url stringlengths 55 59 | text stringlengths 0 818k | downloaded_timestamp stringclasses 1 value | created_timestamp stringlengths 10 10 |
|---|---|---|---|
https://www.courtlistener.com/api/rest/v3/opinions/1000555/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v. No. 98-4557
MELIANE JOANN MONTAGUE,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
Terrence W. Boyle, Chief Judge.
(CR-97-179-BO)
Argued: October 27, 1999
Decided: January 7, 2000
Before WIDENER and MOTZ, Circuit Judges,
and BUTZNER, Senior Circuit Judge.
_________________________________________________________________
Reversed and remanded by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: Arthur Charles Zeidman, FEDERAL PUBLIC DEFEND-
ER'S OFFICE, Raleigh, North Carolina, for Appellant. Thomas B.
Murphy, Assistant United States Attorney, Raleigh, North Carolina,
for Appellee. ON BRIEF: William Arthur Webb, Federal Public
Defender, Robert H. Hale, Jr., Assistant Federal Public Defender,
Raleigh, North Carolina, for Appellant. Janice McKenzie Cole,
United States Attorney, Anne M. Hayes, Assistant United States
Attorney, Raleigh, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Meliane Montague was indicted, along with Edith Peterson, on
three counts of making material false statements to the government,
and aiding and abetting, in violation of 18 U.S.C.A.§ 1001 (West
1976 & Supp. 1999), 18 U.S.C. § 2 (1994), and one count of conspir-
acy to do the same in violation of 18 U.S.C.A. § 371 (West 1966 &
Supp. 1999). After a jury trial, Montague was convicted on all four
counts and sentenced to concurrent terms of twenty-four months
imprisonment for each count. Montague appeals her conviction. We
reverse and remand the case for a new trial.
I
During the period covered by the indictment, March 30, 1994, to
September 12, 1995, Montague and Peterson were employees of the
United States Postal Service (USPS) at the Brentwood Station Post
Office in Raleigh, North Carolina. Montague was the station manager,
and Peterson was a window clerk. One of Peterson's duties was to sell
stamps to the public. This prosecution arose from the process by
which these sales were audited.
When the post office issued stamps to a window clerk to sell, they
were recorded on a USPS Form 17. Each clerk was then held respon-
sible for the stamps issued to him or her. Audits were conducted peri-
odically to ensure that the clerks' stamp sales and stamp stock
balanced out. During such an audit, both the clerk and a supervisor
were required to count the stamps one by one. Each then listed the
types and numbers of stamps on a separate USPS Form 3294. If the
clerk and supervisor agreed in the results of their respective counts,
then each would sign the forms and keep a copy. If the clerk and
supervisor did not initially agree, then they would conduct additional
counts until they agreed on the contents of the stamp stock.
2
The investigation in this case was precipitated by a burglary at the
Brentwood Station Post Office on September 12, 1995. Postal inspec-
tors called to the scene found the office ransacked. Montague
informed the inspectors that the only items stolen were football tick-
ets, food stamps, and approximately $80,000 in redeemed stamp
stock. Redeemed stamp stock consists of old denomination stamps
that are taken back from clerks after a postal rate increase.
Postal inspectors noted that items of greater value--such as current
stamp stock, postal money orders, and two money order imprinting
machines--were not taken. They also concluded that damage to a
door frame in the post office had been caused from the inside, and
there was no evidence of forced entry. A manager from another post
office had begun a surprise audit of Brentwood Station four days
before the burglary, and she had planned to return to complete it. All
of these factors led postal inspectors to believe that the burglary was
an "inside job."
Upon further investigation, inspectors found that $70,000 of the
$88,000 in redeemed stamp stock that was reported stolen had been
turned in by Peterson. This led Postal Inspector Angela Ellison to
focus her investigation on Montague and Peterson. Inspector Ellison
testified that $70,000 in stamp stock was "a very high amount for any
one clerk to have turned in." J.A. 158-59.
Inspector Ellison conducted a full audit of the stamps that were
issued to Peterson and the stamps inventories counted on USPS 3294
forms that Montague and Peterson filed together. Inspector Ellison
found that on December 3, 1993, Montague and Peterson indicated on
a USPS Form 3294 that Peterson possessed 59 $9.95 stamps. On
March 30, 1994, Montague and Peterson indicated on a USPS Form
3294 that Peterson possessed 526 $9.95 stamps. According to the post
office records, however, Peterson had been issued no $9.95 stamps in
the interim and therefore could not have had more than 59 stamps.
Inspector Ellison found similar discrepancies with respect to $95 and
$115 coils of stamps and books of stamps on USPS 3294 forms filed
by Montague and Peterson on January 25, 1995, and July 14, 1995.
Inflating the value of stamp stock in a clerk's possession can cover
up thefts of money or stamps. These discrepancies were the basis of
3
the three false statement counts and the conspiracy count in the indict-
ment.
At trial, counsel for Montague elicited from Inspector Ellison that,
as part of her investigation, she examined the bank accounts of Mon-
tague and Peterson to determine whether any unusual activity had
taken place. Counsel attempted to elicit from Inspector Ellison that
she found no deposits of unusually large sums of money in Monta-
gue's or Peterson's accounts. The district court interrupted this ques-
tioning, stated that it was not relevant, and asked the prosecutor if he
was going to allow it to continue. The prosecutor then made an objec-
tion, which the court sustained.
In presenting its case, the defense called as a witness Beverly Mar-
riot, a customer service supervisor at Brentwood Station. Counsel for
Montague first questioned Marriot about the procedures for disposing
of redeemed or obsolete stamp stock at Brentwood Station. The dis-
trict court stopped the questioning, called counsel to the bench, and
inquired about the relevance of this line of inquiry. Counsel for Mon-
tague argued that he was attempting to establish that the redeeming
procedures were confusing and had changed often in order to explain
the large amount of redeemed stamp stock reportedly in Peterson's
possession. The district court ruled that this line of questioning was
irrelevant to the charges on trial.
Defense counsel also questioned Marriot about the staffing condi-
tions at Brentwood Station. She testified that Brentwood Station was
busy, that Montague managed three other stations, and that Montague
was short of supervisors for significant time periods between 1993
and 1995. When Marriot was asked to tell the jury about this short-
handedness, the district court interrupted her answer and ruled that
evidence of understaffing at Brentwood Station was irrelevant. In
doing so, the court told the jury: "That's all you have to decide is
whether or not those statements were false in the three charged
Counts, 2, 3, 4, and whether or not they entered into an unlawful
agreement to violate the law by making false statements and commit-
ted an overt act in that respect." J.A. 229. In a proffer to the district
court submitted by Montague's attorney, Marriot stated that, between
1993 and 1995, there were periods when Brentwood Station lacked
adequate supervisory personnel due to sick leave and work detail
4
assignments. The Marriot proffer further stated that these supervisors
worked under Montague and had authority to conduct Postal Form
3294 audits, that as a result Montague at times was required to work
12-hour days, and that Montague at times did not have the time or
supervisory personnel to conduct timely audits.
II
Montague appeals the decision of the district court to exclude three
items of testimony as irrelevant. Evidence is relevant if it has "any
tendency to make the existence of any fact that is of consequence to
the determination of the action more probable or less probable than
it would be without the evidence." Fed. R. Evid. 401. "A district
court's evidentiary rulings are entitled to substantial deference and
will not be reversed absent a clear abuse of discretion." United States
v. Moore, 27 F.3d 969, 974 (4th Cir. 1994). A clear abuse of discre-
tion is considered clearly erroneous. Evidentiary rulings are also sub-
ject to harmless error review. Fed. R. Crim. P. 52(a). "[I]n order to
find a district court's error harmless, we need only be able to say
`with fair assurance, after pondering all that happened without strip-
ping the erroneous action from the whole, that the judgment was not
substantially swayed by the error.'" United States v. Heater, 63 F.3d
311, 325 (4th Cir. 1995) (citations omitted).
The first item excluded by the district court was testimony of
Postal Inspector Ellison regarding the bank accounts of Montague and
Peterson. Although it was not charged in the indictment, it was clear
from the evidence presented at trial that the object of the alleged con-
spiracy to make false statements on postal inventory forms would
have been to mask the theft of large amounts of money or stamps
from the post office for profit. Just as testimony by Inspector Ellison
that there were unexplained deposits in the bank accounts of either
Montague or Peterson would have been probative of such a conspir-
acy, testimony that there was no unusual banking activity would have
made the existence of such a conspiracy less likely. The exclusion of
this testimony, together with the court's statement that the jury need
only find that the audit statements were false, was clearly erroneous.
The district court next excluded testimony by Marriot about the
procedures by which the post office redeemed obsolete stamps. Evi-
5
dence that these procedures were confusing and changed often could
have explained the large amount of redeemed stock attributed to
Peterson, which was one of the factors that led Inspector Ellison to
investigate her stamp inventories. The testimony also would have
made the existence of accounting mistakes on the part of Montague
more likely. The prosecution was required to prove that Montague
made the material false statements "knowingly and willfully." 18
U.S.C.A. § 1001(a) (Supp. 1999). If the discrepancies in stamp inven-
tories were the product of mistakes by Montague, the required ele-
ment of intent would not be present. In excluding this portion of
Marriot's testimony, the ruling of the district court was clearly errone-
ous.
