditors would be forced to exercise their rights in state court anew after imposition of the automatic stay); In re Bryant, 28 B.R. 362, 366 (Bankr.N.D.Ind.1983) (denying the debtor's motion to dismiss when the debtor wished to pursue a cause of action against a defendant in state court because the debtor believed his claim was worth more than what the trustee settled for and noting that there was no assurance the debtor would win any award).
In the case at bar, the Trustee correctly asserts that the creditors will suffer prejudice if the petition is dismissed because it is uncertain they would receive any distribution. The Debtor claims he intends to use the tax refunds to pay his creditors in full, but he is not specific about any plan to honor this commitment. *875 The Debtor could fail to repay his creditors, spend his tax refunds, and later refile for bankruptcy. In that case, the creditors would suffer even further prejudice and delay.
On the other hand, if the petition is not dismissed it is certain that the creditors will receive some, albeit not a complete, distribution from the tax refunds. See In re Bryant, 28 B.R. at 366. ("There is no assurance that the creditors in the case would receive any payment [if the debtor's motion to dismiss were granted].")
Furthermore, the Debtor's argument that he can repay his debts is unpersuasive and speculative at best. In fact, Congress has rejected this very argument as "cause" for dismissal under § 707(a). Both the House and Senate reports explain that:
The section does not contemplate, however, that the ability of the debtor to repay his debts in whole or in part constitutes adequate cause for dismissal. To permit dismissal on that ground would be to enact a non-uniform mandatory chapter 13, in lieu of the remedy of bankruptcy.
H.R.Rep. No. 95-595, at 380 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5963, 6336; S.Rep. No. 95-989, at 94 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5880. Therefore, the Debtor has failed to meet his burden. Here, the creditors would be prejudiced by losing the assurance of at least some payment if the Debtor's motion were granted.
CONCLUSION
This Court finds that the Debtor has failed to meet his burden for the creditors would suffer prejudice if the petition were dismissed. Accordingly, the relief requested by the motion is denied.
NOTES
[1] It is well established that the Trustee has standing to object. See 6 Collier on Bankruptcy ¶ 707.02[1] at 707-5 (Lawrence P. King, ed., 15th ed. rev.2000) (citing several cases in support of this proposition). The majority rule is that the Trustee has standing to object because "under section 323 the trustee is the representative of the estate and that, particularly in small and no-asset cases, the creditors themselves are unlikely to take an active role." Id. at 707-6.
[2] Upon dismissal, the tax refunds would revest in the Debtor. See 11 U.S.C. § 349(b)(3).
[3] Some courts have interpreted "cause" within the meaning of § 707(a) to impose some good faith requirement. In other words, a creditor may be entitled to dismissal under § 707(a) if the debtor filed a Chapter 7 petition in bad faith. However, most courts have determined that the plain language of the statute does not impose a good faith requirement.
In the instant case, the Court need not reach this issue because the issue is limited to whether dismissal would prejudice the creditors. See generally, In re Padilla, 222 F.3d 1184 (9th Cir.2000) (discussing the pros and cons of imposing a good faith requirement under § 707(a)). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550164/ | 262 B.R. 172 (2001)
In re MOLTEN METAL TECHNOLOGY, INC., MMT of Tennessee, Inc., MMT Federal Holdings, Inc., M4 Environmental Management, Inc., M4 Environmental L.P., Debtors.
Stephen S. Gray, Chapter 11 Trustee, Plaintiff,
v.
Oppenheimer & Co., Inc., Defendant.
Bankruptcy Nos. 97-21385-CJK, 97-21386-CJK, 97-21387-CJK, 97-21388-CJK, 97-21389-CJK. Adversary No. 99-1646.
United States Bankruptcy Court, D. Massachusetts.
May 11, 2001.
*173 *174 Robert L. Hamer, Mirick O'Connell DeMallie & Lougee, Worcester, MA, for Trustee.
Thomas E. Pitts, Jr., Sidney & Austin, New York City, for CIBC World Markets Corp., as successor to Oppenheimer & Co., Inc.
Stephen Gray, Boston, MA, Trustee.
MEMORANDUM OF DECISION AND ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT
CAROL J. KENNER, Bankruptcy Judge.
By his complaint in this adversary proceeding, the Chapter 11 Trustee seeks to avoid and recover a prepetition transfer from the Debtor to the Defendant in the amount of $350,000.00. The Trustee maintains that the transfer was preferential and therefore is avoidable under 11 U.S.C. § 547. The Defendant, Oppenheimer & Co., Inc. ("Oppenheimer"),[1] denies several of the essential allegations under § 547(b) and interposes two affirmative defenses: contemporaneous exchange for new value, § 547(c)(1), and ordinary course of business, § 547(c)(2). The adversary proceeding is before the Court now on the parties' cross motions for summary judgment.
The following facts are uncontroverted and relevant to both motions. On June 4, 1997, the Debtor entered into an Engagement Agreement with two entities, Lazard Frères and Company LLC and Oppenheimer & Co., Inc., under which the Debtor retained Lazard and Oppenheimer to act as financial advisers to the Debtor for a period of six months in connection with a public or private financing or joint venture. The Agreement contained the following provisions for payment of Lazard and Oppenheimer:
2. In consideration for our services, you [the Debtor] agree to pay us the following:
(a) A financial advisory fee of $200,000, 50% ($100,000) of which is payable upon the signing of this letter and the remaining 50% ($100,000) of which is payable on July 30, 1997. Such advisory fee will be credited against the payment of any fees pursuant to Sections 2(b) and 2(c) hereof and will be split equally between Lazard and Oppenheimer.
(b) In the event that the Transaction involves a private placement of common stock, other equity or equity-linked securities of the [Debtor], an additional fee payable upon closing of *175 4% of such total proceeds raised in the private placement.
The Debtor paid the initial $100,000 installment (in equal parts to Lazard and Oppenheimer) upon entering into the Agreement but did not pay the second $100,000 installment when due. The Engagement resulted in a private sale of $20 million of preferred stock in the Debtor to third-party investors ("the investors"), which sale closed on September 8, 1997. The next day, Lazard issued an invoice to the Debtor for the remaining amounts due to Lazard and Oppenheimer under the Engagement Agreement, totaling $700,000. This amount included the second $100,000 installment, then still outstanding, and the balance of the 4% of total proceeds from the sale. On September 10, 1997, the Debtor issued a check for $350,000 to Oppenheimer, representing Oppenheimer's share of the balance due under the Agreement. Oppenheimer received the check sometime between September 10 and September 22, 1997.
On the basis of an SEC report that the Debtor subsequently filed for the quarter ending September 30, 1997, certain of the investors alleged that an event had occurred that gave rise under their stock purchase agreement to a right to immediate return of all the funds invested. (The Trustee has not identified the alleged "redemption event.") Accordingly, they have made demand on the Debtor, and asserted claims in this case, for return of all the funds invested. The Trustee has not yet determined the extent or validity of these claims. On December 3, 1997, the Debtor filed its petition under Chapter 11 of the Bankruptcy Code.
STANDARDS AND BURDENS OF PROOF ON SUMMARY JUDGMENT
A party is entitled to summary judgment only upon a showing that there is no genuine issue of material fact and that, on the uncontroverted facts, the movant is entitled to judgment as a matter of law. F.R.CIV.P. 56(c). Where the burden of proof at trial would fall on the party seeking summary judgment, that party must support its motion with evidence in the form of affidavits, admissions, depositions, answers to interrogatories, and the like as to each essential element of cause of action. The evidence must be such as would permit the movant at trial to withstand a motion for directed verdict under F.R.CIV.P. 50(a). Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the motion is properly supported, the burden shifts to the adverse party to submit evidence demonstrating the existence of a genuine issue as to at least one material fact. If the adverse party does not so respond, "summary judgment, if appropriate, shall be entered against the adverse party." F.R.CIV.P. 56(e); Jaroma v. Massey, 873 F.2d 17, 20 (1st Cir.1989).
Where the moving party would not bear the burden of proof at trial, the movant's initial burden is to demonstrate or point out a lack of evidence to support at least one essential element of the opposing party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 322-323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden then shifts to the opposing party to adduce such evidence on each of the disputed elements as at trial would be sufficient to withstand a motion for directed verdict. Anderson v. Liberty Lobby, Inc., supra. Summary judgment will enter for the movant if the party bearing the burden of proof fails to establish the existence of an element essential to its case. Celotex Corp. v. Catrett, 477 U.S. at 322-323, 106 S.Ct. 2548; In re Varrasso, 37 F.3d 760, 763 n. 1 (1st Cir.1994).
The Trustee bears the burden of proof as to the avoidability of the transfer under *176 547(b), and Oppenheimer bears the burden as to its affirmative defenses. 11 U.S.C. § 547(g).
OPPENHEIMER'S MOTION FOR SUMMARY JUDGMENT
Oppenheimer seeks summary judgment on the strength of its affirmative defenses, as to which it bears the burden of proof. The first is the contemporaneous exchange for new value defense, under which a transfer is not avoidable under § 547
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). This defense requires proof of three elements: (1) that the creditor (or someone on the creditor's behalf) advanced a certain amount of new value to the debtor in exchange for the payment (the defense is available only to the extent of the value advanced); (2) that the transfer was "substantially contemporaneous" with the tender of new value to the debtor; and (3) that the debtor and creditor specifically intended for the transfer to constitute an exchange for the new value.
1. Value
As proof that it advanced new value to the Debtor in the amount of the disputed transfer, $350,000, Oppenheimer relies on the fact that it performed the services that, under the Engagement Agreement, gave rise to the obligation to pay: it performed the services for which it was engaged and produced buyers who in fact invested $20 million in the Debtor. But Oppenheimer also appears to contend that the value it produced included the $20 million that the investors paid for their preferred stock. The Trustee, on the other hand, contends that the value tendered by Oppenheimer consisted only of its services, and that these were of no value because, after accounting for the investors' subsequent claims for redemption, the investment facilitated by Oppenheimer resulted in no net increase in value to the Debtor.
The Court agrees with both parties that the "value" advanced by Oppenheimer included Oppenheimer's services and success in procuring investors for the Debtor, and that, absent any set off for the redemption claims, the services should be valued at the contract rate: $100,000 for the services, payable regardless of success, and $300,000 for success, payable only if and when the financing closed. The Court rules that Oppenheimer should not have further credit for the $20 million of equity investment that it helped the Debtor procure; the $20 million was not contributed by or on behalf of Oppenheimer.
The Court rejects the Trustee's argument that the value or Oppenheimer's services should be reduced on account of the investors' demands for redemption of their investments. Standing alone, these claims are not enough to warrant a reduction in the value attributable to Oppenheimer's services. The Trustee has submitted no evidence (nor even alleged) that these claims reflect a defect in Oppenheimer's efforts, or that the Debtor was contractually entitled to damages or an offset against Oppenheimer on account of the redemption claims. Moreover, even if the redemption claims could, as a matter of law, warrant a reduction in the value of Oppenheimer's services, they could do so only if they were valid, but the Trustee has neither submitted evidence to that effect nor even stated a position on the issue. *177 For these reasons, the Trustee has not sustained his burden of showing that there exists a genuine issue of material fact for trial as to this offset. The Court concludes that Oppenheimer is entitled to a determination, as a matter of law, that it gave total value of $350,000.
2. Contemporaneous Exchange
Oppenheimer must also establish that the transfer at issue was substantially contemporaneous with the tender of new value to the debtor. Oppenheimer contends that this transfer, which mas made by a check issued on September 10 and received between then and September 22, 1997, was substantially contemporaneous with the closing on September 8, 1997, the date on which Oppenheimer's efforts finally bore fruit for the debtor. The Trustee makes no issue over the delay between September 8 and Oppenheimer's actual receipt of the check and does not deny that payment was substantially contemporaneous with the closing. Rather, the Trustee argues that payment was not substantially contemporaneous with Oppenheimer's delivery of value. Oppenheimer gave value to the Debtor, not upon the final delivery of a paying investor on September 8, but throughout the period during which Oppenheimer expended effort on the Debtor's behalf. This position, argues the Trustee, is consistent with the Engagement Agreement, which characterizes the payment not as a commission but as "consideration for our services," and with the definition of claim in § 101(5) of the Bankruptcy Code, under which a claim is deemed to exist even when it remains contingent. Also, the Trustee argues that, even if some of the value is deemed to lie in the final success on September 8, only $300,000 of the value can properly be ascribed to that success because, under the Licensing Agreement, $50,000 of the $350,000 payment was required to be paid regardless of success.
The Court finds that there are no genuine issues of material fact as to when Oppenheimer delivered value, and that, as a matter of law, $300,000 of its value should be deemed to have been adduced at the closing. I base this ruling on the Engagement Agreement itself. It is true, as the Trustee points out, that the Agreement does not characterize this final payment as a commission, and that it does expressly characterize all required payments as consideration for Oppenheimer's services. But service and success are not mutually exclusive: success in this context is the service of producing entities who actually do invest in the Debtor. In view of the structure of the agreement, this must be what the Debtor and Oppenheimer intended. Under the Agreement, the amount of the final payment is a function of the amount of the investment obtained; the payment itself is entirely contingent on success in obtaining investment; and the payment becomes due only upon the closing of the stock sale. Therefore, by design and function, the final payment is a payment for success.[2] By the same reasoning, payments that were not contingent on success are, by design and function, properly ascribed to Oppenheimer's efforts, not to its success; the Debtor was obligated to pay for these efforts regardless of whether they proved successful. I conclude that *178 Oppenheimer has established that it conveyed value in the amount of $300,000 to the Debtor on the date of the closing, and that this conveyance was substantially contemporaneous with the challenged payment. As to the remaining $50,000 of value, however, the evidence does not establish that conveyance was substantially contemporaneous with payment.
3. Specific Intent
Oppenheimer must also establish that the challenged payment was 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. 11 U.S.C. § 547(c)(1)(A). With respect to the $50,000 paid at the closing for the installment that was due on July 30, 1997, the evidence does not permit such a finding. As to the remainder, however, the only evidence of record is the Engagement Agreement itself and certain deposition testimony of Jonathan O'Herron, the managing partner at Lazard who negotiated the Engagement Agreement with the Debtor. As I explained above, the Agreement permits no conclusion other than that the parties intended for the final payment to be compensation for success. O'Herron likewise characterizes the contingent portion of the fee as a "success fee," payable for success. (O'Herron Deposition of January 10, 2001, pp. 30 and 33-34.) There is no evidence to the contrary; and, though generally reluctant to dispose of intent issues by motion for summary judgment, the Court concludes that a reasonable finder of fact could not but find, on the evidence adduced in conjunction with this motion, that the parties intended a contemporaneous exchange. Accordingly, as to $300,000 of the $350,000 at issue, there is no genuine issue of material fact, and Oppenheimer is entitled to judgment as a matter of law.
4 Ordinary Course of Business
Oppenheimer also seeks summary judgment on the basis of the ordinary course of business defense, 11 U.S.C. § 547(c)(2). The Court will deny Oppenheimer's motion for summary judgment with respect to this defense. As to the $50,000 that is not protected by the contemporaneous exchange for new value defense, it is undisputed that the payment was made some forty to fifty days after it was due; therefore, it was not paid in the ordinary course of business between the parties, as defined by their Engagement Agreement and, by the evidence before me, would appear not to qualify for this defense. As to the other $300,000, the Court has already ruled that Oppenheimer is entitled to summary judgment on separate grounds, so the Court need not and will not address this defense in the context of this motion.
TRUSTEE'S MOTION FOR SUMMARY JUDGMENT
The Trustee has filed a cross motion for summary judgment, and Oppenheimer opposes the cross motion. Though both parties argued this motion as if it concerned the entire $350,000 payment, the amount remaining in controversy is only $50,000.00, consisting of the portion of the payment that was overdue and not contingent on success. Therefore, I will address this motion only insofar as it concerns that $50,000.00.
The Trustee contends that the payment satisfies the requirements of his case in chief under § 547(b) and that it does not qualify for either of the affirmative defenses that Oppenheimer has invoked. Although Oppenheimer's answer puts the Trustee to his proof as to most of the operative allegations of the Trustee's case *179 under § 547(b), Oppenheimer opposes the motion for summary judgment primarily on the strength of its affirmative defenses and, except on the requirement of an antecedent debt, § 547(b)(2), offers no defense as to the elements of § 547(b).
a. Elements of § 547(b)
The Trustee must establish that there is no genuine issue of material facts as to the each element of his case in chief under § 547(b), of which there are six: that
1. the debtor made a transfer of an interest of the debtor in property,
2. On or within 90 days before the date of the filing of the petition
3. and while the debtor was insolvent,
4. to or for the benefit of a creditor and
5. for or on account of an antecedent debt owed by the debtor before such transfer was made,
6. which transfer enables the creditor to receive more than the creditor would receive if
(A) the case were a case under chapter 7 of the Bankruptcy Code,
(B) the transfer had not been made, and
(C) such creditor received payment of such debt to the extent provided by the provisions of the Bankruptcy Code.
11 U.S.C. § 547(b). Oppenheimer admitted the first in its Answer: the Debtor made a transfer of $350,000 of its funds to Oppenheimer. The evidence is uncontroverted as to the second: the transfer was made between September 10 and September 22, 1997, on a date within 90 days before December 2, 1997, the date of the filing of the petition. The third is established by virtue of the statutory presumption of insolvency during the 90 days immediately preceding the bankruptcy filing, 11 U.S.C. § 547(f) ("For the purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition."), and the lack of evidence to rebut the presumption. Oppenheimer's Answer admits the fourth element: that Oppenheimer was a creditor of the Debtor at the time the payment was made.
The parties disagree as to whether the fifth element is satisfied, but their disagreement is one of law; the underlying facts are not controverted. The fifth requirement is that the transfer must have been made "for or on account of an antecedent debt owed by the debtor before such transfer was made." 11 U.S.C. § 547(b)(2). Oppenheimer states that the $350,000 payment was not owing until the stock sale actually closed, and, since payment was substantially contemporaneous with the stock sale, the debt was not owed before the transfer. As to the $50,000 that remains in issue, the Trustee responds that, under the Engagement Agreement, payment was unconditional and due on July 30, 1997, not at the time of the September 8 closing. Oppenheimer offers no response to this argument. The Court agrees with the Trustee: under the Engagement Agreement, the $50,000 remaining at issue was owed no later than July 30, 1997. Accordingly, the September payment on that obligation was "for . . . an antecedent debt owed by the debtor before such transfer was made," as required by § 547(b)(2).
The final requirement of the Trustee's case under § 547(b) is that of preferential effect: that the transfer resulted in the creditor's receipt of more than the creditor would have received in a hypothetical distribution under chapter 7 had the transfer not been made. 11 U.S.C. § 547(b)(5). Oppenheimer neither concedes nor contests *180 this element. By the affidavit of his accountant, the Trustee has introduced evidence that the Debtor was insolvent by $55,000,000 on the date of the bankruptcy filing; it follows from this fact that unsecured creditors would have received distributions of less than 100% in a case commenced on the same date under Chapter 7. Oppenheimer has submitted no evidence to controvert the Trustee's proof nor to suggest that its claim would have been anything other than a nonpriority, unsecured claim. Therefore, there is no genuine issue of material fact as to this element. As to the remaining $50,000 in issue, the Trustee has established this and all the elements of his case in chief under § 547(b) as a matter of law.
b. Affirmative Defenses
Oppenheimer argues that the Trustee is not entitled to summary judgment because of its affirmative defenses: the contemporaneous exchange for new value defense, § 547(c)(1), and the ordinary course of business defense, § 547(c)(2). Oppenheimer bears the burden of proof as to these and therefore, to prevail on this motion, must adduce such evidence, with respect to each element of at least one of its defenses, as would permit Oppenheimer to survive a motion for directed verdict as to the defense. The Court concludes that Oppenheimer has not carried that burden as to either defense.
With respect to the contemporaneous exchange for new value defense, Oppenheimer must prove both that the transfer was contemporaneous with Oppenheimer's delivery of the value for which it was exchanged, and that the parties intended for the transfer to be a contemporaneous exchange for new value. But the Engagement Agreement makes clear that Oppenheimer and the Debtor understood that this $50,000 was not payment for success; rather it was payment for Oppenheimer's service, regardless of its success, indeed for undertaking an open-ended effort without certainty of success. By the terms of the Agreement, this payment was due on July 30, 1997. By the parties' understanding and intent, the payment of this $50,000 was not contemporaneous payment for new value but simply late payment for value that had already been rendered, over the duration of the contract. There being no evidence to the contrary, I conclude that Oppenheimer has failed to establish a genuine issue of material fact as to the contemporaneousness of the exchange and as to intent to effect a contemporaneous exchange. On the basis of both issues, the Trustee is entitled, as a matter of law, to a determination that the contemporaneous exchange for new value defense is unavailable as to the $50,000 remaining in issue.
With respect to the "ordinary course of business defense," § 547(c)(2), Oppenheimer must establish (among other things) that the transfer was made "in the ordinary course of business or financial affairs of the debtor and the transferee." 11 U.S.C. § 547(c)(2)(B). In this instance, the Engagement Agreement expressly required payment of the $50,000 at issue on July 30, 1997. The payment was made between September 10 and 22, 1997, forty to fifty-two days after it was due. Payment significantly after the date required in the agreement between the parties does not necessarily preclude a payment from satisfying § 547(c)(2)(B), but it is preclusive in the absence of evidence indicating that late payment had become ordinary in the course of dealing between debtor and transferee.
Oppenheimer's evidence as to this course of dealing is set forth in the affidavits of Benjamin Downs, the Debtor's chief financial officer and treasurer from 1990 to 1997, and the affidavit of Jonathan O'Herron, *181 the limited managing director at Lazard Frères & Co. LLC who negotiated the Engagement Agreement with the Debtor, and in separate deposition testimony of O'Herron. Downs identifies four stock offerings for which the Debtor employed Oppenheimer, but his affidavit does not set forth the payment terms of these engagements. Therefore, although Downs states that, in each instance, Oppenheimer's fee was paid within several days of the closing, the evidence does not permit the Court to determine that any such payments were late, and that late payments had, by the time of the transaction at issue, become ordinary between the parties.
O'Herron states that "Lazard understood from Molten [the Debtor] that, in accordance with the engagement agreement, Molten would pay the bulk of this fee [the fee due Oppenheimer and Lazard under the Engagement Agreement] upon closing of the offering." O'Herron does not explain what he means by "the bulk of the fee." In view of the phrase "in accordance with the engagement agreement," the "bulk" to which O'Herron referred was probably the portion of the fee that, under the agreement, was contingent and payable upon the closing, not the portions that under the agreement were due earlier. No reasonable finder of fact could construe this testimony as proof by a preponderance of the evidence that the Debtor and Lazard and Oppenheimer understood that the portion of the fee that was due on July 30, 1997, would be paid only upon closing. At the time the agreement was negotiated, all parties understood that, although the $50,000 at issue was noncontingent, the closing was contingent on success and might never occur. It defies logic to conclude that the parties contemplated that a noncontingent payment would be paid only upon the occurrence of an event that might not occur. Oppenheimer has adduced no other evidence as to the course of dealing between the parties. On this record, no reasonable finder of fact could find that the Oppenheimer had sustained its burden of proof as to § 547(c)(2)(B).
Therefore, I conclude that there is no genuine issue of material fact under 547(c)(2)(B), and that the Trustee's motion for summary judgment must be allowed as to this defense.[3] Having concluded that the Trustee is entitled to summary judgment as to its case in chief and that Oppenheimer has failed to demonstrate the existence of a genuine issue of material facts as to either of its affirmative defenses, the Court concludes that the Trustee is entitled to judgment as a matter of law as to the remaining $50,000 at issue.
ORDER
For the reasons set forth above, the Motion of CIBC World Markets Corp., as successor in interest to Oppenheimer & Co., Inc., for Summary Judgment is allowed with respect to $300,000 of the payment at issue and denied as to the remaining $50,000; and the Plaintiff's Motion for Summary Judgment is allowed only with respect the remaining $50,000. The issues having been fully disposed of by these motions, a separate judgment will enter in accordance with these rulings.
*182 JUDGMENT
For the reasons set forth in the separate memorandum of decision issued today on the parties' cross motions for summary judgment,
The Court hereby ORDERS and ADJUDGES that the Plaintiff, Stephen S. Gray, as he is Chapter 11 Trustee in the case of Debtor Molten Metal Technology, Inc., recover of the Defendant, Oppenheimer & Co., Inc., or its successor, CIBC World Markets Corp., the sum of $50,000.00, plus interest thereon at the rate of 3.9% per annum from December 2, 1999, the date on which this adversary proceeding was commenced,[1] and that, as to the remainder of the amount sought in the complaint, the complaint is dismissed on its merits.
NOTES
[1] The complaint names Oppenheimer & Co., Inc. as defendant but was answered by CIBC World Markets Corp. as successor to Oppenheimer. For purposes of this memorandum, the court will refer to the defendant as Oppenheimer, as it was known at all times relevant to this proceeding.
[2] The Trustee's reliance on the definition of claim is misplaced. The definition of claim is relevant to the issue of when a debt is deemed to have arisen, 11 U.S.C. § 101(12) ("debt" means liability on a claim), but not to when value should be deemed to have been conveyed. "New value" is separately defined, in relevant part, as "money or money's worth in . . . services," and is not synonymous with debt or claim. 11 U.S.C. § 547(a)(2) (defining "new value" for purposes of § 547).
[3] Oppenheimer's evidence also fails to establish the existence of a genuine issue of material fact as to the requirement in § 547(c)(2)(C) of payment "according to ordinary business terms," again because the evidence does not address industry practice with respect to the timeliness in paying noncontingent fees. However, because the defense already fails on under part (B) of this defense, the Court need not address the evidentiary shortcomings under part (C).
[1] The applicable interest rate is the rate prescribed in 28 U.S.C. § 1961(a). With respect to a preference recovery under 11 U.S.C. § 547(b), interest accrues from the date of demand, but if no demand was made then from the date on which the adversary proceeding was commenced. Gray v. Travelers Ins. Co. (In re Neponset River Paper Co.), 219 B.R. 918 (Bankr.D.Mass.1998), aff'd 231 B.R. 829 (1st Cir. BAP 1999). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550165/ | 164 A.2d 320 (1960)
Harry D. MENCHER, One of the Defendants Below, Appellant,
v.
Leah SACHS, Plaintiff Below, Appellee, and
Seminole Oil & Gas Corporation, Milestone Drilling Company, John Addison, Herschel Greenbaum, Hugh P. Mullen and Herbert Williams, Defendants Below, Appellees.
In the Matter of SEMINOLE OIL & GAS CORPORATION.
Supreme Court of Delaware.
October 14, 1960.
William E. Taylor, Jr., Wilmington, for appellant.
Arthur G. Logan and C. Edward Duffy of Logan, Marvel, Duffy & Boggs, Wilmington, for appellees Leah Sachs and Seminole Oil & Gas Corp.
SOUTHERLAND, C. J., and WOLCOTT and BRAMHALL, JJ., sitting.
*321 SOUTHERLAND, Chief Justice.
We take the following pertinent facts from the Chancellor's opinion and Special Master's report found in 150 A.2d 20.
On April 26, 1958 appellee Sachs, a stockholder of Seminole, filed a petition to compel the holding of a stockholders' meeting, the management having failed to do so.
On July 20 the appellant Mencher, then President of Seminole, negotiated with Milestone Drilling Company a contract for the drilling of oil wells on Seminole's property. Milestone was to receive, among other things 283,000 shares of the common stock of Seminole and a one-half interest in Seminole's leasehold. The shares were to be issued forthwith, and were in fact issued four days before the "deadline" for the stockholders' meeting, then fixed for August 4th.
Thereafter a derivative suit was filed to cancel the shares.
On August 1 the Chancellor appointed a Special Master to conduct the stockholders' meeting. He also later referred the cancellation suit to the master.
At the election Milestone voted its stock for the management. The master held that the stock was illegally issued and rejected the vote cast by Milestone. He held that *322 the opposition slate of directors was elected. The Chancellor overruled all exceptions and sustained the master's findings in both cases.
Milestone surrendered its stock, which was canceled. The contract of July 10 was also terminated, apparently by consent.
The petitioning stockholder's counsel applied for allowances of fees in the two cases. Mencher objected to the requested allowances. The Chancellor allowed $10,000 in the election case and $30,000 in the cancellation suit. Mencher appeals.
Mencher raises three points:
1. That there is no jurisdiction in the Court of Chancery to allow counsel fees in a summary election proceeding under 8 Del.C. § 224.
2. That any allowance in the cancellation case should be paid by the body of stockholders and not by the corporation, as ordered by the Chancellor.
3. That there is no "dollar basis" for any finding of benefit to the corporation resulting from the successful suit for cancellation.
1. Preliminarily we note that there is some question whether this point was properly raised below; but we pass this objection in order to deal with the merits.
There can be no doubt of the "jurisdiction" of equity to award counsel fees as costs in a proper case. Maurer v. International Re-Insurance Corp., 33 Del.Ch. 456, 95 A.2d 827. What appellant really means is that this case is not within the exceptions to the general rule, recognized in the Maurer case, that a litigant must ordinarily pay his own counsel fees. We enumerated in the Maurer case certain exceptions to the general rule, pointing out that the list was not necessarily all-inclusive. The question here is whether this case presents another proper exception.
Appellant argues that there is no precedent for an award of counsel fees by the court to the attorney for the petitioning stockholder in a summary election proceeding. This may be correct, although appellee's attorney refers to a case which he says supplies a precedent. Perry v. Missouri-Kansas Pipe Line Co., et al., 22 Del.Ch. 33, 191 A. 823, and related litigation. But there is no reported opinion dealing with the allowances in the election case.
It is unnecessary to decide whether an allowance of counsel fees is proper in a summary election proceeding in which the relief obtained is limited solely to an order to hold the election. The instant case is quite different. Mencher attempted to issue this large block of stock on the eve of the deadline fixed for the stockholders' meeting. The cancellation suit followed, and the two proceedings were consolidated for hearing before the master and the Chancellor. The election proceeding and the cancellation suit were therefore directly connected. The board of directors did not wish to fix the fee or to submit the matter to the stockholders. We see no objection in this case to the fixation of the allowance by the Chancellor.
Appellant argues that the board had no right to "delegate its right and duty" with respect to the payment by the corporation of fees for services. This is the opposite of a contention, sometimes urged, that the directors should not approve fees requested in derivative stockholders' suits. Cf. Krinsky v. Helfand, Del., 156 A.2d 90.
We saw no objection, in the cited case, to the approval of the board of an application for fees pending before the court, and we likewise see no objection to the decision of the directors in this case to leave the matter with the Chancellor.
We agree with the Chancellor that this case was an appropriate one in which to allow counsel fees.
*323 2. The second objection concerns the allowance of a fee in the cancellation case. Appellant argues that even if a fee was allowable, the order should have directed its payment by the stockholders and not by the corporation, because any benefit from the cancellation of the Milestone stock inured to the benefit of the stockholders as a class.
We cannot understand how the court could make or enforce any such order. Obviously, the payment must be made by the corporation. This is, in effect, a payment by all the stockholders.
There is no substance in this contention.
3. The final objection is that there is no "dollar basis" for measuring any benefit to the corporation resulting from the cancellation of the illegally issued stock or from the termination of the drilling contract. Cancellation of illegally issued stock is in itself a benefit. Although the benefit may be difficult of evaluation in dollars and cents, it is still a benefit. The same comment is applicable to the benefits resulting from the termination of the drilling contract. There was evidence adduced at the hearing on fees tending to show that the effect of the termination of that contract was to benefit the corporation in restoring to it the one-half interest in the lease transferred to Milestone.
The effect to be given this evidence in valuing the services of the attorney was for the Chancellor. And there was no evidence offered on behalf of the objectors. In these circumstances appellant has no standing to complain. Krinsky v. Helfand, supra.
The order of the Court of Chancery is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550168/ | 262 B.R. 891 (2001)
VERIZON COMMUNICATIONS, INC., a Delaware corporation, Plaintiff,
v.
NORTHPOINT COMMUNICATIONS GROUP, INC, a Delaware corporation, et al., Defendants.
Civ.A. No. 01-63-GMS.
United States District Court, D. Delaware.
April 18, 2001.
ORDER
SLEET, District Judge.
On February 2, 2001, the defendant, NorthPoint Communications Group, Inc. and NorthPoint Communications, Inc. (collectively "NorthPoint"), filed a notice of removal from the Delaware Superior Court pursuant to 28 U.S.C. § 1452 (D.I.1). The plaintiff, Verizon Communications, Inc. ("Verizon"), filed a motion to remand on February 9, 2001 (D.I.3). The court scheduled an initial conference pursuant to Local Rule 16.2(a) for April 17, 2001, at 11:00 a.m. to discuss the case and the pending motion (D.I.7).
On February 22, 2001, NorthPoint informed the court that the United States Bankruptcy Court for the Northern District of California issued two orders remanding a case involving the parties to the Superior Court of California and denying Verizon's motion for relief from the automatic stay pursuant to 11 U.S.C. § 362(a) (D.I.8). NorthPoint also filed a Notice of Bankruptcy Stay in this action. The notice advised the court that the automatic stay "operates as a stay of any continuation of a judicial action or proceeding against NorthPoint[, and that the] stay applies to all entities, including all courts." Id.
Notwithstanding the automatic stay, on February 26, 2001, the parties entered into a stipulation regarding Verizon's motion to remand and the timing of NorthPoint's opposition (D.I.9). In the stipulation, the parties agreed that (1) Verizon would inform NorthPoint whether it intended to pursue its motion to remand, (2) any hearing on the motion to remand would be deferred until NorthPoint's opposition was due, and (3) NorthPoint would file its opposition to the motion to remand on or before March 12, 2001. The stipulation was submitted for the court's approval. The court approved the stipulation on March 5, 2001. Next, the parties submitted a second stipulation on March 8, 2001, which asked the court to (1) hold Verizon's motion to remand in abeyance until the end of the automatic stay, (2) allow the parties to agree on a "reasonable briefing *892 schedule" on the motion to remand when the automatic stay is lifted, and (3) defer any hearing on the motion to remand (D.I.10). The court never issued the requested order.[1] Prior to April 17, 2001, neither party contacted the court regarding the second stipulation, nor gave notice that it would not or could not participate in the scheduled conference. On April 17, 2001, neither party appeared at the conference. When the court attempted to contact the parties, it was informed that they considered the matter "stayed".
The court does not understand the position the parties appear to have taken. First, NorthPoint and Verizon entered into stipulations which contemplated action by both the court and the parties subsequent to the imposition of the automatic stay. Not only did the first stipulation establish a time frame for Verizon to consider withdrawing its motion, it also gave NorthPoint additional time to respond to the pending motion. Second, the parties requested that the court hold Verizon's motion to remand "in abeyance" until the stay terminates. If the parties believed that the stay also applied to the motion to remand, it would be illogical for them to request that the court not rule on it. Third, NorthPoint filed for Chapter 11 protection on January 16, 2001, triggering the automatic stay provision of 11 U.S.C. § 362. NorthPoint removed this case from the Delaware Superior Court on February 2, 2001 and Verizon filed its motion to remand on February 8, 2001. Since both of these actions postdated the Chapter 11 filing and the imposition of the automatic stay, the court questions their propriety. Cf. Cacioppe v. Superior Holsteins III, Ltd., 650 F.Supp. 607, 609 (S.D.Tex.1986) (holding that where Chapter 11 petition was filed before state court petition, "applicable bankruptcy stay" prevented removal under 28 U.S.C. § 1441).
In a case whose procedural posture is analogous to the instant matter,[2] the United States District Court for the Northern District of Illinois stated:
Hemex [the defendant] contends initially that since it has filed for bankruptcy, there is an automatic stay pursuant to section 362 of the Bankruptcy Code (11 U.S.C. § 362), and therefore, this court is barred from remanding the case to the state court. The court rejects Hemex's contention. First, Hemex cites no authority for its contention. Second, Hemex's reliance on the automatic stay apparently did not prevent Hemex from removing Baxter's [the plaintiff] state court action to this court. Last, Hemex's contention runs counter to the plain meaning of 28 U.S.C. §§ 1334, 1452 which provide abstention from or remand of state court actions related to title 11 proceedings.
Baxter Healthcare Co. v. Hemex Liquidation Trust, 132 B.R. 863, 867 (N.D.Ill. 1991) (internal citations omitted). As in Baxter, NorthPoint's February 22, 2001 letter does not provide support for what may be an implicit argument that the court is prevented from deciding the motion to remand. Furthermore, NorthPoint, like Hemex, appears to have removed this case from state court in spite of the automatic stay that presumably went into effect on January 16, 2001. Therefore, it would *893 seem that the court, like the Baxter court, may address the pending motion to remand.
The court intended to discuss these issues with the parties at the April 17, 2001 conference. Unfortunately, both of the parties apparently decided to ignore the scheduling order the court issued in contemplation of the conference. Although the parties may have convinced the court that it should not or could not rule on the pending motion in light of the recent developments in the case, the court is unable to benefit from their insights. At minimum, the parties should have contacted the court to determine whether the April 17, 2001 conference was still on its schedule.
As noted earlier, the court does not understand the position or the conduct of the parties. Although it does not wish to unduly penalize NorthPoint for its conduct or reward Verizon for its behavior, the court will grant Verizon's motion to remand.[3]See 28 U.S.C. 1452(b) (stating that court may remand bankruptcy case removed from another court "on any equitable ground"). First, NorthPoint's answering brief was due on March 12, 2001, but it has not submitted anything to the court. Although the parties stipulated that briefing would follow a later-agreed upon schedule, the court never granted any such extension. Therefore, it considers Verizon's motion unopposed. Second, the court is unsure whether NorthPoint's notice of removal was proper since it was filed with the court after the imposition of the automatic stay. Remanding the case may undo what was, perhaps, improperly done. Third, the court does not believe that NorthPoint will be prejudiced by its decision. Under the automatic stay, the court believes that the case cannot proceed in the Delaware Superior Court. Once the automatic stay is lifted or otherwise terminated, NorthPoint can again attempt to remove the state action to this court. At that time, the court will address the merits of any motion to remand that Verizon may wish to file.
Therefore, IT IS HEREBY ORDERED that:
1. Verizon's motion to remand (D.I.3) is GRANTED.
2. NorthPoint may file a second notice of removal when, and if, the automatic stay is lifted, suspended, or otherwise terminated with regard to this action.
NOTES
[1] As will become clear below, rather than simply signing the proposed order, the court intended to discuss the stipulation and the case in general with the parties at the April 17, 2001 conference.
[2] Unlike the present action, the defendants removed the case from state court and then took the position that 11 U.S.C. § 362 prevented the court from remanding it to state court. Although this case presents the issue of whether NorthPoint (the plaintiff) can rely on the automatic stay, the court's discussion is logically similar.
[3] According to the terms of the first stipulation, Verizon was to inform NorthPoint whether it intended to pursue its motion to remand. Although the parties may have discussed the motion and decided either to discontinue briefing or to withdraw the motion, the court was not informed of any such agreement. Therefore, it considers Verizon's motion to remand pending. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550179/ | 262 B.R. 900 (2000)
In re William C. LUCABAUGH, Jr., Debtor.
William C. Lucabaugh, Jr., Appellant,
v.
Internal Revenue Service, et al., Appellees.
Bankruptcy No. 97-23893. No. CIV. A. 00-4479.
United States District Court, E.D. Pennsylvania.
December 19, 2000.
*901 William Clarence Lucabaugh, Jr., Reading, PA, pro se.
Anthony R. Distasio, Reading, PA, John B. Herron, c/o Becket & Lee, LLP, Malvern, PA, Russell K. Stewart, Philadelphia, PA, for creditors.
ORDER
NEWCOMER, Senior District Judge.
AND NOW, this 19th day of December, 2000, upon consideration of the appellant's Appeal of the Bankruptcy Court's July 28, 2000 Order dismissing debtor's Adversary Proceeding No. 00-2083, and appellee's Response thereto, it is hereby ORDERED that the decision of the Bankruptcy Court is AFFIRMED.
I. BACKGROUND
On April 14, 1992, appellant filed a petition in the United States Tax Court protesting an income tax deficiency proposed by the IRS for tax year 1988.[1] On September *902 2, 1997, appellant filed the Chapter 13 bankruptcy petition at issue in the instant case. In the bankruptcy proceeding, appellant filed an objection to the proof of claim filed by the IRS for income taxes for the year 1988. On July 21, 1998, the Bankruptcy Court entered an order which allowed the IRS' proof of claim, and fixed appellant's tax liability for 1988.
On or about August 13, 1998, Kathleen Raup,[2] counsel for appellee, sent a Motion for Entry of Decision to the Tax Court asking the Court to enter a decision consistent with the Bankruptcy Court's July 21, 1998 Order fixing appellant's tax liabilities. Because the Tax Court case was automatically stayed by virtue of the bankruptcy filing, the Court did not accept the Motion for filing.
Although Ms. Raup's Motion for Entry of Decision with the Tax Court was not filed, appellant filed Adversary Proceeding No. 98-2234 on September 22, 1998, seeking damages against both the United States and Ms. Raup because appellant felt the IRS and Ms. Raup's attempt to file the Motion had violated the automatic stay. The United States subsequently filed a Motion to Dismiss, which was granted by the Bankruptcy Court pursuant to a hearing held on the Motion on April 29, 1999. The Court's June 11, 1999 Order dismissed the Complaint on the grounds that: (1) the Court lacked personal jurisdiction over the United States as required under Fed. R.Bankr.P. 7004(b)(4) and (5); (2) Ms. Raup was immune from suit because she was acting in her official capacity; and (3) the Complaint failed to state a claim upon which relief could be granted since no violation of the automatic stay occurred and appellant did not allege that he suffered any damages. Appellant did not appeal from the order of dismissal.
Appellant then filed Adversary Proceeding No. 00-2083 in May 2000. This Complaint was nearly identical to the Complaint which was filed in Adversary Proceeding No. 98-2234 and dismissed by the Bankruptcy Court in its Order of June 11, 1999. Ms. Raup and the United States subsequently filed a Motion to Dismiss Adversary Proceeding No. 00-2083 on the grounds that the action against Ms. Raup was barred by res judicata and that appellant had failed to state claim against the United States.
On May 30, 2000, appellant filed a document entitled Action for Declaratory Judgment, whereby appellant requested that the Bankruptcy Court declare that parties to actions in Bankruptcy Court must be represented by counsel who are admitted to practice in Pennsylvania. On June 2, 2000, appellant filed a Motion Compelling Discovery and a Motion to Stay Proceedings, allegedly in an attempt to discover whether Ms. Raup and counsel Pat S. Genis were licensed to practice law in Pennsylvania.
A hearing was held on July 20, 2000 with respect to the Motion to Dismiss Adversary Proceeding No. 00-2083. Subsequently, on July 28, 2000, the Bankruptcy Court issued an order granting the Motion to Dismiss with prejudice and dismissing appellant's Motions Compelling Discovery and for Stay of Proceedings as moot. The Court held that: (1) the cause of action against Ms. Raup was barred by the doctrine of res judicata; (2) the Complaint failed to state a claim against the IRS because no violation of the automatic stay had occurred since the Motion filed by Ms. Raup was never accepted for filing in the *903 tax court, and even if a violation was deemed to have occurred from Ms. Raup's filing of the Motion, appellant did not allege that he suffered any damages as a result of Ms. Raup's actions; and (3) the Court lacked subject matter jurisdiction over appellant's claims under the Freedom of Information Act.
Appellant Lucabaugh then filed the instant Appeal challenging the July 28, 2000 Order ("July 2000 Order") entered by the Bankruptcy Court dismissing appellant's Adversary Proceeding, No. 00-2083.
II. LEGAL STANDARD
This Court has jurisdiction over this appeal pursuant to 28 U.S.C. § 158. Moreover, in instances of an appeal from a bankruptcy court, a district court's scope of review is well settled. A bankruptcy court's factual findings may only be set aside if they are clearly erroneous. See Sapos v. Provident Inst. of Sav., 967 F.2d 918, 922 (3rd Cir.1992); In re Sharon Steel Corp., 871 F.2d 1217, 1222 (3rd Cir.1989). In addition, a bankruptcy court's legal conclusions are subject to plenary and de novo review by a district court on appeal. See id.
III. DISCUSSION
A. RES JUDICATA
This Court first turns to the Bankruptcy Court's dismissal of Adversary Proceeding No. 00-2083 on the grounds of res judicata. Bankruptcy courts employ the common rules of res judicata. Lewison Bros. v. Washington Sav. Bank (In re Lewison Bros.), 162 B.R. 974, 981 (Bankr. D.N.J.1993). "The doctrine of res judicata, now generally known as claim preclusion, bars relitigation of causes of action that have already been before a court, as long as certain conditions are met." See Bernard Haldane Assoc., Inc. v. Harvard Prof'l Group, 185 F.R.D. 180, 181 (D.N.J. 1999). As this Court stated in Lewison Brothers, "[a]pplication of res judicata requires: (1) a final judgment on the merits in a prior suit; (2) involving the same parties or their privies; and (3) a subsequent suit based on the same causes of action." 162 B.R. at 981 (citing Purter v. Heckler, 771 F.2d 682, 690 (3d Cir.1985)); United States v. Athlone Indus., Inc., 746 F.2d 977, 983 (3d Cir.1984).
In the instant situation, appellant admittedly filed two similar adversary proceedings: one on September 22, 1998, and the other on or about May 6, 2000. Both actions sought damages against the United States and Ms. Raup, asking the Bankruptcy Court to declare that Ms. Raup violated the automatic stay by attempting to file a Motion for Entry of Decision with the Tax Court. This Court finds that the elements of res judicata were satisfied in this case: (1) the Bankruptcy Court's June 11, 1999 Order was a final judgment on the merits in a prior suit; (2) involving the same parties or their privies; and (3) Adversary Proceeding No. 00-2083 was a subsequent suit based on the same causes of action. Therefore, the Bankruptcy Court properly dismissed the Complaint in No. 00-2083. Moreover, appellant fails to raise any arguments that the Bankruptcy Court erred in finding that the cause of action against Ms. Raup was barred by res judicata. Rather, appellant provides only a long discourse on Federal Rule of Civil Procedure 4 and Bankruptcy Rule of Procedure 7004 both of which are irrelevant for purposes of the instant appeal. Appellant's arguments appear to contest the June 11, 1999 Order, which unfortunately for him is not before this Court.
B. VIOLATION OF THE AUTOMATIC STAY
This Court next turns to the Bankruptcy Court's finding that appellant failed to state a claim against the United States because no violation of the automatic *904 stay occurred, and even if a violation had occurred, appellant did not allege that he suffered any damages. Under Section 362(a) of the Bankruptcy Code, the filing of a bankruptcy petition automatically gives rise to a stay that bars judicial action against a debtor. See 11 U.S.C. § 362; In re Krystal Cadillac Oldsmobile GMC Truck, Inc., 142 F.3d 631 (3d Cir.1998). Only the Bankruptcy Court has the authority to grant relief from the stay. If relief from the stay is granted, judicial proceedings may then continue. See Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1204 (3d Cir.1991). In contemplation of violations of a stay, 11 U.S.C. § 362(h) provides that "[a]n individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorney's fees, and, in appropriate circumstances, may recover punitive damages." A violation is willful if the defendant knew of the stay and the defendant's acts were intentional. See In re Atlantic Bus. and Comm. Corp., 901 F.2d 325, 329 (3d Cir. 1990).
Here, this Court determines that there was no judicial action that could have violated the automatic stay. As noted by the Bankruptcy Court in its July 2000 Order, Ms. Raup's Motion for Entry was never filed in the United States tax court. Furthermore, appellant fails to demonstrate or provide evidence that any judicial action in violation of the automatic stay took place. Even assuming arguendo that submission of the Motion at issue here constituted a violation of the stay, the Court concludes that there is no evidence of willful violation of the stay. While Ms. Raup undoubtedly was aware of the stay, it is apparent from, inter alia, the transcript of the February 26, 1998 hearing before the Bankruptcy Court that counsel for the United States was uncertain how the Tax Court would treat the stay when confronted with the Motion for Entry of Decision. Therefore, this Court concludes that there was no intentional act to violate the stay. Finally, appellant failed to demonstrate any injury that may have resulted from the alleged violation of the stay. In light of the foregoing, this Court finds that the Bankruptcy Court properly decided that there was no violation of the automatic stay and that appellant failed to state a claim upon which relief could be granted against the United States.
C. SUBJECT MATTER JURISDICTION OVER FREEDOM OF INFORMATION CLAIMS
This Court finally considers the issue of whether the Bankruptcy Court properly decided that it lacked subject matter jurisdiction over appellant's FOIA claims. Pursuant to the Freedom of Information Act ("FOIA"), and "[o]n complaint, the district court of the United States in the district in which the complainant resides, or has his principal place of business, or in which the agency records are situated, or in the District of Columbia, has jurisdiction to enjoin the agency from withholding agency records improperly withheld from the complainant." 5 U.S.C. § 552(a)(4)(B). Under the statutory provision, "federal jurisdiction is dependent on a showing that an agency has (1) `improperly' (2) `withheld' (3) `agency records.'" United States Department of Justice v. Tax Analysts, 492 U.S. 136, 142, 109 S.Ct. 2841, 106 L.Ed.2d 112 (1989) (quoting Kissinger v. Reporters Committee for Freedom of Press, 445 U.S. 136, 150, 100 S.Ct. 960, 63 L.Ed.2d 267 (1980)). Unless each of these criteria is met, a district court lacks jurisdiction to devise remedies to force an agency to comply with the FOIA's disclosure requirements. Tax Analysts, 492 U.S. at 142, 109 S.Ct. 2841.
Appellees further argue that district courts are vested with exclusive jurisdiction under 5 U.S.C. § 552(a)(4)(B). *905 Moreover, the jurisdiction of the bankruptcy courts to hear cases related to bankruptcy is not without limit and there is a statutory, and eventually constitutional, limitation to the power of a bankruptcy court. Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984). For subject matter jurisdiction to exist, therefore, there must be some nexus between the "related" civil proceeding and the title 11 case. Id. The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy. Id. Appellees also point out that district courts may vest its power in a Bankruptcy Court concerning "all core proceedings arising under title 11 or arising in or related to a case under title 11." 28 U.S.C. § 157(b).
It has also been noted that "it seems apparent that Congress did not intend that a de novo hearing on the propriety of a refusal to release information could be triggered by nothing more than a discovery subpoena." Lincoln National Bank v. Lampe, 421 F.Supp. 346, 348 (N.D.Ill. Sept. 13, 1976). The Lincoln Court further went on to conclude that "Congress [intended] that a separate complaint be filed under FOIA before a federal court obtains jurisdiction to enjoin a withholding of official information. To hold to the contrary would give undue precedent to FOIA request in aid of discovery over all other FOIA requests." Id. at 349.
In the instant case, this Court finds that the Bankruptcy Court correctly dismissed appellant's FOIA claims, and properly held that it did not have subject matter jurisdiction over appellant's FOIA claims. First, appellant did not provide a sufficient showing that an agency improperly withheld agency records. Therefore, the Bankruptcy Court's dismissal of appellant's FOIA claims was proper. Second, appellant's discovery requests under the FOIA did not constitute a core proceeding because his claims were not related to his bankruptcy case the outcome of the claims could not have any effect on the estate being administered in bankruptcy. Thus, appellant's FOIA claims did not confer jurisdiction to the Bankruptcy Court. Third, appellant's discovery requests did not satisfy the statutory requirements for a separate complaint to be filed under FOIA; again, demonstrating that the Bankruptcy Court never obtained jurisdiction. Finally, the Court determines that appellant has suffered no harm in not receiving the information he sought.
For the reasons stated above, the Bankruptcy Court's order of July 28, 2000 is affirmed.
AND IT IS SO ORDERED.
NOTES
[1] Appellant has subsequently filed a barrage of related actions, motions, and various other petitions. From what now amounts to a procedural mire, the Court chooses to outline only those portions that are pertinent to the instant appeal.
[2] Kathleen Raup's maiden name was Kathleen Kernaghan, which was used during the course of the proceedings described in this Opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/509511/ | 852 F.2d 1421
1989 A.M.C. 2144
Jules SIMEON, Sr., and Ida Mae Griffin Simeon, Wife of JulesSimeon, Sr., Plaintiffs-Appellees,Cross-Appellants, Cross-Appellees,v.T. SMITH & SON, INC., Defendant-Appellee, Cross-Appellant,v.LUMAR MARINE, INC., Defendant-Appellant, Cross-Appellee.
No. 86-3389.
United States Court of Appeals,Fifth Circuit.
Aug. 10, 1988.
Henry S. Provosty, David L. Carrigee, Burke & Mayer, New Orleans, La., for Lumar Marine, Inc.
William A. Porteous, III, Porteous, Hainkel, Johnson & Sarpy, New Orleans, La., for Simeon.
Paul N. Vance, Andre J. Mouledoux, Harvey J. Godofsky, New Orleans, La., for T. Smith.
Appeals from the United States District Court for the Eastern District of Louisiana.
Before KING, WILLIAMS, and GARWOOD, Circuit Judges.
PER CURIAM:
1
Jules Simeon (Simeon), a deckhand on a derrick barge owned by T. Smith & Son, Inc. (Smith), was badly injured when his foot and leg were caught in a mooring line running from his barge to an adjacent hopper barge being prematurely towed away by a tug owned by Lumar Marine, Inc. (Lumar). Simeon sued his employer, Smith, alleging Jones Act negligence and unseaworthiness. He sued Lumar alleging general maritime negligence. His wife sued both defendants for her loss of consortium. The jury found that Simeon was ten percent contributorily negligent and that Smith was fifty-eight percent negligent, but its barge seaworthy. The general maritime law claim against Lumar was simultaneously tried to the court, which accepted the jury's advisory finding that Lumar was thirty-two percent negligent. The district court rendered judgment for Simeon against Smith and Lumar, severally, and for Mrs. Simeon against Lumar, based on the jury award, as remitted, in the Jones Act case, and otherwise on the district court's damages findings. Each party appeals, raising various objections. We affirm in part, reverse in part, and remand.
Facts and Proceedings Below
2
Early on the morning of September 27, 1981, Simeon, then fifty-seven years old, reported to work on Smith's derrick barge, the PENNY, in the Mississippi River near Belle Chase, Louisiana. The PENNY was assigned to unload iron ore from an ocean-going vessel and place it on a hopper barge. The PENNY was positioned between the vessel and the hopper barge, which was held to the PENNY by mooring lines. On the PENNY was a large crane equipped with a bucket to scoop the ore off the ocean-going vessel and swing the load over to the hopper barge. The PENNY had a crew of five: Simeon and a fellow deckhand, the crane operator, a flagman positioned on the ocean-going vessel to help guide the crane operator, and a foreman responsible for the entire operation. It took all day to fill the hopper barge with ore. By the end of the shift, in late afternoon, the hopper barge was full and instructions were given to release the mooring lines so that a tug--the M/V TAKO BANDIT owned by Lumar--could tow the loaded hopper barge away.
3
Ordinarily it was not a complex matter to undo the mooring lines. The river current put tension on the mooring lines by pushing the hopper barge back as the lines were unwrapped from the bitts, but the tug waiting to pull the hopper barge away was supposed to gently push it against the current to compensate. When the lines were released, the deckhands signaled the tugboat pilot and he reversed directions and towed the hopper barge away.
4
On this day, the operation did not go so smoothly on the PENNY. Just as Simeon was almost finished unwrapping the bow mooring line, he slipped on some ore that had fallen onto the PENNY's deck; his right leg and foot were then caught in the mooring line at its end where a knot had been tied to stop the line from fraying. The hopper barge was drifting back, either with the current or because the tug, Lumar's M/V TAKO BANDIT, had begun towing it, and Simeon's foot, entangled in the moving mooring line, was nearly severed from his leg.
5
After a series of operations and two months' hospitalization, Simeon's foot was saved. Evidence at trial showed, however, that Simeon's condition was not normal after his operations. His foot hurt constantly, he had to walk with a cane, except around the house, and he could go only short distances before painful swelling occurred. He could not return to work and became gloomy and depressed. The quality of his marriage deteriorated and because Simeon's painful foot made him restless at night, his wife was forced to sleep in a separate bedroom.
6
The day before the third anniversary of his accident, Simeon and his wife filed suit against Smith and Lumar in the United States District Court for the Eastern District of Louisiana.1 The two defendants filed cross-claims against each other for contribution. Simeon argued that the PENNY was unseaworthy and that his employer was negligent under the Jones Act because of the iron ore scattered on deck, the knotted mooring line, and the failure of the other deckhand to assist him in unwrapping the bow mooring line. Simeon asserted that Lumar was negligent under general maritime law for towing the hopper barge away before Simeon had released the mooring line.2
7
The Jones Act and unseaworthiness claims against Smith were tried to the jury3; the general maritime law negligence claim against Lumar was simultaneously tried to the court with the jury acting in an advisory capacity. The jury refused to find unseaworthiness, but found negligence on the part of Smith (fifty-eight percent), Lumar (thirty-two percent), and Simeon (ten percent). The jury awarded $1,250,000 for Simeon's past and future pain and suffering, $30,000 for his future medical expenses, and also awarded his wife $80,000 for her loss of consortium. The district court remitted the jury's pain and suffering award against Smith to $750,000, and Simeon accepted this remittitur. In its capacity as trier of fact of the maritime claim against Lumar, the district court rejected the jury's $1,250,000 pain and suffering award and chose instead the sum of $450,000. The district court accepted the jury's damage awards for future medical expenses and loss of consortium and also accepted the jury's apportionment of responsibility for the accident.
8
The district court then entered judgment for Simeon as follows: against Smith--$508,362.75 (fifty-eight percent of $876,487.50, which is the sum of $750,000 [pain and suffering], $30,000 [future medical], and $96,487.50 [stipulated lost wages still unpaid]4; against Lumar5--$184,576 (thirty two percent of $576,487.50, which is the sum of $450,000 [pain and suffering], $30,000 [future medical], and $96,487.50 [stipulated lost wages still unpaid].6 With regard to Simeon's damages, the court refused to enter a joint judgment against both Lumar and Smith; under the judgment rendered, each defendant is liable only for its respective proportion of total causation. The court additionally assessed Lumar alone with all of Mrs. Simeon's loss of consortium damages (less Simeon's ten percent contributory negligence) because the Jones Act, which was the only basis for Smith's liability, does not recognize a claim for loss of consortium. The court refused to order prejudgment interest on Simeon's Jones Act recovery against Smith because that claim was tried to the jury. The maritime claim against Lumar was bench tried, so the court ordered prejudgment interest on the entire recovery against Lumar beginning from the date of the accident.
9
The parties have raised nine issues on appeal: (1) whether the jury verdict against Smith was the product of passion and prejudice so as to require a new trial; (2) whether the pain and suffering damages against Smith should be further remitted below $750,000; (3) whether the district court's award of $450,000 for pain and suffering in Simeon's action against Lumar was adequate; (4) whether there is sufficient evidence to support the $30,000 award for future medical expenses; (5) whether the district court erred in holding Smith and Lumar severally, rather than jointly, liable; (6) whether Smith can be liable to Mrs. Simeon for loss of consortium based on negligence; (7) whether the district court erred in the consortium claim by not rendering judgment n.o.v. that the PENNY was unseaworthy; (8) whether the district court erred in ordering Lumar to pay the entirety of Mrs. Simeon's loss of consortium recovery (less Simeon's ten percent contributory negligence) even though Lumar was only thirty-two percent responsible for the accident; and (9) whether the district court's award of prejudgment interest against Lumar was in error.
Discussion
10
I. Smith's "excessiveness" motion for new trial
11
In a post-trial motion, Smith requested a new trial on grounds that the jury verdict resulted from passion and prejudice. The district court held that the jury's award of $1,250,000 against Smith for Simeon's pain and suffering was excessive and ordered a new trial unless Simeon would accept a remittitur to $750,000. Simeon accepted the remittitur, but Smith continues to assert that a new trial was in order. We review the district court's denial of a motion for new trial for abuse of discretion. Complete Auto Transit, Inc. v. Floyd, 249 F.2d 396, 399 (5th Cir.1957), cert. denied, 356 U.S. 949, 78 S.Ct. 913, 2 L.Ed.2d 843 (1958).
12
Almost half a century ago, our Court stated, "[W]hile mere excessiveness in the amount to be awarded may be cured by a remittitur, that excessiveness which results from passion and prejudice, however natural the resentment which arouses it, may not be so cured." Brabham v. Mississippi, 96 F.2d 210, 214 (5th Cir.), cert. denied, 305 U.S. 636, 59 S.Ct. 103, 83 L.Ed. 409 (1938). A new trial must be ordered when the verdict results from passion and prejudice.
13
Smith argues that Simeon made several improper attempts to arouse passion and prejudice in the jury. His counsel asked Simeon to walk to a chalkboard to draw a diagram. (This was inflammatory, claims Smith, because counsel commented on Simeon's usual use of a cane, and the jury's attention was focused on Simeon's struggle to walk.) Simeon's counsel introduced "gruesome" pictures of his injury; in her testimony, Simeon's daughter commented that as a child she had bounced on her father's foot; Simeon's doctor described one particular treatment as a "crucifixion"; Simeon quite vividly described the injury and how it occurred, and also mentioned his annual salary and that his compensation had been cut off.
14
Smith's counsel lodged no contemporaneous objections to any of these occurrences except to Simeon's remark about his wages, and the district court instructed the jury to ignore Simeon's comment.
15
In those circumstances, we do not believe the cited instances required a new trial in lieu of a remittitur. The jury no doubt had observed Simeon's hobbled gait as he took the witness stand. Any additional impact on the jury as it watched Simeon walk to the chalkboard was not seriously prejudicial. The allegedly "gruesome" photographs simply show the condition of Simeon's foot as he recuperated in the hospital. Any "gruesomeness" was due wholly to the nature of Simeon's injury, and it is not shown that any other reasonably accurate and complete photographic portrayal would have been less gruesome. The testifying physician's reference to a particular procedure as a "crucifixion" was not without some legitimacy because that is apparently the shorthand medical term for that procedure, and it was not an inflammatory label concocted for trial. Simeon's description of the injury was vivid, but we do not believe he resorted to an excessively dramatic portrayal of how his foot was severed. The $1,250,000 award was excessive and, had Simeon not accepted the remittitur, a new trial would have been in order simply because the award was so "inordinately large as to be contrary to right reason." Caldarera v. Eastern Airlines, Inc., 705 F.2d 778, 784 (5th Cir.1983) (quoting Floyd, 249 F.2d at 399). Nevertheless, the evidence on which Smith relies to prove that the verdict resulted from passion and prejudice is not strongly convincing, particularly in light of the failure to object in all instances save one where the objection was sustained. Hence, the district court did not abuse its discretion in refusing to order a new trial.
II. Remittitur
16
The district court did not err in remitting Simeon's damages against Smith. In fact, the damages must be further remitted. It is well settled that a jury's damages award should not be disturbed unless it is "entirely disproportionate to the injury sustained." Caldarera, 705 F.2d at 784; see also Haley v. Pan American World Airways, Inc., 746 F.2d 311, 317 (5th Cir.1984). If the jury's award is unacceptably disproportionate, either the district or appellate court should reduce the award to "the maximum amount the jury could properly have awarded." Id. (citing Fifth Circuit precedent); see also Zeno v. Great Atlantic & Pacific Tea Co., 803 F.2d 178, 181 (5th Cir.1986). While pain and suffering is, to a large degree, not susceptible to monetary quantification, and the jury thus necessarily has especially broad leeway, nevertheless, " '[t]he sky is simply not the limit.' " Osburn v. Anchor Laboratories, Inc., 825 F.2d 908, 920 (5th Cir.1987) (quoting Caldarera, 705 F.2d at 784).
17
Drawing a measure of general guidance from, though not being rigidly circumscribed by, cases involving somewhat comparable injuries,7 it is clear to us that the jury's pain and suffering award of $1,250,000 was in excess of the maximum reasonable recovery. The district court, which heard the same evidence as the jury, assessed pain and suffering damages at $450,000, and even this is a more generous award than many given in recent years for similar injuries. We hold that $600,000 is the maximum reasonable damages figure for Simeon's pain and suffering in his action against Smith. If Simeon will not accept a remittitur on this basis, a new trial must be held.
18
We further hold that the district court's award of $450,000 for pain and suffering in Simeon's action against Lumar was not clearly erroneous or inadequate.
III. Future medical expenses
19
The jury also awarded $30,000 for Simeon's future medical expenses. There is no evidence in the record to support an award of this size, and so it necessarily is based on impermissible conjecture. See Haley v. Pan American World Airways, Inc., 746 F.2d 311, 316 (5th Cir.1984). The only record evidence regarding Simeon's future medical expenses was testimony from his physician, who said there was a fifty-fifty chance that Simeon would need another operation, the total cost of which would be about $10,000.8 Accordingly, we order a remittitur reducing Simeon's award for future medical expenses to $10,000, and if this is not accepted, a new trial will be required. Based on the record evidence, this amount represents the maximum reasonable recovery for future medical expenses.
20
IV. Joint or several liability?
21
As to Simeon's damages, the district court entered judgment against Smith and Lumar severally. (Part VI, infra, of our opinion discusses the apportionment of Mrs. Simeon's recovery for loss of consortium.) We agree with the contention raised by Simeon in his cross-appeal that judgment should have been entered against the defendants jointly.
A. Admiralty
22
Like the common law, W. Prosser & P. Keeton, Prosser & Keeton on the Law of Torts Sec. 47 at 328 (1984), the general maritime law has long recognized the concept of joint liability. For example, in The Atlas, 93 U.S. 302, 23 L.Ed. 863 (1876), the Supreme Court held that the insurer of cargo lost in a collision between two vessels caused by the fault of both could recover all of its damages from one vessel. The Court borrowed this rule from the common law, which recognized a plaintiff's right "to sue ... all the wrong-doers, or any one of them, at his election; and it is equally clear, that, if he did not contribute to the disaster, he is entitled to judgment in either case for the full amount of his loss." Id., at 315, 23 L.Ed. at 866; see also The Alabama, 92 U.S. 695, 23 L.Ed. 763 (1876); The George Washington, 76 U.S. 513, 19 L.Ed. 787 (1870); The Juniata, 93 U.S. 337, 23 L.Ed. 930 (1876); The Sterling, 106 U.S. 647, 1 S.Ct. 89, 90, 27 L.Ed. 98 (1882) (describing the joint liability rule in admiralty as "well-established"). Neither the Supreme Court nor the lower courts have ever retreated from the rule of joint liability under maritime law. See, e.g., Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 99 S.Ct. 2753, 2756 n. 7, 61 L.Ed.2d 521 (1979); Cooper Stevedoring Co. v. Fritz Kopke, Inc., 417 U.S. 106, 94 S.Ct. 2174, 2178, 40 L.Ed.2d 694 (1974); Seal Offshore, Inc. v. American Standard, Inc., 777 F.2d 1042 (5th Cir.1985); Todd Shipyards Corp. v. Auto Transportation, S.A., 763 F.2d 745, 756 (5th Cir.1985); Central Rivers Towing, Inc. v. City of Beardstown, Ill., 750 F.2d 565, 575 (7th Cir.1984).
23
Collision cases provided the context in which joint liability was applied most frequently,9 but the rule of joint liability also has been applied in cases, like Simeon's, involving other maritime fault-based claims. See, e.g., Cooper Stevedoring, 94 S.Ct. at 2178 (commenting that plaintiff longshoreman who slipped while loading vessel "could have proceeded against either The Vessel or [the nonemployer stevedore company, which had created the dangerous condition in loading at a prior port] or both of them to recover full damages for his injury"); Joia v. Jo-Ja Service Corp., 817 F.2d 908 (1st Cir.1987).10
24
Defendants note that at common law any negligence on the part of the plaintiff barred his recovery, e.g., W. Prosser & P. Keeton, supra, Sec. 65 at 461, and assert that joint liability was designed to soften the impact of the harsh rule of contributory negligence. Defendants reason, therefore, that because the trend developing over the past twenty-five years or so has been for states to replace the common-law rule of contributory negligence with some version of comparative fault, id. Sec. 67 at 471, the concept of joint liability should likewise be retired. Whatever the logic of this argument, it overlooks the fact that "[m]ost jurisdictions which have adopted comparative negligence have retained the common law rule of joint and several liability...." Id. at 475; see F. Harper, F. James, O. Gray, 3 The Law of Torts Sec. 10.1, at 31 (2d ed. 1986). More importantly, defendants ignore the fact that maritime law, which historically has adhered to the rule of joint liability, early on rejected the common law's rule of contributory negligence. See generally M. Norris, 2 The Law of Seamen Sec. 30:32 (1985); The Max Morris, 137 U.S. 1, 11 S.Ct. 29, 34 L.Ed. 586 (1890).