Finally, the district court prevented Marriot from explaining that,
during the relevant period, Brentwood Station had a shortage of
supervisors who could conduct stamp audits, Montague was working
12-hour days, and she was not able to conduct timely audits. Far from
being irrelevant, all of these factors would make a conclusion that
Montague made mistakes in completing the stamp audits more likely.
Once again, the proffered evidence was relevant to the element of
intent. The district court overlooked this when it stated that the only
relevant question was whether the postal forms in question contained
material false statements. In excluding this evidence that was relevant
to intent, the district court's ruling was clearly erroneous.
These errors in excluding relevant testimony at trial were not harm-
less. In conducting a harmless error analysis, a reviewing court con-
siders "`all that happened without stripping the erroneous action[s]
from the whole.'" Heater, 63 F.3d at 325. If more than one error
occurred at trial, then all errors are aggregated to determine whether
their cumulative effect mandates reversal. United States v. Rivera,
900 F.2d 1462, 1470-71 (10th Cir. 1990) (describing cumulative error
analysis).
Montague's main theory of defense at trial was that the discrepan-
cies found on postal audit forms were not the result of intentional
actions on her part but the product of understaffing and confusing
procedures for turning in redeemed stamp stock. The district court
excluded three items of testimony that would have been relevant to
this defense. Taken individually, each of the errors by the district
6
court may have been harmless in the whole context of the trial. Tak-
ing them together, however, we cannot conclude that the jury's
"`judgment was not substantially swayed by the error[s].'" Heater, 63
F.3d at 325.
We reverse Montague's conviction and remand the case to the dis-
trict court for further proceedings.
REVERSED AND REMANDED
7 | 01-03-2023 | 07-04-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2694952/ | [Cite as Oliver v. Pickaway Corr. Inst., 2011-Ohio-6973.]
Court of Claims of Ohio
The Ohio Judicial Center
65 South Front Street, Third Floor
Columbus, OH 43215
614.387.9800 or 1.800.824.8263
www.cco.state.oh.us
TYRONE OLIVER
Plaintiff
v.
PICKAWAY CORRECTIONAL INSTI.
Defendant.
Case No. 2010-13121-AD
Deputy Clerk Daniel R. Borchert
MEMORANDUM DECISION
FINDINGS OF FACT
{¶1} Plaintiff, Tyrone Oliver, an inmate incarcerated at defendant’s Pickaway
Correctional Institution (PCI), filed this complaint alleging that agents of defendant
improperly removed $14.69 from his inmate account on May 28, 2010. According to
plaintiff, defendant has acknowledged the error but has not replaced the funds into his
account.
{¶2} Plaintiff filed this complaint seeking to recover $14.69, the stated amount
erroneously withdrawn from his inmate funds. The filing fee was paid.
{¶3} On September 16, 2011, defendant filed an investigation report admitting
liability for the amount of $14.69.
{¶4} Plaintiff filed a response requesting that defendant “be required to pay me
any interest, and my $25.00 filing fee that was paid April 25, 2011.”
CONCLUSIONS OF LAW
{¶5} Defendant may bear liability for failure to properly monitor an inmate
plaintiff’s account by either failing to record deposits or in making unauthorized
withdrawals. See Nelms v. Southeastern Corr. Inst., Ct. of Cl. No. 2007-01401-AD,
2007-Ohio-7087; Lonero v. Lebanon Corr. Inst., Ct. of Cl. No. 2009-01719-AD, 2009-
Ohio-6359. Plaintiff, in the instant action, has submitted sufficient evidence to prove
that defendant acted improperly in handling the funds in his inmate account.
{¶6} Prejudgment interest is not compensable in this claim. In addition, inmate
accounts are maintained as checking accounts and do not earn interest credited to the
individual inmate. See Ohio Administrative Code 5120-5-02; see also Moore v. Belmont
Corr. Inst., Ct. of Cl. No. 2008-03670-AD, 2008-Ohio-7065.
{¶7} Plaintiff has suffered damages in the amount of $14.69, plus the $25.00
filing fee, which may be reimbursed as compensable damages pursuant to the holding
in Bailey v. Ohio Department of Rehabilitation and Correction (1990), 62 Ohio Misc. 2d
19, 587 N.E. 2d 990.
Court of Claims of Ohio
The Ohio Judicial Center
65 South Front Street, Third Floor
Columbus, OH 43215
614.387.9800 or 1.800.824.8263
www.cco.state.oh.us
TYRONE OLIVER
Plaintiff
v.
PICKAWAY CORRECTIONAL INSTI.
Defendant
Case No. 2010-13121-AD
Deputy Clerk Daniel R. Borchert
ENTRY OF ADMINISTRATIVE
DETERMINATION
Having considered all the evidence in the claim file and, for the reasons set forth
in the memorandum decision filed concurrently herewith, judgment is rendered in favor
of plaintiff in the amount of $39.69, which includes the filing fee. Court costs are
assessed against defendant.
DANIEL R. BORCHERT
Deputy Clerk
Entry cc:
Tyrone Oliver, #599-853 Gregory C. Trout, Chief Counsel
11781 State Route 762 Department of Rehabilitation
Orient, Ohio 43146 and Correction
770 West Broad Street
Columbus, Ohio 43222
9/27
Filed 9/29/11
Sent to S.C. reporter 2/6/12 | 01-03-2023 | 08-02-2014 |
https://www.courtlistener.com/api/rest/v3/opinions/1542046/ | 76 B.R. 126 (1987)
In re Charles Conrad ROEMER, Debtor.
Donna MUGGE, Plaintiff,
v.
Charles Conrad ROEMER, Defendant.
Bankruptcy No. BK 86-50439, Adv. No. 86-0352.
United States Bankruptcy Court, S.D. Illinois.
July 24, 1987.
*127 David W. Dugan, Alton, Ill., for plaintiff.
David A. Virgin, Bethalto, Ill., for debtor/defendant.
MEMORANDUM AND ORDER
KENNETH J. MEYERS, Bankruptcy Judge.
This matter is before the Court on plaintiff's objection to dischargeability. Plaintiff previously filed suit against defendant in state court for injuries she sustained after being struck by defendant while he was riding his motorcycle.
On April 1, 1985 the state court entered judgment in favor of plaintiff, and awarded her compensatory damages in the amount of $1,200,000.00. The judgment provided, in part, as follows:
The Court hereby specifically finds that the defendant, CHARLES C. ROEMER, willfully and maliciously drove his motorcycle at an extremely high and excessive rate of speed into the Plaintiff, DONNA L. MUEGGE, thereby hurling Plaintiff through the air and onto the pavement and caused her to be greatly and permanently injured . . .
Plaintiff contends that this debt is non-dischargeable under Section 523(a)(6) of the Bankruptcy Code. That section provides as follows: "A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . . for willful and malicious injury by the debtor to another entity or to the property of another entity." Plaintiff further contends that because the state court has already determined that the defendant acted willfully and maliciously, the doctrine of res judicata precludes defendant from attempting to prove otherwise.
In Brown v. Felsen, 442 U.S. 127, 99 S. Ct. 2205, 60 L. Ed. 2d 767 (1979), the Court held that res judicata does not apply *128 in determining whether or not a particular debt is dischargeable. Id. at 138-39, 99 S. Ct. at 2212-13. The Court also noted, however, that the narrower doctrine of collateral estoppel would apply if a state court, "in the course of adjudicating a state-law question . . . should determine factual issues using standards identical to those of [the Bankruptcy Code] . . ." Id. at 139 n. 10, 99 S. Ct. at 2213 n. 10. Since Brown was decided, some courts have held that the issue of dischargeability is within the exclusive jurisdiction of the bankruptcy court, and that neither res judicata nor collateral estoppel are applicable in determining whether a particular debt is dischargeable. See, e.g., Carey Lumber Co. v. Bell, 615 F.2d 370 (5th Cir.1980); In re Brink, 27 B.R. 377 (Bankr.W.D.Wis. 1983). Other courts have held that collateral estoppel applies if the following criteria are met:
1. The issue sought to be precluded must be be same issue as that involved in the prior action;
2. The issue must have been actually litigated;
3. The issue must have been determined by a valid and final judgment; and
4. The determination of the issue must have been essential to the final judgment.
In re Louis, 49 B.R. 135, 137 (Bankr.E.D. Wis.1985). See also In re Anderson, 49 B.R. 655 (Bankr.W.D.Wis.1984). This Court finds that under Brown, while the issue of dischargeability is ultimately determined by the bankruptcy court, collateral estoppel would indeed prevent relitigation of those issues previously decided in state court if 1) the state court, in determining those issues, used standards identical to those in the Bankruptcy Code; and 2) the criteria necessary for collateral estoppel to apply were satisfied.
The first question that must be addressed in the present case is whether the same standards apply under Illinois tort law and under section 523(a)(6) of the Bankruptcy Code in determining whether conduct is "willful and malicious." The comments following section 523(a)(6) specifically state that "[u]nder this paragraph, `willful' means deliberate or intentional." This Court has previously defined willful and malicious conduct as the deliberate or intentional act of a debtor with knowledge that the act will harm another. Champion Home Builders v. Darrell Johnson, Adv. No. 86-0347 (April 27, 1987). Similarly, other case decisions discussing this issue "explicity reject that reckless disregard of the rights of another, without more, can suffice as proof of willfulness and malice." Matter of Frazee, 60 B.R. 109, 112 (Bankr. W.D.Mo.1986). "The legislative history makes clear that the `reckless disregard' standard no longer applies and that proof of `deliberate or intentional' injury mest be established in order to except the debt from discharge." In re Noller, 56 B.R. 36, 38 (Bankr.E.D.Wis.1985). See also In re Louis, 49 B.R. at 137; United Bank of Southgate v. Nelson, 35 B.R. 766, 776 (Bankr.N.D.Ill.1983). Some cases have expressly held that driving at an excessive rate of speed is not per se "willful and malicious" within the meaning of section 523(a)(6). See, e.g., Matter of Frazee, 60 B.R. at 112; In re Noller, 56 B.R. at 39.
The definition of willful and malicious conduct under Illinois law is not as clear. However, the pattern jury instruction defining "willful and wanton" conduct provides some guidance. Jury instruction 14.01 states as follows:
When I use the expression "willful and wanton conduct" I mean a course of action which [shows actual or deliberate intention to harm or which, if not intentional,] shows an utter indifference to or conscious disregard for ]a perso's own safety] [and] [the safety of others].
The comments following this instruction indicate that the first bracketed phrase should be omitted unless the evidence tends to show a deliberate intention to harm, and that actual ill will need not be shown.
It appears that willful and malicious conduct is more broadly defined under Illinois law, and that it includes conduct which is not necessarily deliberate or intentional. Therefore, under Brown, collateral estoppel would not apply since the standard for *129 determining whether conduct is willful and malicious under Illinois law is not the same as the standard under section 523(a)(6) of the Bankruptcy Code.
Even assuming arguendo that the standards are the same, the Court still does not believe that collateral estoppel would apply in this particular case. Although the sate court judgment itself states that the defendant acted willfully and maliciously, and although the judge states on the record that defendant's acts were willful and malicious, the judge also found that "the defendant in total disregard for the safety of the minor plaintiff Donna Mugge . . . was in fact driving his motorcycle at an extremely high rate of speed . . ." (Report of Proceedings, p. 46). Thus, it is not completely clear whether the judge found that the defendant acted "deliberately and intentionally" (as required under the Bankruptcy Code), or whether the defendant acted in "reckless disregard." Furthermore, the judge refused to award punitive damages. This refusal appears to be inconsistent with the court's finding that the defendant acted willfully and maliciously, and makes it even less clear whether the judge actually found that the defendant acted intentionally and deliberately. In light of these ambiguities, the Court cannot conclude that the issue in this case (whether defendant acted deliberately and intentionally), was the same as that involved in the prior action, nor can the Court conclude that this issue was actually litigated. The doctrine of collateral estoppel, therefore, does not apply. Further proceedings are necessary in order for this Court to determine whether defendant acted willfully and maliciously within the meaning of section 523(a)(6), and ultimately, whether defendant's debt to plaintiff is nondischargeable.
Accordingly, the ruling on the issue of dischargeability is reserved until further hearing. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2694915/ | [Cite as Legg v. Ohio Dept. of Transp., 2011-Ohio-7019.]
Court of Claims of Ohio
The Ohio Judicial Center
65 South Front Street, Third Floor
Columbus, OH 43215
614.387.9800 or 1.800.824.8263
www.cco.state.oh.us
TERRY P. LEGG
Plaintiff
v.
OHIO DEPT. OF TRANSPORTATION
Defendant
Case No. 2011-08938-AD
Deputy Clerk Daniel R. Borchert
MEMORANDUM DECISION
{¶ 1} Plaintiff, Terry Legg, filed this action against defendant, Ohio Department
of Transportation (ODOT), contending ODOT's negligence in maintaining a hazardous
condition on US 23 southbound proximately causing damage to his vehicle.
Specifically, plaintiff asserted the transmission was damaged when the vehicle struck a
piece of metal in the traveled portion of the roadway. Plaintiff described his damage
incident occurred in the following manner, “[a] car passed me and I glanced at it. When
I glanced back at the road, there was a chunk of metal laying in the road. I did not have
time to avoid it. When I ran over it, the piece of metal tore a hole in the bottom of the
transmission.” Plaintiff’s damage event occurred on June 2, 2011, at approximately
6:15 p.m. In his complaint, plaintiff requested damages in the amount of $1,135.53, the
total cost of replacement parts and related expense associated with having his car
repaired. The $25.00 filing fee was paid.
{¶ 2} Defendant denied liability based on the contention that no ODOT
personnel had any knowledge of the damage-causing debris condition prior to plaintiff’s
incident. Defendant located the debris “near county milepost 16.28 or state milepost
32.96 on US 23 in Pike County” and advised ODOT did not receive any calls or
complaints for debris at that location despite the fact the particular “section of roadway
has an average daily traffic count between 14,890 and 16,180 vehicles.” Defendant
suggested, “that the debris existed in that location for only a relatively short amount of
time before plaintiff’s incident.” Defendant asserted plaintiff failed to establish the length
of time the debris existed on the roadway prior to his property damage event.
Defendant insisted no ODOT personnel had any knowledge of a metal object near
milepost 32.96 on US 23 prior to the described incident forming the basis of this claim.
Defendant contended plaintiff failed to establish the damage-causing debris condition
was attributable to any conduct on the part of ODOT. Defendant related the ODOT
“Pike County Transportation Manager, travels each state highway twice a month in Pike
County and looks for potholes, low berms, and other safety hazards.” Apparently, no
debris was discovered at milepost 32.96 on US 23 the last time that section of roadway
was inspected before June 2, 2011. Defendant stated “if ODOT personnel had found
any debris it would have been picked up.” Defendant argued plaintiff failed to produce
evidence to show his property damage was proximately caused by negligent
maintenance on the part of ODOT.
{¶ 3} For plaintiff to prevail on a claim of negligence, he must prove, by a
preponderance of the evidence, that defendant owed him a duty, that it breached that
duty, and that the breach proximately caused his injuries. Armstrong v. Best Buy
Company, Inc., 99 Ohio St. 3d 79, 2003-Ohio-2573,¶8 citing Menifee v. Ohio Welding
Products, Inc. (1984), 15 Ohio St. 3d 75, 77, 15 OBR 179, 472 N.E. 2d 707. Plaintiff
has the burden of proving, by a preponderance of the evidence, that he suffered a loss
and that this loss was proximately caused by defendant’s negligence. Barnum v. Ohio
State University (1977), 76-0368-AD. However, “[i]t is the duty of a party on whom the
burden of proof rests to produce evidence which furnishes a reasonable basis for
sustaining his claim. If the evidence so produced furnishes only a basis for a choice
among different possibilities as to any issue in the case, he fails to sustain such
burden.” Paragraph three of the syllabus in Steven v. Indus. Comm. (1945), 145 Ohio
St. 198, 30 O.O. 415, 61 N.E. 2d 198, approved and followed.
{¶ 4} Defendant has the duty to maintain its highways in a reasonably safe
condition for the motoring public. Knickel v. Ohio Department of Transportation (1976),
49 Ohio App. 2d 335, 3 O.O. 3d 413, 361 N.E. 2d 486. However, defendant is not an
insurer of the safety of its highways. See Kniskern v. Township of Somerford (1996),
112 Ohio App. 3d 189, 678 N.E. 2d 273; Rhodus v. Ohio Dept. of Transp. (1990), 67
Ohio App. 3d 723, 588 N.E. 2d 864.
{¶ 5} In order to prove a breach of the duty to maintain the highways, plaintiff
must prove, by a preponderance of the evidence, that defendant had actual or
constructive notice of the precise condition or defect alleged to have caused the
accident. McClellan v. ODOT (1986), 34 Ohio App. 3d 247, 517 N.E. 2d 1388.
Defendant is only liable for roadway conditions of which it has notice but fails to
reasonably correct. Bussard v. Dept. of Transp. (1986), 31 Ohio Misc. 2d 1, 31 OBR
64, 507 N.E. 2d 1179.
{¶ 6} Defendant professed liability cannot be established when requisite notice
of the damage-causing conditions cannot be proven. However, proof of notice of a
dangerous condition is not necessary when defendant’s own agents actively caused
such condition. See Bello v. City of Cleveland (1922), 106 Ohio St. 94, 138 N.E. 526, at
paragraph one of the syllabus; Sexton v. Ohio Department of Transportation (1996), 94-
13861. Plaintiff has failed to produce any evidence to prove that his property damage
was caused by a defective condition created by ODOT or that defendant knew about
the particular debris condition prior to 6:15 p.m. on June 2, 2011.
{¶ 7} Ordinarily, to recover in any suit involving injury proximately caused by
roadway conditions including debris, plaintiff must prove that either: 1) defendant had
actual or constructive notice of the debris condition and failed to respond in a
reasonable time or responded in a negligent manner, or 2) that defendant, in a general
sense, maintains its highways negligently. Denis v. Department of Transportation
(1976), 75-0287-AD. Plaintiff has not provided any evidence to prove that ODOT had
actual notice of the damage-causing condition. Therefore, in order to recover plaintiff
must offer proof of defendant’s constructive notice of the condition or evidence to
establish negligent maintenance.
{¶ 8} “[C]onstructive notice is that which the law regards as sufficient to give
notice and is regarded as a substitute for actual notice or knowledge.” In re Estate of
Fahle (1950), 90 Ohio App. 195, 197-198, 47 O.O. 231, 105 N.E. 2d 429. “A finding of
constructive notice is a determination the court must make on the fact of each case not
simply by applying a pre-set time standard for the discovery of certain road hazards.”