25
In The Max Morris, the Supreme Court noted that contributory negligence as a bar to recovery in ship collision cases was rejected in The Catharine v. Dickinson, 17 How. 170, 15 L.Ed. 233 (1855), which adopted the well established English rule of divided damages. However, noted the Court, the lower federal courts were in disagreement over whether to apply the common law's rule of contributory negligence outside the collision context. 11 S.Ct. at 32. The Max Morris, which was not a collision case, resolved this conflict. That case was an admiralty suit brought by a longshoreman who fell from a vessel's bridge to the deck while loading coal. Although the longshoreman was contributorily negligent, the Supreme Court held that "[c]ontributory negligence in a case like the present should not wholly bar recovery," id. at 33, but would merely reduce it. Id. The Supreme Court has never wavered from The Max Morris. Justice Black's comment more than thirty years ago in Pope & Talbot, Inc. v. Hawn, 346 U.S. 406, 74 S.Ct. 202, 204, 98 L.Ed. 143 (1953), remains an accurate description of this aspect of admiralty law: "The harsh rule of the common law under which contributory negligence wholly barred an injured person from recovery is completely incompatible with modern admiralty policy and practice." See also Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 99 S.Ct. 2753, 2755 n. 2, 61 L.Ed.2d 521 (1979); Lewis v. Timco, Inc., 716 F.2d 1425, 1427 (5th Cir.1983) (en banc).
26
In multiple defendant cases where plaintiff also is negligent, it has never been suggested that joint liability is inapplicable. In Gele v. Chevron Oil Co., 574 F.2d 243 (5th Cir.1978), the accident occurred when a pleasure fishing boat collided with an oil company flare pipe in the Gulf of Mexico. The plaintiff was a passenger on the fishing boat. The district court found that the oil company was wholly responsible; we held this finding clearly erroneous on grounds that those operating the fishing boat were partly to blame because the boat had been traveling at an "imprudent" speed. Id. at 249. We remanded the case for a determination of whether plaintiff was partly responsible for operating the fishing boat. Speaking for the Court, Judge Brown observed in Gele that (1) any negligence by plaintiff would not bar his recovery, but merely reduce it, id. at 250, and (2) that plaintiff had a "right to collect all his damages from one party in the event he is unable to obtain a relative portion of damages from each party at fault." Id. at 251; see also Empire Seafoods, Inc. v. Anderson, 398 F.2d 204 (5th Cir.), cert. denied, 393 U.S. 983, 89 S.Ct. 449, 21 L.Ed.2d 444 (1968) (holding that the joint liability rule applies even when plaintiff is contributorily negligent); Drake Towing Co. v. Meisner Marine Construction Co., 765 F.2d 1060, 1067 (11th Cir.1985) (holding that plaintiff could recover all damages except those representing his share of negligence from one of two joint tort-feasors); Joia v. Jo-Ja Service Corp., 817 F.2d 908 (1st Cir.1987) (same).11
27
In sum, our investigation shows that under maritime law concurrent tort-feasors are jointly liable, even when plaintiff is contributorily negligent. However, only Lumar was a maritime defendant. Smith's liability arises solely under the Jones Act; hence, we must determine whether a rule of joint liability is consistent with that statute.
B. The Jones Act
28
The Jones Act, 46 U.S.C.App. Sec. 688, incorporates the Federal Employers' Liability Act (FELA), 45 U.S.C. Sec. 51 et seq. E.g., Hopson v. Texaco, Inc., 383 U.S. 262, 86 S.Ct. 765, 766, 15 L.Ed.2d 740 (1966). The FELA, in turn, creates federal rights "largely fashioned from the common law ... except as Congress has written into the Act different standards." Bailey v. Central Vermont Ry., 319 U.S. 350, 63 S.Ct. 1062, 1064, 87 L.Ed. 1444 (1943); see also Hall v. Minnesota Transfer Ry. Co., 322 F.Supp. 92, 94 (D.Minn.1971). Therefore, we must construe the FELA, and hence the Jones Act, consistent with the common law, except where the statute explicitly departs from the common law or has been judicially construed to do so.
29
There are, of course, important departures in the FELA from the common law. For example, the FELA abolishes the common law's fellow servant rule, Sinkler v. Missouri Pacific R.R., 356 U.S. 326, 78 S.Ct. 758, 762, 2 L.Ed.2d 799 (1958), eliminates the absolute defenses of contributory negligence, 45 U.S.C. Sec. 51, and assumption of risk, 45 U.S.C. Sec. 54, and incorporates a featherweight standard of causation, e.g., Webb v. Illinois Central R.R., 352 U.S. 512, 77 S.Ct. 451, 454, 1 L.Ed.2d 503 (1957). However, joint liability was the rule at common law, and we have not found any case holding that the FELA or the Jones Act has changed this.
30
As noted, contributory negligence is not a complete bar to recovery under the FELA (and the Jones Act), but merely reduces plaintiff's recovery.
31
C. Joint liability of Jones Act defendant with general maritime defendant
32
Defendants argue that even if joint liability is proper as to maritime defendants or Jones Act defendants, it is not proper to cause a Jones Act defendant to be jointly liable with a maritime defendant. For this proposition defendants cite Seas Shipping Co. v. Sieracki, 328 U.S. 85, 66 S.Ct. 872, 90 L.Ed. 1099 (1946), a case in which the Supreme Court held that negligent defendants were not jointly liable with a tort-feasor whose liability arose from unseaworthiness because unseaworthiness "rests upon an entirely different basis" from negligence. Id., 66 S.Ct. at 875. The basis of Smith's liability is the Jones Act, while Lumar's liability arises under the general maritime law. But despite the fact that the respective obligations of Lumar and Smith toward Simeon arise from different sources, the obligation is the same: to avoid fault by acting reasonably. Sieracki is distinguishable from this case on grounds that unseaworthiness is not based on fault. 66 S.Ct. at 877; Cooper Stevedoring, 94 S.Ct. at 2179 (commenting that unseaworthiness defendant not jointly liable with negligent defendant because unseaworthiness does not require a showing of fault); see Usner v. Luckenbach Overseas Corp., 400 U.S. 494, 91 S.Ct. 514, 517, 27 L.Ed.2d 562 (1971); cf. Restatement (Second) of Torts Sec. 876 caveat (1979) (ALI takes no position on whether one acting in concert with another should be liable for acts of the other when the liability of either is based on strict liability). By contrast, both the Jones Act and maritime negligence are fault-based, and so we believe the Sieracki "rule" is inapplicable.
33
Defendants argue that because the Jones Act burden of causation is lighter than that applied to a maritime law negligence claim, e.g., Chisholm v. Sabine Towing & Transportation Co., 679 F.2d 60, 62 (5th Cir.1982) (citing cases), the Sieracki "rule" should apply to prevent the judgment in this case from being joint. Defendants do not cite any case suggesting that the different burden of causation applied to these two bases of recovery is sufficient to take the case out of the rule of joint liability. On the contrary, there is precedent for holding a Jones Act defendant jointly liable with a defendant whose negligence arises under state or general maritime law. See Joia v. Jo-Ja Service Corp., 817 F.2d 908, 915-18 (1st Cir.1987); Ebanks v. Great Lakes Dredge & Dock Co., 688 F.2d 716 (11th Cir.1982), cert. denied, 460 U.S. 1083, 103 S.Ct. 1774, 76 L.Ed.2d 346 (1983).
D. Joint liability
34
Accordingly, we sustain Simeon's claim on his cross-appeal that the district court erred by making the judgment in his favor against Smith and Lumar several only, with the liability of each such defendant limited to the percentage of Simeon's damages corresponding to the percentage of fault of that particular defendant (fifty-eight percent for Smith; thirty-two percent for Lumar). Smith and Lumar, therefore, are jointly and severally liable for ninety percent (one hundred percent, less Simeon's ten percent contributory negligence) of Simeon's damages.
35
Application of the rule of joint liability is somewhat complicated in the present case by reason of there being different pain and suffering awards in the actions against the different defendants, $600,000 (assuming that Simeon accepts the remittitur we order) in Simeon's jury-tried Jones Act case against Smith, and $450,000 in Simeon's bench-tried general maritime law case against Lumar. Simeon's total damages in his action against Smith are thus $706,487.50 ($600,000 pain and suffering, plus $10,000 future medical, plus $96,487.50 stipulated lost wages still unpaid, see note 2, supra, assuming Simeon accepts our remittiturs on the first two items); and his total damages in his action against Lumar are $556,487.50 ($450,000 pain and suffering, plus $10,000 future medical, plus $96,487.50 stipulated lost wages still unpaid, again assuming Simeon accepts our remittitur on the future medical). On these figures, Simeon will have judgment against Smith and Lumar, jointly and severally, for $500,838.75 (which is ninety percent--one hundred percent, less Simeon's ten percent negligence--of the $556,487.50 which represents Simeon's total damages that are common to his actions against both Smith and Lumar), and Simeon will additionally have judgment against Smith alone for the further sum of $135,000 (ninety percent of the $150,000 which represents the excess of Simeon's total damages in his action against Smith over his total damages in his action against Lumar).12
V. Unseaworthiness
36
Mrs. Simeon asserts that there is insufficient evidence to support the verdict that Smith's barge, the PENNY, was seaworthy.13 Neither of the Simeons asked the court for a directed verdict on unseaworthiness--either after resting their cases or after defendants rested. (Nor, for that matter, did either seek a judgment n.o.v. or new trial on this basis after the jury found the PENNY seaworthy.)
37
"It is well-settled in this Circuit that in the absence of a motion for a directed verdict at the close of all the evidence, the sufficiency of the evidence to support a jury verdict is not reviewable on appeal. Coughlin v. Capitol Cement Co., 571 F.2d 290, 297 (5th Cir.1978). Appellate inquiry is limited to whether there was any evidence to support the jury's verdict, irrespective of its sufficiency, or whether plain error was committed which, if not noticed, would result in a 'manifest miscarriage of justice.' Id." Shipman v. Central Gulf Lines, Inc., 709 F.2d 383, 385 (5th Cir.1983).
38
Certainly by this standard of review, there is sufficient evidence to support the jury's finding that the PENNY was seaworthy.
39
Although the shipowner has an absolute duty to provide a seaworthy vessel, e.g., Mitchell v. Trawler Racer, Inc., 362 U.S. 539, 80 S.Ct. 926, 932, 4 L.Ed.2d 941 (1960); Brunner v. Maritime Overseas Corp., 779 F.2d 296, 298 (5th Cir.), cert. denied, 476 U.S. 1115, 106 S.Ct. 1971, 90 L.Ed.2d 655 (1986), the vessel need not be "accident-free." Mitchell, 80 S.Ct. at 933. "The duty is absolute, but it is a duty only to furnish a vessel and appurtenancesreasonably fit for their intended use. The standard is not perfection, but reasonable fitness...." Id. (emphasis added); see Stevens v. East-West Towing Co., 649 F.2d 1104, 1107-08 (5th Cir.1981), cert. denied, 454 U.S. 1145, 102 S.Ct. 1007, 71 L.Ed.2d 298 (1982). The jury charge paraphrased this passage from Mitchell. The Simeons argue that the iron ore scattered on deck, the knot in the mooring line, and the failure of the other deckhand to assist Simeon rendered the PENNY unseaworthy. A reasonable jury could weigh this evidence and still conclude that the PENNY was "reasonably fit" for its intended use as a derrick barge.
40
The Simeons contend, however, that the jury's verdict of Jones Act negligence against Smith necessarily includes a finding of unseaworthiness. We cannot agree. Both the Supreme Court, e.g., Mitchell, 80 S.Ct. at 932; Usner v. Luckenbach Overseas Corp., 400 U.S. 494, 91 S.Ct. 514, 517, 27 L.Ed.2d 562 (1971), and our Court, e.g., Thezan v. Maritime Overseas Corp., 708 F.2d 175, 180 (5th Cir.1983), cert. denied, 464 U.S. 1050, 104 S.Ct. 729, 79 L.Ed.2d 189 (1984); Alverez v. J. Ray McDermott & Co., 674 F.2d 1037, 1041 (5th Cir.1982), have emphasized that the Jones Act and unseaworthiness are distinct theories of recovery. The settled rule in the Fifth Circuit is that there is no fundamental, necessary inconsistency between the two verdicts of negligence and seaworthiness.
41
Our holding in Brunner, 779 F.2d at 298-99, is instructive. The plaintiff had slipped in some oil on the deck of his vessel. This single defect was the basis for both his Jones Act and unseaworthiness claims. As here, the jury held the employer negligent, but the vessel seaworthy. We held that these were not inconsistent verdicts:
42
"Although these answers may not achieve legal nicety, they are not irreconcilable. We do not have the right to second guess a jury that may decide a small oil spill on a deck does not necessarily make an 80,000 ton tanker unseaworthy even if the spill got there negligently." Id. at 299.
43
See also Kokesh v. American Steamship Co., 747 F.2d 1092, 1094 (6th Cir.1984) (same); cf. Thezan, 708 F.2d at 180 (same, but plaintiff had also made negligence claims unrelated to seaworthiness); Alverez, 674 F.2d at 1041 (same as Thezan ); Gosnell v. Sea-Land Service, Inc., 782 F.2d 464, 467 (4th Cir.1986) (verdicts not inconsistent because of much lighter causation burden under Jones Act). But see Lee v. Pacific Far East Line, Inc., 566 F.2d 65, 67 (9th Cir.1977). In sum, there is no plain error in the finding of seaworthiness. In light of Brunner and related cases, we do not believe the jury's finding of seaworthiness is fatally undermined by its verdict of Jones Act negligence.
44
VI. Apportionment of loss of consortium damages
45
(a) The jury and the district court found Mrs. Simeon's loss of consortium damages to be $80,000. Smith is partly responsible for causing these damages as a matter of fact. However, as stated in part V, supra, Smith has been acquitted of unseaworthiness under general maritime law. Accordingly, Smith's only basis for liability in this case is negligence, and, as Smith is seaman Simeon's employer, it has no negligence liability to him under the general maritime law but only under the Jones Act, and a Jones Act employer is not liable for loss of consortium damages to the spouse of the employee seaman. E.g., Beltia v. Sidney Torres Marine Transport, Inc., 701 F.2d 491, 492-93 (5th Cir.1983); Cruz v. Hendy International Co., 638 F.2d 719, 723 (5th Cir.1981).
46
(b) As a general maritime law defendant which is not the injured seaman's employer, Lumar is liable for loss of consortium damages based on its negligence, see American Export Lines, Inc. v. Alvez, 446 U.S. 274, 100 S.Ct. 1673, 64 L.Ed.2d 284 (1980); Tullos v. Resource Drilling, Inc., 750 F.2d 380, 385-86 (5th Cir.1985), and the district court ordered Lumar to pay Mrs. Simeon $72,000, an amount representing all her loss of consortium damages, less a ten percent deduction for Simeon's contributory negligence.14 Based on our holdings in part IV, supra, we reject Lumar's claim that it should not be liable for as much as ninety percent of Mrs. Simeon's loss of consortium damages, since it was only thirty-two percent at fault. For the same reasons, we decline to follow the dissent's theory that Lumar should only be liable for 32/42nds of Mrs. Simeon's loss of consortium damages.
47
(c) We also hold that Lumar is not entitled to contribution from Smith in respect to Lumar's loss of consortium liability to Mrs. Simeon. The traditional view is that there can be no contribution between concurrent tort-feasors unless they share a "common legal liability" toward the plaintiff. F. Harper, F. James, O. Gray, 3 The Law of Torts Sec. 10.2 at 46 (2d ed. 1986); W. Prosser & P. Keeton, supra, Sec. 50 at 339-40. The contribution action arises from the original obligation that the party cast in contribution owed to the plaintiff. "If there was never any such liability, as where the contribution defendant has the defense of family immunity, assumption of risk, or the application of an automobile guest statute, or the substitution of workers' compensation for common law liability, then there is no liability for contribution." W. Prosser & P. Keeton, supra, Sec. 50 at 339-40. E.g., Restatement (Second) of Torts Sec. 886A, comment g (1979); Green v. United States Dept. of Labor, 775 F.2d 964, 971 (8th Cir.1985); Fischbach & Moore International Corp. v. Crane Barge R-14, 632 F.2d 1123, 1125 (4th Cir.1980); Jones v. Schramm, 436 F.2d 899, 901 (D.C.Cir.1970); Yellow Cab Co. v. Dreslin, 181 F.2d 626 (D.C.Cir.1950); see Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 99 S.Ct. 2753, 2765 n. 2, 61 L.Ed.2d 521 (1979) (Blackmun, J., dissenting).15
48
In this case, we follow the traditional view. To allow Lumar an action in contribution against Smith would be inconsistent with our cases holding that the Jones Act employer is not responsible for loss of consortium damages. See Beltia, supra; Cruz, supra. Somewhat analogous is Halcyon Lines v. Haenn Ship Ceiling & Refitting Corp., 342 U.S. 282, 72 S.Ct. 277, 96 L.Ed. 318 (1952), which held that the shipowner cast in liability for all damages had no right of contribution from the plaintiff longshoreman's employer, who was also allegedly at fault. See also Atlantic Coast Line R. Co. v. Erie Lackawanna R. Co., 406 U.S. 340, 92 S.Ct. 1550, 32 L.Ed.2d 110 (1972) (same); Cooper Stevedoring Co. v. Fritz Kopke, Inc., 417 U.S. 106, 94 S.Ct. 2174, 2177-79, 40 L.Ed.2d 694 (1974) (explaining that Halcyon and Atlantic Coast prohibited contribution because the employers in those cases were protected from a direct claim by the LHWCA). See also Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 99 S.Ct. 2753, 2757, 61 L.Ed.2d 521 (1979) (same).
49
Sometimes a "concurrent" tort-feasor who is immune from the plaintiff's direct action and thus immune from a traditional contribution claim, owes the other concurrent tort-feasor some independent duty, or has made some express or implied promise to that tort-feasor so that a "contribution" action is permissible. This type of "contribution" does not arise because of an obligation running from the contributing tort-feasor to the plaintiff; it rather arises because of the relationship directly between the concurrent tort-feasors themselves. See Weyerhaeuser Steamship Co. v. United States, 372 U.S. 597, 83 S.Ct. 926, 10 L.Ed.2d 1 (1963); Ryan Stevedoring Co. v. Pan-Atlantic Steamship Corp., 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133 (1956) (permitting indemnity claim by shipowner against LHWCA employer on grounds that employer had breached its contractual obligation running to shipowner); Lockheed Aircraft Corp. v. United States, 460 U.S. 190, 103 S.Ct. 1033, 74 L.Ed.2d 911 (1983) (holding that the exclusive liability protection afforded the United States by Federal Employees' Compensation Act, 5 U.S.C. Sec. 8101 et seq., would not bar an indemnity claim by a concurrent tort-feasor, provided there was some substantive law of indemnity on which the claim could be based); Travelers Insurance Co. v. United States, 493 F.2d 881, 886 (3d Cir.1974) (discussing Weyerhaeuser ). In this case, no party has sought to prove the existence of any such obligation running directly from Smith to Lumar. Therefore, we apply the traditional view of no contribution as exemplified by cases such as Halcyon, and deny Lumar contribution from Smith respecting Mrs. Simeon's loss of consortium.
VII. Prejudgment interest
50
We must modify the district court's award of prejudgment interest. The court refused to order prejudgment interest on the Jones Act damages awarded by the jury against Smith. This ruling is correct because Smith's liability arises under the Jones Act and "prejudgment interest is not recoverable in Jones Act cases tried to a jury." See McPhillamy v. Brown & Root, Inc., 810 F.2d 529, 532 n. 1 (5th Cir.1987) (citing Fifth Circuit precedent). Lumar's liability to Simeon and his wife arises under general maritime law after a bench trial. The district court exercised its discretion and ordered prejudgment interest on those maritime damages. This was proper because "[t]he award of prejudgment interest under maritime law is 'well-nigh automatic.' " Id. (quoting Reeled Tubing, Inc. v. M/V CHAD G, 794 F.2d 1026, 1028 (5th Cir.1986)). However, the district court should not have ordered prejudgment interest on all the damages recoverable from Lumar because some of them were to compensate for future (i.e., posttrial) harm. Martin v. Walk, Haydel & Associates, 794 F.2d 209, 212 (5th Cir.1986); Williams v. Reading & Bates Drilling Co., 750 F.2d 487, 491 (5th Cir.1985). As in Martin, we remand this case so that the district court may apportion damages (both economic and other) between past and future harm and award prejudgment interest only on those damages that the plaintiff in question had incurred as of the initial judgment date.16
51
Lumar must pay prejudgment interest on so much of the $500,838.75 damages for which it is liable to Simeon in Simeon's case against it as represents damages incurred prior to trial, and on so much of Mrs. Simeon's $72,000 loss of consortium damages for which it is liable as represents damages incurred by her prior to trial, but Lumar may not recover in a contribution action against Smith any amount representing prejudgment interest paid to the Simeons. Smith is not directly obligated to pay Simeon prejudgment interest and, as noted in part VI, supra, there has been no suggestion of any independent obligation running from Smith to Lumar requiring it to indemnify or share in damages for which Smith could not have been directly responsible.
Conclusion
52
In sum, we: (1) reject Smith's claim that it is entitled to a new trial; (2) order a further remittitur to $600,000 of Simeon's pain and suffering damages in his action against Smith; (3) order a remittitur to $10,000 of Simeon's future medical expense damages in his actions against Smith and Lumar17; (4) reject Simeon's attack on the district court's fixing of his pain and suffering damages at $450,000 in his action against Lumar; (5) affirm the district court's unattacked award of contribution to Smith and against Lumar respecting Smith's pretrial payments to Simeon; (6) sustain, as stated in part IV, supra, hereof, Simeon's contention that the district court erred in making the judgment against Smith and Lumar entirely several, and direct that, if Simeon accepts our remittiturs, Simeon have judgment against Smith and Lumar jointly and severally for the principal sum of $500,838.75 and also against Smith alone for the further principal sum of $135,000 (all such sums to bear appropriate postjudgment interest from the initial judgment); (7) hold that Smith and Lumar are entitled to contribution from one another in respect to Simeon's actions against them as stated in note 12, supra; (8) reject the attacks of the Simeons on the finding of the jury in Smith's favor on unseaworthiness; (9) reject Mrs. Simeon's claim that the district court erred by denying her loss of consortium recovery from Smith based on Smith's negligence; (10) sustain Mrs. Simeon's $72,000 loss of consortium judgment against Lumar (except for remand in respect to prejudgment interest as per (13) below); (11) hold that Lumar is not entitled to contribution from Smith in respect to any loss of consortium by Mrs. Simeon or any prejudgment interest due by Lumar to either of the Simeons; (12) sustain the district court's denial of prejudgment interest in Simeon's suit against Smith; and (13) hold that Simeon and Mrs. Simeon are entitled to appropriate prejudgment interest from Lumar on, but only on, so much of their damages recoverable from Lumar as were incurred and had accrued prior to trial, but not on the portion thereof which would accrue or be incurred after trial, and remand to the district court to divide such damages accordingly and determine the appropriate prejudgment interest, all as stated in part VII, supra, of our opinion.
53
Accordingly, the judgment below is AFFIRMED in part and REVERSED in part, and the cause is REMANDED for further proceedings consistent herewith.
54
GARWOOD, Circuit Judge, concurring in part and dissenting in part:
55
I concur in all of the majority opinion except its part IVD and except so much of its part VI(b) as holds Lumar liable for ninety percent, instead of 32/42nds, of Mrs. Simeon's loss of consortium damages.
56
As to the majority's part IVD, while I agree that the liability of Smith and Lumar should not be entirely several (so that Smith is liable only for fifty-eight percent of Simeon's damages, and Lumar only for thirty-two percent), I am nevertheless of the opinion that traditional joint and several liability is inappropriate in light of Simeon's contributory negligence, and that the most just solution is a form of what may be called, perhaps somewhat misleadingly, "modified joint liability." Under such a regime, where the plaintiff is contributorily negligent, the fraction of the plaintiff's total damages for which a defendant, who is one of two or more tortfeasors, may be liable to the plaintiff is the same fraction that that defendant's negligence is of the total negligence of the plaintiff and that particular defendant. In other words, for this purpose only the negligence of the plaintiff and the particular defendant in question are compared.
57
To avoid double recovery and allow for appropriate contribution, the form of judgment in a case such as this involving a negligent plaintiff and two or more negligent defendants will need to provide for some several liability as well as for some joint and several liability. For example, consider the case of a three-car accident, with each driver, A, B, and C, equally at fault, plaintiff, A, suffering $150,000 total damages, defendants B and C suffering no damages, no party being vicariously liable for the fault of another, and there being no other tort-feasor. In such an instance, modified joint liability would call for A to be awarded a total judgment of $100,000, composed of the following: a $25,000 award in favor of A against B alone; a $25,000 award in favor of A against C alone; and a $50,000 award in favor of A against B and C jointly and severally. To the extent that B were to pay A more than $50,000 under the entire judgment, B would have judgment over for contribution against C; to the extent that C were to pay A more than $50,000 under the entire judgment, C would have judgment over for contribution against B. The precise application of these principles to Simeon's suit against Lumar and Smith will be discussed in more detail below.
58
As to the majority's part VI(b), similar considerations dictate that Mrs. Simeon should not recover ninety percent of her loss of consortium damages from Lumar, but only that fraction--32/42nds--which Lumar's negligence is of the combined negligence of Simeon (properly imputed to Mrs. Simeon) and Lumar. The fact that Mrs. Simeon's negligence claim against Smith ought to have been dismissed on the pleadings (as the majority correctly holds) merely highlights the fact that Smith's negligence should be irrelevant to Lumar's appropriate share of Mrs. Simeon's damages. That should be based simply on a comparison of Lumar's negligence with that properly imputed to Mrs. Simeon.
59
A brief overview of some well known tort concepts and their more recent evolution will help place the theory of this partial dissent in context.1
60
At common law, a fault-free plaintiff could recover all his damages from any one of several concurrent tort-feasors. This was the doctrine of joint and several liability. It was not based on the concept that one of the concurrent tort-feasors should be held liable for the wrong of another. Rather, joint and several liability was premised on the very different concept that each tort-feasor was responsible for all of which his own wrong was a cause. The fault or liability of others--except the plaintiff--was irrelevant. The same reasoning--that a wrongdoer is responsible for all that of which his wrong is a cause--dictated the rule that the plaintiff's contributory negligence, no matter how slight in comparison to the defendant's negligence, barred all recovery. This was not because the plaintiff's negligence made him responsible for the defendant's wrong, but because the plaintiff's negligence was a cause of all his damages, and he was responsible for all that of which his wrong was a cause. The harshness of this latter result led to the adoption of comparative fault in instances where the plaintiff was contributorily negligent. Under this concept, the complete bar of contributory negligence is lifted, neither party is responsible for all the results of his wrong, each being mutually relieved of a portion thereof, and the loss is apportioned according to the comparative fault of the parties. Where only the plaintiff and one other are at fault, the fault of the injured plaintiff is compared to that of the defendant, and the latter bears that fraction of the loss which his fault is of the total fault of himself and the plaintiff. If the plaintiff and the defendant are equally at fault, the defendant bears half the plaintiff's loss; if the defendant is twice as much at fault as the plaintiff, he bears two-thirds of the plaintiff's loss. If there are additional parties at fault, generally no problem is presented where all are solvent and before the court as defendants. Otherwise, however, the situation may be more difficult, particularly where one of the defendants is insolvent. In such an instance, the basis on which the fault of the plaintiff and that of the defendant or defendants is compared becomes crucial.
61
Because of the relatively recent adoption of comparative negligence, there are few reported appellate decisions in this area. Generally speaking, only two approaches have been considered. The most widespread approach among the states has been to hold that the solvent defendant is in effect charged with the negligence of the insolvent defendant for purposes of the comparison to be made to the plaintiff's negligence. Referring back to the illustration of the three-car accident, in which each party is equally at fault, this means that if defendant C is insolvent then solvent defendant B must bear two-thirds of plaintiff A's damages, although A and B are equally at fault. See W. Prosser & P. Keeton, Prosser & Keeton on the Law of Torts Sec. 67 at 475 (1984); F. Harper, F. James, O. Gray, 4 The Law of Torts Sec. 22.17 at 413-16 (1986); 57 Am.Jur.2d Negligence Sec. 435 at 860 (1971). This appears to me to be an essentially reflexive invocation of common-law joint liability. However, it ignores the fact that common-law joint liability considered the fault of others (except the plaintiff) irrelevant, and did not rest on charging one defendant's fault to another. It also ignores the fact that comparative fault modified, as between a negligent plaintiff and a negligent defendant, the principle that each party is responsible for all the results of his wrong. Little is said to actually justify comparing the plaintiff's fault to that of all the defendants in determining the extent of each defendant's responsibility.2 The result also seems to be influenced by viewing the second approach, pure several liability, as the only alternative. Under pure several liability, each tort-feasor is only liable for the same percentage of the plaintiff's damages as that tort-feasor's negligence is of the combined negligence of the plaintiff and all other concurrent tort-feasors. W. Prosser & P. Keeton, supra, Sec. 67 at 475; Sobelsohn, Comparing Fault, 60 Ind.L.J. 413, 455 (1985). Reverting to the hypothetical three-car accident involving equally at fault A, B, and C, the pure comparative fault system results in B's being responsible for only one-third of A's damages, even though A and B are equally at fault and A is able to collect nothing from insolvent C. Again, it seems to be assumed that the only alternative to this result is traditional joint liability.
62
The vice in both conventional joint liability and pure several liability is the same: each looks to the fault of third parties to measure the comparative fault of the plaintiff and the particular defendant, the extent of whose responsibility to the plaintiff is under consideration.
63
A third approach exists, however. For ease of reference, more than descriptive accuracy, it may be called "modified joint liability." Under it, the relevant comparison for comparative fault purposes is between the plaintiff's negligence and the negligence of the particular defendant, the extent of whose liability to the plaintiff is being fixed. In the mentioned three-car accident example, if C is insolvent, then A is nevertheless able to recover half of his damages from B, since A and B are equally at fault (which is the same result that would have obtained if C had not been at fault). In effect, the risk that C will not compensate plaintiff A (due to C's insolvency, or C's immunity from liability, or the fact finder's determination that what C did was not negligent) is borne by A and B in the respective ratios that the fault of each of them bears to the total fault of both. By contrast, traditional joint liability assigns this entire risk to defendant B, and pure several liability assigns it entirely to plaintiff A.
64
Though it has become significantly relevant only with the latter-day wide and rapid expansion of comparative fault, the concept of this third solution is itself not of as recent vintage. It was first suggested over fifty years ago by Charles O. Gregory, a professor of law at the University of Chicago. C. Gregory, Legislative Loss Distribution in Negligence Actions, 77-79, 142-48 (1936). Professor Gregory explained the rationale for his proposal:
65
"At common law joint tortfeasors are virtually guarantors of each other's solvency so far as concerns the injured plaintiff's joint judgment for damages; and the introduction of contribution between joint tortfeasors does not affect that situation in the slightest degree. The plaintiff receives his damages at all costs, leaving the defendants to even up the loss between themselves if and as they may and can. But under a comparative negligence statute, where the plaintiff, although negligent, may still recover, the situation is fundamentally different. Here absolutely no reason exists why the defendants, even if they are treated as joint tortfeasors and thus subjected to joint judgment liability for certain purposes, should be made to assume the entire risk of each other's insolvency with respect to plaintiff's recoverable damages. For when the plaintiff and the solvent tortfeasor are both negligent, they share the stigma which at common law seems to have furnished the justification for the somewhat arbitrary allocation of this risk on joint judgment debtors. Furthermore, it is quite possible to have a plaintiff who is as negligent as, or more negligent than, either of his defendants, but is still entitled to recover. Under such circumstances, it seems idle to suppose that a joint liability to the plaintiff should carry absolutely the same incidents as the common-law joint judgment; and distribution of the risk of insolvency of one of the joint defendants in accordance with the apportionment of fault would seem to be the only method of administration consistent with the terms of the comparative negligence statute." Id. at 142 (footnote omitted).
66
See also Fleming, Foreword: Comparative Negligence at Last--By Judicial Choice, 64 Calif. L.Rev. 239, 252 n. 55, 258 (1976) (praising what is here called modified joint liability and crediting Gregory as its originator).
67
In a comprehensive study of concurrent fault focusing primarily on Great Britain and Ireland, Professor Glanville Williams advocated modified joint liability as the proper method of apportioning damages when one of the tort-feasors had, for some reason, not been sued. G. Williams, Joint Torts and Contributory Negligence Sec. 110 at 414-20 (1951). Professor Williams implemented this approach when he drafted the Irish contribution statute. See Fleming, 64 Calif. L.Rev. at 252. Other commentators have been supportive. See Sobelsohn, 60 Ind. L.J. at 456 (noting that this approach is "[m]ore in keeping with the philosophy of proportionate responsibility"); Pearson, Apportionment of Losses Under Comparative Fault Laws--An Analysis of the Alternatives, 40 La. L.Rev. 343, 354, 362-65 (1980); Note, Reconciling Comparative Negligence, Contribution, and Joint and Several Liability, 34 Wash. & Lee L.Rev. 1159, 1174-76 (1977). But see F. Harper, F. James & O. Gray, supra Sec. 22.17 at 412-13 (noting "considerable support" for this approach but opposing it because defendants are more able to insure against losses). The Uniform Comparative Fault Act, section 2(d), 12 U.L.A. (West Supp.1987), incorporates this approach, and its principles were judicially adopted by the Missouri Supreme Court in Gustafson v. Benda, 661 S.W.2d 11, 15-16, 21-22 (Mo.1983) (en banc). See also Restatement (Second) of Torts Sec. 886A, comment i (1977) ("If one tortfeasor's equitable share turns out to be uncollectible it should be spread proportionately among the other parties at fault"). Cf. Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 429 n. 9 (Tex.1984) (describing this solution as "attractive" but rejecting it, in cases involving strict liability in tort, because of perceived problems of "post-trial jurisdiction and finality of judgments" that would arise in reallocating the share of an insolvent tort-feasor after trial).
68
We have found one reported appellate decision explicitly applying this approach. Haney Electric Co. v. Hurst, 624 S.W.2d 602 (Tex.Civ.App.--Dallas 1981, writ granted and then dismissed as moot). That case involved a three-car collision. In separate actions, two of the drivers--each later found to be thirty percent negligent--sued the third driver--later found to be forty percent negligent. The cases were consolidated, and one question was whether the defendant (the third driver, found forty percent at fault) should be liable to a particular plaintiff for forty percent of the harm (that is, only the defendant's share) or seventy percent (that is, the defendant's share added to the entire thirty percent share of the other plaintiff/tort-feasor, neither of the plaintiffs being also a defendant). The court adopted neither approach and chose instead to hold the defendant third driver liable to each plaintiff for 40/70ths of total damages. That fraction represented the ratio of the defendant's negligence (forty percent) to the total of his negligence and the negligence of the party seeking recovery (thirty percent). The court thus placed on defendant a portion of the unsued tortfeasor's share of fault, but only that portion represented by the ratio of the defendant's fault (forty percent) to the combined fault of the defendant and plaintiff (seventy percent). The court considered this result mandated not only by the Texas comparative negligence scheme, Tex.Rev.Civ.Stat. art. 2212a (codified as amended at Tex.Civ.Proc. & Rem.Code Sec. 33.001 (Vernon 1986)), but also by "[e]lementary fairness." 624 S.W.2d at 612; see also Koonce v. Quaker Safety Products & Manufacturing Co., 798 F.2d 700, 713 n. 17 (5th Cir.1986).