Bussard, at 4. “Obviously, the requisite length of time sufficient to constitute
constructive notice varies with each specific situation.” Danko v. Ohio Dept. of Transp.
(Feb. 4, 1993), Franklin App. 92AP-1183. In order for there to be a finding of
constructive notice, plaintiff must prove, by a preponderance of the evidence, that
sufficient time has elapsed after the dangerous condition appears, so that under the
circumstances defendant should have acquired knowledge of its existence. Guiher v.
Dept. of Transportation (1978), 78-0126-AD; Gelarden v. Ohio Dept. of Transp., Dist. 4,
Ct. of Cl. No. 2007-02521-AD, 2007-Ohio-3047.
{¶ 9} Plaintiff has not produced any evidence to indicate the length of time that
the metal debris was present on the roadway prior to the incident forming the basis of
this claim. Also, the trier of fact is precluded from making an inference of defendant’s
constructive notice, unless evidence is presented in respect to the time that the metal
debris appeared on the roadway. Spires v. Ohio Highway Department (1988), 61 Ohio
Misc. 2d 262, 577 N.E. 2d 458. There is no indication that defendant had constructive
notice of the debris on the roadway.
{¶ 10} Plaintiff has not produced any evidence to infer defendant, in a general
sense, maintains its highways negligently or that defendant’s acts caused the defective
condition or conditions. Herlihy v. Ohio Department of Transportation (1999), 99-07011-
AD.
{¶ 11} Plaintiff has failed to prove, by a preponderance of the evidence, that
defendant failed to discharge a duty owed to plaintiff, or that plaintiff’s injury was
proximately caused by defendant’s negligence. Plaintiff failed to show that the damage-
causing object at the time of the damage incident was connected to any conduct under
the control of defendant or any negligence on the part of defendant proximately caused
the damage. Herman v. Ohio Dept. of Transp. (2006), 2006-05730-AD; Husak v. Ohio
Dept. of Transp., Ct. of Cl. No. 2008-03963-AD, 2008-Ohio-5179.
Court of Claims of Ohio
The Ohio Judicial Center
65 South Front Street, Third Floor
Columbus, OH 43215
614.387.9800 or 1.800.824.8263
www.cco.state.oh.us
TERRY P. LEGG
Plaintiff
v.
OHIO DEPT. OF TRANSPORTATION
Defendant
Case No. 2011-08938-AD
Deputy Clerk Daniel R. Borchert
ENTRY OF ADMINISTRATIVE DETERMINATION
Having considered all the evidence in the claim file and, for the reasons set forth
in the memorandum decision filed concurrentl herewith, judgment is rendered in favor of
defendant. Court costs are assessed against plaintiff.
________________________________
DANIEL R. BORCHERT
Deputy Clerk
Entry cc:
Terry P. Legg Jerry Wray, Director
1715 Coal Dock Road Department of Transportation
Waverly, Ohio 45690 1980 West Broad Street
Columbus, Ohio 43223
10/7
Filed 10/18/11
Sent to S.C. reporter 3/13/12 | 01-03-2023 | 08-02-2014 |
https://www.courtlistener.com/api/rest/v3/opinions/8304522/ | PORTRUM, J.
Roy R. Hart was indebted to O. C. Testerman in the sum of $39.39 for a grocery account which had been reduced to a judgment. An execution was demanded and placed in the hands" of a deputy sheriff, who levied it upon a Marmon automobile, after inquiry disclosed that an automobile was registered in the name of Roy R. ITart. The officer took possession of the automobile when Mrs. Roy R. Hart replevied the same before a justice of the peace. She claims that her husband transferred the car to her for a valuable consideration, and she asserted her title to the automobile. The justice decided the case in favor of the defendant and plaintiff appealed to the circuit court. The circuit judge tried the case without the intervention of a jury and gave a judgment in favor of the plaintiff, from which the defendant has appealed to this court.
The defense to the transfer from the husband to the wife is that it was a voluntary transfer made for the purpose of hindering, de*495laying and defrauding tlie husband’s creditors. The husband was asked:
“Q. At the time you did that, I will ask you to tell the court why you made the transfer? .A. 1 was drawing one hundred dollars per month in Florida as compensation and I got notice that I would be cut to fifty dollars per month; well, it taken about all that to live on.
“Q. You have a wife and how many children? A. Two, and I owed a few little matters and my wife was working at the time, and I told her if she would finish paying for this car, I would let her have it and make it over to her.”
According to this testimony the consideration for the transfer was the payment of the amount due on the car by the wife. How much was due is not shown; however, the wife did not pay the deferred payments, she has parted with nothing. The transfer to be valid must be supported by a fair consideration, which is defined as follows :
“Where consideration is given for property, or obligations—
“ (a) When in exchange for such property, or obligation, and a fair equivalent therefor, and in good faith, property is conveyed.” Acts 1909, Chapter 125, page 402, section 3.
Under this definition the assumption of a debt without its satisfaction does not amount to a fair consideration. A person must be just before he is. generous, even with his wife. A fraudulent intent to defeat creditors is not necessary when the transfer is not supported by a fair consideration.
.“Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the ponveyanee is made or the obligation is incurred' without a fair consideration.” Chapter 125, Section 4, supra.
According to Hart’s own testimony he is, or was, insolvent at the time of the transfer:
“A person is insolvent when the present or salable value of his assets is less than the amount that will be required to pay his probable liabilities on his existing debts as they become absolute and mature.” Chapter 125, Section 2, supra.
According to Hart’s testimony, he owed this debt at the time of the transfer together with a few others and he was not able to finish paying for the car; he transferred it to his wife who expected to finish paying for the car but she lost her position and was unable to pay anything upon it. The circuit judge was of the opinion that since the husband and wife testified that they transferred the car in good faith, then to hold it a burden upon them would be tantamount to convicting them of perjury. According to their testimony, the *496transfer was made without a fair consideration and their intent or purpose was immaterial. We think the circuit judge was in error in adjudging in favor of the plaintiff; he should have held that the deputy sheriff was entitled to the possession of the car.
A judgment will be entered here in favor of the defendant for the possession of the car, but since it does not appear from the record what the value of the car is, it is necessary that the case be remanded for a reference to determine the value of the car in order that a judgment may be entered providing that the plaintiff may return the car within ten days or a judgment for double the value of the ear will be entered. In the event the car is returned to the officer, then a judgment will be entered for the costs and damage, if any, by the retention pending the determination of the replevin suit.
The judgment of the lower court will be entered to conform with Section 5152 of Shannon’s Code. The case is reversed and remanded for the aforesaid reference.
Snodgrass and Thompson, JJ., concur. | 01-03-2023 | 10-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/1542023/ | 76 B.R. 712 (1987)
In re LAMAR FARMERS EXCHANGE, Debtor.
LAMAR FARMERS EXCHANGE, Plaintiff
v.
MFA, INCORPORATED, et al., Defendants.
Bankruptcy No. 84-00085-SW-S-2-11, Adv. No. 84-0412-SW-S-2-11.
United States Bankruptcy Court, W.D. Missouri, S.D.
August 3, 1987.
*713 Jack Hoke, Springfield, Mo., for debtor.
Wayne H. Hoecker, Kansas City, Mo., for MFA.
MEMORANDUM OPINION
FRANK W. KOGER, Bankruptcy Judge.
Debtor, Lamar Farmers Exchange, ["Lamar"] is a cooperative corporation engaged in the business of the retail marketing of agricultural products. From 1971 until January 1, 1984, Lamar was a member of MFA, Inc., pursuant to a License Agreement. MFA notified Lamar by certified mail on October 25, 1983, that it would terminate its license and service agreement on January 1, 1984, due to Lamar's failure to pay its past due accounts. Lamar filed its Chapter 11 petition on January 11, 1984.
I. PATRONAGE EQUITY CLAIM
Defendant MFA is a non-stock membership corporation existing under that Non-Profit *714 Cooperative Marketing Law of Missouri (Chapt. 274 R.S.Mo.). MFA is engaged in the business of selling at wholesale and retain agricultural products. MFA's bylaws require it to allocate any savings to its members in proportion to their patronage with the association. This allocated net profit is paid part in cash and part in "patronage equity" which becomes property of the member. It is MFA's position that these patronage equities are not debts of the corporation. MFA's bylaws provide that patronage equity may be retired only at the discretion of the board of directors, and until the board declares them due, a member has no right to receive payment for them.
Plaintiff Lamar filed adversary proceeding No. 84-0412-SW-S-2-11 seeking a turnover under the provisions of 11 U.S.C. § 542(d) because MFA, Inc. has refused to set off Lamar's debt against its accumulated patronage equity. It is undisputed that at the time Lamar filed its petition in bankruptcy, it had been allocated patronage equity credit of at least $774,616.35. Lamar contends it had an additional $16,372.94 in patronage equity in MFA Oil Co. The oil company account was assigned to MFA, Inc. prior to Lamar's bankruptcy because Lamar did not have enough patronage equity in MFA Oil Co. to cover its debt there. It is undisputed that at the time of filing, Lamar's combined debt to MFA and MFA Oil was $526,695.82.