69
Modified joint liability in this context thus limits the maximum liability to the plaintiff of each individual joint tort-feasor to the amount for which that particular tort-feasor would have been liable to the plaintiff if only the negligence of such party and the negligence of the plaintiff were compared. If the plaintiff is not negligent, this "limit" will necessarily be one hundred percent of all the damages suffered by the plaintiff, and the result will be no different than in traditional joint liability. Accordingly, if modified joint liability is to come into play there must, at the least, be a regime of comparative fault, and the plaintiff and not less than two other actors (neither of whom is vicariously liable for the fault of the other) must each be guilty of causative fault. Assuming, as is the case here, that all these actors are before the court and none has settled with the plaintiff, the operation of modified joint liability may be again illustrated by another three-party example (using a different damages figure and another set of percentages).
70
If plaintiff A, who suffers total damages of $100,000, is twenty percent negligent, and defendant B is likewise twenty percent negligent, while defendant C's negligence is sixty percent, then modified joint liability limits B's maximum exposure to $50,000 (20/40ths of $100,000) and likewise limits C's maximum exposure to $75,000 (60/80ths of $100,000). However, plaintiff A'stotal recovery from both B and C may not exceed A's total damages ($100,000),less the percentage (twenty percent) thereof which his fault is of the total fault of all parties (A, B, and C) including himself; and thus in this instance, A's combined recovery from B and C may not exceed $80,000 ($100,000, less $20,000). To effectuate this limitation on A's overall recovery, as well as the referenced limitations on the maximum exposures of B and C, respectively, the judgment will provide for some several liability and some joint and several liability. Plaintiff A will be awarded a total judgment of $80,000, composed of the following: $5,000 against B alone; plus $30,000 against C alone; plus $45,000 against B and C jointly and severally. Under such a judgment, B's maximum exposure is $50,000 ($5,000, plus $45,000), which is half of A's total damages and corresponds to the fraction which B's negligence is of the combined negligence of A and B (20/40ths); C's maximum exposure is $75,000 ($30,000, plus $45,000), which is seventy-five percent of A's total damages and corresponds to the fraction which C's negligence is of the combined negligence of A and C (60/80ths); and, A's maximum recovery is $80,000 ($5,000, plus $30,000, plus $45,000), which is eighty percent of his total damages ($100,000) and reflects the deduction therefrom for his twenty percent share of the combined negligence of all three parties (A, B, and C) at fault.3 Appropriate provision will also need to be made in the judgment for contribution: to the extent B pays A more than $20,000 on the entire judgment, B will have judgment over for the excess against C; and to the extent that C pays A more than $60,000 on the entire judgment, C will have judgment over for the excess against B.4
71
As applied to the Simeons' claims against Smith and Lumar, calculation of the appropriate modified joint liability judgment is rendered uniquely complicated by the fact that Simeon's total damages are $150,000 greater in his claim against Smith than in his claim against Lumar (due entirely to the difference in the pain and suffering awards as respectively made by the jury in the action against Smith and by the court in the action against Lumar). Nevertheless, the task can be accomplished. Assuming Simeon accepts our remittiturs so that his total damages in the claim against Smith are $706,487.50 and his total damages in the claim against Lumar are $556,487.50, and based on Simeon's ten percent negligence, Smith's thirty-eight percent, and Lumar's thirty-two percent, the liabilities of the parties should be as set out below.
72
Simeon's maximum recovery from both Smith and Lumar should be $628,779.93, calculated as follows. Of the $556,487.50 total Simeon damages common to the actions against both Smith and Lumar, Simeon may recover from all sources ninety percent thereof, or $500,838.75. As to the additional $150,000 of Simeon's total damages which were fixed only in the claim against Smith, Simeon is entitled to additionally recover from Smith 58/68ths (Smith's negligence as a fraction of the total negligence of Smith and Simeon) thereof, or $127,941.18. The total of these sums ($500,838.75 plus $127,941.18) is the full $628,779.93 which Simeon is entitled to recover, in part from Lumar alone, in part from Smith alone, and in part from Lumar and Smith jointly and severally. Lumar's maximum liability to Simeon is for the sum of $423,990.44, which represents 32/42nds (Lumar's negligence as a fraction of the total negligence of Simeon and Lumar) of the $556,487.50 total Simeon damages common to the Smith and Lumar claims. Smith's maximum liability is for the sum of $602,592.28, which represents 58/68ths (Smith's negligence as a fraction of the total negligence of Simeon and Smith) of the $706,487.50 total Simeon damages fixed in the Smith claim. For purposes of contribution, Lumar should have recovery over from Smith if Lumar pays more than $178,076 (Lumar's thirty-two percent of the $556,487.50 total Simeon damages fixed in the claim against Lumar), and Smith should have recovery over from Lumar if Smith pays more than $450,703.93 ($127,941.18, as Simeon's maximum recovery on the additional $150,000 total damages in the Smith action for which Lumar has no responsibility, plus $322,762.75 constituting Smith's fifty-eight percent of the $556,487.50 total Simeon damages common to both claims).
73
To carry the foregoing into effect, the appropriate judgment would award Simeon a total of $628,779.93, composed of: (A) $26,187.65 against Lumar alone; plus (B) $204,789.49 against Smith alone; plus (C) $397,802.79 against Smith and Lumar jointly and severally.5 Lumar, whose maximum potential exposure (if Smith pays nothing to Simeon) is thus $423,990.44 ((A) plus (C)), would have judgment over against Smith for any payments by Lumar in excess of $178,076; Smith, whose maximum potential exposure (if Lumar pays nothing to Simeon) is thus $602,592.28 ((B) plus (C)), would have judgment over against Lumar for any payments by Smith in excess of $450,703.93.
74
As to Mrs. Simeon's loss of consortium claim, the appropriate judgment against Lumar, the only party liable in this respect, is far easier to calculate. Mrs. Simeon's total damages were $80,000 and, as the majority holds (majority opinion at note 14 and accompanying text) and she does not question, she is properly chargeable with Simeon's ten percent negligence. The majority holds Lumar liable to Mrs. Simeon for ninety percent of the $80,000 (or $72,000). But Lumar was only thirty-two percent negligent, and should be liable only for 32/42nds of the $80,000 (or $60,952.38). That is the ratio which the negligence of Lumar bears to the total negligence of Mrs. Simeon (as imputed) and Lumar. Smith's negligence (fifty-eight percent) is legally irrelevant and Lumar is not vicariously or derivatively liable for Smith's conduct.
75
The adoption of comparative fault is generally regarded as an advance in the law, for it avoids the absurd result of an injured plaintiff, who is only slightly negligent, being unable for that reason to recover anything from a defendant whose fault is ten times as great as the plaintiff's. Should we not likewise avoid the equal absurdity in the opposite direction of allowing a slightly negligent defendant to be liable for eighty-nine percent of the damages of a plaintiff who is ten times more at fault than that defendant.
76
It must be understood that what is of concern here is not shifting fault or responsibility for damages to or from or among multiple tort-feasor defendants. Indeed, the exact opposite is the case, for the thrust of this partial dissent is that the presence or absence of third-party fault is irrelevant, just as it was at common law. Comparative fault, which comes into play only if the plaintiff is guilty of fault which is a cause of all his damages, says that the plaintiff's fault is to be compared to something. The key question is to what? I suggest that the only logical comparison is to (and only to) the fault of the (or each) defendant from whom the plaintiff seeks recovery (whether the sole defendant or tort-feasor or one of several); if the plaintiff and the defendant are equally at fault, the defendant is responsible for one-half the plaintiff's damages, and the defendant's responsibility to the plaintiff is neither enhanced nor reduced by whether or not some third person is also guilty of causative fault.
77
Let us examine a variation of an earlier example. In the three-car accident involving plaintiff A, defendant B, and third driver C, assume that the accident is caused by the speed at which each of the three cars is traveling and that the speed of A and B is each equally negligent and excessive. C (for whose actions B is not vicariously liable) is traveling within the speed limit but at a rate which is arguably too fast due to the slick condition of the road. Why should B be responsible for a larger fraction of A's total damages if the jury finds that C's admitted speed was negligent than if the jury does not so find? A finding that C's speed was negligent does not change the relationship between the negligence of A and B; and it does not imply any enhancement of A's damages.6 The comparison should only be between A and B. B's liability to A should be the same (one-half of A's damages) whether the fault is fifty percent B's and fifty percent A's, or forty percent B's, forty percent A's, and twenty percent C's. The majority would have defendant B's total exposure (for the same damages) go up as his percentage of the total negligence goes down, and even though his negligence relative to that of plaintiff A does not change.7 No one has adequately explained the reason or justice of such a quixotic result.8
78
Even if, as I firmly believe, modified joint liability is the fairest and most appropriate rule, the question remains whether this Court is free to adopt it or is constrained from doing so by principles of stare decisis and a proper appreciation of the judicial function and our role as an intermediate appellate court. Though these considerations are of the utmost importance, I conclude that they do not preclude our adoption of modified joint liability.
79
I begin by observing that "[a]dmiralty law is judge-made law to a great extent ...," Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 99 S.Ct. 2753, 2756, 61 L.Ed.2d 521 (1979), and that "the Judiciary has traditionally taken the lead in formulating flexible and fair remedies in the law maritime...." United States v. Reliable Transfer Co., 421 U.S. 397, 95 S.Ct. 1708, 1715, 44 L.Ed.2d 251 (1975) (replacing divided damages rule with comparative fault). As an admiralty court we are not constricted by some comparative fault statute that might be construed to expressly or impliedly require traditional joint liability. The judicial development of admiralty law is in few situations legislatively strait-jacketed.
80
For example, though for centuries maritime law required negligence as a basis for recovery (absent unseaworthiness), the federal judiciary in relatively recent years has incorporated strict liability in tort, doing away with the requirement of negligence, in maritime products liability cases. Nor did this development wait upon the initiative of the Supreme Court. As that Court explained in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 2299, 90 L.Ed.2d 865 (1986):
81
"Absent a relevant statute, the general maritime law, as developed by the judiciary, applies.... Drawn from state and federal sources, the general maritime law is an amalgam of traditional common-law rules, modifications of those rules, and newly created rules.
82
"....
83
"We join the Courts of Appeals in recognizing products liability, including strict liability, as part of the general maritime law." (Emphasis added; footnotes omitted.)
84
The Supreme Court thus approved what "the Courts of Appeals" had already done, without waiting for word from the high court, to change and adopt a new rule contrary to well established prior practice.
85
We are aware of no maritime law case where modified joint liability has been considered explicitly and rejected. Indeed, there are relatively few maritime cases where the question might even be raised. What is needed is a case with multiple tort-feasors and a plaintiff who is contributorily negligent. Often there may be third-party tort-feasors whose fault is not inquired about because they may be insolvent, or protected by some special immunity or not subject to jurisdiction, and the parties to the suit have simply assumed that the absent party's fault, if any, was irrelevant to their rights inter se.
86
In Gele v. Chevron Oil Co., 574 F.2d 243, 251 (5th Cir.1978), our Court simply stated that a contributorily negligent plaintiff could "collect all his damages from one party in the event he is unable to obtain the relative portion of damages from each party at fault." There was no discussion of alternative methods of apportioning fault. In Empire Seafoods, Inc. v. Anderson, 398 F.2d 204, 217 n. 21 (5th Cir.), cert. denied, 393 U.S. 983, 89 S.Ct. 449, 21 L.Ed.2d 444 (1968), we held that a contributorily negligent plaintiff could recover his damages from a single concurrent tort-feasor defendant. Again, however, no consideration was given to the notion of modified joint liability. In Drake Towing Co. v. Meisner Marine Construction Co., 765 F.2d 1060, 1067 (11th Cir.1985), the Eleventh Circuit held that a contributorily negligent plaintiff could "recover its entire damages, less that proportion attributable to its own fault" from one of two concurrent tort-feasors. Drake actually lends some support to the notion of modified joint liability because one of the tort-feasors was not a party and, therefore, it was held error to consider that tort-feasor's comparative share of fault. Instead, Drake held that only the negligence of the plaintiff and the party defendant could be considered. Id. at 1067, 1068 (alleged negligence of unjoined third party "irrelevant," and liability between plaintiff and defendant must be apportioned "without considering the negligence of" the unjoined third party).9
87
In Joia v. Jo-Ja Service Corp., 817 F.2d 908 (1st Cir.1987), a maritime case much like this, the First Circuit held a thirty percent negligent defendant jointly liable with a sixty-five percent negligent co-defendant for ninety-five percent of the total damages of the five percent negligent plaintiff. Joia viewed its choices as limited to either making each of the two defendants pay only its own percentage of the total fault of all three parties, or holding the two defendants both jointly liable for ninety-five percent of the plaintiff's total damages. The Court did not discuss modified joint liability. See id. at 915-17. Like us, the First Circuit in Joia found little direct authority on the question. However, it stated that "Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 99 S.Ct. 2753, 61 L.Ed.2d 521 (1979), though[ ] not controlling, states the admiralty rule applicable here." 817 F.2d at 916.
88
In Edmonds, a longshoreman brought a negligence action against the owner of the ship on which he was working. 33 U.S.C. Sec. 905(b). The jury found the plaintiff to be ten percent negligent and the shipowner twenty percent negligent. The plaintiff's employer, against whom the longshoreman's direct claim was barred by the Longshore and Harbor Workers' Compensation Act (LHWCA), 33 U.S.C. Sec. 901 et seq., was found to be seventy percent negligent. The question in Edmonds was whether the shipowner should be liable for only its own share of all fault, twenty percent, or whether it should be liable for ninety percent, its own twenty percent plus the employer's seventy percent share. The Supreme Court held that the shipowner must pay ninety percent of the plaintiff's damages. In Edmonds, the Supreme Court expressed its reluctance to upset the "delicate balance" struck by Congress between the rights of longshoremen, stevedores, and shipowners in the 1972 Amendments to the LHWCA. 99 S.Ct. at 2763. The Court observed that it dealt "with an interface of statutory and judge-made law." Id. at 2762. The Court noted various inequities that would prevail if the shipowner were liable only for its own twenty percent share of all negligence, id. at 2761, and thought its rule preferable to this alternative. The opinion does not address, much less reject, the possibility of applying the modified joint liability rule here advocated. It does not even acknowledge the existence of such a third approach.
89
Analysis of some of the language in Edmonds may be helpful. In introducing the questions before it, the Supreme Court stated:
90
"As that [admiralty] law had evolved by 1972, a longshoreman's award in a suit against a negligent shipowner would be reduced by that portion of the damages assignable to the longshoreman's own negligence; but, as a matter of maritime tort law, the shipowner would be responsible to the longshoreman in full for the remainder, even if the stevedore's negligence contributed to the injuries. This latter rule is in accord with the common law, which allows an injured party to sue a tortfeasor for the full amount of damages for an indivisible injury that the tortfeasor's negligence was a substantial factor in causing, even if the concurrent negligence of others contributed to the incident." Id., 99 S.Ct. at 2756 (emphasis added; footnotes omitted).
91
The expression "even if" introducing the concluding clause of each of the above sentences is suggestive of the Court's assumption that the negligence of the stevedore, or other third party, might normally be thought to reduce the liability of the shipowner (or other primary defendant). The phraseology is certainly at odds with any recognition of the idea that the stevedore's fault should be put into the equation to increase the percentage of fault for which the shipowner would otherwise be responsible to the negligent plaintiff. All the Court is saying is that the negligence of the stevedore does not decrease the responsibility of the shipowner. That is wholly consistent with modified joint liability.
92
In a footnote appended to the first sentence in the above passage, the Court remarked:
93
"We stated the common-law rule in The Atlas [93 U.S. 302, 23 L.Ed. 863 (1876) ] and adopted it as part of admiralty jurisprudence: 'Nothing is more clear than the right of a plaintiff, having suffered such a loss, to sue in a common-law action all the wrong-doers, or any one of them, at his election; and it is equally clear, that, if he did not contribute to the disaster, he is entitled to judgment in either case for the full amount of his loss.' " Edmonds, 99 S.Ct. at 2756 n. 7 (quoting The Atlas, 93 U.S. at 315) (emphasis added).
94
Obviously, this does not address the question of whether the plaintiff's negligence is to be compared to that of the (or each) defendant from whom he seeks recovery or to that of all concurrent tort-feasors collectively.
95
In a note called for at the conclusion of the above passage, the Court observed:
96
"A tortfeasor is not relieved of liability for the entire harm he caused just because another's negligence was also a factor in effecting the injury. 'Nor are the damages against him diminished.' Restatement [ (Second) of Torts], supra, Sec. 879, Comment a." 99 S.Ct. at 2756 n. 8.
97
The quoted passage tends to confirm this dissent's analysis that joint liability is not predicated on one tort-feasor's being liable for the wrongs of another, but rather on the concept that each tort-feasor is responsible for all the results of his own wrong, and that whether some third party--through fault or otherwise--also contributed thereto is simply irrelevant.10
98
In a subsequent footnote, Edmonds spoke to the problem of the absence of contribution:
99
[T]he general rule is that a person whose negligence is a substantial factor in the plaintiff's indivisible injury is entirely liable even if other factors concurred in causing the injury. Normally, the chosen tortfeasor may seek contribution from another concurrent tortfeasor. If both are already before the court--for example, when the plaintiff himself is the concurrent tortfeasor or when the two tortfeasors are suing each other as in a collision case like [U.S. v.] Reliable Transfer [Co., Inc.] [421 U.S. 397, 95 S.Ct. 1708, 44 L.Ed.2d 251 (1975) ]--a separate contribution action is unnecessary, and damages are simply allocated accordingly. But the stevedore is not a party and cannot be made a party here, so the Reliable Transfer contribution shortcut is inapplicable. Contribution remedies the unjust enrichment of the concurrent tortfeasor [citation omitted], and while it may sometimes limit the ultimate loss of the tortfeasor chosen by the plaintiff, it does not justify allocating more of the loss to the innocent employee, who was not unjustly enriched. [Citation omitted.] Our prior cases recognize that. Even before Reliable Transfer, we apportioned damages between vessels that collided and sued one another. Reliable Transfer merely changed the apportionment from equal division to division on the basis of relative fault. But we did not upset the rule that the plaintiff may recover from one of the colliding vessels the damage concurrently caused by the negligence of both." 99 S.Ct. at 2762 n. 30 (final emphasis in original).
100
Here again, the Court is addressing the question of whether the third party's fault can diminish the plaintiff's recovery from "the chosen tortfeasor." Again, the answer is "no." And "the innocent" plaintiff can recover all his damages from either tort-feasor. But, as before, the question of whose negligence the plaintiff's negligence is compared to is simply not adverted to or even recognized.
101
There is simply nothing in the language or reasoning of Edmonds which is inconsistent with modified joint liability. Admittedly, the result in Edmonds would have been otherwise under modified joint liability.11 But Edmonds was an LHWCA action, and as we have noted, this was given particular significance by the Court. Moreover, the modified joint liability approach was neither before the court nor even recognized by it. In these circumstances, I would be guided by the principle that "[i]t is not to be thought that a question not raised by counsel or discussed in the opinion of the court has been decided merely because it existed in the record and might have been raised or considered." United States v. Mitchell, 271 U.S. 9, 46 S.Ct. 418, 419-20, 70 L.Ed. 799 (1926). See also Webster v. Fall, 266 U.S. 507, 45 S.Ct. 148, 149, 69 L.Ed. 411 (1925).12
102
In sum, I agree with the First Circuit's Joia that Edmonds is not directly controlling outside of the LHWCA context. But I disagree with any implication from Joia--which itself did not even recognize the existence of the modified joint liability alternative--that Edmonds prevents this Court from adopting modified joint liability in the present case.
103
Admittedly, modified joint liability is inconsistent with the result or practice in some prior cases. I submit, however, that in a more real world sense there has been no really fixed and largely consistent or widespread conscious understanding or practice on the part of either bench or bar in this respect. Indeed, my impression is that, over the years, most plaintiffs' lawyers have not (absent some arguable vicarious liability theory) sought to secure findings on third-party fault in the thought that this will increase the percentage of negligence for which the target tort-feasor defendant would otherwise be responsible in the event the plaintiff is found contributorily negligent, and that in similar circumstances most damage suit defense counsel have not hestitated, on the basis of any such concern, to attempt to secure findings of third-party fault. I believe that modified joint liability is a reasonable, fair, and just rule which logically flows from and accommodates the interplay of the principles of comparative fault and the responsibility of each party for all the proximate results of his own delicts. The adoption of modified joint liability would represent interstitial legal evolution in the appropriate common-law tradition, a tradition that in the maritime context reaches to the present.
104
Accordingly, I respectfully dissent from part IVD of the majority opinion and from so much of its part VI(b) as holds Lumar liable for ninety percent, instead of 32/42nds, of Mrs. Simeon's loss of consortium damages.
105
KING, Circuit Judge, with whom JERRE S. WILLIAMS, Circuit Judge, joins specially concurring:
106
I concur fully in the majority opinion.
107
The majority opinion holds the defendants jointly and severally liable, to the extent of their respective liabilities, for Simeon's injuries. In dissent, Judge Garwood expresses his dissatisfaction with this result. Although Judge Garwood agrees that the liability of Smith and Lumar should not be entirely several, it is his opinion that Simeon's contributory negligence makes the "traditional" joint and several liability imposed in the majority opinion "inappropriate." According to Judge Garwood, what is appropriate--meaning, in his estimation, more fair and reasonable--is to determine each defendant's liability using a "modified" version of joint liability. I write separately to explain why, despite Judge Garwood's appeal to fairness and reasonableness, I cannot join with him in his attempt to implement modified joint liability in this case.
108
To understand why I reject Judge Garwood's proposal, it is necessary to first understand the changes that accepting his proposal would work and the backdrop against which those changes would be carried out. First, the changes: If all defendants are solvent, a plaintiff should, under both systems, finally recover the same amount--the total amount of the judgment minus that amount which represents the plaintiff's contributory negligence.1 A difference between the two systems when the defendants are solvent, however, comes in the manner in which recovery of this amount may be made. Under a traditional joint and several liability system, a plaintiff can recover from any defendant the entire amount which all of them owe him. But under the proposed system of modified joint liability, the amount that a plaintiff can recover from any one defendant is restricted by more than just the plaintiff's contributory negligence; it is also restricted by the relationship between the individual defendant's negligence and the plaintiff's contributory negligence. Therefore, under the system Judge Garwood proposes, a plaintiff can recover as a total from all defendants an amount equal to the entire judgment minus the plaintiff's contributory negligence, but cannot recover from any one defendant an amount more than "the same fraction that that defendant's negligence is of the total negligence of the plaintiff and that particular defendant." The system is implemented by entering judgment jointly in an amount which is less than the maximum amount for which any individual defendant is liable, and judgment severally for each defendant in an amount equal to the maximum that individual defendant owes (when measured by the "same fraction" comparison) minus the amount for which he has been found to be jointly liable.2
109
NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE
110
"Modifying" traditional principles of joint and several liability as Judge Garwood suggests, therefore, would work at least one clear change: Since a defendant's joint liability would become defined by a sum which is less than the total amount of the defendants' combined liabilities, a plaintiff could recover the total amount he is owed only by enforcing the judgment against each and every defendant. More importantly from Judge Garwood's point of view, this change would necessarily work a second change should any one defendant become insolvent (or for any other reason fail to pay its share of the judgment): A plaintiff would be unable to recover, even if he enforced the judgment against every remaining defendant, that which he could recover from any one remaining defendant under traditional joint and several liability--the total amount of the judgment minus that amount which represents the plaintiff's contributory negligence.
111
Understanding that modified joint liability alters the way in which a plaintiff collects his judgment and, in some cases, decreases the total amount of the judgment a plaintiff would finally receive, is, however, only the first step toward understanding the ramifications of the system Judge Garwood proposes. The second step is understanding the backdrop against which the modification would be played out. In this case, Simeon obtained recovery from Lumar and Smith under two separate and different theories. Following Judge Garwood's suggestion to adopt modified joint liability would, therefore, change the theory of liability and, consequently, the manner and amount of recovery for two categories of claims--Jones Act claims and general maritime claims. That concerns me. Simply put, I do not agree with Judge Garwood that we are free to modify the traditional rule of joint and several liability under the Jones Act or that we should modify it under general maritime law.
112
Judge Garwood finds the freedom to implement a modified system of joint liability in three basic propositions. First is the proposition that "[a]s an admiralty court we are not constricted by some comparative fault statute that might be construed to expressly or impliedly require traditional joint liability." Second is the proposition that "the Judiciary has traditionally taken the lead in formulating flexible and fair remedies in the law maritime." Third is the proposition that neither the Supreme Court nor this court has ever, in the process of adhering to traditional joint and several liability, specifically rejected the modified version proposed today. I, however, disagree with the truth of the first proposition and find less freedom in the second and third propositions than Judge Garwood does. I begin with the first proposition and Simeon's Jones Act claim.
113
The Jones Act, of course, gives a congressionally prescribed, statutory remedy to "[a]ny seaman who shall suffer personal injury in the course of his employment." 46 U.S.C.App. Sec. 688(a). In defining the scope of the remedy which the Jones Act affords, Congress specifically decreed that "all statutes of the United States modifying or extending the common-law right or remedy in cases of personal injury to railway employees shall apply." Id. Consequently, as the majority opinion explains, the Jones Act incorporates the Federal Employers' Liability Act ("FELA")--a statute whose federal rights are defined in part by the FELA's specific statutory provisions and in part by the common law. By incorporating the FELA into the Jones Act, the Supreme Court has explained, Congress meant that "those contingencies against which Congress has provided to ensure recovery to railroad employees should also be met in the admiralty setting." Cox v. Roth, 348 U.S. 207, 209, 75 S.Ct. 242, 244, 99 L.Ed. 260 (1955). One of the assurances of recovery which the FELA provides railroad employees is that "the fact that the employee may have been guilty of contributory negligence shall not bar a recovery, but the damages shall be diminished by the jury in proportion to the amount of negligence attributable to such employee...." 45 U.S.C. Sec. 53. In other words, the FELA expressly "imposes comparative fault principles by congressional enactment" and therefore, to meet the same contingencies for Jones Act plaintiffs, so does the Jones Act. Chotin Transp., Inc. v. United States, 819 F.2d 1342, 1350-51 n. 5 (6th Cir.1987); accord 1B S. Bellman, A. Jenner, B. Chase, J. Loo & H. Prival, Benedict on Admiralty Sec. 25 (7th ed. 1986); 2 M. Norris, The Law of Seamen Sec. 30:42 (4th ed. 1985). See also In re Roy Crook & Sons, Inc. v. Allen, 778 F.2d 1037, 1040 (5th Cir.1985) (holding that "Section 53 of the FELA is part of the Jones Act"); Neal v. Saga Shipping Co., S.A., 407 F.2d 481, 485 (5th Cir.), cert. denied, 395 U.S. 986, 89 S.Ct. 2143, 23 L.Ed.2d 775 (1969) (same).
114
Because of section 53 of the FELA, I cannot agree with Judge Garwood's assertion that we are not, in this case, faced with a comparative fault statute and, therefore, are not constricted from modifying the traditional rule of joint and several liability; with respect to the Jones Act claim, we are faced with a comparative fault statute and, I think, one that is very constricting. Section 53 of the FELA explicitly expresses Congress' intent that a plaintiff should recover the total amount of the judgment minus only that amount which represents the plaintiff's contributory negligence, with no exception made for cases in which one or more defendants either do not or cannot pay their share of the judgment. As I explained above, one change which Judge Garwood's "modified" system of joint liability would work--in fact, the change which it is specifically designed to work--would be to diminish, when a defendant does not pay, a contributorily negligent plaintiff's recovery below the point the statute provides. It is clear to me, therefore, that Judge Garwood's system would alter the assurance of recovery to Jones Act plaintiffs which Congress provided by incorporating the FELA into the Jones Act. Under my understanding of this court's role in our tripartite system of government, we simply cannot--when it would undermine that which Congress specifically chose to do--do that which Congress failed to do.
115
Even if the FELA's comparative fault provision did not stay my hand in modifying traditional joint and several liability under the Jones Act, I would still find it necessary to reject Judge Garwood's proposal with respect to that claim. As the majority opinion explains, unless the FELA dictates otherwise, the Jones Act is construed in accord with the common law. Without the statutory impediment of section 53, therefore, the issue would shift from whether our role as an enforcer of congressional intent prevents us from modifying the principles of joint and several liability under the Jones Act to whether principles of stare decisis cut off the course Judge Garwood would have us take. That issue is resolved, I find, by a fair reading of the Supreme Court's decision in Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 99 S.Ct. 2753, 61 L.Ed.2d 521 (1979).
116
Edmonds was a longshoreman; he was injured while unloading cargo for a shipowner who had contracted with Edmonds' employer, a stevedoring concern, for Edmonds' work. Because of the injury, Edmonds received benefits from his employer under the Longshore and Harbor Workers' Compensation Act ("LHWCA"). He also sued the shipowner for negligence under 33 U.S.C. Sec. 905(b), a provision of the LHWCA added by Congress in 1972 to specifically authorize such suits. At trial, the jury returned the following verdict: Total damages to Edmonds were $100,000; responsibility for those damages was divided between Edmonds (10%), the employer (70%), and the shipowner (20%). The district court implemented the verdict by reducing Edmonds' recovery by his own negligence (10%). The court could not, however, permit Edmonds to recover any of the judgment from the employer--the employer was not a party to the suit because the LHWCA specifically limited its liability. Therefore, despite the fact that the shipowner was only 20% responsible for Edmonds' injuries, the district court held the shipowner responsible for the remaining 90% of Edmonds' damages. The shipowner appealed, finally reaching the United States Supreme Court.
117
To the Court, the shipowner made two arguments: (1) that in the process of specifically authorizing negligence suits against shipowners through the LHWCA's 1972 amendments, Congress limited a shipowner's liability to only that proportion of plaintiff's damages which the shipowner actually caused--in this case, 20%; and (2) that even if Congress did not decree proportionate liability, the Supreme Court should, using its authority to fashion general maritime law, limit the shipowner's liability to its proportionate share of the longshoreman's damages. The Supreme Court began its examination of the arguments by remarking that "[a]dmiralty law is judge-made law to a great extent" and that prior to 1972, a longshoreman's negligence action against a shipowner was recognized by general maritime law, not by statute. Id. at 259-60, 99 S.Ct. at 2755-56. The way in which general maritime law fashioned an injured plaintiff's recovery prior to 1972, the Court explained, was decided when the Supreme Court added traditional joint and several liability to that body of law in 1876:
118
We stated the common-law rule in The Atlas and adopted it as part of admiralty jurisprudence: "Nothing is more clear than the right of a plaintiff, having suffered such a loss, to sue in a common-law action all the wrong-doers, or any one of them, at his election; and it is equally clear, that, if he did not contribute to the disaster, he is entitled to judgment in either case for the full amount of his loss."
119
Id. at 260 n. 7, 99 S.Ct. at 2756 n. 7 (quoting The Atlas, 93 U.S. 302, 315, 23 L.Ed. 863 (1876)). Importantly, although The Atlas was not a case in which the plaintiff was contributorily negligent in causing the injury for which recovery was sought from the defendants, the Court made it clear that a plaintiff's contributory negligence had never changed the traditional rule:
120
As [admiralty law] had evolved by 1972, a longshoreman's award in a suit against a negligent shipowner would be reduced by that portion of the damages assignable to the longshoreman's own negligence; but, as a matter of maritime tort law, the shipowner would be responsible to the longshoreman in full for the remainder, even if the stevedore's negligence contributed to the injuries. This latter rule is in accord with the common law, which allows an injured party to sue a tortfeasor for the full amount of damages for an indivisible injury that the tortfeasor's negligence was a substantial factor in causing, even if the concurrent negligence of others contributed to the incident.
121
Id. at 259-60, 99 S.Ct. at 2755-56.
122
After establishing the state of the law prior to the LHWCA's 1972 amendments, the Court turned its attention to the amendments themselves and their effect on the judicially-created doctrine of joint and several liability; an analysis of the amendments led the Court to conclude that Congress had not upset the " 'long-established and familiar principl[e]' of maritime law by imposing a proportionate-fault rule." Id. at 263, 99 S.Ct. at 2758. The Court moved, therefore, to the remaining issue: whether it was "free to and should change [the shipowner's] role so as to make the vessel liable only for the damages in proportion to its own negligence" when a longshoreman sues the vessel owner for negligence under the LHWCA. Id. at 271, 99 S.Ct. at 2762. To this question, the Court answered "no":
123
Though we recently acknowledged the sound arguments supporting division of damages between parties before the court on the basis of their comparative fault, see United States v. Reliable Transfer Co., 421 U.S. 397 [95 S.Ct. 1708, 44 L.Ed.2d 251] (1975), we are mindful that here we deal with an interface of statutory and judge-made law.... By now changing what we have already established that Congress understood to be the law, and did not itself wish to modify, we might knock out of kilter this delicate balance. As our cases advise, we should stay our hand in these circumstances. Once Congress has relied upon conditions that the courts have created, we are not as free as we would otherwise be to change them. A change in the conditions would effectively alter the statute by causing it to reach different results than Congress envisioned.
124
Id. at 271-72, 99 S.Ct. at 2762 (footnote and citations omitted).
125
These passages from Edmonds explain why I believe that more than section 53 of the FELA constrains this court from modifying the traditional rule of joint and several liability in the Jones Act context.3 The Supreme Court set down in Edmonds a general principle that I, as a member of an inferior court, am obliged to follow: Even though the judiciary has the power to alter the common law of admiralty, it should not use that power to change traditional rules of liability, and specifically the traditional rule of joint and several liability, when to do so would affect an "interface of statutory and judge-made law"--that is, a statute whose provisions are defined in part by Congress and in part by the common law of admiralty. That the principle applies in this case just as it did in Edmonds is, to me, beyond doubt. We are focused, of course, on the same traditional rule which concerned the Court in Edmonds. In addition, we deal with an "interface of statutory and judge-made law" as surely as did the Court in Edmonds; the only difference--and it is a difference without distinction--is that here, common law and statutory law interface within the structure of the Jones Act instead of within the LHWCA. Nor, as we explained above, can there be any doubt that the modification which Judge Garwood proposes changes the law of joint and several liability; as would have been the case by adopting proportionate liability in Edmonds, therefore, by adopting Judge Garwood's proposal, this court would be changing what "Congress understood to be the law" and effectively altering a statute "by causing it to reach different results than Congress envisioned." As I read Edmonds, that we cannot do.