MFA admits that it has on several occasions set off the debt of other members against their patronage equities. MFA's Articles and By-Laws state that it shall have a lien on the patronage equities of a member to the extent of their debt to the corporation. MFA argues that the board of directors of the corporation have the discretion to redeem or cancel patronage credits and they may not be offset against debt until the board declares them due and payable. It also contends that the stated value of the credit is not necessarily its present value. MFA states that operating losses have substantially eroded the actual value of its stated equity. Defendant's Response Brief at 2. Defendant adds that to pay Lamar the stated value of its equity interest in order to discharge its debt to the corporation would discriminate against the other equity holders whose interests have also been adversely affected by operating losses. Id. at 2-3.
The parties both seek support for their positions in In re Cosner, 3 B.R. 445 (Bankr.D.Ore.1980); In re Shiflett, 40 B.R. 493 (Bankr.Va.1984); In re Schauer 62 B.R. 526 (Bankr.Minn.1986). These cases acknowledge that an equity interest in a cooperative is property of a bankruptcy estate, but such is not immediately convertible into cash or otherwise available to discharge an indebtedness because redemption is at the discretion of the board of directors. In dicta, Cosner suggested an exception to this general rule:
Arbitrary and capricious refusal of the board of directors to enable transfer, despite discretionary power in the bylaws might entitle the trustee in such event to equitable relief.
3 B.R. at 449.
Lamar suggests that the Board of Directors acted arbitrarily and capriciously in that they denied requests made by Lamar both before and after filing of its bankruptcy petition to set off its debt against its patronage equities. Lamar's manager, Loren Morey, recites in his affidavit of November 30, 1984, that MFA's Board of Directors had voted in the past to offset the debt of at least six different members. MFA responded that a decision by its board to compromise a debt under certain facts and circumstances at one point in time does not compel the board to honor all future requests for like treatment.
II. C-STOCK CLAIM
Lamar was both a member and a trade debtor of defendant MFA. Cooperatives affiliated with MFA could participate in financing provided by Agmo Corporation. Defendant Agmo is a stock cooperative engaged in the business of financing retail sales of goods by MFA and its affiliated cooperative associations. It is formed, financed and operated much like Production *715 Credit System. Lamar became a part of Agmo in 1967.
Debtor Lamar filed adversary proceeding No. 84-0275-SW-S-2-11 against Agmo, asking the Court to order it to redeem Lamar's C-Stock after either payment or offset of Lamar's current indebtedness. Agmo requires its local exchanges to own C-stock in an amount equal to 10% of the outstanding loans to the exchange's patrons. Agmo had stopped a stock redemption plan whereby as necessary funds are generated it would redeem the equity interest of requesting members on an equitable basis. In re Walker, 48 B.R. 668 (Bankr. D.S.D.1985). However, Agmo asserts that concern over the financial health of the corporation caused its Board of Directors in 1981 to discontinue accepting requests for redemption of its capital stock. Nevertheless, Agmo received verbal assurances and an April 15, 1983 letter from Paul Johnson, Agmo vice president, that the stock would be redeemed when the loans were paid.
Lamar had previously had as much as $400,000.00 in outstanding patron loans. At the time of filing, debtor had $40,000.00 in Agmo C-Stock and at least $16,000.00 in Agmo patronage equities, with a debt to Agmo of $12,953.86. Lamar introduced testimony that it had been told that Agmo would redeem any C-Stock it had in excess of the $1,295.38 it would be required to hold as 10% of the outstanding debt. Lamar's requests for retirement of its C-Stock have been rejected.
III. PENSION CLAIM
Plaintiff Lamar also seeks $22,479.00 from the MFA Inc. Interim Retirement Plan and various individual trustees of the plan in adversary No. 85-0199-SW-S-2-11. The plan, which is fully regulated by ERISA, was formed on January 1, 1985 to assume and discharge the obligations of the MFA Employees Retirement Plan and to distribute to the participating employers on a proportionate basis the assets in excess of what was needed to fund the vested retirement benefits, with this asset distribution being the primary reason for dissolution of the old plan.
Plaintiff Lamar made its final payment to the MFA Employees Retirement Plan for the period ending December 31, 1983. It ceased making payments after filing of bankruptcy in January of 1984. Lamar never formally withdrew from the plan. The Board of Trustees voted to terminate Lamar, but never notified it. Despite such termination, MFA, Inc., as sponsoring employer, retained the responsibility of assuring that benefits were paid or otherwise discharged on behalf of those of Lamar's employees that had acquired vested pension benefits. The assets of these Lamar employees were transferred to the MFA, Inc. Interim Plan, which purchased annuity contracts from an insurance company to discharge the plan's obligations to them. After the plan discharged its liabilities, defendant MFA and the other sponsoring employers received the assets remaining in the plan.
Lamar contends that it is due $22,479.00 as its proportionate share of the paid-out assets. That figure is derived from the testimony of Thomas Cerneka, managing principal of the Employee Benefits Division of Tillingast, Nelson and Warren, the consulting actuary providing valuation of the defined benefit plan. MFA argues that Cerneka's data was prepared for settlement purposes only and is not accurate enough for admission as evidence.
Debtor's payments to the plan had been paid through December 31, 1983, and Lamar filed for bankruptcy before the next payment was due at the end of the first quarter in 1984. Following the filing of its Chapter 11 petition Lamar received no notice concerning the plan, its dissolution, the formation of the new plan, or the payout of the excess assets. Debtor also asserts that it is entitled under 11 U.S.C. 362(h) to actual damages plus costs and attorney fees and lost opportunity for the amount of the bond it posted in connection with its injunction preventing disposition of its reversionary interest.
*716 IV. CONCLUSION
A cooperative member's patronage credits constitute an interest in the cooperative association that is contingent and not immediately payable. The interest becomes due and payable only when the board of directors, in keeping with its bylaws, exercises its discretion and determines that such payments may be made without causing undue financial hardship to the association. Patronage credits are not an indebtedness of a cooperative association that is presently due and payable to the members, but they represent an interest that may be paid at some unspecified later date to be determined by the board of directors.
As the Kansas Supreme Court pointed out in Atchison County Farmers Union Co-Op Association v. Turnbull, 241 Kan. 357, 736 P.2d 917 (1987), "[t]he purpose of cooperative marketing is to promote the intelligent and orderly marketing of agricultural products through cooperation . . . The paramount concern of such associations is to provide a means of marketing the products of their members, not the advancement of individual members." 736 P.2d at 919-20.
In re Schauer, 62 B.R. 526 (Bankr.D. Minn.1986), held that while debtor's interest in an accumulated revolving fund patronage account would become part of his bankruptcy estate under 11 U.S.C. § 541(a), the court could not order the co-op to redeem the unmatured certificates, nor could it order transfer of the patronage certificates absent authorization by the co-op's board of directors. This is because the trustee and the estate succeed only to the title and rights in property that the debtor had, and no better. 62 B.R. at 530, citing cases. As in the matter before us, both of the parties in Schauer cited Cosner for support. Schauer found for the co-op, declining to adopt by the rule suggested by Cosner's "arbitrary and capricious" language:
This Court cannot vest plaintiff with new or expanded rights over the revolving fund which did not exist prior to Debtor's invocation of its jurisdiction . . . Without a showing of particularized discrimination against Plaintiff, it cannot be said that Bongard's Board is acting arbitrarily and capriciously . . .
Lamar contends MFA was arbitrary and capricious in refusal to retire its patronage equity when it had done so previously for other members. The Turnbull decision once again provides guidance, discussing Claassen, Executrix v. Farmers Grain Cooperative, 208 Kan. 129, 490 P.2d 376 (1971), in which an executrix sought to recover a money judgment against a co-op based on credits earned by the deceased, who had been a member and patron during his lifetime. When the co-op in that case asserted that whether to pay patronage ledger credits to a decedent's estate was a matter of discretion for the board of directors, plaintiff complained that the board had paid such credits to other estates:
The court determined, however, that it could not substitute its judgment for judgment of the board of directors and declined to become involved in the financial structure of the cooperative to determine whether the board of directors acted reasonably.
736 P.2d at 920, citing cases.
In conformity with public policy and all the cases discussed above, this Court finds that while it may under certain circumstances order patronage equity credits in a cooperative to be used to set-off a member's or former member's debt to the cooperative, such exercise of power should be restricted to those cases wherein there has been a clearly evidenced abuse of the otherwise sole discretion of the co-op's board of directors. As a practical matter, it is quite likely that debtor's real equity in the revolving fund is now less than the admitted debt to the co-op and that the co-op may be in only slightly better financial condition than the debtor.
Different facts and a slightly different policy underlying the Class C Participation stock issue convince this Court that Lamar should be allowed to retire the majority of the stock. While cancellation of loan participation stock upon default is still discretionary with a lender's board of directors, *717 such stock is ordinarily retired as the amount of loan principal is reduced. And unlike the patronage equity situation, where it could only point to the more favorable treatment of previous members, Lamar was made specific oral and written promises that its C-Stock would be returned when it paid down its debt. The parties do not dispute that only $12,953.86 in debt remains. Therefore, Agmo is ORDERED to retire $38,704.62 of Lamar's C-Stock.