126
It is clear from his dissent, however, that Judge Garwood has a different opinion about the reach of Edmonds than I do. While I focus on the general principle which led the Court to its conclusion in Edmonds, Judge Garwood focuses on the conclusion without reference to the general principle. The precise holding of Edmonds, Judge Garwood points out, is simply that a court cannot apply a proportional liability rule in place of joint and several liability in an LHWCA action for negligence brought by a longshoreman against a shipowner. That holding, Judge Garwood says, does not confine us here. More specifically, Judge Garwood argues, since negligence claims under the LHWCA are the only claims explicitly discussed in Edmonds, Edmonds says nothing about negligence claims under the Jones Act. Similarly, since replacing traditional joint and several liability with proportional liability was the only action the Supreme Court specifically forbade courts from taking, Edmonds does not prevent courts from abandoning traditional joint and several liability in favor of the modified joint liability theory Judge Garwood urges. There is a problem, I think, with Judge Garwood's attempt to limit Edmonds by distinguishing its facts and ignoring, without distinguishing, its governing principles: the concept of stare decisis, as it relates to the duty which inferior courts owe to the decisions of the Supreme Court, does not permit it. See Hutto v. Davis, 454 U.S. 370, 374-75, 102 S.Ct. 703, 705-06, 70 L.Ed.2d 556 (1982). As Judge Higginbotham recently explained:
127
Obedience by inferior courts to the command of the Supreme Court is essential to the administration of our complex court structure. For the Supreme Court to fulfill its unique role set by Article III, the federal system simultaneously must encourage candid expression by inferior courts while demanding acceptance of the Supreme Court's role as the final arbiter.... As an inferior court we must not allow our version of a "correct" result to deceive us into semantic games of reformulation and hair splitting in order to escape the force of a fairly resolved issue.
128
The notion that as an inferior court we are free to strip content from principle by confining the Supreme Court's holding to the precise facts before it is a heady assertion indeed; that notion ignores our role. Our duty to the Supreme Court precedent is broader than our duty to abide our own precedent and that of courts on our level. When the duty of obedience flows horizontally and not vertically, a later court may appropriately after due regard for our necessary dependence upon panel harmony in a multi-panel court and to the values of stare decisis such as predictability and settlement of expectation, confine the first case to its facts by concluding, in the words of Karl N. Llewellyn, that: "This rule holds only to redheaded Walpoles in pale magenta Buick cars." Our duty is different when the reach of precedent is vertical.
129
Bhandari v. First Nat. Bank of Commerce, 829 F.2d 1343, 1352 (5th Cir.1987) (en banc) (Higginbotham, J., specially concurring). I believe the principle which led the Court in Edmonds to refrain from tampering with the rule of traditional joint and several liability under the LHWCA applies equally to the Jones Act claim Simeon has brought before us. Consequently, since the modification to the existing rule of joint and several liability which Judge Garwood proposes is contrary to that principle, I reject--as I must--the modification with respect to Simeon's Jones Act claim.
130
Along with his Jones Act claim against Smith, however, Simeon brought a general maritime claim against Lumar. This general maritime claim, being of purely judicial creation, is not subject to the statutory constraints--or, therefore, the stare decisis restraints which grew out of statute-related concerns--that I believe prevent this court from changing the rule of traditional joint and several liability under the Jones Act. In fact, as Judge Garwood points out, this court's power to modify general maritime law is great; instead of asking whether we can modify the traditional rule of joint and several liability, therefore, the question with respect to Simeon's general maritime claim is whether we should modify the traditional rule as Judge Garwood suggests. Judge Garwood argues in favor of modified joint liability because it is "a reasonable, fair, and just rule which logically flows from and accommodates the interplay of the principles of comparative fault and the responsibility of each party for all the proximate results of his own delicts." There exists, however, no unequivocal measure of what is reasonable, fair, and just. Consequently, a statement that a rule of law is reasonable, fair, or just is simply a reflection that the rule advances a policy that the person judging the rule advocates. It is, therefore, to support a particular policy that Judge Garwood proposes today that we modify the traditional rule of joint and several liability under general maritime law; however, because I am unconvinced that the policy Judge Garwood advocates should be given priority over the policy the traditional rule presently advances, I reject the modification at this time.
131
The policy Judge Garwood advocates is that each party--including a contributorily negligent plaintiff and all joint tortfeasor defendants--should ultimately bear, to the extent possible, responsibility only for the proximate results of its own transgressions. I do not doubt that modified joint liability furthers that policy better than traditional joint and several liability does. As Charles O. Gregory, who first proposed the modified system fifty years ago explained, modified joint liability distributes among the contributorily negligent plaintiff and each remaining defendant, in proportion to the fault the plaintiff and each defendant bear to each other, the risk that any joint tortfeasor will be insolvent--something traditional joint and several liability does not do. See C. Gregory, Legislative Loss Distribution in Negligence Actions 142 (1936). The policy Judge Garwood would advance through modified joint liability, however, is fundamentally at odds with a competing policy that the traditional rule of joint and several liability furthers--that of ensuring that injured plaintiffs are made whole. Traditional joint and several liability furthers this policy, as Justice Blackmun observed in Edmonds, by "protect[ing] plaintiffs from defendants who are unable to pay judgments entered against them." 443 U.S. at 275 n. 2, 99 S.Ct. at 2764 n. 2 (Blackmun, J., dissenting). The purpose of modified joint liability, of course, is to remove that protection. Consequently, since both policies cannot be simultaneously accommodated, a choice between the policies must be made.
132
To date, under general maritime, the policy of the Supreme Court has been clear--ensure that injured plaintiffs are made whole, even at the expense of overburdening defendants. See Edmonds, 443 U.S. at 271-72 n. 30, 99 S.Ct. at 2762 n. 30 ("[T]he general rule is that a person whose negligence is a substantial factor in the plaintiff's indivisible injury is entirely liable even if other factors concurred in causing the injury.... Contribution remedies the unjust enrichment of the concurrent tortfeasor, and while it may sometimes limit the ultimate loss of the tortfeasor chosen by the plaintiff, it does not justify allocating more of the loss to the innocent employee, who was not unjustly enriched."). Because the Supreme Court has never questioned the wisdom of the traditional rule of joint and several liability, nor retreated from the policy behind the rule, the choice of the courts of appeals has also been clear: They have refused to limit a contributorily negligent seaman's recovery of damages under general maritime law to an amount less than an amount which will make the seaman whole--that is, the total amount of the judgment minus only that amount which represents the seaman's contributory negligence. See, e.g., Self v. Great Lakes Dredge & Dock Co., 832 F.2d 1540, 1545-48 (11th Cir.1987) (holding that "the philosophy governing Edmonds is clear: any inequity which results from the implementation of a seaman's damage award should be borne by the tortfeasors rather than the seaman himself," even where the seaman was contributorily negligent); Joia v. Jo-Ja Serv. Corp., 817 F.2d 908, 916-17 (1st Cir.1987) (rejecting proportionate liability under both the Jones Act and general maritime law because of the "inequity" which would result from decreasing a contributorily negligent seaman's damages).
133
It actually comes as no surprise to me that both the Supreme Court and the circuit courts have aligned themselves with a policy of ensuring a seaman's full recovery, regardless of the burden it places upon maritime defendants. That policy coincides with the general policy which has long guided the course of maritime law as it relates to the rights of seamen: "Seamen, of course, are wards of admiralty whose rights federal courts are duty-bound to jealously protect." Bass v. Phoenix Seadrill/78 Ltd., 749 F.2d 1154, 1160-61 (5th Cir.1985); see, e.g., Vaughan v. Atkinson, 369 U.S. 527, 531-33, 82 S.Ct. 997, 999-1001, 8 L.Ed.2d 88 (1962); Garrett v. Moore-McCormack Co., 317 U.S. 239, 244-48, 63 S.Ct. 246, 250-52, 87 L.Ed. 239 (1942). Support for the traditional rule of joint and several liability comes from more, therefore, than just a tort policy of making plaintiffs whole; it comes also from a more general policy under maritime law of favoring and protecting seamen. While the traditional rule is, therefore, fully consonant with general maritime law, the rule of modified joint liability--supported, as it is, by a policy which eschews the protectionism that general maritime law embraces--is in conflict with the maritime law's general philosophy concerning seamen's rights. To choose the rule of modified joint liability over the rule of traditional joint and several liability, therefore, would be to choose to break from that general philosophy. While I do not dispute that this court has the power to so change the course of maritime law, I have to think that such a major change should not be undertaken without any indication that our historical concern for protecting seamen has become obsolete--and I am not alone in my opinion. Recently, the Eleventh Circuit declined the opportunity to make a similar change in the policy of general maritime law with a simple explanation:
134
[T]he general goal of maritime law is to provide quick and full compensation to the injured seaman, while leaving the primary litigation dispute to the question of which joint tortfeasor is liable for what percentage of the damage. Historically maritime law has treated seamen as in need of special protection; until the Supreme Court suggests otherwise, we cannot move away from that special protection to an arguably more "efficient" system in which an injured seaman is viewed as an equal party with equal bargaining power.
135
Self, 832 F.2d at 1548. Judge Garwood's dissent points me to no opinion other than his own which suggests that our policy of protecting seamen has lost its force. Therefore, I decline Judge Garwood's call for this court to modify the general maritime law by replacing traditional joint and several liability, and the policies it reflects, with modified joint liability, and the policies it reflects.
136
Having explained why I cannot agree to modify the Jones Act and will not agree to modify general maritime law as Judge Garwood's dissent suggests, I make one final point. As Judge Garwood concedes, none of the parties ever advanced the theory of modified joint liability Judge Garwood's dissent proposes. We have a general rule in this circuit against addressing arguments that have not been raised either to us or to the district court.4 Part of the justification for that rule is that, to borrow from Justice Blackmun, "the adversary process functions most effectively when we rely on the initiative of lawyers, rather than the activism of judges," to raise and address issues. New Jersey v. T.L.O., 468 U.S. 1214, 1216, 104 S.Ct. 3583, 3585, 82 L.Ed.2d 881 (1984) (dissenting from order directing reargument). Were I not otherwise convinced that we should not adopt modified joint liability at this time, therefore, I would still refrain from joining Judge Garwood's entreaty. I could not sanction the adoption of an admittedly novel and assuredly complex theory which dramatically changes existing law when that theory has bypassed the adversary process altogether. Which means, as far as I am concerned, that this panel's debate over Judge Garwood's theory--a debate which first surfaced eight months after the case had been orally argued and which has occupied the members of this panel for six more months thereafter--has been purely an academic exercise. In a non-maritime case, such an unnecessary delay in resolving the parties' dispute would be regrettable; in this maritime personal injury case, where a seaman is still waiting, seven years after his injury, for the compensation to which he is entitled, it is unacceptable. By saying this, I do not mean to impugn the motives of any member of this panel. Indeed, only judges with the best of motives would have expended the time and effort represented by the various opinions in this case. But what we have been engaged in here has greatly disserved the interests of the litigants in this case, and that is a result even the highest motives cannot justify.
1
The limitations period applicable to Jones Act claims is three years. 45 U.S.C. Sec. 56 (Federal Employers' Liability Act limitations period applicable to Jones Act); Albertson v. T.J. Stevenson & Co., 749 F.2d 223, 228 (5th Cir.1984). No set limitations period governs maritime claims. Instead, the doctrine of laches is applied with a presumption that the claim is barred if filed past the Jones Act limitations period. Albertson, 749 F.2d at 233; Watz v. Zapata Off-Shore Co., 431 F.2d 100, 111 (5th Cir.1970)
2
Before trial, the parties stipulated both to Simeon's seaman status and that his lost past ($126,403.50) and future ($43,500) wages totaled $169,903.50. The parties also stipulated that Smith's insurer had paid, at date of trial, (1) $73,416 of this sum (leaving a balance of $96,487.50, consisting of $52,978 past and $43,500 future wages); (2) all of Simeon's medical expenses (cure) incurred to date of trial ($51,457.47); and (3) $12,880 in maintenance. Therefore, the only damages as to which findings were sought at trial were for (1) Simeon's past and future pain, suffering, loss of enjoyment of life, disablement, and disfigurement; (2) his future medical expenses; and (3) Mrs. Simeon's claim for loss of consortium
3
Although there was not complete diversity between the parties, it is settled that an unseaworthiness claim when combined with a Jones Act claim is likewise triable to the jury even in the absence of diversity. Cruz v. Hendy International Co., 638 F.2d 719, 723 (5th Cir.1981); Smith v. Atlas Off-Shore Boat Service, Inc., 653 F.2d 1057, 1064 (5th Cir.1981). In his complaint, Simeon requested "trial by jury of all matters cognizable before a jury."
4
Smith was covered by a $500,000 liability insurance policy issued by Midland Insurance Company. Midland had already paid Simeon, on behalf of Smith, $137,753.47 in lost wages, maintenance, and medical expenses (cure). This left $362,246.53 in unpaid coverage. As to Smith's liability, the district court ordered Smith and Midland liable in solido for the amount of remaining coverage and then held Smith separately liable for the $146,116.22 remainder of the total $508,362.75 award against it
The district court also gave Smith judgment over against Lumar for thirty-two percent of the referenced $137,753.47 pretrial payments made on behalf of Smith to Simeon; no party makes any complaint of this on appeal.
5
Shortly before trial, Lumar's insurer, Glacier General Insurance Company, was ordered liquidated by a Montana state court. Thus, Lumar apparently has no insurance coverage for its liability
6
The district court made a slight miscalculation. Thirty-two percent of $576,489.50 is $184,476, not $184,576 as the district court stated. We will treat the judgment as being for $184,476
7
It is useful to examine verdicts rendered in other cases involving similar injuries. See Zeno, 803 F.2d at 181-82; Caldarera, 705 F.2d at 785. But see Allen v. Seacoast Products, Inc., 623 F.2d 355, 364 (5th Cir.1980) (citing Fifth Circuit precedent for proposition that comparison of verdicts in other cases is not a satisfactory manner for determining excessiveness in particular case); see generally Wakefield v. United States, 765 F.2d 55, 59 (5th Cir.1985) (collecting conflicting cases and concluding that "[c]ommon sense dictates ... that reference to other awards is more or less useful"). Following is a sampling of the cases we examined involving somewhat comparable injuries:
a. Noel v. Geosource, Inc., 585 F.Supp. 487 (E.D.La.1984) (damages fixed by court). Injury: foot crushed when trapped between dock and moored barge; severe fractures, complications from burn fragmentation, traumatic arthritis. Award: $130,000 for past and future pain and suffering, mental suffering, and physical disability.
b. Fisher v. Danos, 595 F.Supp. 461 (E.D.La.1984) (damages fixed by court), aff'd by unpublished opinion, 774 F.2d 1158 (5th Cir.1985). Injury: passenger in skiff suffered open fracture of right leg between knee and ankle, fracture of left leg and hip, fracture of collarbone; portion of left femur was removed to equal height of legs. Award: $200,000 for general damages including pain and suffering.
c. Musial v. A & A Boats, Inc., 696 F.2d 1149 (5th Cir.1983) (damages fixed by court). Injury: oil platform cook suffered crushed heel necessitating fourteen operations culminating in the amputation of his leg. Award: $460,616.33 in total, presumably including some amount for pain and suffering.
d. Harper v. Zapata Off-Shore Co., 563 F.Supp. 576 (E.D.La.1983) (damages fixed by jury), rev'd, 741 F.2d 87 (5th Cir.1984). Injury: seaman suffered severe back injury requiring two laminectomy operations. Award: $1,000,000 compensatory damages, which included about $485,000 for pain and suffering. See 741 F.2d at 93. On appeal, we remitted this amount by $200,000. Id.
e. Robert v. Conti Carriers & Terminals, Inc., 692 F.2d 22 (5th Cir.1982) (damages fixed by jury). Injury: while loosening shore line, deckhand suffered partially disabling injuries to hands necessitating twenty-three days' hospitalization and six operations. Award: about $115,000 in pain and suffering.
f. James v. River Parishes Co., 686 F.2d 1129 (5th Cir.1982) (damages fixed by court). Injury: deckhand suffered painful initial injuries in vessel collision and required physical therapy ("including painful nerve root conduction studies," id. at 1133), surgery, and had to wear a leg and foot brace for remainder of his life. Award: $200,000 for pain and suffering.
g. Shows v. Jamison Bedding, Inc., 671 F.2d 927 (5th Cir.1982) (damages fixed by jury). Injury: auto accident victim suffered broken arm, fractured and dislocated wrist, broken rib, concussion, deep scalp wound, required bone graft, permanently disabled, would suffer pain. Award: $600,000, about $500,000 of which was for pain and suffering.
h. Brown v. Penrod Drilling Co., 534 F.Supp. 696 (W.D.La.1982) (damages fixed by court). Injury: seaman struck by joint of casing suffered facial hemorrhages, two skull fractures, shoulder separation, paralysis on left side of face, loss of hearing in one ear; hospitalized sixteen days, four surgeries required. Award: $75,000 pain and suffering.
8
The entire testimony on this point is as follows:
"Q. Doctor, if you were to have to perform additional surgery to fuse that ankle for Mr. Simeon, what, approximately, would that cost in surgical fees and hospitalization?
"A. Probably the fees will be around 1500, the surgeon's fees with assistance and he will have to stay in the hospital about two weeks.
"Q. What are hospitals costing nowadays, for that kind of operation?
"A. You probably will have to count about $400.00 a day, meaning plastic, plus surgical fees, plus anesthesia fees, et cetera. You are talking about probably $10,000.00. Again, probably, that's just off the top of my head. I am not expert on that. I don't know, the cost of hospitals continues to rise, so I don't know."
The physician also testified that he had previously advised Simeon to return for a follow-up visit at a time after trial. Simeon testified that his doctor had instructed him to return for office visits once every two months. The frequency of Simeon's visits had declined markedly since his injury, and there was no evidence of the cost of these visits.
9
Liability in collision cases arises from a finding of fault. See, e.g., The Atlas, 93 U.S. at 310, 23 L.Ed. at 865; The Washington, 76 U.S. at 514, 19 L.Ed. at 788; The Alabama, 92 U.S. at 695, 23 L.Ed. at 763
10
Though many early admiralty cases involve cargo and vessel damages arising from collisions, see cases described in text, or injuries to seamen arising from vessel unseaworthiness, see generally Dixon v. United States, 219 F.2d 10, 12-16 (2d Cir.1955) (per Harlan, J.) (discussing historical evolution of unseaworthiness recovery), as early as 1882 the Supreme Court had recognized a maritime tort for personal injury unrelated to collision or unseaworthiness. Leathers v. Blessing, 105 U.S. 626, 26 L.Ed. 1192 (1882) (business visitor on vessel recovers for personal injury caused by negligently stowed cotton bale). In modern times, the general maritime claim for negligence is ubiquitous
11
In holding the defendants in this case severally and not jointly liable, the district court relied on Leger v. Drilling Well Control, Inc., 592 F.2d 1246 (5th Cir.1979), and Bass v. Phoenix Seadrill/78, Ltd., 749 F.2d 1154 (5th Cir.1985). Neither of those maritime cases purports to eliminate the well established maritime rule of joint liability. Leger stands for the proposition that when a named defendant concurrent tort-feasor settles, the nonsettling concurrent tort-feasor found liable at trial is not responsible for any sum representing the settling tort-feasor's share of blame (but is also not entitled to a credit representing amounts paid by the settling defendant in excess of that defendant's share of fault). In Bass, a joint tort-feasor defendant settled prior to trial for $50,000 less than it would have had to pay after trial based on its percentage share of liability. Judgment against the remaining joint tort-feasors was for only their respective shares of liability, and not for any amount representing the settling tort-feasor's percentage share of liability. Id. at 1157. The question of joint liability was not raised in Bass, but the case is consistent with Leger. The rule of Leger and Bass is not really an exception to joint liability because the liability share of the settling defendant tort-feasor has been actually paid and discharged prior to trial; the court simply does not concern itself with the amount of the payment, but only with the discharge of the liability share. When plaintiff settles with a defendant, he risks getting less than he would at trial--the remaining defendants should not have to cover that risk. Similarly, the remaining defendants should not benefit from plaintiff's risktaking if plaintiff gets more in settlement than he would have at trial from the settling defendant. The Leger/Bass rule (the appropriateness of which we do not question) does not apply in this case because no tort-feasor settled
12
Otherwise stated, Simeon (if he accepts our remittiturs) has a total judgment of $635,838.75 (ninety percent of $706,487.50, his total damages against Smith as remitted) for all of which Smith is liable to Simeon, but for only $500,838.75 (ninety percent of $556,487.50, Simeon's total damages against Lumar as remitted) of which is Lumar liable to Simeon
The amounts stated in the text (and in the foregoing sentence) do not include prejudgment interest. As explained in part VII, infra: Simeon is not entitled to recover prejudgment interest from Smith, but is entitled to recover from Lumar appropriate prejudgment interest on so much of the $500,838.75 for which Lumar is jointly and severally liable as represents damages accrued pretrial, and Lumar is not entitled to contribution from Smith in respect to such prejudgment interest.
Otherwise, contribution between Lumar and Smith is based on their respective percentages of negligence (thirty-two percent for Lumar; fifty-eight percent for Smith) applied to the damages for which they are jointly and severally liable. Hence, with respect to the said principal amounts for which Simeon will have judgment (assuming acceptance of our remittiturs), Lumar will be entitled to contribution from Smith for any portion thereof Lumar hereafter pays Simeon in excess of $178,076 ($178,076 is 32/90ths of $500,838.75, the amount for which Lumar and Smith are jointly and severally liable); and Smith will be entitled to contribution from Lumar for any portion thereof Smith hereafter pays Simeon in excess of $457,762.75 (this $457,762.75 consists of the $135,000 for which Smith is solely liable, plus $322,762.75 which represents 58/90ths of the $500,838.75 for which Smith and Lumar are jointly and severally liable).
We disregard the pretrial payments made to Simeon by Smith (see notes 2 & 4, supra ) because they are not in issue on this appeal. Neither Lumar nor Smith questions the contribution award in favor of Smith and against Lumar for thirty-two percent of these payments (see note 4, supra ); nor has any party questioned the fact that for purposes of calculating and applying the credit due for these pretrial payments (which include $52,978 of the $126,403.50 wages lost by Simeon after the accident and prior to trial) no account was taken of Simeon's ten percent negligence. We accordingly affirm these rulings of the district court, and its contribution judgment for Smith against Lumar, respecting the pretrial payments.
13
Mrs. Simeon launches this argument because she cannot recover loss of consortium damages against Smith (her husband's Jones Act employer) under either the Jones Act or the general maritime law on the basis of Smith's negligence. Beltia v. Sidney Torres Marine Transport, Inc., 701 F.2d 491, 492-93 (5th Cir.1983); Cruz v. Hendy International Co., 638 F.2d 719, 723 (5th Cir.1981) (citing Fifth Circuit precedent). However, she can recover those damages from Smith on the basis of unseaworthiness under general maritime law. See American Export Lines, Inc. v. Alvez, 446 U.S. 274, 100 S.Ct. 1673, 64 L.Ed.2d 284 (1980). Mrs. Simeon would rather be able to collect her damages from Smith, which is insured and apparently solvent, than from Lumar, which is not insured and allegedly of questionable solvency
Mrs. Simeon also claims that she should be entitled to recover from Smith under the general maritime law for its negligence, although she recognizes that her claim is contrary to controlling precedent in this Circuit. Based on Beltia and Cruz, we reject her claim for such negligence-based recovery, either under general maritime law or the Jones Act, from her husband's Jones Act employer.
14
That Mrs. Simeon is properly chargeable with her husband's negligence is not questioned by her and is in accord with the weight of authority. See, e.g., W. Prosser & P. Keeton, Prosser & Keeton on The Law of Torts Sec. 125 at 937 (1984) ("[T]he courts generally have considered that the recovery of the spouse ... will be defeated or diminished by defenses which would bar or diminish that of the injured spouse.... Thus contributory negligence ... on the part of the injured person has been held to defeat recovery, or, in comparative negligence states, to reduce it." (Footnotes omitted.)); F. Harper, F. James, O. Gray, 3 The Law of Torts Sec. 8.9 at 555 n. 17 (2d ed. 1986) ("[W]here the doctrine of comparative negligence obtains, most courts have similarly reduced the award for loss of consortium by the percentage of negligence attributed to the physically injured spouse."); A.L.I., Restatement (Second) of Torts Sec. 494 & comment c; Annot., Negligence of Spouse or Child as Barring or Reducing Recovery for Loss of Consortium by Other Spouse or Parent, 25 A.L.R. 4th at 118 (1983); Choctaw, Inc. v. Wichner, 521 So.2d 878 (Miss.1988). To say that the loss of consortium action by the spouse not physically injured is independent is not the same as saying that it is not derivative of the injured spouse's right of action. See Whittlesey v. Miller, 572 S.W.2d 665, 667 (Tex.1978)
15
This traditional view is not accepted by all jurisdictions. Some courts have permitted contribution in favor of a "concurrent" tort-feasor even where the tort-feasor from whom contribution is sought could not have been directly liable to plaintiff. F. Harper, F. James, O. Gray, supra, Sec. 10.2 at 47-50; see also Annot., Modern Status of Effect of State Workmen's Compensation Act on Right of Third-Person Tortfeasor to Contribution or Indemnity from Employer of Injured or Killed Workman, 100 A.L.R.3d 350 (1980) (collecting workers' compensation cases permitting and denying contribution); Annot., Right of Tortfeasor to Contribution from Joint Tortfeasor Who is Spouse or Otherwise in Close Familial Relationship to Injured Party, 25 A.L.R. 4th 1120 (1983) (collecting family immunity cases permitting and denying contribution)
16
Particularly in view of the substantial delay in filing suit, and the fact that the case was not tried for more than a year thereafter, the district court on remand should also consider the date or dates from which prejudgment interest should commence to accrue on the various items of damages which had been incurred and accrued by the time of trial. It seems plain that some of these items were not accrued or incurred until a substantial time after the injury (for example only, some of the unpaid pretrial wages)
17
On remand, the district court shall fix the time and manner within and by which Simeon may accept the remittiturs we have ordered; on failure to so accept them, a new trial shall be ordered
1
It is recognized that neither Smith nor Lumar has advanced the theory urged in this opinion. Yet I believe that the question--which is purely one of law and is plain on the face of the record--is properly before the panel. Simeon, by cross-appeal (clearly motivated by fears of Lumar's insolvency), challenges the district court's limitation of his recovery against Smith to fifty-eight percent of his total damages. We properly find this limitation is in error and we must accordingly tell the district court what the appropriate percentage is. Surely we will not tell the district court to apply what we believe to be a legally erroneous percentage. Similarly with respect to the loss of consortium claim, Lumar appeals, contending that assessing it ninety percent of the damages was error, in light of the negligence percentages found. If we conclude that Lumar is correct--that, as it claims, ninety percent is too much--then it makes little sense to affirm simply because Lumar has sought too great a reduction--to thirty-two percent rather than to 32/42nds
2
I do not address the appropriateness of such a comparison where its purpose is to determine whether, under a modified comparative fault regime, the plaintiff's contributory negligence is sufficiently great to bar all recovery, or all recovery from a particular one of several defendants. See, e.g., Mountain Mobile Mix, Inc. v. Gifford, 660 P.2d 883, 886-87 (Col.1983) (reviewing authorities on this point)
3
B's sole liability for five percent ($5,000) of A's total damages is arrived at by subtracting C's seventy-five percent ($75,000) maximum exposure percentage from A's eighty percent ($80,000) maximum recovery percentage. Similarly, C's sole liability for thirty percent ($30,000) of A's total damages is calculated by subtracting B's fifty percent ($50,000) maximum exposure percentage from A's eighty percent ($80,000) maximum overall recovery percentage. The forty-five percent ($45,000) of A's total damages for which B and C are jointly and severally liable is calculated by subtracting the sum of B's five percent ($5,000) sole liability and C's thirty percent ($30,000) sole liability--which aggregate thirty-five percent ($35,000)--from A's eighty percent ($80,000) maximum overall recovery (eighty minus thirty-five equals forty-five)
4
B's entitlement to contribution from C for payments by B in excess of twenty percent ($20,000) of A's total damages corresponds to B's percentage (twenty percent) of the combined fault of A, B, and C. Similarly, C's entitlement to contribution from B for payments by C in excess of sixty percent ($60,000) of A's total damages corresponds to C's percentage (sixty percent) of the combined fault of A, B, and C. This is no different than contribution under conventional joint liability
5
The (A), (B), and (C) amounts are calculated as follows:
(A) The $26,187.65, for which Lumar is solely responsible, constitutes the difference between (i) the $500,838.75, which represents the ninety percent maximum that Simeon is entitled to recover from all sources out of the $556,487.50 total damages common to both the Smith and Lumar claims, and (ii) the $474,651.10, representing the maximum portion (58/68ths) of that $556,487.50 for which Smith could be responsible to Simeon ($500,838.75 minus $474,651.10 equals $26,187.65).
(B) The $204,789.49, for which Smith is solely responsible, is calculated in three steps. First, with respect to the $150,000 total Simeon damages which are entirely inapplicable to the claim against Lumar, Smith (and Smith alone) is responsible to Simeon for $127,941.18, which is 58/68ths thereof. Second, the amount of $76,848.31 is calculated with reference to the $556,487.50 total damages common to the Smith and Lumar claims; Simeon is entitled to recover ninety percent of this $566,487.50, or $500,838.75, from all sources, and up to $423,990.44 thereof (32/42nds) from Lumar. The $76,848.31 represents the difference between the $423,990.44 (the maximum recoverable from Lumar) and the $500,838.75 (the maximum recoverable from all sources respecting the $556,487.50). Third, the $127,941.18 (step one) and the $76,848.31 (step two) are added together to give the total of $204,789.49 awarded against Smith alone.
(C) As to Lumar, this $397,802.79 for which it has joint liability with Smith, represents the difference between Lumar's maximum potential liability to Simeon of $423,990.44 (32/42nds of the total $556,487.50 Simeon damages in the Lumar claim) and the $26,187.65 ((A) above) for which Lumar alone is liable. As to Smith, this $397,802.79 for which it has joint liability with Lumar, represents the difference between Smith's maximum potential liability to Simeon of $602,592.28 (58/68ths of the $706,487.50 total Simeon damages in the Smith claim) and the $204,789.49 ((B) above) for which Smith alone is liable.
6
The same point can be made if the illustration is changed so that, for example, C's conduct contributing to the accident is his admitted failure to see the clearly visible cars driven by A and B; the evidence is conflicting as to whether C's failure in this respect stems from his negligent inattention or, as he claims, from his then suffering a sudden, momentary and unforeseeable fainting spell. A finding that C was negligently inattentive does not change the relationship between the negligence of A and B or imply any enhancement of A's damages
7
Moreover, if C is found at fault, A has an additional source for potential recovery
8
Pure several fault is also unjust in this scenario. If B can take any advantage of C's being at fault, it should only be as against C (by contribution), not as against A (by lowering B's exposure to A), for the addition of C's fault does not change the ratio of fault between A and B, and B's fault remains a cause of all A's damages whether or not C also is guilty of causative fault
9
In Drake, the court indicated that a different result (where the third-party settlement payment would reduce the plaintiff's recovery by the proportion which the third party's fault bore to the total fault of the plaintiff, the defendant, and the third party, rather than on a dollar-for-dollar basis) might be reached if the defendant had impleaded the third party (in which event, the extent of the third party's negligence would presumably be relevant). Id., 765 F.2d at 1068. However, in Self v. Great Lakes Dredge & Dock Co., 832 F.2d 1540, 1544-48 (11th Cir.1987), the Eleventh Circuit applied the Drake approach (dollar-for-dollar credit of the third-party settlement payment), even though the third party was before the court on the defendant's cross-action and its percentage of fault was ascertained. Self regarded this holding as mandated by Edmonds, though it recognized it to be contrary to our holding in Leger v. Drilling Well Control, Inc., 592 F.2d 1246 (5th Cir.1979), and in post-Edmonds cases where we followed Leger. See Self, 832 F.2d at 1548 & n. 6. We have indeed followed Leger (settlement reduces recovery by proportion of settling party fault) in post-Edmonds cases, both maritime, e.g., Martin v. Walk, Haydel & Associates, Inc., 742 F.2d 246, 249 (5th Cir.1984); Bass v. Phoenix Seadrill/78, Ltd., 749 F.2d 1154, 1157, 1159 (5th Cir.1985); see also In re Incident Aboard D/B Ocean King, 813 F.2d 679, 689 (5th Cir.1987), and otherwise, e.g., Diggs v. Hood, 772 F.2d 190, 196 (5th Cir.1985) (relying on Leger ). On the other hand, in our recent decision in Hernandez v. M/V Rajaan, 841 F.2d 582, 591 (5th Cir.1988), we applied Self at the behest of the defendant, who successfully sought a dollar-for-dollar credit for the settlement amounts paid the plaintiff by the third-party defendants, even though there was apparently no finding of the percentage of fault attributable to the third-party defendants
It is not necessary for this dissent to take a position as to whether the Leger rule or the Self rule represents binding precedent or is preferable. All of these cases concern the special problems attendant on how to credit the settlement of one of several tort-feasors. That is not involved here.
Under the Leger approach, if plaintiff A settles before trial with concurrent tort-feasor C, and at trial A is found to have $150,000 total damages and to be one-third negligent, while C and defendant B are also found to each be one-third negligent, then B is held liable to A for $50,000, as the settlement, whatever its amount, is treated as discharging one-third of A's total damages. In that context, modified joint liability has no role to play. It is appropriate to regard A's settlement with C (regardless of its amount) as encompassing both the sole liability which C would otherwise have had for $25,000 and C's half of the joint liability (with B) for $50,000. A and C have voluntarily agreed on this when either could have insisted on trial, and so there is no reason either should be able to question it (A to seek more on account of C's fault, C to seek contribution); B may not justly complain that C paid the wrong amount, for it was C, not B, that did the paying, and B is treated no worse than if there had been no settlement.
Under the Self approach, it is presumably not proper to find whether or not the settling party is negligent, or, if so, what its percentage of negligence is. This suggests that the relevant comparison at trial is between the negligence of the plaintiff and the nonsettling defendant only. That was apparently the case in Hernandez, 841 F.2d at 591, and is fully consistent with modified joint liability. In Self, the plaintiff was not negligent, so modified joint liability simply could not come into play.
None of these cases, however, in any way addresses the concept of modified joint liability.
10
As the Edmonds footnote subsequently points out, this assumes that the injury in question is not divisible. Edmonds, 99 S.Ct. at 2756 n. 8. I make the same assumption throughout this dissent
11
Under modified joint liability, the Edmonds shipowner would have been liable for two-thirds (20/30ths), rather than ninety percent, of the injured plaintiff longshoreman's total damages, as there the negligence percentages were: twenty percent, shipowner; ten percent, plaintiff; seventy percent, stevedore
12
In Webster, the Court stated: "We do not stop to inquire whether all or any of them [prior Supreme Court decisions cited by appellant] can be differentiated from the case now under consideration, since in none of them was the point here at issue suggested or decided. The most that can be said is that the point was in the cases if any one had seen fit to raise it. Questions which merely lurk in the record, neither brought to the attention of the court nor ruled upon, are not to be considered as having been so decided as to constitute precedents." Id., 45 S.Ct. at 149
1
"The plaintiff's contributory negligence" means, as it is used throughout this opinion, the percentage that plaintiff's fault is of the total fault of all parties including himself. Judge Garwood does not dispute that under either traditional joint and several liability or the modified system he proposes, the cap on a plaintiff's recovery is measured by the total amount of the judgment the plaintiff obtains minus that amount which represents the plaintiff's contributory negligence. Nor does Judge Garwood dispute that if all the defendants are solvent, the plaintiff should be permitted to recover damages equal to that amount
2
Algebraically, in a case involving two defendants, this can be expressed as follows:
Variables: x= percentage by which plaintiff was contributorily negligent;
y1
= percentage by which defendant one was negligent;
y2
= percentage by which defendant two was negligent
Assumptions: (1) x + y1 + y2 = 100%
(2) the amount of plaintiff's damages as found in the cause of action against y1 is the same as the amount found in the cause of action against y 2
Percentage of total judgment that plaintiff can recover from either defendant under traditional joint and several liability:
100
- x
Percentage of total judgment that plaintiff can recover from defendants under modified joint and several liability:
3
Judge Garwood discusses separately each of these same passages to explain why, in his view, they do not conflict with the modification he proposes. Judge Garwood's basic reason is that in explaining how joint liability is imposed, the Supreme Court never explicitly said whose negligence a plaintiff's negligence is to be compared with. To the extent that Judge Garwood is arguing that the Supreme Court was not discussing traditional joint and several liability in these passages, I find the argument both surprising and unconvincing. It is beyond dispute that traditional joint and several liability compares the plaintiff's negligence with all defendants' negligence when determining the total damages each defendant is jointly responsible for--that is, in fact, Judge Garwood's problem with the system of liability as it presently exists. It is beyond dispute that comparing the plaintiff's negligence to that of all defendants is the rule of common law, and that the Supreme Court was repeating the common law rule in Edmonds. It is beyond dispute that as Edmonds reached the Supreme Court, Edmonds' negligence had been compared to that of both, not each, of the defendants, and that liability had been divided accordingly. And finally, I think, it is beyond dispute that the Supreme Court approved that particular comparison in Edmonds. If the Supreme Court did not explicitly say that the proper comparison of a plaintiff's negligence is with all of the defendants' negligence, it is probably because it saw no need to, since no court had ever suggested--much less used--any other method of comparison
I am similarly unconvinced by Judge Garwood's additional attempts to bring the language of Edmonds into conformity with his proposal to modify the traditional rule of joint and several liability.
4
Judge Garwood takes the position that the question is properly before the panel simply because we have found, upon Simeon's urging, that the district court erroneously entered judgment severally against the defendants. Because the new theory Judge Garwood has suggested would affect the way judgment is entered on remand, Judge Garwood argues, we must decide now whether to accept or reject the theory. If Judge Garwood is right on this point, I do not see how he can admit that modified joint liability is inconsistent with the results of some already decided cases--including Edmonds--but conclude that because neither this circuit nor the Supreme Court has expressly rejected the theory, we should treat it as unconsidered by those courts. This inconsistency in reasoning aside, however, I cannot agree with Judge Garwood's apparent assertion that any issue which could affect the judgment a district court is to enter on remand is ripe for review, regardless of whether it was ever mentioned by the parties | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/417734/ | 705 F.2d 778
12 Fed. R. Serv. 1996
Peter Joseph CALDARERA, Jr., etc., et al., Plaintiffs-Appellees,v.EASTERN AIRLINES, INC., and United States of America,Defendants-Appellants.
No. 82-3186.
United States Court of Appeals,Fifth Circuit.
May 27, 1983.
Deutsch, Kerrigan & Stiles, Francis G. Weller, Marc J. Yellin, New Orleans, La., for defendants-appellants.
Joseph S. Cage, Jr., U.S. Atty., John R. Halliburton, Asst. U.S. Atty., Shreveport, La., H. Richmond Fisher, U.S. Dept. of Justice, Torts Branch, Civ. Div., Washington, D.C., Elizabeth A. O'Conwell, Asst. U.S. Atty., New Orleans, La., for U.S.
Camp, Carmouche, Palmer, Barsh & Hunter, David R. Frohn, Edward M. Carmouche, Lake Charles, La., for plaintiffs-appellees.
Appeal from the United States District Court for the Western District of Louisiana.
Before RUBIN, GARZA and WILLIAMS, Circuit Judges.
ALVIN B. RUBIN, Circuit Judge:
1
After a trial in which the sole issue was the amount of damages caused by the death of three persons in a plane crash,1 the jury returned a verdict of $937,500 against Eastern Airlines in favor of Peter Caldarera for the death of his mother, wife, and eight-year-old son and a verdict of the same amount in favor of Christopher Moore Caldarera, who was four years old at the time of the disaster, for loss of his mother. The district court returned a verdict under the Federal Tort Claims Act against the United States, as joint defendant, in favor of Christopher for $400,000 and in favor of Peter for $797,480. On post-trial motions, the court refused to alter the jury award in favor of Peter, but reduced the award in favor of Christopher to $600,000. Eastern contends that opposing counsel took an unfair shot at it in closing argument, the trial court improperly excluded evidence of Peter's remarriage, the verdict was excessive, and the jury should have been polled post-discharge about its verdict because its award of identical amounts on each of the plaintiffs' entirely distinct claims indicates a misunderstanding of their instructions. We find no reversible error in the trial or in the court's refusal to interrogate the jury after its discharge, but we grant a new trial on the quantum of damages unless the plaintiffs accept a remittitur reducing the awards to the maxima we consider allowable on the record--$797,480 for Peter and $300,000 for Christopher.
I.
2
The Caldareras' counsel concedes that he made an improper argument to the jury. The suit was tried in Lake Charles, Louisiana, home of the plaintiffs and their counsel, the claim against Eastern to a jury, and the claim against the United States to the court. In his final argument, plaintiffs' counsel told the jury:
3
Then he [Eastern's counsel] talked about community standards. He is coming over here from New Orleans and he is going to argue to a jury community standards, to tell you about community standards. Six years ago Mr. Weller's client took a member of our community's money for plane tickets. He put them on a plane and killed them. Then they hired a lawyer to come back to this community and tell you three words. I can sum up what Eastern Airlines' position is in this case in three words. Life is cheap. That is what they told you. Let me tell you something. Life may be cheap in New Orleans, or New York, or wherever Eastern is based, where people will slit your throat on the street to get the money out of your pocket. But life in Southwest Louisiana is precious....
4
Eastern immediately objected to this patently improper argument, but did not ask for a mistrial. The district judge promptly instructed the jury to ignore the remark. Eastern did not object to the instruction, ask for an additional instruction, or at any time later during the trial seek a mistrial.
5
The only question for us is whether the judge should have ordered a new trial because the damage done by this inflammatory argument was irreparable. A trial judge is generally better able than an appellate court to evaluate the prejudice flowing from improper jury arguments. His denial of a motion for new trial based on improper statements is reversible only for abuse of discretion.2 The district judge, who has had long trial experience on both the state and federal bench, was best able to measure the impact of improper argument, the effect of the conduct on the jury, and the results of his efforts to control it. Our review is not only hindsight, but is based on a written record with no ability to assess the impact of the statement on the jury or to sense the atmosphere of the courtroom. Eastern's failure to move for a mistrial is also significant. By doing so, and by acquiescing in the court's corrective charge, it got a chance to see the verdict and then to seek to overturn it.3 Accordingly, we affirm the trial judge's determination that the effect of the improper argument was sufficiently dissipated by his instruction.
II.
6
This diversity case was governed by Louisiana law. Louisiana forbids evidence of remarriage in a suit seeking damages for the loss of a spouse.4 This precept is followed in most other jurisdictions.5 That rule binds us.6
7
The defendants argue that the Caldareras opened the door to such evidence by testimony concerning whether Peter Caldarera's emotional problems have persisted since the loss of his mother, wife, and child. They contend that, on cross-examination, they should have been allowed to establish that his more recent emotional difficulties stemmed from his remarriage. These arguments were carefully considered by the trial judge. He found that there were alternative ways to determine, by examining the psychiatrist-witness, whether some of Mr. Caldarera's problems resulted from causes other than the deaths of his wife, mother and son, and that the prejudicial effect of evidence of the second marriage outweighed its probative value. Fed.R.Evid. 403.7 His finding is not subject to scrutiny by an appellate Bureau of Weights and Standards that balances the factors gram for gram. The trial court may exercise judgment on the basis of his own opinion of the effect the evidence will have, considering the courtroom surroundings. We do not find reason to question his conclusion.
III.
8
Eastern contends that the jury's award of exactly $937,500 in damages for each plaintiff, Peter Caldarera and his son, Christopher, indicates either that the jury misunderstood their instructions or intended to allow that sum to be divided between them. When the jury returned its verdict, the jurors were polled but no inquiry about the amount was requested or made. Seventeen days after the jury had been discharged, Eastern sought to have the court ask the jury the meaning of its verdict. Counsel have found no authority for the court to inquire, after the jurors' discharge, into whether they really meant what they said. Neither have we. Post-trial inquisition of jurors is not favored,8 unless there is some showing of prejudicial intrusion into the jury process that may have affected the verdict.9 We cannot condemn the verdict as defective on its face because the awards were identical, even though the elements of damages sought by the respective plaintiffs differed. The trial court was "satisfied that there was no mistake as to the jury's intention."10 We will not, therefore, order a new trial on a possibility that did not even occur to counsel until the jury had been discharged.
IV.
9
Eastern argues, alternatively, that the jury verdict should be set aside as excessive. Because the trial judge was required to determine the plaintiffs' damages and to enter a judgment for that amount against the United States, he calculated independently the recompense due to the plaintiffs for their losses. He recognized that, by his calculations, the jury award to Peter was generous. He chose, however, to grant a remittitur only on the award to Christopher, and he reduced this to $600,000, reasoning that a jury award up to $200,000 more than his own calculation of a reasonable award should be allowed to stand.11
10
For the purpose of assessing damages against the United States, the judge itemized the damages Peter Caldarera suffered as follows:
11
Loss of companionship, love, and
affection and physical and mental
anguish as a result of the death of his
33-year-old wife $400,000
Loss of companionship, love, and
affection and physical and mental
anguish from the death of his
63-year-old mother 100,000
Loss of companionship, love, and
affection and physical and mental
anguish from the death of his
eight-year-old son 150,000
Funeral expense 12,500
Property damage 500
Loss of services by his wife 134,021
--------
$797,021
12
The trial judge calculated that Christopher had suffered damages of $400,000 as a result of the loss of the companionship, love, affection, nurture, guidance, and support of his mother, and his physical and mental anguish consequent to his mother's death. Louisiana law does not give Christopher a cause of action for the loss of his brother and grandmother.12 The facts found by the district judge affecting the determination of damages are set forth in his opinion.13 They are, indeed, compelling. The district judge's assessment of the damages, being findings of fact, are, of course, shielded against reversal unless "clearly erroneous."14 Because the assessment of damages for grief and emotional distress is so dependent on the facts and is so largely a matter of judgment, we are chary of substituting our views for those of the trial judge. He has seen the parties and heard the evidence; we have only read papers.
13
The jury's assessment of damages is even more weighted against appellate reconsideration, especially when, as in the case of the award to Peter Caldarera, the trial judge has approved it.15 We do not reverse a jury verdict for excessiveness except on "the strongest of showings."16 The jury's award is not to be disturbed unless it is entirely disproportionate to the injury sustained. We have expressed the extent of distortion that warrants intervention by requiring such awards to be so large as to "shock the judicial conscience," "so gross or inordinately large as to be contrary to right reason,"17 so exaggerated as to indicate "bias, passion, prejudice, corruption, or other improper motive,"18 or as "clearly exceed[ing] that amount that any reasonable man could feel the claimant is entitled to."19 Nonetheless, when a jury's award exceeds the bounds of any reasonable recovery, we must suggest a remittitur ourselves or direct the district court to do so.20 Our power to grant a remittitur is the same as that of the district court. We determine the size of the remittitur in accordance with this circuit's "maximum recovery rule," which prescribes that the verdict must be reduced to the maximum amount the jury could properly have awarded.21
14
The loss of a loved one is not measurable in money. Human life is, indeed, priceless. Yet the very purpose of the lawsuit for wrongful death is to fix damages in money for what cannot be measured in money's worth. Unless we are to accept any verdict, in whatever amount, as a legally acceptable measure, we must review the amount a jury or a trial court awards. Reassessment cannot be supported entirely by rational analysis. It is inherently subjective in large part, involving the interplay of experience and emotions as well as calculation. The sky is simply not the limit for jury verdicts, even those that have been once reviewed.
15
We look first to the award for Peter Caldarera. Acknowledging the speculation involved both in predicting increases in the minimum wage rate over time and in choosing a discount rate to reduce long-term damages to present value, the district court set a present value of $100,000 on Peter Caldarera's loss of his wife's future services. This figure was the estimated cost of replacing those services.22 Less uncertainty attended valuation of loss of her services from her death until the date of trial. In accordance with the expert testimony of an economist, the trial judge awarded $34,021 for that loss. The parties stipulated that property damage and funeral expenses amounted to $13,459. The trial judge set the total amount allowable for loss of Peter's wife's services, funeral expenses, and property damage at $147,021. Because this sum represents an estimate of the economic value of goods and services, without any emotional overlay, the jury's award for these items of damage should have corresponded closely to this figure. The judge set the amount for Peter's loss of his 63-year-old mother at $100,000 and for the loss of his eight-year-old son at $150,000. These awards are generous, but they cannot be viewed as excessive. If we add 50% to each, however, we arrive at an amount that appears to us to be a maximum. Even when we take into account the trauma sustained by Mr. Caldarera as a result of the multiple loss he suffered in a single catastrophe, we consider that the maximum verdict against Eastern that the trial judge should have permitted to stand, without remittitur, for Peter's loss of his mother was $150,000, and, for the loss of his son, $225,000.
16
The sum of $400,000 awarded by the trial judge to Peter Caldarera for the loss of the companionship, love, and affection of his wife is substantially greater than any we have discovered for the emotional damages resulting from loss of a spouse save one Seventh Circuit decision refusing to reduce a jury verdict of $419,000 for loss of a husband.23 While the factfinder may well deem the loss of a spouse more grievous than the loss of a mother or son, and thus deserving of greater compensation, on the record in this case, we consider the sum of $250,000 to be the maximum award that could be allowed for the emotional losses arising from the death of Mrs. Caldarera, apart from the economic loss. This is equivalent to an annuity of $21,231 per year for each year of Peter's remaining life expectancy for his emotional loss alone.24 The maximum total sum that we think Peter Caldarera could be awarded is thus computed:
17
The district judge awarded a total of $797,480, with a somewhat different allocation of the amounts for individual items. This total is so close to the amount we have computed, albeit in a different fashion, that we affirm the award against the United States. However, the total is likewise, for the reasons we have expressed, the maximum that we think any reasonable jury could have awarded. We find the jury award in excess of this sum to be so gross as to be contrary to reason and must, therefore, reverse the trial judge's action in denying the motion for a new trial. We do not overlook the calamitous effect of the simultaneous bereavement. While the hurt was literally unmeasurable, we must deal with it in such measure as is here sought and is the law's only recompense, a valuation in dollars. We, therefore, order a new trial unless Mr. Caldarera is willing to accept a remittitur of the award against Eastern to the total amount of $797,480. We affirm the judgment in his favor against the United States in this amount. If Mr. Caldarera is unwilling to accept the remittitur on the Eastern claim, he may have a new trial on his claim against it.
18
We must also review the award for Christopher's loss of his mother. Christopher was then four years old, in normal health, and required no exceptional care. The verdict, even as reduced by the remittitur, exceeds any amount that a reasonable person could have awarded him. Our judgment is that his award should not exceed $300,000, which is equivalent to an annuity of $24,986 a year for each year of his mother's full life expectancy.25
19
We, therefore, order a new trial of the claims against Eastern unless Mr. Caldarera, as tutor for his minor son, will accept a remittitur of the verdict against Eastern to the amount of $300,000, and, in his own behalf to the amount of $797,480. We affirm the judgment against the United States in favor of Mr. Caldarera for $797,480, and, reducing the amount to $300,000, affirm the judgment against the United States in favor of Christopher Caldarera.
20
For these reasons, the case is REMANDED to the district court for further proceedings in accordance with this opinion.
1
The case arose out of the crash in New York of an Eastern plane in which 113 of 124 people aboard were killed. In multidistrict proceedings in the Eastern District of New York, the United States conceded liability to the victims of the plane crash for the negligence of air traffic controllers at New York's Kennedy International Airport. A judgment declaring its liability to the plaintiffs in this case was entered in the Western District of Louisiana, on the same day the jury awarded damages, pursuant to the joint motion of the plaintiffs and the United States. The airline's liability to all victims of the plane crash was decided by a jury in the Eastern District of New York. The jury's verdict was affirmed on appeal to the Second Circuit. In re Aircraft Disaster, 635 F.2d 67 (2d Cir.1980). After the liability determination, the damage suits of the individual plaintiffs were returned to the districts in which they had originally been brought
2
United States v. Sudderth, 681 F.2d 990, 996 (5th Cir.1982) (ruling on motion for new trial immune from appeal absent abuse of discretion); Nevels v. Ford Motor Co., 439 F.2d 251, 258 (5th Cir.1971) (disposition of motion for mistrial on basis of improper jury argument reversible only for abuse of discretion)
3
A motion for new trial may be served not later than ten days after the entry of judgment on the jury's verdict. Fed.R.Civ.P. 59(b). By contrast, a motion for mistrial is properly made when the event giving rise to the motion occurs
4
McFarland v. Illinois Central Railroad Co., 241 La. 15, 127 So. 2d 183, 186 (La.1961); Lofton v. Cade, 359 So. 2d 1074, 1075 (La.App.1978); Evans v. Chevron Oil Co., 438 F. Supp. 1097, 1104 (E.D.La.1977), aff'd without opinion, 616 F.2d 565 (5th Cir.1980)
5
Annot., 88 A.L.R. 3d 926, 928-37 (1978). Even if the evidentiary rules of New York, the situs of the plane crash, governed admissibility of evidence of Peter Caldarera's remarriage, that would not avail the defendants. Like Louisiana, New York bars consideration of remarriage to reduce or mitigate damages in a wrongful death action. Id
6
Conway v. Chemical Leaman Tank Lines, Inc., 525 F.2d 927 (5th Cir.), modified on reh'g, 540 F.2d 837 (5th Cir.1976) (state law on admissibility of evidence of remarriage in wrongful death action will be followed in diversity case); Bailey v. Southern Pacific Transp. Co., 613 F.2d 1385, 1388 (5th Cir.) (per curiam), cert. denied, 449 U.S. 836, 101 S. Ct. 109, 66 L. Ed. 2d 42 (1980) (following Texas law that evidence of remarriage not admissible for purposes of mitigating damages in wrongful death action). Contra Papizzo v. O. Robertson Transp., Ltd., 401 F. Supp. 540 (E.D.Mich.1975) (admissibility of evidence of remarriage in wrongful death action is procedural question, governed by federal law)
7
Fed.R.Evid. 403 reads:
Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence.
8
Stein v. New York, 346 U.S. 156, 178, 73 S. Ct. 1077, 1089, 97 L. Ed. 1522 (1953)
9
Wilkerson v. Amco Corp., 703 F.2d 184 (5th Cir.1983); O'Rear v. Fruehauf Corp., 554 F.2d 1304 (5th Cir.1977); United States v. Riley, 544 F.2d 237 (5th Cir.1976)
10
Caldarera v. Eastern Airlines, Inc., 529 F. Supp. 634, 642 (W.D.La.1982)
11
On behalf of Christopher, Peter Caldarera has accepted the verdict as reduced, waiving the right to a new trial
12
See La.Civ.Code Ann. art. 2315 (West Supp.1982)
13
529 F.Supp. at 637-40
14
Fed.R.Civ.P. 52(a)
15
Shows v. Jamison Bedding, Inc., 671 F.2d 927, 934 (5th Cir.1982)
16
Martin v. City of New Orleans, 678 F.2d 1321, 1327 (5th Cir.1982); Shows, 671 F.2d at 934; Bridges v. Groendyke Transport, Inc., 553 F.2d 877, 880 (5th Cir.1977)
17
Complete Auto Transit, Inc. v. Floyd, 249 F.2d 396, 399 (5th Cir.), cert. denied, 356 U.S. 949, 78 S. Ct. 913, 2 L. Ed. 2d 843 (1958)
18
Allen v. Seacoast Products, Inc., 623 F.2d 355, 364 (5th Cir.1980)
19
Bridges, 553 F.2d at 880 (emphasis in original)
20
Howell v. Marmpegaso Compania Naviera, 536 F.2d 1032, 1034-35 (5th Cir.1976). See, e.g., Shingleton v. Armor Velvet Corp., 621 F.2d 180, 182, 184 (5th Cir.1980) (per curiam) (appellate court remitted jury verdict because of obvious jury miscalculation); Stapleton v. Kawasaki Heavy Industries, Ltd., 608 F.2d 571, 574 (5th Cir.1979), modified on another ground, 612 F.2d 905 (5th Cir.1980) (trial court directed to enter specified remittitur of jury verdict in amount less than it had previously entered); Abernathy v. Southern Pacific Co., 426 F.2d 512, 514-15 (5th Cir.1970) (trial court directed to enter specified remittitur of jury verdict)
21
Carlton v. H.C. Price Co., 640 F.2d 573, 582 n. 14 (5th Cir.1981); Stapleton v. Kawasaki Heavy Industries, Ltd., 608 F.2d 571, 574 n. 7 (5th Cir.1979), modified on another ground, 612 F.2d 905 (5th Cir.1980)
22
See Ayala v. Bailey Elec. Co., 318 So. 2d 645, 652 (La.App.), writ issued, 322 So. 2d 770 (La.1975) (determining cost of replacing services is one method of measuring value of loss)
23
E.g., Cheatham v. City of New Orleans, 378 So. 2d 369, 377 (La.1979) (jury award of $200,000 for 22-year-old widow's loss of love and affection of 27-year-old husband was reinstated after trial judge reduced award to $50,000); Sibley v. Menard, 398 So. 2d 590 (La.App.1980), writ denied, 400 So. 2d 211 (La.1981), aff'd on reh'g, 404 So. 2d 980 (La.App.1981) (widow awarded $100,000 for loss of husband's love and affection); Domangue v. Eastern Air Lines, Inc., 542 F. Supp. 643 (E.D.La.1982) (widow received $100,000 for loss of husband's love, affection, and companionship after 10-year marriage); Szimonisz v. United States, 537 F. Supp. 147 (D.Or.1982) (widow received $100,000 for loss of husband's society and companionship); Faust v. South Carolina Hwy. Dept., 527 F. Supp. 1021 (D.S.C.1981) (widow received $60,000 for loss of husband's love, affection, care, attention, companionship, comfort, and protection); Stanford v. McLean Trucking Co., 506 F. Supp. 1252 (E.D.Tex.1981) (widower of one decedent received $75,000 for loss of wife's consortium and society, and widower of other decedent received $100,000 for loss of wife's consortium and society); Abille v. United States, 482 F. Supp. 703 (N.D.Cal.1980) (widow received $55,000 for loss of husband's care, comfort, and consortium); Wyatt v. United States, 470 F. Supp. 116 (W.D.Mo.), aff'd, 610 F.2d 545 (8th Cir.1979) (per curiam) (widower awarded $111,211 for loss of love, companionship, and consortium of wife with life expectancy of 12.2 years). But see Huff v. White Motor Corp., 609 F.2d 286, 297 (7th Cir.1979) (Total award for loss of husband to whom the plaintiff had been married for 30 years was $700,000. Eliminating pecuniary loss, the court found the balance $414,400 to be for loss of husband's love, affection, counsel. It said, "Therefore, although we are left with the uncomfortable feeling that the verdict is too high, we think we would be exceeding the limits of our authority if we were to disturb it.")
24
This is based on the assumption that Peter Caldarera had a life expectancy of 37.8 years and that the funds could be invested at 8% per annum, which is somewhat less than the current rate paid on 52-week U.S. Treasury bills. The trial judge's award of $400,000, by the same computation, would be equivalent to an annuity of $33,970 per year. If invested in long-term tax-exempt municipal bonds, now available at a yield of 9% per annum, an award of $250,000 would produce $22,500 a year free of federal income tax, without invading principal, and an award of $400,000 would produce $36,000 annually, without invasion of the principal
Death of mother 150,000
Death of son 225,000
Death of wife 250,000
Other damages 147,021
--------
$772,021
25
This is based on the assumption that Mrs. Caldarera had a life expectancy of 42.4 years and that the funds could be invested at 8% per annum, which is somewhat less than the current rate on 52-week U.S. Treasury bills. However, if invested in long-term municipal bonds, the sum could be invested in federally tax-exempt securities yielding 9% per annum and could produce $27,000 a year free of federal income tax without invasion of the principal | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/3008644/ | IMPORTANT NOTICE
NOT TO BE PUBLISHED OPINION
THIS OPINION IS DESIGNATED "NOT TO BE PUBLISHED ."
PURSUANT TO THE RULES OF CIVIL PROCEDURE
PROMULGATED BY THE SUPREME COURT, CR 76 .28(4)(C),
THIS OPINION IS NOT TO BE PUBLISHED AND SHALL NOT BE
CITED OR USED AS BINDING PRECEDENT IN ANY OTHER
CASE IN ANY COURT OF THIS STATE; HOWEVER,
UNPUBLISHED KENTUCKY APPELLATE DECISIONS,
RENDERED AFTER JANUARY 1, 2003, MAY BE CITED FOR
CONSIDERATION BY THE COURT IF THERE IS NO PUBLISHED
OPINION THAT WOULD ADEQUATELY ADDRESS THE ISSUE
BEFORE THE COURT. OPINIONS CITED FOR CONSIDERATION
BY THE COURT SHALL BE SET OUT AS AN UNPUBLISHED
DECISION IN THE FILED DOCUMENT AND A COPY OF THE
ENTIRE DECISION SHALL BE TENDERED ALONG WITH THE
DOCUMENT TO THE COURT AND ALL PARTIES TO THE
ACTION.
RENDERED : JUNE 19, 2008
NOT TO BE PUBLISHED
osill'urme Court of
2007-SC-000202-WC
LARRY DUNN APPELLANT
ON APPEAL FROM COURT OF APPEALS
V. 2006-CA-001845-WC
2006-CA-001886-WC
WORKERS' COMPENSATION BOARD NO . 01-69346
GARY SLATER, D/B/A CAROL DALE CONTRACTING ;
HON . HOWARD E . FRASIER, JR .,
ADMINISTRATIVE LAW JUDGE ; AND
WORKERS' COMPENSATION BOARD APPELLEES
AND
2007-SC-000238-WC
GARY SLATER, D/B/A CAROL DALE CONTRACTING APPELLANT
ON APPEAL FROM COURT OF APPEALS
V. 2006-CA-001845-WC
2006-CA-001886-WC
WORKERS' COMPENSATION BOARD NO . 01-69346
LARRY DUNN;
HON . HOWARD E. FRASIER, JR.,
ADMINISTRATIVE LAW JUDGE AND
WORKERS' COMPENSATION BOARD APPELLEES
MEMORANDUM OPINION OF THE COURT
AFFIRMING
An Administrative Law Judge (ALJ) determined at the reopening of a settled
award that the claimant did not retain the physical capacity to return to work as a heavy
equipment operator after his injury and that his permanent impairment rating had
increased since the settlement. The ALJ awarded a triple income benefit under KRS
342 .730(1)(b) and (1)(c)1 that was based on the present impairment rating . The award
accounted for the benefit compromised in the settlement by crediting the employer with
a triple benefit that was based on the impairment rating at settlement. The Workers'
Compensation Board and the Court of Appeals affirmed .
The claimant argues on appeal that the ALJ erred by crediting the employer for
an amount greater than the benefits that it paid under the settlement . The employer
argues in a cross-appeal that the ALJ erred by finding an increased permanent
impairment rating because no medical expert assigned a rating for both points in time.
We affirm. KRS 342.125(7) prohibits any statement contained in a settlement
from being viewed as an admission against interest at reopening. Special Fund v.
Francis, 708 S.W .2d 641 (Ky. 1986), explains that a finding may not be disturbed on
appeal if it is supported by substantial evidence, i .e. , if it is reasonable under the
evidence. The Court of Appeals did not err because the ALJ construed KRS 342.125
correctly and because substantial evidence supported the findings at issue.
The claimant crushed the middle three fingers of his left hand on November 7,
2001, while working for the defendant-employer as a heavy equipment operator. Dr.
Wolff treated the injury and performed surgery. He released the claimant to return to
work on April 1, 2002, and released him from treatment in December 2002 . At that
time, he assigned a 4.5% permanent impairment rating but failed to address the
claimant's physical capacity to return to work as a heavy equipment operator. The
claimant found work in a cabinet-making business and did not return to coal mining.
The employer paid temporary total disability (TTD) benefits voluntarily until April
2, 2002. Without obtaining legal representation or filing an application for benefits, the
claimant agreed to settle the permanent disability claim for a lump sum that was based
on a 4.5% permanent impairment rating and calculated under KRS 342.730(1)(b) for a
period of 425 weeks. Dr. Wolffs December 16, 2002, report was the only medical
record attached to the Form 111 Agreement as to Compensation . An AU approved the
agreement on January 28, 2003
The claimant continued to experience pain and extreme sensitivity in the affected
fingers due to a thinning of the tissue in the fingertips . He also experienced chronic
skin breakdowns, particularly in the middle finger. Nonetheless, he declined a
suggested surgery because it would necessitate a difficult rehabilitation and offer
limited benefit . He filed a motion to reopen on May 13, 2005, alleging a worsening of
condition and increased disability . He supported the motion with a report and affidavit
from Dr. Johnson, who evaluated him at his attorney's request.
The employer objected . It argued that Dr. Johnson's report failed to state what
permanent impairment rating he would have assigned at settlement and, therefore,
failed to show that the rating had increased since the settlement .
Dr. Johnson's report summarized the medical records in detail, noting that Dr.
Wolff had assigned a 4.5% permanent impairment rating in December 2002 . Dr.
Johnson also performed an exhaustive physical examination of the left hand and
fingers . He noted that the AMA Guides to the Evaluation of Permanent Impairment
permitted the claimant's permanent impairment rating to be assigned using two different
methods and that they instruct the evaluator to report the higher rating . Dr. Johnson
assigned a 16% permanent impairment rating based on tissue loss, loss of range of
motion, and skin characteristics or, in the alternative, a 13% rating based on a total
amputation of the affected digits . He recommended restrictions specific to the deficits
in the hand and stated that the claimant did not retain the physical capacity to return to
the type of work performed at the time of injury. Dr. Johnson's affidavit stated that the
claimant's medical condition had deteriorated since the settlement and that his pain and
restrictions had also increased, which resulted in a greater occupational disability.
An ALJ determined that the claimant made a sufficient prima facie case for
reopening under KRS 342 .125 and Stambaugh v. Cedar Creek Mining Co . , 488 S .W.2d
681 (Ky. 1972), and assigned the claim for further adjudication . The employer then
submitted a letter from Dr. Wolff, who evaluated the claimant in July 2005. A functional
capacity evaluation performed at that time yielded a 7% permanent impairment rating
based on loss of range of motion. The figure did not include a rating for tissue loss or
skin characteristics . Dr. Wolff recommended the use of gloves for cold protection and
digit gel caps to decrease sensitivity in the fingertips but added no impairment rating for
those deficits . In his opinion, the claimant could continue to work as a cabinetmaker
with no restrictions .
The claimant testified at the hearing that his difficulty gripping objects had
increased since the settlement and that the strength in his hand had decreased . The
pain in his fingers had begun to extend into his hand and forearm, resulting in a
constant dull ache that increased if he used his fingers extensively when it was cold.
He stated that he continued to work as a cabinetmaker but earned less than at the time
of the injury .
The AU determined that the claimant proved a change of disability with objective
medical evidence of increased impairment. Noting that any statement in the settlement
was not binding at reopening, the AU determined from the evidence that the claimant's
permanent impairment rating was 4 .5% at settlement, based on Dr. Wolfs December
2002 report, and that it was 16% at reopening, based on Dr. Johnson's report. The AU
also determined that the claimant lacked the physical capacity to return to work as a
scoop operator after the injury . The claimant's award consisted of a triple income
benefit under KRS 342.730(1)(b) and (1)(c)1, payable from the date of the motion to
reopen for the balance of the compensable period . As modified on reconsideration, it
accounted for the benefits compromised in the settlement by permitting the employer to
credit a triple benefit for a 4 .5% permanent impairment rating under KRS 342 .730(1)(b)
and (1)(c)1 .
The claimant complains that AU permitted the employer to credit more benefits
than it actually paid under the settlement and argues that the employer did not assert
that it was entitled to a greater credit until its petition for reconsideration. He argues
that KRS 342.125(4) prohibits a reopening from affecting a previous order or award
regarding sums already paid and requires any change to be ordered from the date the
motion to reopen is filed . He concludes that the AU erred by crediting more than the
weekly benefit the settlement provided under KRS 342 .730(1)(b) . We disagree .
The claimant did not litigate his initial claim ; he agreed to settle it. A settled
award is the product of a compromise ; therefore, the disability or permanent impairment
rating that it states may or may not be accurate . Whittaker v. Rowland, 998 S.W .2d
479 (Ky. 1999), Beale v. Faultless Hardware, 837 S.W.2d 893 (Ky. 1992), and Newberg
v. Davis, 841 S.W .2d 164 (Ky. 1992), explain that the parties to a settlement are
entitled to the benefit of their bargain and that KRS 342 .125(7) prohibits any statement
contained in a settlement agreement from being considered as an admission against
interest if the claim is reopened . As a consequence, the AU must compare the
worker's actual disability at settlement and reopening. If it has increased, the worker
receives additional benefits for the difference . The claimant's award contained a credit
that was patently erroneous under the findings of fact; therefore, the AU did not err in
correcting it on reconsideration.