As to the pension fund question, this Court agrees with defendant that the sketchy data prepared for settlement negotiations cannot support an award of a specific amount, however it will not let Lamar's present bad fortune after a number of years of contributions to the retirement plan create a windfall for MFA and the current members to the detriment of Lamar's creditors. Lamar is entitled to its proportionate share of the reversion due to discontinuation of the previous pension plan. The Court will hear evidence from the parties as to how to properly calculate this amount, as well as any evidence the parties wish the Court to hear in regard to the costs of preventing distribution of these funds. Hearing will be held in the Greene County Court House Annex, 833 Boonville, Springfield, Missouri on Friday, September 4, 1987 at 9:00 A.M.
This Memorandum Opinion constitutes Findings of Facts and Conclusions of Law as required under Rule 7052, Rules of Bankruptcy. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/846848/ | 711 N.W.2d 303 (2006)
474 Mich. 1068
Kevin DITMORE and Melanie Ditmore, Plaintiffs-Appellees,
v.
Lesly W. LOCHNER, a/k/a Lesly W. Racine, Defendant/Third-Party Plaintiff-Appellant,
v.
Larry Michalik, Becky Michalik, Ron Hiveley, Glena Hiveley, Ray A. Busik, Phyllis J. Busik, Dale Herring, Lucinda Herring, and Floyd D. Campbell, Third-Party Defendants, and
Commonwealth Land Title Insurance Company, Third-Party Defendant/Appellee.
Docket No. 128946, COA No. 251572.
Supreme Court of Michigan.
February 27, 2006.
On order of the Court, the application for leave to appeal the March 24, 2005 judgment of the Court of Appeals is considered, and it is DENIED, because we are not persuaded that the question presented should be reviewed by this Court. | 01-03-2023 | 03-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1542115/ | 386 B.R. 701 (2008)
In re UAL CORPORATION, et al., Debtors.
No. 02-B-48191.
United States Bankruptcy Court, N.D. Illinois, Eastern Division.
April 24, 2008.
*704 David A Agay, Marc J Carmel, Erik W. Chalut, Gary Y Chyi, Alex Karan, James J. Mazza, Jr., David R. Seligman, Michael B. Slade, James Sprayregen, Kirkland & Ellis LLP, Chicago, IL, Philip V Martino, Dla Piper Rudnick Gray Cary US LLP, Chicago, IL, for UAL Corp.
Andrew S Marovitz, Mayer Brown Rowe & Maw LLP, Chicago, IL, Sheri L Drucker, Michael A Olsen, Carrie Marie Raver, Craig E. Reimer, Andrew S Rosenman, Michael A Scodro, Mayer Brown Rowe & Maw LLP, Chicago, IL, for UAL Loyalty Services, Inc.
Kathryn Gleason, Office of The U.S. Trustee, Chicago, IL, Stephen G Wolfe, Chicago, IL, for trustee.
MEMORANDUM OPINION
EUGENE R. WEDOFF, Bankruptcy Judge.
These Chapter 11 cases are before the court on the motion of debtor United Air Lines ("United") seeking reconsideration of an order denying its motion for contempt against a former employee, Iftikhar Nazir, and his counsel. The contempt motion contended that Nazir, who had been fired by United while its business was operating in Chapter 11, violated United's Chapter 11 discharge by challenging the termination of his employment in a California state court action. The contempt motion was denied because Nazir's state court action was authorized by 28 U.S.C. § 959(a).
United now suggests that this decision misapplied § 959(a) by allowing it to trump United's discharge. To the contrary, the decision correctly read § 959(a), which allows a claim arising from the operation of a debtor's business during bankruptcy to be pursued in the forum of the claimant's choice with no limitation based on plan confirmation or discharge. United's plan does require that claims like Nazir's be adjudicated in bankruptcy court, but Nazir was not given effective notice of the plan and so it cannot affect his rights under § 959(a). To this extent the motion for reconsideration will be denied.
However, Nazir's state court complaint also alleges incidents of harassment occurring before United's bankruptcy filing. To the extent that Nazir seeks recovery for these incidents, he was required to file a proof of claim in the bankruptcy case. He failed to do so, has not demonstrated excusable neglect for his failure, and so cannot pursue such a recovery now. The portion of the court's order that said otherwise will be amended.
Jurisdiction
Under 28 U.S.C. § 1334(a), the federal district courts have "original and exclusive jurisdiction of all cases under title 11 [the Bankruptcy Code]," but they may refer these cases to the bankruptcy judges for their districts under 28 U.S.C. § 157(a). The bankruptcy cases of United and several related corporations were referred to this court pursuant to Internal Operating Procedure 15(a) of the District Court for the Northern District of Illinois.
Following such a reference, a bankruptcy judge has jurisdiction under 28 U.S.C. § 157(b)(1) to "hear and determine ... all core proceedings arising under title 11, or arising in a case under title 11." The resolution of claims against a debtor's estate is a core proceeding. 28 U.S.C. § 157(b)(2)(B).
*705 Factual Background
Although the parties dispute the merits of Nazir's employment discrimination claims, the facts relevant to United's motion for reconsideration and its underlying motion for contempt are undisputed.
According to his state court complaint, Iftikhar Nazir is a dark-skinned, Pakistani-born Muslim. He became an employee of United in 1989, and remained so employed through December 9, 2002, when United filed its bankruptcy case. On February 27, 2003, this court set a "bar date" for claims of non-governmental creditors that arose on or before the bankruptcy filing. The order required these creditors to file proof of their claims by May 12, 2003; however, the order also provided that claims arising during the administration of the bankruptcy case were not subject to the filing requirement. On April 28, 2003, with help from his union, Nazir filed a proof of claim for "wages, salaries, and compensation" arising before the bankruptcy filing. United ultimately paid this claim in a reduced amount.
Two years after the general claims bar date, on May 9, 2005, United terminated Nazir's employment. Later that year, on October 3, Nazir responded by filing a complaint against United with the California Department of Fair Employment and Housing, alleging that his termination was the result of discrimination based on skin color, religion, and national origin, and that his supervisor had "always displayed a negative attitude" toward him. (See Docket No. 16934. Ex. B.) Within a week, United received notice and a copy of this complaint. (Id., Notice of Discrimination Complaint to United's Senior Vice President at SFO, receive-stamped October 10, 2005.)
Meanwhile, United's bankruptcy case was moving toward plan confirmation. On September 7, 2005, a month before Nazir filed his employment discrimination complaint, United's solicitation agent notified Nazir of the initially scheduled hearing on the adequacy of a disclosure statement for a proposed Joint Plan of Reorganization. (See Docket No. 12720, Affidavit of Service by Poorman-Douglas Corp.; the notice is Exhibit I to the Affidavit; service on Nazir is reflected on Exhibit II, p. 3288.)
On October 27 and 28, 2005, after the court approved an amended version of the disclosure statement, United's solicitation agent provided over 50,000 copies of the disclosure statement and an amended plan to parties entitled to notice, together with information regarding the hearing on plan confirmation and deadlines for objecting to and voting on the plan. (See Docket No. 13512.) In particular, the notice stated that the court had set December 12, 2005, as the deadline for objections to plan confirmation. (Id. Ex. 1 at 22.) Nazir, however, was not given this or any other notice regarding plan confirmation.
United ultimately obtained confirmation of a Chapter 11 plan its Second Amended Joint Plan of Reorganization on January 20, 2006. (See Docket No. 14829.) Article XI.D of the plan provides that requests for payment of administrative claims (other than specially designated types) "must be filed with the Claims Agent and served upon counsel to the Debtors on or before the Administrative Claim Bar Date." Article I.D.5 defines the "Administrative Claim Bar Date" as 30 days after the plan's effective date, which under Article I.D.83 was a date to be chosen by the debtors after confirmation. United and the other debtors chose February 1, 2006, as the effective date (see Docket No. 15047), and so the administrative bar date was March 3, 2006.
For any administrative claim as to which a request for payment is filed before the bar date, Article XI.D of the plan allows United to file an objection, after which *706 "the Bankruptcy Court shall determine the Allowed amount of such Administrative Claim." For administrative claims not subject to a timely-filed request for payment, Article XI.D provides that the claims "shall be disallowed automatically without the need for any objection by the Debtors."
On January 27, 2006, United's solicitation agent served a "Notice of Entry of Confirmation Order and Other Key Relevant Dates" on more than 130,000 parties. (See Docket No. 15079, at 12.) This notice indicated that the effective date of the plan was anticipated to be February 1, 2006, that further notice would be given if a different effective date were specified, that the bar date for filing requests for payment of administrative claims would be 30 days after the effective date, and that Article XI.D of the plan provided further information about administrative claims. This notice was not served on Nazir, and he received no other notice of the administrative claims bar date.
Nazir did not file or serve a request for payment of an administrative claim with respect to his employment discrimination claim prior to the March 3 administrative claims bar date. Rather, on April 4, 2006, Nazir requested that his file with the California Department of Fair Employment and Housing be closed so that he could pursue the claim in court. In compliance with this request, the agency provided Nazir with a "Right-to-Sue" Notice on April 13, 2006. On July 7, 2006, Nazir, through counsel, filed an eleven-count complaint in the California Superior Court, demanding a jury trial. The complaint continued to allege that United terminated Nazir's employment based on illegal discrimination and that his supervisor was antagonistic toward him. However, the complaint set out new legal theories and alleged a number of additional incidents of harassment, some occurring before United's bankruptcy filing.
United took no immediate action, either in this court or in the California proceedings, to dismiss Nazir's claims on the basis of disallowance under the plan.[1] On November 9, 2007, however, after more than a year of pretrial proceedings in California, United filed its motion in this court for an order holding Nazir and his counsel in contempt for violating the discharge provided by § 1141(d) of the Bankruptcy Code.[2] The court denied this motion in an oral ruling on December 19, finding that Nazir's actions alleging postpetition misconduct by United (including the termination of his employment) were authorized by 28 U.S.C. § 959(a), and that to the extent Nazir's California complaint sought recovery for prepetition conduct, it should be treated as an informal proof of claim. An order consistent with this ruling was entered on December 26, 2007. (See Docket No. 16960.)
United's pending motion seeks reconsideration of this ruling and order.
*707 Legal Analysis
United's motion for reconsideration raises two distinct sets of legal issues. One set of issues involves claims asserted by Nazir that arose while United's business was being administered in bankruptcy; the other set involves claims that arose before United filed its bankruptcy petition.
A. Postpetition administrative expense claims
Section 503(b)(1)(A) of the Bankruptcy Code provides that the bankruptcy court may allow "administrative expenses including ... the actual, necessary costs and expenses of preserving the estate." Once allowed, these expenses are entitled to be paid before the claims of other unsecured creditors; they are accorded priority over most prepetition claims under § 507(a)(2), and under § 1129(a)(9)(A) any Chapter 11 plan must provide for their full payment unless the claimant otherwise agrees.
In Reading Co. v. Brown, 391 U.S. 471. 88 S.Ct. 1759, 20 L.Ed.2d 751 (1968). the Supreme Court construed the provision for payment of administrative expenses set out in the Bankruptcy Act of 1898, the Bankruptcy Code's predecessor. The Court held that administrative expenses included compensation for torts committed in the operation of a debtor's business in bankruptcy, even though the tortious con duct itself did not "preserve" the bankruptcy estate.
Although there appear to be no cases dealing with tort claims arising during Chapter XI proceedings, decisions in analogous cases suggest that "actual and necessary costs" should include costs ordinarily incident to operation of a business, and not be limited to costs without which rehabilitation would be impossible.
Id. at 483, 88 S.Ct. 1759. This understanding has carried over to the interpretation of administrative expenses under § 503(b)(1)(A), which courts have applied to a wide range of actionable conduct taking place" after the filing of a bankruptcy case.
Applying Reading ... courts have concluded that the following claims fall within the Code's definition of administrative expenses: tort, trademark infringement, patent infringement, and breach of contract. [A party's] claims satisfy the traditional definition of "administrative expenses" so long as they arose from transactions that occurred between it and [debtor] after the petition for bankruptcy....
In re Eagle-Picher Indus., Inc., 447 F.3d 461, 464 (6th Cir.2006) (citations omitted). Thus, to the extent that United engaged in actionable conduct by discriminating against Nazir during the administration of its estate in bankruptcy, Nazir had a right to payment of an administrative expense for his resulting damages.
United does not contest this. Rather, the underlying question presented by United's contempt motion was whether Nazir pursued his claim in the wrong forum. United asserts that Nazir had to pursue his administrative expense claim in bankruptcy court and that when he failed to do so in the time required by United's plan, his claim was disallowed and discharged. But while any administrative claim may be adjudicated in bankruptcy court, parties claiming injury from the operation of a business in bankruptcy are not limited to that remedy. Nazir properly chose to pursue his employment discrimination claim in a nonbankruptcy forum, and United's plan does not foreclose him from doing so.
1. The bankruptcy court procedure under § 503(b). The Bankruptcy Code prescribes a procedure for payment of administrative expenses. As noted in In re *708 Telesphere Communications, Inc., 148 B.R. 525, 530 n. 13 (Bankr.N.D.Ill.1992), an entity with a claim for an administrative expense (other than professional compensation, which is treated separately) may file a request with the bankruptcy court under § 503(a) that the court "allows" under § 503(b) in the appropriate amount after notice and a hearing.
Under the Code's procedure, there is no right to a jury trial. As an in rem proceeding, grounded in equity, bankruptcy generally provides no jury trial for disputes regarding a claim against a bankruptcy estate. See Langenkamp v. Culp, 498 U.S. 42, 44-45, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) ("[B]y filing a claim against a bankruptcy estate the creditor triggers the process of `allowance and disallowance of claims,' thereby subjecting himself to the bankruptcy court's equitable power.... As such, there is no Seventh Amendment right to a jury trial."). Claims for payment of an administrative expense are no different from other claims in this regard. See In re Allied Cos., 137 B.R. 919, 925 (S.D.Ind.1991) (denying a jury trial for a creditor's administrative priority claim because "by invoking the equitable powers of the bankruptcy court to order the claims of creditors ... one loses the right to a jury trial").
2. Nonbankruptcy procedure under 28 U.S.C. § 959(a). In addition to the Code's procedure, a section of the Judicial Code, 28 U.S.C. § 959(a), provides for alternative adjudication of certain administrative expenses. Section 959(a) states:
Trustees, receivers or managers of any property, including debtors in possession, may be sued, without leave of the court appointing them, with respect to any of their acts or transactions in carrying on business connected with such property. Such actions shall be subject to the general equity power of such court so far as the same may be necessary to the ends of justice, but this shall not deprive a litigant of his right to trial by jury.
This provision was originally enacted in 1887, to overturn a Supreme Court decision, Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881), holding that a plaintiff injured by a business subject to a federal receivership could only sue the receiver in a local court after obtaining permission from the federal court in which the business was being administered. The original statute was later extended to bankruptcy trustees and debtors in possession. See In re Markos Gurnee P'ship, 182 B.R. 211, 220-22 (Bankr.N.D.Ill.1995), aff'd sub nam. Illinois Dept. of Revenue v. Schechter, 195 B.R. 380 (N.D.Ill.1996) (setting out the history of § 959(a)).
By its terms, § 959(a) applies only to a limited range of administrative claims, those arising from the operation of a business in bankruptcy or receivership, as opposed to the liquidation and distribution of its assets. See, e.g., Muratore v. Darr, 375 F.3d 140, 144 (1st Cir.2004) (agreeing with other courts that "`acts or transactions in carrying on business connected with' the bankruptcy estate ... mean[s] acts or transactions in conducting the debtor's business in the ordinary sense of the words or in pursuing that business as an operating enterprise"). However, the provision plainly applies to "torts committed in furtherance of the debtor's business." Carter v. Rodgers, 220 F.3d 1249, 1254 (11th Cir.2000) (quoting Lebovits v. Scheffel (In re Lehal Realty Assocs.), 101 F.3d 272, 276 (2d Cir.1996)). For such claims, § 959(a) offers a procedure distinct from bankruptcy adjudication, establishing an "unconditional right to bring [an] action in the local courts, and to have the justice and amount of [the] demand determined by the verdict of a jury," in the manner to which the claimant "would be entitled ... if the property or business were not being *709 administered by the Federal court." Gableman v. Peoria, Decatur & Evansville Ry., 179 U.S. 335, 338, 21 S.Ct. 171, 45 L.Ed. 220 (1900).[3]
Nazir's complaint against United, at least to the extent that it is grounded in the termination of his employment, unquestionably falls within the scope of § 959(a) since it arose from United's conduct, as debtor in possession, in carrying on the business of its bankruptcy estate. Thus, Nazir was authorized, without leave of this court, to pursue this claim as he did, in California administrative and judicial proceedings.
3. The relationship of § 959(a) to the Bankruptcy Code. Although § 959(a) plainly is in tension with some of the provisions of the Bankruptcy Code, no court considering the two statutes has ever concluded that the Code implicitly repealed § 959(a).[4] Instead, courts have dealt with instances of conflict by harmonizing the statutes, so as to accomplish the underlying purposes of each.
a. The automatic stay. For example, the automatic stay of § 362(a)(3) prohibits "any act to obtain ... property from the estate," yet § 959(a) allows an action arising from the operation of a business in bankruptcy to proceed outside of bankruptcy court. Decisions considering this conflict have resolved it by holding that § 959(a) creates an exception to the automatic stay. See, e.g., In re Globe Bldg. Materials, Inc., 345 B.R. 619, 636 (Bankr.N.D.Ind.2006) (stating that § 959(a) "provides a rule by which a bankruptcy trustee may be sued ... without the plaintiff first seeking relief from the automatic stay"); In re Commercial Fin. Servs., Inc., 252 B.R. 516, 529 (Bankr. N.D.Okla.2000); see also Voice Sys. & Servs., Inc. v. VMX, Inc., No. 91-C-88-B, 1992 WL 510121, at *10 (N.D.Okla.1992) (collecting authorities).[5]
At the same time, however, the courts have recognized that § 959(a) itself reflects the need to protect the bankruptcy court's oversight of estate administration. Although the blanket injunction of the automatic stay does not apply to injuries resulting from the operation of a business in bankruptcy, the second sentence of § 959(a) expressly allows for the exercise of the bankruptcy court's "general equity power ... so far as the same may be necessary to the ends of justice." Thus, a bankruptcy court may stay a particular nonbankruptcy action commenced under § 959(a) or require that the action proceed in bankruptcy court. See Jaytee-Penndel Co. v. Bloor (In re Investors Funding Corp.), 547 F.2d 13, 16 (2d Cir.1976) (noting that "a court action against reorganization trustees relating to business activities of the bankrupt ... may proceed unless the bankruptcy court, exercising sound *710 discretion, rinds that the action would embarrass, burden, delay or otherwise impede the reorganization proceedings.").