The lump sum that the claimant received in the settlement compromised any
existing right to weekly benefits for a period of 425 weeks. Only part of that period had
elapsed when he filed the motion to reopen . As he points out, KRS 342 .125(4)
prohibits an award entered at reopening from affecting previously-paid sums and
requires it to be prospective, from the date of the motion.
The award that the claimant received at reopening did not violate KRS
342,125(4) because the AU left his initial award in place and entered a prospective
award that provided increased income benefits for the balance of the 425-week period .
As corrected on reconsideration, the prospective award credited the employer to the
extent that the ordered benefits duplicated those previously compromised in the
settlement . The AU based the credit on proper findings of fact concerning the
claimant's permanent impairment rating and physical capacity as they actually existed
at the time of the settlement.
The employer asserts erroneously that the claimant failed to "establish a post-
award increase in permanent impairment rating necessary to support an increase in
benefits under KRS 342 .125 ." Dingo Coal Co . v. Tolliver, 129 S .W.3d 367 (Ky. 2004),
explains that KRS 342.125(1)(d) is procedural . It addresses the prima facie showing
necessary to prevail on the initial phase of a reopening but does not address the
substantive proof requirements to obtain additional benefits under KRS 342 .730(1).
Colwell v. Dresser Instrument Division, 217 S .W .3d 213 (Ky. 2006), explained
subsequently that KRS 342.125(1)(d) requires only greater "impairment ;" whereas, KRS
342 .730(1)(b) requires a greater "permanent impairment rating ." The decision also
explained that evidence of a greater permanent impairment rating constitutes objective
medical evidence of a worsening of impairment . The applicable standard for reviewing
the prima facie showing is whether the decision to reopen and order additional proof
was an abuse of discretion . Sexton v. Sexton , 125 S.W.3d 258, 272 (Ky. 2004),
describes such a decision as being "arbitrary, unreasonable, unfair, or unsupported by
sound legal principles ."
The employer relies on Hodges v. Sager Corp . , 182 S.W .3d 497 (Ky. 2005), in
which the worker filed her motion to reopen on the day before the statute of limitations
expired . She submitted no medical evidence and accompanied her motion to reopen
with a motion to hold the matter in abeyance until she obtained a medical report.
Noting that KRS 342.125(1)(d) requires a worker to support a motion to reopen with
"objective medical evidence" that permits impairment to be compared at the two
relevant points in time, the court determined that to permit a worker to obtain such
evidence after the motion was filed and after the statute of limitations had run was an
abuse of discretion that prejudiced the employer. Nowhere does Hodges state that a
comparison must be shown with evidence from a single medical expert who assigns a
permanent impairment rating for each point in time .
The decision to order additional proof in the present case was not an abuse of
discretion . Dr. Johnson noted the permanent impairment rating that Dr. Wolff assigned
in December 2002 and assigned a permanent impairment rating at reopening . It
provided an ample prima facie showing of a worsening of "impairment" since the
settlement for the purposes of KRS 342 .125(1)(d).
KRS 342 .285 designates the ALJ as the finder of fact with the sole authority to
weigh the evidence. KRS 342 .730(1)(b) requires evidence of a greater permanent
impairment rating to support a greater income benefit at reopening . The parties do not
dispute that the claimant's permanent impairment rating at settlement was 4.5% .
Although Dr. Wolff testified that it was 7% at reopening, the employer has pointed to
nothing that compelled the ALJ to rely on Dr. Wolff. Dr. Johnson's testimony that the
claimant's permanent impairment rating at reopening was 16% provided substantial
evidence to support the increased award . The claimant's testimony and the medical
evidence adequately supported findings that he did not retain the physical capacity to
return to his previous work either at settlement or at reopening.
To summarize, we conclude that the ALJ did not err in awarding an income
benefit based on a 16% permanent impairment rating for the balance of the 425-week
period and tripling it under KRS 342 .730(1)(c)1 because substantial evidence supported
the award . Nor did the ALJ err in crediting the employer at reopening for an amount
equal to the benefit for a 4.5% permanent impairment rating under KRS 342 .730(1)(b)
as tripled under KRS 342 .730(1)(c)1 . The settlement extinguished the employer's
liability for disability that existed at that time, and substantial evidence indicated that the
credit equaled the benefit for that disability.
The decision of the Court of Appeals is affirmed .
All sitting . All concur.
COUNSEL FOR APPELLANT,
LARRY DUNN:
MCKINNLEY MORGAN
MORGAN, MADDEN, BRASHEAR & COLLINS
921 SOUTH MAIN STREET
LONDON, KY 40741
COUNSEL FOR APPELLEE,
GARY SLATER, D/B/A CAROL DALE CONTRACTING
W . BARRY LEWIS
LEWIS AND LEWIS LAW OFFICES
151 EAST MAIN STREET
SUITE 100
P.O. BOX 800
HAZARD, KY 41702-0800 | 01-03-2023 | 10-08-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/659334/ | 12 F.3d 452
UNITED STATES of America, Plaintiff-Appellee,v.Lynn WILLIAMS, Defendant-Appellant.
No. 92-7778.
United States Court of Appeals,Fifth Circuit.
Jan. 13, 1994.Rehearing Denied Feb. 22, 1994.
Appeal from the United States District Court for the Southern District of Mississippi.
John DiGiulio (court appointed), Baton Rouge, LA, Britt Singletary, Singletary & Thrash, Biloxi, MS, for defendant-appellant.
George Phillips, U.S. Atty., Jackson, MS, Mervyn Hamburg, U.S. Dept. of Justice, Washington, DC, Steve Irwin, New Orleans, LA, Herbert Mondros, Asst. U.S. Attys., for plaintiff-appellee.
Before WISDOM, HIGGINBOTHAM, and JONES, Circuit Judges.
WISDOM, Circuit Judge:
1
The appellant/defendant, Lynn Williams, originally was indicted on August 7, 1991, on charges of conspiracy to embezzle funds belonging to a labor union pension plan under 18 U.S.C. Sec. 371 and embezzlement of those pension funds under 18 U.S.C. Sec. 664. A series of superseding indictments additionally charged him with making false statements to a federally insured bank under 18 U.S.C. Sec. 1014. On September 10, 1992, the trial court denied the defendant's motion to dismiss. In that motion, Williams alleged prosecutorial misconduct, a lack of materiality of the alleged false statements, and violations of his rights under the Speedy Trial Act1.
2
Williams was charged along with several co-defendants, all of whom pleaded guilty.2 He refused to do so, presumably because his participation in the criminal enterprise consisted only of lending his friends money and, on two fateful occasions, signing documents that they presented to him. A jury nonetheless found Williams guilty of one count of conspiracy and three counts under Sec. 1014; the jury found him not guilty on the two pension fund theft counts. After denying Williams's motion for judgment of acquittal or for a new trial, the district judge sentenced Williams to 21 months in prison. Williams appeals from that conviction. We AFFIRM his conviction for conspiracy but VACATE his convictions under Sec. 1014.
I. Background
3
Although the charges against Williams are not particularly complex, some background on the other defendants's relationships and business ventures is helpful to understand their context. Eugene Sykes, of Baton Rouge, Louisiana, owned and operated Morning Treat Coffee Co. for two years until it filed for bankruptcy in 1985. In July of that year, Charles Sykes (Eugene's brother) formed Southern Coffee Co. as a distinct successor to Morning Treat; Southern bought the remaining assets of Morning Treat. Although Charles owned 100% of Southern Coffee, he made Eugene president. Eugene spent his time handling the day-to-day affairs of Southern Coffee while Charles continued his main vocation, practicing law and representing labor unions along the Gulf Coast in Mississippi.
4
In April 1986, Eugene sought additional funding for Southern Coffee. He applied for a loan of two million dollars to the Louisiana Imports and Exports Trust Authority (LIETA), an organization designed to aid small businesses in Louisiana in gaining access to the import and export markets. During this time, Williams, an attorney in Baton Rouge, maintained an ongoing personal and business relationship with Eugene. For example, Williams accompanied Eugene when he went to New Orleans to address the LIETA Board and, further, applied to a bank for a letter of credit for Eugene to pledge as collateral. When that application was rejected, Williams personally borrowed $50,000 and lent the money to Eugene.
5
Always the entrepreneur, Eugene decided to get into the marble cutting business. In particular, he started China Marble of America, Inc., and sought to buy the Columbus Marble Works of Columbus, Mississippi (with a quarry in Alabama) for $460,000. Eugene told his brother Charles, the attorney, about his interest in the marble venture and enlisted his help in securing funding. Eugene knew that Charles was extremely influential with the unions he represented and might have access to money in their pension funds.
6
Eventually Eugene gave Charles documents outlining a proposal for the marble venture and proposing plans to build a Morning Treat Coffee plant in Mississippi. The proposal sought interim funding until a loan of one million dollars from LIETA could be consummated. Charles passed the proposal to co-defendants Wilson Evans and Robert Matthews, two trustees of the Gulfport Steamship Company-International Longshoremen's Association Pension Fund ("Fund").3
7
Evans and Matthews may have been blinded by wishful naivete: the proposal came when jobs were scarce. They doubtless saw the marble cutting venture as the source of some much-needed local employment opportunities. The reality, unfortunately, was quite different. The proposal was but a means of misappropriating pension money to secure loans for Eugene's various ventures. In addition, LIETA would never have given money to a venture in Mississippi (the organization was founded to aid small businesses in Louisiana, as the "L" in LIETA indicated).4 Evans and Matthews wrote Eugene a letter telling him that the Fund would pledge one million dollars in certificates of deposit to secure the LIETA loan. When no LIETA money was forthcoming, Eugene and Charles applied to two banks in Mississippi, using the pension's certificates of deposit as collateral.5 On the strength of the pledged collateral, the banks approved the loans. Eugene used the bank loans for the purchase of the marble equipment and for operating expenses for his other ventures.
8
When his businesses failed, Eugene's loans went into default. The banks exercised their rights over the certificates of deposit against the Fund. The pension fund lost the money represented by the certificates of deposit.
9
II. Facts Pertinent to the Section 1014 Charges Against Williams
10
In the course of arranging the bank loans, Charles prepared three form resolutions, a standard component of a loan application. Eugene then presented these forms to Williams who signed them. By signing both of the loan applications and, accordingly, attesting to the veracity of the information contained there, Williams allegedly made two statements that formed the basis for his convictions. First, the forms listed him as the treasurer, secretary, and certifying officer of Southern Coffee. Second, the resolutions stated that approval for the loans had been given at a meeting of the board of directors of Southern Coffee.
11
The government contended that Williams had never been elected to those positions or served in those capacities and, similarly, that the board of directors had not formally approved the resolution. The jury agreed and convicted Williams of making false statements to a federally insured bank.III. Materiality Under Section 1014
12
It is illegal under 18 U.S.C. Sec. 1014 to make a false, material statement to a federally insured banking institution. To sustain a conviction under this statute, the government must prove that: (1) the defendant made a false statement to a financial institution; (2) the defendant knew the statement was false when he made it; (3) he made it for the purpose of influencing the financial institution's action; and (4) the statement was false as to a material fact.6
13
The defendant challenges that the statements were false, that he knew they were false, and that they were material. He concedes that the statements were made to influence the bank's decision on Eugene and Charles's loan application.7 We need not address whether the statements were false or whether Williams knew of their falsity for we hold that the statements were not material. As a result, the government failed to meet its burden and we must vacate Williams's convictions under Sec. 1014.
14
Statutes imposing criminal penalties for making false statements long have required materiality as an essential element.8 Section 1014 is no exception: the government must prove that the false statement matters.
15
Statutes like section 1014 and section 1001 (the statute that makes it illegal to make a false statement to a government department or agency) are "highly penal" and, thus, require that the materiality element be taken seriously. In United States v. Beer9, we emphasized that the severe penalties flowing from a conviction for making a false statement require the government to "make a reasonable showing of the potential effects of the statement".10 In the present case, the government failed to do so.
16
Materiality is a legal determination made by the district court and, accordingly, is subject to complete review by this Court.11 A challenge to the district court's finding of materiality is not a challenge to the sufficiency of the evidence even though it is a product of a factual evidentiary showing.12 In other words, our review seeks to determine whether the district court's finding of materiality was erroneous as a matter of law.13
17
A false statement is material if it is shown to be capable of influencing a decision of the institution to which it was made.14 Moreover, the statements must be analyzed in the particular context in which they were made.15 In the context of the present matter, our inquiry is limited to whether the statements at issue--the loan application forms listing Williams as secretary and treasurer and attesting that the board of directors formally approved the loan--were capable of influencing the bank's decision to loan the Sykes brothers money. We hold that these statements were not capable of influencing the bank's decision one way or the other and, as such, fail to meet the materiality requirement.
18
The United States urges that we adopt the broadest possible definition of materiality, relying on the Lueben case for the proposition: "[I]f these statements were immaterial, why were they required by the lending institution in each of the transactions?"16 This dictum was intended as a rhetorical guidepost, not a bright line rule. Otherwise, the law of materiality would change every time that a bank printed up a new loan application form. We need not resort to these short-hand approaches, however, for the standard we are to apply is clear: If Williams's statements were capable of influencing the bank's decision, they are material.
19
The government marshalled evidence showing that the banks would not have made the loans if they had known that these statements were false. In actuality, the bank officers merely testified that they would not have approved the loans if they had discovered that the applicant had lied. That does not make the lies themselves material, however. This is a crucial distinction. Aided by hindsight, the banks undoubtedly would not have made these loans. Any bank would be understandably reluctant to lend money to a corporation when its officers lie on the loan application. In sum, the government's evidence demonstrates only that the banks maintain a policy that warns against loaning money to entities which do not tell the truth; it is no way probative of the materiality of these particular statements.
20
Williams, in contrast, urges that we limit the parameters of materiality by looking to the purpose of the loan application. He argues that the fact that a board of directors meeting may not have taken place or that Williams was not actually secretary or treasurer did not matter to the bank in its evaluation of the loan application. He asserts instead that the only material fact elicited by the forms was that Charles, as sole director and shareholder of Southern Coffee, had authorized his brother Eugene to act for and bind the corporation when dealing with the banks. Williams presented evidence that the purpose of a corporate resolution in this context is to identify the person who has the power to bind the corporation. As to these loans, that person was primarily Eugene and, secondarily, Charles. Hence, Williams argues, he was but an unnecessary (and immaterial) bystander.
21
We agree that an examination of the purpose of the loan forms is appropriate when defining the boundaries of materiality. The loan application includes standard forms used to verify the identity of those persons legally authorized to sign corporate checks and indorse instruments payable to the corporation. Moreover, the forms identify the persons capable of borrowing money from the bank in the corporations's name or of paying notes to the bank. The Executive Vice-Presidents of both the People's Bank and Merchant's Bank testified:
22
That the purpose of the Corporate Resolution was to establish which persons had authority to legally bind Southern Coffee Company and which persons had authority to withdraw funds on behalf of Southern Coffee Company.17
23
The forms clearly identify those people as Eugene Sykes, the president, and C.T. (Charles) Sykes, the agent. In the light of this purpose, the fact that Williams was or was not secretary and treasurer or the question of whether the board met is of no consequence.
24
When we look to the purpose of the bank forms, we are asking whether reliance on the false statements would have changed the outcome. In the Beer case, for example, we held that the defendant's failure to include a loan to which he was accommodated on an FDIC form was immaterial.18 We explained that one way of determining whether the statements were capable of influencing a bank's decision is to extrapolate from the facts and ask, "If the bank had relied on the defendant's statements, would it have made any difference?" Similarly, the Weinstock court held that inaccurate information about the name of an organization on particular dates was not material for, if relied on, it would not have influenced any decision made by the agency to which it was directed.19
25
From that point of view, the cases upon which the government relies are distinguishable. This is not a case like Lueben, where the defendant lied about his income to make his financial position look more attractive to the bank.20 Nor is it like Puente, where the defendant lied about his previous felony conviction in an effort to whitewash his past.21 In those circumstances, it is clear why a bank or federal institution, armed with the truth, would have arrived at a different decision on a pending application.
26
Section 1014 was not designed to convict on a technicality. More is required. Williams merely signed the resolutions based upon the representations of Eugene and Charles. Williams's signature reflected Charles's designation of a secretary and treasurer, if only for the purposes of procuring the loan money.22 The banks wanted to know who was responsible for these loans. Eugene and Charles were; Williams was not. We hold that Williams's statements were not material and, accordingly, we vacate his convictions under Sec. 1014.23
IV. The Conspiracy Count
27
Williams was charged under 18 U.S.C. Sec. 371 with conspiracy to convert to one's own use securities of a pension fund. Although the jury acquitted Williams of the substantive crime of embezzling pension funds, it convicted him of conspiracy. Upon appeal, he charges that the evidence was not sufficient to sustain that verdict.
28
When a challenge is made to the sufficiency of the evidence supporting a criminal conviction, the appellate court views the evidence in the light most favorable to the government, and with all reasonable inferences and credibility choices drawn in support of the jury's verdict.24 The question is whether a reasonable jury, as the final arbiter of the weight of the evidence, could find that the evidence establishes Williams's guilt beyond a reasonable doubt.
29
To sustain a conviction for conspiracy, the government had to prove that: (1) two or more persons agreed to commit a crime; (2) the defendant knew of the agreement and voluntarily became a part of it; and (3) at least one of the conspirators committed an act in furtherance for the conspiracy.25 Williams contends that the government failed to meet its burden with respect to the second prong. He argues that the evidence is insufficient to show that he possessed the requisite knowledge of the conspiracy and voluntarily participated in it.
30
Although we will not conjecture as to what weight the jury accorded any particular piece of evidence, some evidence stands out for its probative worth. For example, the government demonstrated that on at least two occasions discussions took place in Williams's presence outlining the conspiracy to use the pension fund certificates as collateral for the loans. The pension fund certificates were identified specifically as Longshoreman Pension Fund CD's. In addition, the government properly introduced circumstantial evidence of guilt, including the defendant's presence at discussions and associations with the co-conspirators.26
31
The government cast doubt on Williams's contention that he never knew that the pension fund CD's were pledged as collateral for the loans. Williams maintained close business relationships with his co-defendants. He knew that Southern Coffee was in some financial trouble, for he had lent Eugene Sykes large sums of money to keep the company afloat. Williams knew that Eugene needed $435,000 to procure the marble cutting business (the purchase price of $460,000 less the $25,000 that Williams had lent him). Accordingly, Williams knew that Eugene would be going to Mississippi banks for that money. Similarly, the certificates were used to secure loans well in excess of the $460,000 that Williams knew was needed for the marble cutting venture. In fact, the loan from People's Bank alone amounted to $600,000, leaving an unexplained surplus.
32
Williams is a trained attorney and no stranger to the world of business. A reasonable jury could have concluded that Williams understood the intent of his friends and, more, knew that Eugene had appropriated the pension funds's CD's to finance his various ventures.
33
Although Williams's false statements on the bank forms were not material, he was by no means an innocent bystander in the overall criminal scheme. While his co-defendants plotted the enterprise, Williams helped them achieve their aims. Williams did introduce some exculpatory testimony, but the jury apparently elected to accord it little credibility.27 While no one piece of evidence may be patently sufficient, in the aggregate the quantum of evidence introduced was enough to allow a jury to reach a guilty verdict.28 We affirm his conspiracy conviction.
V. The Speedy Trial Act
34
The Speedy Trial Act ("the Act")29 requires that a federal criminal defendant be tried within seventy days of his indictment or appearance in front of a judicial officer, whichever comes later.30 If the defendant is not brought to trial within this statutory period, the indictment must be dismissed.31 Williams charges that the district court erred in denying his motion to dismiss which he based, in part, on an allegation that the court violated the Act's provisions.32
35
We will not belabor the Speedy Trial Act issue in the light of the detailed opinion entered by the district judge. The Act provides for a number of "exclusions" in which time that passes is not charged against the 70-day clock.33 The district court added up the excludable time and concluded that fewer than 70 days had expired. We agree with that conclusion.
36
Williams first charges that the district judge improperly tolled the clock by granting continuances after two of the superseding indictments.34 He also complains that the district judge granted continuances without articulating his reasons for doing so as mandated by Sec. 3161(h)(8) of the Act. That section permits a judge to toll the clock if, in that judge's estimation, "the ends of justice served by taking such action outweigh the best interest of the public and the defendant in a speedy trial."35 The Act reflects, in part, a belief that the boundaries of fairness affect not only the maximum time that a criminal defendant may be held without trial, but a minimum time prior to which it would be unfair to bring him to trial.36
37
The question presented, then, is whether these continuances were within the "ends of justice" and, further, whether the judge's failure to articulate reasons for the continuances constitutes reversible error. The court's reasons undoubtedly were those outlined by the government in its motion: the plea negotiations with the defendant had failed and the government had new evidence to submit in conjunction with a superseding indictment. The plea negotiations favored both sides; we cannot say upon review that justice was not served by granting a continuance after those negotiations broke down. We uphold the court's determination that the clock was properly tolled in these circumstances.
38
As for the judge's failure to articulate the bases for the continuances, we look to the two-fold purpose of the articulation requirement: It ensures first, that the trial court will carefully consider all relevant factors and, second, that a clear record will exist for appeal.37 Although Sec. 3161(h)(8)(A) requires an "ends of justice analysis" reflected in the record for every continuance granted, we explained in United States v. Eakes38 that reversal is not in order when the reasons for a continuance are patent.
39
We decline to apply a hypertechnical construction to the language of the Act in this case where the judge clearly granted the continuance for the benefit of and at the indirect request of the defendant who complains of that grant.39
40
In the case at hand, the district court's reasons for granting the continuance are clear and justified. Accordingly, we will not reverse because the court failed to articulate its reasons. Although we uphold the district court's determination, we encourage any court confronting this issue to err on the side of caution and explain for the record how the continuance serves the ends of justice.
41
Williams next complains that the district court erred when it determined that the defendant had motions outstanding after March 4, 1992. The Act excludes from calculation the period that runs from the time when pretrial motions start pending until the court resolves them.40 A motion under advisement is excludable up to thirty days.41 If the court has several motions on which it must rule, however, this time period can be reasonably extended.42 Similarly, the time between the filing of a motion and the hearing on that motion is to be excluded, even if the time lapse was not reasonable.43
42
Specifically, Williams argues that the period running from March 4, 1992, to July 28, 1992 (146 days in all) should be counted against the clock. The former date, he argues, marks the last day on which he still had a motion pending (his motion for severance, which ultimately was denied). The latter date marks the next time he filed a motion, once again tolling the clock. The district court, however, specifically rejected this argument. The court stated, unlike the characterization Williams would give, that Williams still had a number of pretrial motions pending and undecided at the time the motion for severance was denied.44 We will not disturb the district court's explicit conclusion that those motions remained unresolved beyond the disposition of the defendant's motion to sever, in the absence of some indication to the contrary.
43
Although the superseding indictments and multiple defendants in this case complicate a Speedy Trial Act analysis, we hold that the district court's conclusion was correct; fewer than 70 non-excludable days ticked off the Speedy Trial clock.
VI. Conclusion
44
For the foregoing reasons, we AFFIRM Williams's conviction for conspiracy under 18 U.S.C. Sec. 371; we VACATE his convictions 18 U.S.C. Sec. 1014; and we REMAND this matter to the district court for re-sentencing in the light of this result.
1
18 U.S.C. Sec. 3161 et seq
2
Prior to the second indictment, co-defendants Charles and Eugene Sykes pleaded guilty. Prior to the third indictment, co-defendants Andrew Cutler, Wilson Evans, and Robert Matthews pleaded guilty, leaving Williams the sole remaining defendant
3
Williams also was a business associate of Evans and Matthews
4
All of that really was moot because the State of Louisiana had yet to fill LIETA's coffers
5
The banks involved are the People's Bank of Biloxi and Merchant's Bank and Trust Company, Bay St. Louis
6
United States v. Thompson, 811 F.2d 841, 844 (5th Cir.1987)
7
Although Eugene and Charles applied to two banks for two distinct loans, we discuss these applications in the singular where the plural would require a cumbersome syntax
8
Sir Edward Coke wrote in 1680 that perjury is a crime committed by one who "sweareth absolutely, and falsely in a matter material to the issue." 3 E. Coke, Institutes 164 (6th ed. 1680). Otherwise, as Blackstone stated, "if it only be in some trifling collateral circumstance, to which no regard is paid, it is not penal." 4 W. Blackstone, Commentaries * 137
9
518 F.2d 168 (5th Cir.1975)
10
Id. at 172
11
United States v. Lueben, 838 F.2d 751, 753 (5th Cir.1988)
12
See Id
13
Id
14
Id. at 754. The statement need not actually influence a decision provided that it is capable of doing so. Reliance is irrelevant. United States v. Puente, 982 F.2d 156, 159 (5th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 2934, 124 L.Ed.2d 684 (1993)
15
Weinstock v. United States, 231 F.2d 699, 702 (D.C.Cir.1956)
16
Lueben, 838 F.2d at 755
17
Williams offered this same testimony at trial
18
Beer, 518 F.2d at 172
19
Weinstock, 231 F.2d at 702. This framework should not be confused with our earlier statement that the legal determination of materiality is made without concern for whether the bank actually relied
20
Lueben, 838 F.2d at 754
21
Puente, 982 F.2d at 158-59
22
In fact, this assertion forms the basis of Williams's contention that the statements were not actually false. Williams argues that as a sole shareholder and director, Charles could have had the meetings "in his head"; i.e., all activity that Charles took necessarily was the product of a "meeting" and necessarily had the unanimous support of the board of directors (of which Charles was the only member). As Williams argues, when Charles turned in resolutions to the banks indicating that a meeting had taken place and that Williams was the secretary and treasurer, those assertions were--by virtue of the fact that Charles said so--true. Similarly, Williams relies on Charles's statement that he did not intend to submit false documents; hence, as Williams argues, Charles must have believed that Williams was the secretary and treasurer
The problem, however, came when Charles testified, in no uncertain terms, that no such meeting occurred and that Williams never was the secretary or treasurer of Southern Coffee. Although it may appear somewhat unfair for Charles now to say that these assertions were untrue, his is the only viable interpretation of what he meant and what actually occurred in a company where he was the sole shareholder and the sole director.
23
As previously mentioned, in the light of our holding that the statements at issue are not material, we need not determine whether the statements were actually false or whether Williams knew they were false
24
Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 86 L.Ed. 680 (1942); United States v. Kington, 875 F.2d 1091, 1100 (5th Cir.), reh'g denied, 878 F.2d 815 (1989)
25
United States v. Frydenlund, 990 F.2d 822, 825 (5th Cir.), cert. denied, --- U.S. ----, 114 S.Ct. 337, 126 L.Ed.2d 281 (1993); United States v. Chaney, 964 F.2d 437, 449 (5th Cir.1992). It is important to note that Williams himself need not have committed an overt act in furtherance of the conspiracy so long as one of his co-conspirators did. Chaney, 964 F.2d at 449
26
United States v. Magee, 821 F.2d 234, 239 (5th Cir.1987). Note, however, that mere presence alone does not establish knowledge or participation. United States v. Espinoza-Seanez, 862 F.2d 526, 537 (5th Cir.1988), reh'g denied, 867 F.2d 1428 (1989)
27
See United States v. Barksdale-Contreras, 972 F.2d 111, 114 (5th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1060, 122 L.Ed.2d 366 (1993) (the jury is the final arbiter of credibility)
28
See Id
29
18 U.S.C. Sec. 3161, et seq
30
Id. Sec. 3161(c)(1)
31
Id. Sec. 3162(a)(2)
32
The burden is, at all times, on the defendant to prove that such dismissal is appropriate. 18 U.S.C. Sec. 3162(a)(2)
33
Id. Sec. 3161(h)
34
When a superseding indictment is filed prior to the dismissal of the first indictment, as happened three times in the present matter, the original 70-day clock remains the appropriate measure. Id. Sec. 3161(h)(6). The defendant devotes much space to this simple proposition which does not appear to be in dispute. Moreover, because the superseding indictments retained some of the original charges, motions pending on the original charges tolled the running of the clock for new charges in the superseding indictment
35
Id. Sec. 3161(h)(8)(A)
36
Id. Sec. 3161(c)(2)
37
United States v. Rush, 738 F.2d 497, 507 (1st Cir.1984), cert. denied, 470 U.S. 1004, 105 S.Ct. 1355, 84 L.Ed.2d 378 (1985). Although the reasons for an "ends of justice" continuance must be articulated, they need not be articulated at the time the continuance is granted. Id
38
783 F.2d 499 (5th Cir.), cert. denied, 477 U.S. 906, 106 S.Ct. 3277, 91 L.Ed.2d 567 (1986)
39
Id. at 504
40
18 U.S.C. Sec. 3161(h)(1)(F)
41
Id. Sec. 3161(h)(1)(J)
42
United States v. Tibboel, 753 F.2d 608, 612 (7th Cir.1984)
43
Henderson v. United States, 476 U.S. 321, 329-30, 106 S.Ct. 1871, 1876-77, 90 L.Ed.2d 299, 308 (1986)
44
By the district court's calculations, March 4 really had no significance, for, although the central motion to sever had been resolved, the other outstanding motions continued to toll the clock. See United States v. McCusker, 936 F.2d 781, 783 (5th Cir.1991). The origins of the dispute are clear: the judge who oversaw Williams's motion to sever gave conflicting indications regarding the finality of his judgment on all outstanding motions | 01-03-2023 | 04-16-2012 |
https://www.courtlistener.com/api/rest/v3/opinions/3008645/ | IMPORTANT NOTICE
NOT TO BE PUBLISHED OPINION
THIS OPINION IS DESIGNATED "NOT TO BE PUBLISHED ."
PURSUANT TO THE RULES OF CIVIL PROCEDURE
PROMULGATED BY THE SUPREME COURT, CR 76 .28(4)(C),
THIS OPINION IS NOT TO BE PUBLISHED AND SHALL NOT BE
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RENDERED AFTER JANUARY 1, 2003, MAY BE CITED FOR
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OPINION THAT WOULD ADEQUATELY ADDRESS THE ISSUE
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BY THE COURT SHALL BE SET OUT AS AN UNPUBLISHED
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RENDERED : JUNE 19, 2008
NOT TO BE PUBLISHED
osill'urme Court of
2007-SC-000202-WC
LARRY DUNN APPELLANT
ON APPEAL FROM COURT OF APPEALS
V. 2006-CA-001845-WC
2006-CA-001886-WC
WORKERS' COMPENSATION BOARD NO . 01-69346
GARY SLATER, D/B/A CAROL DALE CONTRACTING ;
HON . HOWARD E . FRASIER, JR .,
ADMINISTRATIVE LAW JUDGE ; AND
WORKERS' COMPENSATION BOARD APPELLEES
AND
2007-SC-000238-WC
GARY SLATER, D/B/A CAROL DALE CONTRACTING APPELLANT
ON APPEAL FROM COURT OF APPEALS
V. 2006-CA-001845-WC
2006-CA-001886-WC
WORKERS' COMPENSATION BOARD NO . 01-69346
LARRY DUNN;
HON . HOWARD E. FRASIER, JR.,
ADMINISTRATIVE LAW JUDGE AND
WORKERS' COMPENSATION BOARD APPELLEES
MEMORANDUM OPINION OF THE COURT
AFFIRMING
An Administrative Law Judge (ALJ) determined at the reopening of a settled
award that the claimant did not retain the physical capacity to return to work as a heavy
equipment operator after his injury and that his permanent impairment rating had
increased since the settlement. The ALJ awarded a triple income benefit under KRS
342 .730(1)(b) and (1)(c)1 that was based on the present impairment rating . The award
accounted for the benefit compromised in the settlement by crediting the employer with
a triple benefit that was based on the impairment rating at settlement. The Workers'
Compensation Board and the Court of Appeals affirmed .
The claimant argues on appeal that the ALJ erred by crediting the employer for
an amount greater than the benefits that it paid under the settlement . The employer
argues in a cross-appeal that the ALJ erred by finding an increased permanent
impairment rating because no medical expert assigned a rating for both points in time.
We affirm. KRS 342.125(7) prohibits any statement contained in a settlement
from being viewed as an admission against interest at reopening. Special Fund v.
Francis, 708 S.W .2d 641 (Ky. 1986), explains that a finding may not be disturbed on
appeal if it is supported by substantial evidence, i .e. , if it is reasonable under the
evidence. The Court of Appeals did not err because the ALJ construed KRS 342.125
correctly and because substantial evidence supported the findings at issue.
The claimant crushed the middle three fingers of his left hand on November 7,
2001, while working for the defendant-employer as a heavy equipment operator. Dr.
Wolff treated the injury and performed surgery. He released the claimant to return to
work on April 1, 2002, and released him from treatment in December 2002 . At that
time, he assigned a 4.5% permanent impairment rating but failed to address the
claimant's physical capacity to return to work as a heavy equipment operator. The
claimant found work in a cabinet-making business and did not return to coal mining.
The employer paid temporary total disability (TTD) benefits voluntarily until April
2, 2002. Without obtaining legal representation or filing an application for benefits, the
claimant agreed to settle the permanent disability claim for a lump sum that was based
on a 4.5% permanent impairment rating and calculated under KRS 342.730(1)(b) for a
period of 425 weeks. Dr. Wolffs December 16, 2002, report was the only medical
record attached to the Form 111 Agreement as to Compensation . An AU approved the
agreement on January 28, 2003
The claimant continued to experience pain and extreme sensitivity in the affected
fingers due to a thinning of the tissue in the fingertips . He also experienced chronic
skin breakdowns, particularly in the middle finger. Nonetheless, he declined a
suggested surgery because it would necessitate a difficult rehabilitation and offer
limited benefit . He filed a motion to reopen on May 13, 2005, alleging a worsening of
condition and increased disability . He supported the motion with a report and affidavit
from Dr. Johnson, who evaluated him at his attorney's request.
The employer objected . It argued that Dr. Johnson's report failed to state what
permanent impairment rating he would have assigned at settlement and, therefore,
failed to show that the rating had increased since the settlement .
Dr. Johnson's report summarized the medical records in detail, noting that Dr.
Wolff had assigned a 4.5% permanent impairment rating in December 2002 . Dr.
Johnson also performed an exhaustive physical examination of the left hand and
fingers . He noted that the AMA Guides to the Evaluation of Permanent Impairment
permitted the claimant's permanent impairment rating to be assigned using two different
methods and that they instruct the evaluator to report the higher rating . Dr. Johnson
assigned a 16% permanent impairment rating based on tissue loss, loss of range of
motion, and skin characteristics or, in the alternative, a 13% rating based on a total
amputation of the affected digits . He recommended restrictions specific to the deficits
in the hand and stated that the claimant did not retain the physical capacity to return to
the type of work performed at the time of injury. Dr. Johnson's affidavit stated that the
claimant's medical condition had deteriorated since the settlement and that his pain and
restrictions had also increased, which resulted in a greater occupational disability.
An ALJ determined that the claimant made a sufficient prima facie case for
reopening under KRS 342 .125 and Stambaugh v. Cedar Creek Mining Co . , 488 S .W.2d
681 (Ky. 1972), and assigned the claim for further adjudication . The employer then
submitted a letter from Dr. Wolff, who evaluated the claimant in July 2005. A functional
capacity evaluation performed at that time yielded a 7% permanent impairment rating
based on loss of range of motion. The figure did not include a rating for tissue loss or
skin characteristics . Dr. Wolff recommended the use of gloves for cold protection and
digit gel caps to decrease sensitivity in the fingertips but added no impairment rating for
those deficits . In his opinion, the claimant could continue to work as a cabinetmaker
with no restrictions .
The claimant testified at the hearing that his difficulty gripping objects had
increased since the settlement and that the strength in his hand had decreased . The
pain in his fingers had begun to extend into his hand and forearm, resulting in a
constant dull ache that increased if he used his fingers extensively when it was cold.
He stated that he continued to work as a cabinetmaker but earned less than at the time
of the injury .
The AU determined that the claimant proved a change of disability with objective
medical evidence of increased impairment. Noting that any statement in the settlement
was not binding at reopening, the AU determined from the evidence that the claimant's
permanent impairment rating was 4 .5% at settlement, based on Dr. Wolfs December
2002 report, and that it was 16% at reopening, based on Dr. Johnson's report. The AU
also determined that the claimant lacked the physical capacity to return to work as a
scoop operator after the injury . The claimant's award consisted of a triple income
benefit under KRS 342.730(1)(b) and (1)(c)1, payable from the date of the motion to
reopen for the balance of the compensable period . As modified on reconsideration, it
accounted for the benefits compromised in the settlement by permitting the employer to
credit a triple benefit for a 4 .5% permanent impairment rating under KRS 342 .730(1)(b)
and (1)(c)1 .
The claimant complains that AU permitted the employer to credit more benefits
than it actually paid under the settlement and argues that the employer did not assert
that it was entitled to a greater credit until its petition for reconsideration. He argues
that KRS 342.125(4) prohibits a reopening from affecting a previous order or award
regarding sums already paid and requires any change to be ordered from the date the
motion to reopen is filed . He concludes that the AU erred by crediting more than the
weekly benefit the settlement provided under KRS 342 .730(1)(b) . We disagree .
The claimant did not litigate his initial claim ; he agreed to settle it. A settled
award is the product of a compromise ; therefore, the disability or permanent impairment
rating that it states may or may not be accurate . Whittaker v. Rowland, 998 S.W .2d
479 (Ky. 1999), Beale v. Faultless Hardware, 837 S.W.2d 893 (Ky. 1992), and Newberg
v. Davis, 841 S.W .2d 164 (Ky. 1992), explain that the parties to a settlement are
entitled to the benefit of their bargain and that KRS 342 .125(7) prohibits any statement
contained in a settlement agreement from being considered as an admission against
interest if the claim is reopened . As a consequence, the AU must compare the
worker's actual disability at settlement and reopening. If it has increased, the worker
receives additional benefits for the difference . The claimant's award contained a credit
that was patently erroneous under the findings of fact; therefore, the AU did not err in
correcting it on reconsideration.
The lump sum that the claimant received in the settlement compromised any
existing right to weekly benefits for a period of 425 weeks. Only part of that period had
elapsed when he filed the motion to reopen . As he points out, KRS 342 .125(4)
prohibits an award entered at reopening from affecting previously-paid sums and
requires it to be prospective, from the date of the motion.
The award that the claimant received at reopening did not violate KRS
342,125(4) because the AU left his initial award in place and entered a prospective
award that provided increased income benefits for the balance of the 425-week period .
As corrected on reconsideration, the prospective award credited the employer to the
extent that the ordered benefits duplicated those previously compromised in the
settlement . The AU based the credit on proper findings of fact concerning the
claimant's permanent impairment rating and physical capacity as they actually existed
at the time of the settlement.
The employer asserts erroneously that the claimant failed to "establish a post-
award increase in permanent impairment rating necessary to support an increase in
benefits under KRS 342 .125 ." Dingo Coal Co . v. Tolliver, 129 S .W.3d 367 (Ky. 2004),
explains that KRS 342.125(1)(d) is procedural . It addresses the prima facie showing
necessary to prevail on the initial phase of a reopening but does not address the
substantive proof requirements to obtain additional benefits under KRS 342 .730(1).
Colwell v. Dresser Instrument Division, 217 S .W .3d 213 (Ky. 2006), explained
subsequently that KRS 342.125(1)(d) requires only greater "impairment ;" whereas, KRS
342 .730(1)(b) requires a greater "permanent impairment rating ." The decision also
explained that evidence of a greater permanent impairment rating constitutes objective
medical evidence of a worsening of impairment . The applicable standard for reviewing
the prima facie showing is whether the decision to reopen and order additional proof
was an abuse of discretion . Sexton v. Sexton , 125 S.W.3d 258, 272 (Ky. 2004),
describes such a decision as being "arbitrary, unreasonable, unfair, or unsupported by
sound legal principles ."
The employer relies on Hodges v. Sager Corp . , 182 S.W .3d 497 (Ky. 2005), in
which the worker filed her motion to reopen on the day before the statute of limitations
expired . She submitted no medical evidence and accompanied her motion to reopen
with a motion to hold the matter in abeyance until she obtained a medical report.
Noting that KRS 342.125(1)(d) requires a worker to support a motion to reopen with
"objective medical evidence" that permits impairment to be compared at the two
relevant points in time, the court determined that to permit a worker to obtain such
evidence after the motion was filed and after the statute of limitations had run was an
abuse of discretion that prejudiced the employer. Nowhere does Hodges state that a
comparison must be shown with evidence from a single medical expert who assigns a
permanent impairment rating for each point in time .
The decision to order additional proof in the present case was not an abuse of
discretion . Dr. Johnson noted the permanent impairment rating that Dr. Wolff assigned
in December 2002 and assigned a permanent impairment rating at reopening . It
provided an ample prima facie showing of a worsening of "impairment" since the
settlement for the purposes of KRS 342 .125(1)(d).
KRS 342 .285 designates the ALJ as the finder of fact with the sole authority to
weigh the evidence. KRS 342 .730(1)(b) requires evidence of a greater permanent
impairment rating to support a greater income benefit at reopening . The parties do not
dispute that the claimant's permanent impairment rating at settlement was 4.5% .
Although Dr. Wolff testified that it was 7% at reopening, the employer has pointed to
nothing that compelled the ALJ to rely on Dr. Wolff. Dr. Johnson's testimony that the
claimant's permanent impairment rating at reopening was 16% provided substantial
evidence to support the increased award . The claimant's testimony and the medical
evidence adequately supported findings that he did not retain the physical capacity to
return to his previous work either at settlement or at reopening.
To summarize, we conclude that the ALJ did not err in awarding an income
benefit based on a 16% permanent impairment rating for the balance of the 425-week
period and tripling it under KRS 342 .730(1)(c)1 because substantial evidence supported
the award . Nor did the ALJ err in crediting the employer at reopening for an amount
equal to the benefit for a 4.5% permanent impairment rating under KRS 342 .730(1)(b)
as tripled under KRS 342 .730(1)(c)1 . The settlement extinguished the employer's
liability for disability that existed at that time, and substantial evidence indicated that the
credit equaled the benefit for that disability.
The decision of the Court of Appeals is affirmed .
All sitting . All concur.
COUNSEL FOR APPELLANT,
LARRY DUNN:
MCKINNLEY MORGAN
MORGAN, MADDEN, BRASHEAR & COLLINS
921 SOUTH MAIN STREET
LONDON, KY 40741
COUNSEL FOR APPELLEE,
GARY SLATER, D/B/A CAROL DALE CONTRACTING
W . BARRY LEWIS
LEWIS AND LEWIS LAW OFFICES
151 EAST MAIN STREET
SUITE 100
P.O. BOX 800
HAZARD, KY 41702-0800 | 01-03-2023 | 10-08-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/862498/ | Unable to extract the content from this file. Please try reading the original. | 01-03-2023 | 04-26-2013 |
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https://www.courtlistener.com/api/rest/v3/opinions/862503/ | IN THE SUPREME COURT OF MISSISSIPPI
NO. 97-CA-01166-SCT
IN THE MATTER OF THE ESTATE OF EARL EDSEL STEWART, DECEASED; THE
LAW FIRM OF LOGAN & BISE
v.
R. L. STEWART, EXECUTOR
DATE OF JUDGMENT: 02/28/97
TRIAL JUDGE: HON. SHANNON S. CLARK
COURT FROM WHICH APPEALED: HARRISON COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANT: CARTER O. BISE
FLOYD J. LOGAN
ATTORNEY FOR APPELLEE: JAMES M. HALL
NATURE OF THE CASE: CIVIL - OTHER
DISPOSITION: REVERSED AND RENDERED - 2/18/1999
MOTION FOR REHEARING FILED:
MANDATE ISSUED: 4/12/99
EN BANC.
WALLER, JUSTICE, FOR THE COURT:
STATEMENT OF THE CASE
¶1. The law firm of Logan & Bise perfected this appeal from the trial court's denial of their proof of claim
filed against the estate of Earl Edsel Stewart. Logan & Bise assign the following issues for appellate review:
I. THE TRIAL COURT ERRED AS A MATTER OF LAW IN HOLDING THAT THE
PROVISIONS OF MISS. CODE ANN. § 15-1-49 (1972) BARRED RECOVERY OF
THOSE PORTIONS OF THE CLAIM FILED FOR PROBATE BY LOGAN & BISE
WHICH REPRESENTED CHARGES FOR SERVICES AND EXPENSES INCURRED
MORE THAN THREE YEARS PRIOR TO THE FILING OF THE PROOF OF CLAIM.
II. THE TRIAL COURT ERRED AS A MATTER OF LAW IN HOLDING THAT
APPELLANTS WERE NOT ENTITLED TO RECOVER FOR SERVICES PERFORMED
WITHOUT A WRITTEN CONTRACT.
STATEMENT OF THE FACTS
¶2. Sometime in 1987, Edsel Stewart ("Stewart") approached attorney Floyd J. Logan ("Logan") seeking
legal representation regarding a dispute with his adjoining property owner, W.C. Fore ("Fore"). Stewart
believed that a strip mine being operated on Fore's property was damaging his land and violated certain
regulations promulgated by the Department of Environmental Quality ("DEQ"). According to Logan,
Stewart balked at the standard contingency fee contract. As a result, and again according to Logan, the
parties settled on "a cost plus a reduced hourly rate and a reduced contingency fee" arrangement. However,
there was never a written agreement reached concerning the contingency fee, and further, no written
contract has ever been found by either party.
¶3. Stewart died of cancer in September of 1995. Prior to his death, the DEQ issued a ruling adverse to
Stewart and a lawsuit had been filed on his behalf by the law firm of Logan & Bise, but neither the appeal
of the DEQ ruling nor the lawsuit had been resolved at the time of Stewart's death. In October of 1995,
Stewart's daughter, Glenda Bach ("Glenda") directed Carter Bise ("Bise"), of Logan & Bise(1), to dismiss
the DEQ appeal. Subsequently, the Estate sold Stewart's property to Fore for the sum of $465,000. The
terms of the sale were negotiated by the executor of the estate, R.L. Stewart ("R.L."), without the
assistance of the law firm of Logan & Bise. Bise testified that he had obtained the services of an appraiser,
John Holliday, to assist in the sale of the property.
¶4. After her father's death, Glenda and her husband, Gene Bach ("Gene"), met with Bise to discuss the
status of the firm's representation of Stewart. Glenda and Gene testified that Bise told them that Stewart did
not owe Logan & Bise any money. Likewise, R.L. testified that in the months before his death Stewart
never mentioned being indebted to Logan & Bise. R.L. further testified that Bise told him that "Edsel didn't
owe him anything." Bise testified that he told R.L., Gene, and Glenda that they did not owe him anything.
He stated that he was not referring to the fee owed by Stewart, but only to any fee that might be owed by
R.L. or Gene and Glenda.
¶5. It is the position of Logan & Bise that the representation of Stewart continued from 1987 to late 1995,
when they were directed to dismiss the DEQ appeal and the property in question was sold to Fore. The
evidence showed that over the course of 8 years, Logan & Bise sent two bills for legal services to Stewart.
The first bill was sent June 8, 1988, and totaled $737.05, which represented 9.25 hours of work at $75 per
hour and $43.30 in out-of-pocket expenses. Stewart promptly paid this bill by check on June 10, 1988.
The second bill was sent August 9, 1988, and was for $817.26. The amount of time expended was 10.50
hours at $75 per hour and $29.76 in expenses for a total of $817.26. Again, Stewart paid the bill by check
dated August 16, 1988. These two bills were the only statements ever sent to Stewart by Logan or Logan
and Bise.
¶6. Logan & Bise filed a proof of claim against the estate. Special Chancellor Shannon Clark presided over
the trial of this cause on February 13, 1997. The chancellor disallowed the law firm's proof of claim, with
the exception of $3,606.11 in out-of-pocket expenses incurred within the three years prior to the filing of
the claim. Chancellor Clark found that the three (3) year statute of limitations found in Miss. Code Ann.
§ 15-1-29 (1972)(2) applied to the claims of Logan & Bise. Although he found that the legal work had
been performed for the benefit of Stewart, he ruled that there was never a clear understanding between the
lawyers and the client as to the fee and any payments, and disallowed any recovery for legal services.
Pursuant to M.R.C.P. 59, Logan & Bise filed a petition for reconsideration that was denied by the
chancellor on September 10, 1997. The law firm perfected an appeal to this Court.
DISCUSSION OF THE LAW
¶7. Before addressing the merits of the case at bar, it is necessary to discuss several points raised by
Stewart in his brief. He asserts that the claims of Logan & Bise are barred by the ninety (90) day notice to
creditors statute found in Miss. Code Ann.§ 91-7-151 (1972). The record reveals that this issue was
decided adversely to Stewart by another chancellor in a different proceeding. Stewart apparently never
appealed the decision of the chancellor. Chancellor Clark, during the trial of the case sub judice, found that
the issue had already been decided and refused to consider it. Regardless, once a party timely files an
appeal, any other party may file a cross-appeal within fourteen (14) days. M.R.A.P. 4(c). Since Stewart
has not filed a cross-appeal in this Court, his argument is not properly before this Court and we decline to
consider it now.
¶8. Additionally, Stewart asserts that the petition for reconsideration filed by Logan & Bise was neither
properly designated as a M.R.C.P. 59 motion nor timely filed. Logan & Bise filed a petition for
reconsideration five (5) days after the entry of judgment in the lower court. A petition for reconsideration is
treated as a motion to amend judgment pursuant to M.R.C.P. 59(e) and must be filed within ten (10) days.
See Allen v. Mayer, 587 So. 2d 255, 261 (Miss. 1991). As such, this appeal has been timely filed and is
properly before this Court.
I. THE TRIAL COURT ERRED AS A MATTER OF LAW IN HOLDING THAT THE
PROVISIONS OF MISS. CODE ANN. § 15-1-49 (1972) BARRED RECOVERY OF
THOSE PORTIONS OF THE CLAIM FILED FOR PROBATE BY LOGAN & BISE
WHICH REPRESENTED CHARGES FOR SERVICES AND EXPENSES INCURRED
MORE THAN THREE YEARS PRIOR TO THE FILING OF THE PROOF OF CLAIM.
¶9. Logan & Bise concede that the three (3) year statute of limitations found in § 15-1-49 governs their
claim filed against the Estate of Stewart. They contend, however, that the cause of action accrued when the
Estate settled the lawsuit with Fore by selling the property for $465,000. As such, they submit that the
statute of limitations began to run from that date. It is true that § 15-1-49, rather than § 15-1-29, applies to
contracts for professional services. See Michael S. Fawer v. Evans, 627 So. 2d 829, 833 (Miss. 1993).
We must determine whether the chancellor was manifestly erroneous in finding that portions of the claim
were barred by the three (3) year statute of limitations.
¶10. On hearing the petition for reconsideration the chancellor found the following:
Now, I recognize that the statute of limitations may not apply if you have an understanding with your
client that you will not bill him until the conclusion of the matter, then your claim doesn't come due until
the conclusion of the matter. But the evidence here indicates that that was not the understanding, but
rather that a bill was made eight years prior to that and was paid and no additional bills were sent.
And for that reason I applied the statute of three-year limitations to it because I didn't find from the
evidence that there was a clear understanding that he would not be billed until the conclusion of the
matters for which he was being charged, the lawsuit in other words.
¶11. Logan's representation of Stewart began on November 25, 1987. Stewart was billed, and paid, for
services rendered up to and including August 2, 1988. Logan performed work on behalf of Stewart on a
fairly consistent basis until March 10, 1989. From that date until May 21, 1993, Logan performed no
recorded services on behalf of Stewart. It is unreasonable to conclude that Logan's representation of
Stewart was continuous over this fifty (50) plus month period when no legal services were rendered.
Further, Logan's time statement from May 21, 1993, reflects that he met with Stewart concerning a "new
lawsuit." The record supports the finding that the chancellor was not manifestly erroneous in holding that a
claim will only be recognized from May 21, 1993, which was the start of a "new lawsuit." The prior
representation ended March 10, 1989, and the three (3) years statute of limitations precludes a claim for
any services or expenses for that period of representation.
II. THE TRIAL COURT ERRED AS A MATTER OF LAW IN HOLDING THAT
APPELLANTS WERE NOT ENTITLED TO RECOVER FOR SERVICES PERFORMED
WITHOUT A WRITTEN CONTRACT.
¶12. Logan & Bise submit that attorney's fees are recoverable absent a written contract, and that they had a
implied contract with Stewart on which to base an award of attorney's fees. The Estate argues that the law
firm failed to carry its burden of establishing the rate and manner of pay. Additionally, the Estate alleges that
the doctrine of laches precludes any recovery by Logan & Bise.
¶13. With respect to services provided Stewart by Logan & Bise, the chancellor made the following
findings.
Based on the testimony before the Court, I really don't have any serious doubt that the work for
which this claim is filed was done. And the Court finds that the work for which this claim is filed was
done. The real serious problem that I have with this case is that there appears to be no clear
understanding between the lawyers and their client, irrespective of what happened after his death,
nothing in this testimony indicates to me that there was clear understanding between the lawyer and
the client as to how the fee would be paid. It's gone back and forth between so-called contingency
fee agreement and an hourly charge, now a quantum meruit, and the letter of Exhibit 11, May the 21st
I think it is, indicates that there was not ever any clear understanding as to how payment was to be
made for these services. Had it been a contingency fee, that would have been one thing. Had it been
an hourly charge, that would have been something else. But there's not even any understanding as to
the amount of the hourly charge. There were some bills back in 1988 for $75 an hour.
Based on that, the Court is going to sustain the objection to the claim for hourly charges by the
attorneys because of the misunderstanding or lack of an understanding as to what fee and how the fee
would be charged, but the court is going to allow that part of the claim that is a reimbursement for out-
of-pocket expenses by the attorneys.
The chancellor further explained his reasoning at the hearing on the petition for reconsideration.
. . . In addition to that, there is the exhibit which contains, or which is the letter which contains the
phrase that, the only discussions that were had with Mr. Stewart were for quote, "limited contingency
fee," as I recall it said and quote, "limited hourly charges." Nothing was brought forward to Mr.
Stewart during his lifetime to in any way define what that meant. And now, after his death and on the
claim the Court has essentially has to write a new contract or a new agreement between the parties,
the attorneys and the client, to say it really was not a limited contingency fee, it was really not a limited
hourly charge, but it was strictly a quantum meruit. And I just don't believe that under the law the
Court can make that determination, particularly when this originated some eight years before this claim
was ever filed.
The irony of the whole thing is that had the attorneys done the work without any understanding at all, I
think your position would be stronger; it would be under the law with no understanding at all a
quantum meruit. But where there was an understanding of some kind of a limited contingency fee or
limited hourly charge, that's sufficiently vague in my opinion to be unenforceable by this Court,
particularly when nothing was done for a period of eight years during the man's life that have him an
opportunity, that would be giving him an opportunity to agree or disagree with the method the law
firm was charging him. For it now to come up after his death, I think makes an unenforceable claim.
¶14. Recovery in quantum meruit is a remedy based in contract that is premised on "either [an] express or
`implied' contract." Estate of Johnson v. Adkins, 513 So. 2d 922, 926 (Miss. 1987). The findings by the
chancellor, supra, and the record support the conclusion that Logan & Bise rendered legal services at the
request of Stewart with the expectation of payment. In such cases, the law implies a contract to pay for said
services. See Kalavros v. Deposit Guar. Bank & Trust Co., 248 Miss. 107, 118, 158 So. 2d 740, 744
(1963); Wiltz v. Huff, 264 So. 2d 808, 811 (Miss. 1972); Estate of Van Ryan v. McMurtray, 505
So. 2d 1015, 1018 (Miss. 1987). Where the recovery is based in quantum meruit, the amount of recovery is
"limited to the monetary equivalent of the reasonable value of the services rendered to the decedent" for
which payment has not been tendered. Williams v. Mason, 556 So. 2d 1045, 1049 (Miss. 1990)(citing
Liddell v. Jones, 482 So. 2d 1131, 1133 (Miss. 1986); Collins' Estate v. Dunn, 233 Miss. 636, 644-
45, 103 So. 2d 425, 430 (1958)).
¶15. Logan & Bise originally calculated the reasonable value of the services provided to Stewart at $15,
756.17. However, just before trial began, Bise moved to amend that amount to $14,731.17 because the
law firm found that a couple of bills had been paid by Stewart prior to his death. Logan initially testified that
billing records of the firm's work done on behalf of Stewart was entered in the computer
contemporaneously. Later, he stated that some of the more recent entries had been reconstructed. Bise
testified that, in May of 1996, he had gone back through the firm's correspondence and pleading files in an
effort to reconstruct the time that was spent on the Stewart matter. Bise made no representation that the
reconstruction process was limited to the last several years.
¶16. The two bills sent to Stewart and the billing worksheet introduced by Logan & Bise reflect some
inconsistent entries for the same time period. For instance, in the bill sent to Stewart, Logan billed Stewart
.75 of an hour on June 7, 1988, for "review of photos and deeds; letter to Gilliland." The billing worksheet
for the same date shows that Logan spent 3 hours on research, reviewing photographs and a letter to
Gilliland. These inconsistencies lead us to conclude that the billing worksheet was reconstructed which
resulted, at least in some instances, in the client being over billed. Further, despite Logan's concession that
in 1988 he was charging Stewart $75 an hour, the billing worksheet reflects an hourly rate of $100 for the
same time period.
¶17. Since the three (3) year statute of limitations cuts off the claim made by the law firm for services that
ended on March 10, 1989, we are only concerned with services provided after May 21, 1993. This date
marks the point at which Logan & Bise commenced a "new lawsuit" on Stewart's behalf. This
representation was not concluded until Stewart's family directed the law firm to cease with their efforts on
behalf of Stewart. Within this time period, the records of Logan & Bise reflect that 93.5 hours were spent
working on behalf of Stewart.
¶18. Although it was established that $100 an hour was a reasonable rate in the coastal area during this time
period, we believe $75 an hour is appropriate because that was agreed upon by the parties in 1987 and
1988. This rate is the only history of any understanding concerning fees between the parties. Likewise, there
was testimony of discussion between the attorneys and Stewart of a "limited contingency and a reduced
hourly rate." While $100 may be the customary rate along the coast, there is no indication that the decedent
was willing to pay it. Additionally, we find that the estate should have the benefit of the doubt given the
circumstances of this case.
¶19. Due to the inconsistencies and discrepancies noted supra, we find a 10% reduction in the number of
billable hours attributable to Stewart to be appropriate. The fact that the billing worksheet seems, in whole
or in part, to be a reconstruction leads to the conclusion that its accuracy may be unreliable. There are
several entries where the hours spent are disproportionate to work completed. An example is 2.5 hours
billed for "receipt and review of letter and answer of Fore." It is unreasonable to conclude that an
experienced lawyer spent 2 and ½ hours reading an answer filed by an opposing party.
¶20. The amount recoverable by Logan & Bise for services rendered on behalf of Stewart billed as 93.5
hours is therefore reduced to 83 hours. Logan & Bise are entitled to recover in quantum meruit the sum of
$6,225.00, plus the expenses previously found recoverable by the chancellor in the amount of $3,606.11.
This amount is to be paid by Stewart's estate. The Estate is not required to pay interest on this recovery.
CONCLUSION
¶21. The chancellor was correct in concluding that the three (3) year statute of limitations applied to Logan
& Bise's proof of claim filed against Stewart's estate with regard to services and expenses concluded in
1989. Yet, it was error to deny the quantum meruit claim and the "new lawsuit" from March 21, 1993, as it
is clear that Logan & Bise did render services at the request of Stewart with the expectation of payment.
The previous dealings between the parties dictate that $75 an hour be used as the rate of payment. Finally,
equity and the disparities found in Stewart's bill and the billing worksheet convince us that a reduction in the
amount of billable hours allowed is appropriate here. The decision of the lower court is reversed and
rendered.
¶22. REVERSED AND RENDERED.
PRATHER, C.J., SULLIVAN, P.J., AND SMITH, J., CONCUR. McRAE, J., CONCURS IN
PART. PITTMAN, P.J., DISSENTS WITH SEPARATE WRITTEN OPINION. BANKS, J.,
CONCURS IN PART AND DISSENTS IN PART WITH SEPARATE WRITTEN OPINION
JOINED BY McRAE AND ROBERTS, J.J. MILLS, J., NOT PARTICIPATING.
PITTMAN, PRESIDING JUSTICE, DISSENTING:
¶23. Because I disagree with the conclusion reached by the majority, I respectfully dissent. First, the
evidence presented is insufficient to establish a contractual relationship. The majority alludes to this fact in its
opinion where it states, "there was never a written agreement reached concerning the contingency fee, and
further, no written contract has ever been found by either party." The facts in this case provide a vivid
demonstration of what Rule 1.5(b) of the Mississippi Rules of Professional Conduct attempted to prevent.
Rule 1.5(b) states:
When the lawyer has not regularly represented the client, the basis or rate of the fee shall be
communicated to the client, preferably in writing, before or within a reasonable time after commencing
the representation.
¶24. Secondly, even if a contractual relationship could be proven with the evidence presented here, the
evidence is insufficient to establish the money owed in this case due to the lack of written records. For these
reasons I would reverse and render the Chancellor's ruling and award of money damages in this case.
BANKS, JUSTICE, CONCURRING IN PART AND DISSENTING IN PART:
¶25. The majority chooses to reduce the hourly rate from $100 to $75 based on an "agreement" when we
are operating in the absence of an agreement or quantum meruit. Because I am not comfortable with the
majority's decision, I respectfully dissent.
¶26. In 1988-89, the hourly rate for services rendered by Logan & Bise was $75. The majority holds to
$75 for services performed in 1993 and since because that is what the firm charged Stewart in 1988.
Because there is no agreement for a rate in 1993, the majority concludes $75 is the only history of any
understanding on fees. However, the hourly rate in 1993 was not $75 and I do not agree that services
rendered in 1993 and since should be compensated at 1988-89 rates. In my view, there exists no rational
basis for reducing the fee as a reasonable rate based on "agreement" when there is no agreement.
Moreover, if the rate is determined based on quantum meruit, the amount should reflect such, and the
majority should not base it on a nonexistent agreement. We define quantum meruit as the "reasonable value
of the materials or services rendered." Estate of Johnson v. Adkins, 513 So. 2d 922, 925 (Miss. 1987).
This is without regard to the terms of any failed contract. See Moore v. Tyson, 613 So. 2d 817, 828
(Miss. 1992) (remanding for award of fee based on what was "reasonable for the work performed" after
voiding a contingent fee contract due to overreaching.); See also Smith v. Bliss, 112 P.2d 30, 33-34 (Cal.
Ct. App. 1941) (holding that reasonable value of the services rather than terms of a contract, enforcement
of which was barred by statute of frauds, governed measure of recovery under quantum meruit.)
¶27. While in all other respect I agree with the majority, I believe the hourly rate should be restored to
$100.
McRAE AND ROBERTS, JJ., JOIN THIS OPINION.
1. Floyd Logan and Carter Bise established the law firm of Logan & Bise on May 1st , 1993. Bise first
began working on the Stewart file in August of 1993.
2. The chancellor found Miss. Code Ann. § 15-1-29 (1972) applies to a claim for legal fees and expenses.
However, the parties agree Miss. Code Ann. § 15-1-49 (1972) is the appropriate statute of limitations and
will be addressed as such on review. | 01-03-2023 | 04-26-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/235138/ | 217 F.2d 136
Angel VIDALES, also known as Angel Vidales-Galvan, Appellant,v.Herbert BROWNELL, Jr., as Attorney General of the United States, Appellee.
No. 14076.
United States Court of Appeals Ninth Circuit.
November 10, 1954.
J. Widoff, Los Angeles, Cal., for appellant.
Laughlin E. Waters, U. S. Atty., Clyde C. Downing, Robert K. Grean, Asst. U. S. Attys., Los Angeles, Cal., for appellee.
Before MATHEWS and ORR, Circuit Judges, and WIIG, District Judge.
MATHEWS, Circuit Judge.
1
On December 5, 1952, in the United States District Court for the Southern District of California, appellant, Angel Vidales, also known as Angel Vidales-Galvan, instituted an action against James P. McGranery, as Attorney General of the United States,1 for a judgment declaring appellant to be a national of the United States. The Attorney General answered the complaint,2 a trial was had, findings of fact and conclusions of law were stated, and a judgment was entered adjudging that appellant was not a national of the United States. This appeal is from that judgment.
2
The action was under 8 U.S.C.A. § 903,3 which provided: "If any person who claims a right or privilege as a national of the United States is denied such right or privilege by any Department or agency, or executive official thereof, upon the ground that he is not a national of the United States, such person, regardless of whether he is within the United States or abroad, may institute an action against the head of such Department or agency in the District Court of the United States for the District of Columbia or in the district court of the United States for the district in which such person claims a permanent residence for a judgment declaring him to be a national of the United States. * * *"
3
The complaint alleged and the answer admitted that appellant was born in the United States. Thus, in effect, it was alleged and admitted that appellant was a national of the United States by birth.4 However, as a defense to the action, the answer alleged that appellant had remained outside the jurisdiction of the United States in time of war, namely, from September 27, 1944, to January 15, 1946, for the purpose of evading or avoiding training and service in the land or naval forces of the United States, and had thereby expatriated himself and lost his United States nationality. That defense was based on 8 U.S.C.A. § 801(j),5 effective September 27, 1944, which provided:
4
"A person who is a national of the United States, whether by birth or naturalization, shall lose his nationality by:
5
* * * * * *
6
"(j) Departing from or remaining outside of the jurisdiction of the United States in time of war or during a period declared by the President to be a period of national emergency for the purpose of evading or avoiding training and service in the land or naval forces of the United States." 58 Stat. 746.
7
At a pre-trial conference,6 it was admitted and agreed that appellant was born in the United States on July 11, 1922, and that he "left the United States and went to Mexico about 1925 and remained there until about January, 1946, when he returned to the United States."
8
At the trial, testifying as a witness for himself, appellant admitted that he had remained in Mexico during all of 1944 and 1945. However, some of his testimony at the trial tended to show that he had not remained in Mexico for the purpose of evading or avoiding training and service in the land or naval forces of the United States. Such testimony conflicted with testimony given by him at a hearing before a board of special inquiry in 1948. On cross-examination of appellant, the conflicts were brought to his attention by reading to him, from a copy of the record of the 1948 hearing, portions of his testimony at that hearing. The copy was marked "Exhibit A" for identification. After appellant had rested, Ralph J. Lloyd, the immigrant inspector who had presided at the 1948 hearing, was called and sworn as a witness for the Attorney General and was shown Exhibit A. Lloyd thereupon testified that Exhibit A was a true copy of the record of the 1948 hearing. Thereafter, for the purpose of showing the conflicts mentioned above, Exhibit A was offered in evidence and was received in evidence without objection.
9
Appellant now says that the District Court "erred in receiving in evidence [Exhibit A] despite an understanding that [Exhibit A] was offered in evidence for identification only and only as to a portion thereof." The record shows no such understanding. Instead, the record shows that Exhibit A was received in the manner and for the purpose heretofore indicated by us. There was no error in so receiving it.7
10
The District Court found that appellant was born in the United States on July 11, 1922, was taken to Mexico in 1925 and remained in Mexico until January, 1946; and that appellant from and after September 27, 1944, remained outside of the jurisdiction of the United States in time of war for the purpose of evading or avoiding training and service in the land or naval forces of the United States.
11
The findings were supported by substantial evidence and were not clearly erroneous. We therefore accept them as correct8 and conclude, as did the District Court, that appellant expatriated himself and lost his United States nationality — a conclusion based on § 801 (j), supra.
12
Appellant says that § 801(j) was unconstitutional. However, we have held that it was constitutional,9 and we now reaffirm that holding.
13
Judgment affirmed.
Notes:
1
McGranery's successor, Herbert Brownell, Jr., was substituted for McGranery on July 14, 1953
2
The complaint was called a petition
3
Section 903 was repealed by § 403(a) of the Immigration and Nationality Act, 66 Stat. 279, 280, effective December 24, 1952. However, this action, having been instituted before December 24, 1952, was not affected by the repeal. See § 405 (a) of the Immigration and Nationality Act, 66 Stat. 280, 8 U.S.C.A. § 1101 note. The subject matter of § 903 is now covered by 8 U.S.C.A. § 1503
4
See § 1 of the Fourteenth Amendment to the Constitution of the United States. See also 8 U.S.C.A. §§ 501(b), 601 and 1101(a), (22), 1401(a) (1)
5
Section 801(j) was repealed by § 403(a) of the Immigration and Nationality Act, 66 Stat. 279, 280, effective December 24, 1952. However, this action, having been instituted before December 24, 1952, was not affected by the repeal. See § 405(a) of the Immigration and Nationality Act, 66 Stat. 280, 8 U.S.C.A. § 1101 note. The subject matter of § 801 is now covered by 8 U.S.C.A. § 1481
6
See Rule 16 of the Federal Rules of Civil Procedure, 28 U.S.C.A
7
See Gonzales v. Landon, 9 Cir., 215 F.2d 955
8
See Rule 52(a) of the Federal Rules of Civil Procedure, 28 U.S.C.A.; Wong You Henn v. Brownell, 93 U.S.App.D.C. 43, 207 F.2d 226; Elias v. Dulles, 1 Cir., 211 F.2d 520
9
Gonzales v. Landon, supra | 01-03-2023 | 08-23-2011 |
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