But again, recognizing the purposes underlying § 959(a), the Supreme Court has warned against an expansive application of the "equitable powers" that § 959(a) reserves: "[T]he right to sue without resorting to the appointing court, which involves the right to obtain judgment, cannot be assumed to have been rendered practically valueless by this further provision in the same section of the statute which granted it." Texas & Pacific Ry. v. Johnson, 151 U.S. 81, 103, 14 S.Ct. 250, 38 L.Ed. 81 (1894). In particular, § 959(a) prohibits a bankruptcy court from taking action that would deprive a litigant of any right to jury trial. See Commercial Fin. Servs., 252 B.R. at 528 (stating that "a plaintiff does not lose its right to jury trial if its action is involuntarily removed to a court of equity.").[6]
b. Enforcement of judgments. A second area of potential conflict between § 959(a) and the Bankruptcy Code arises in connection with the enforcement of judgments obtained in an action brought under § 959(a). It would obviously disrupt the administration of any estate under court supervision if property of the estate could be seized to satisfy the judgment of another court. However, in harmonizing the effect of § 959(a) with the needs of estate administration, the Supreme Court early on required that judgments against an estate under § 959(a) be enforced in the court overseeing the estate's administration:
Of course it devolves on the court in possession of the property or funds out of which judgments against its receiver must be paid to adjust the equities between all parties, and to determine the time and manner of payment or judgment creditors necessarily applying for satisfaction from assets so held to the court that holds them.
Gableman v. Peoria, Decatur & Evansville Ry., 179 U.S. 335, 339, 21 S.Ct. 171, 45 L.Ed. 220 (1900). Put in the context of the Bankruptcy Code, this rule limits a nonbankruptcy action brought under § 959(a) to determining the "allowed" amount of an administrative claim arising from the business operations of the debtor; payment of that claim must be accomplished through procedures established in the bankruptcy case. Accordingly, while § 959(a) allows Nazir to pursue his claim to judgment in the California court, he would seek payment of a judgment in his favor as an allowed administrative claim in United's bankruptcy case, just as he would if the claim were allowed under the procedures of § 503 of the Bankruptcy Code.
c. Discharge. United has suggested a third area of conflict between § 959(a) and the Bankruptcy Code: discharge under a Chapter 11 plan. Section 1141(d)(1)(A) of the Bankruptcy Code provides that the confirmation of a Chapter 11 plan "except as otherwise provided in the plan ... discharges the debtor from any debt that arose before the date of confirmation." United argues that since § 959(a) claims arise during the period of bankruptcy administration before confirmation, the Chapter 11 discharge eliminates the rights that § 959(a) accords.
This argument is misleading. First, as noted above, § 1129(a)(9)(A) of the Code requires that all administrative claims including those dealt with by § 959(a) be paid in full under any Chapter 11 plan. See CIT Commc'ns Fin. Corp. v. Midway Airlines Corp. (In re Midway Airlines *711 Corp.), 406 F.3d 229, 242 (4th Cir.2005) (stating that "an administrative expense under § 503(b) must be paid in cash on the effective date of the plan in a chapter 11 proceeding"). Thus, the discharge of these claims under § 1141(d)(1)(A) does not eliminate them; it merely requires that they be paid in their full allowed amount pursuant to the provisions of the confirmed plan.[7] Second, there is no reason why a Chapter 11 plan should not preserve litigation rights under § 959(a) by providing that administrative claims within the scope of that section be paid in amounts allowed through adjudication in a nonbankruptcy forum. Conflict between § 959(a) and a Chapter 11 discharge, then, would only result from a plan that failed to allow for resolution of claims in the manner provided for in § 959(a), not from the operation of the Bankruptcy Code.
4. The effect of United's Chapter 11 plan. United's plan appears to prevent adjudication of administrative claims pursuant to § 959(a). Article XI.D provides that all administrative claims not previously allowed must be pursued through a request for payment "filed with the Claims Agent and served upon counsel to the Debtors on or before the Administrative Claim Bar Date," that any claim as to which such a request is not timely filed and served is "disallowed automatically," and that the bankruptcy court will determine any timely-filed request to which United objects.
This provision could have been subject to an objection to confirmation. Section 1129(a)(3) of the Bankruptcy Code establishes as a requirement for confirming any Chapter 11 plan that the plan be proposed in good faith and "not by any means forbidden by law." A plan purporting to prevent a party with a § 959(a) claim from adjudicating the claim outside of bankruptcy court would contradict the right accorded by § 959(a) and so would at least appear to employ a means forbidden by law. No objection was made, however, and the plan was confirmed, making its terms binding on creditors under § 1141(a) "whether or not [they] accepted the plan" as long as they received adequate notice, a point discussed below.
In two respects, Nazir failed to pursue his administrative expense claim in the manner required by United's plan: he did not file or serve the specified request for payments, and he sought to adjudicate the claim as allowed by § 959(a) rather than in bankruptcy court. If the plan were binding on Nazir, United would be correct that his pursuit of the claim violated United's Chapter 11 discharge.
5. Adequacy of notice. United's Chapter 11 plan is not binding on Nazir, however, because he did not receive adequate notice. In Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950), the Supreme Court established the minimum standard for notice consistent with the constitutional guarantee of due process:
An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is 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.
The Court went on to say that "when notice is a person's due, process which is a mere gesture is not due process. The means employed must be such as one desirous *712 of actually informing the absentee might reasonably adopt to accomplish it." Id. at 315, 70 S.Ct. 652. In Mullane itself, the Court applied this standard in the context of hearings on the administration of commonly managed trusts and held that each trust beneficiary whose identity and address could readily be ascertained was entitled to individual notice by mail of the hearings; mailed notice of the law requiring the hearings and published notice of the actual hearings were insufficient. The standard of due process set out in Mullane is fully applicable in bankruptcy. Fogel v. Zell, 221 F.3d 955, 962 (7th Cir.2000) ("[T]he general norms of fair notice, as set forth in Mullane ... and other such cases, apply to bankruptcy as to other settings in which a person's legal right is extinguished if he fails to respond to a pleading.").
There were two points in United's bankruptcy where Nazir faced the loss of rights with respect to his employment claims if he failed to respond. The first was the December 12, 2005 deadline for objections to confirmation of United's plan, which proposed to extinguish the right to adjudicate claims in local courts under § 959(a). The second was the March 3, 2006 administrative bar date, after which all administrative claims were automatically disallowed and discharged under the plan. United has the burden of establishing that Nazir received adequate notice of these matters. See In re Savage Indus., 43 F.3d 714, 721 (1st Cir.1994) (holding that a Chapter 11 debtor in possession has the burden of showing appropriate notice before a claim can be extinguished). Nazir was not given individual notice of either of these matters, despite United's prior receipt of his employment discrimination claim, and United has made no showing that individual notice would have been impractical.[8]
United has argued that Nazir was nevertheless given adequate notice of the confirmation and bar date matters, pointing to a notice Nazir received concerning a hearing on the adequacy of a disclosure statement for a plan proposed by United.
The mere receipt of some notice, however, does not satisfy due process. As the Seventh Circuit has observed: "[A]dequate notice has two basic elements: content and delivery. If the notice is unclear, the fact that it was received will not make it adequate." Fogel, 221 F.3d at 962. The one-page notice United cites did not include a copy of the disclosure statement or the plan; rather, it said that these documents were "available for viewing by accessing the debtors' private website ... or by contacting the debtors' solicitation agent." The notice said nothing about the effect of the plan on holders of administrative claims, and it gave no information about any hearing on confirmation of a plan or any deadline for objections.
In the briefing of its contempt motion, United argued that if Nazir had read "as instructed" the disclosure statement referenced in the notice of the adequacy hearing, he would have "learned" about the hearing on confirmation, the objection deadline, and administrative claim bar date. There are several problems with this argument. First, the notice did not instruct Nazir to read the proposed disclosure *713 statement and plan; it merely noted the availability of those documents. Second, the notice gave no indication that information regarding plan confirmation or administrative claims could be found in the disclosure statement. Third, and most important, the disclosure statement referenced in the notice could not reasonably have been relied on because the court had not yet approved it.
Under § 1125(b) of the Bankruptcy Code, a hearing on confirmation of a plan can only be held after the court has n proved a disclosure statement as containing adequate information, defined in § 1125(a) as "information of a kind, and in sufficient detail ... in light of the nature and history of the debtor and the condition of the debtor's books and records that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan" Unless a party receiving notice of the adequacy hearing had the expertise to comment on the sufficiency of the information contained in the disclosure statement, there would be no reason to examine the statement. A non-expert claimant like Nazir would reasonably wait until he received a court-approved disclosure statement before studying the document. And having received notice of the adequacy hearing, a party in Nazir's position would expect that if the court approved a disclosure statement, he would receive a copy. Thus, the notice of a hearing on the adequacy of a disclosure statement did not provide Nazir with information reasonably calculated to inform him of the deadline for objecting to plan confirmation or the administrative claims bar date.
Because Nazir received no subsequent notice of these matters until the relevant deadlines had passed, United can only prevail on the question of adequate notice if Nazir, knowing of United's bankruptcy, had an obligation to inform himself of these deadlines. United cites one decision that so holds, Sequa Corp. v. Christopher (In re Christopher), 28 F.3d 512, 517 (5th Cir.1994). The Christopher decision, however, is in a clear minority. The majority rule is stated in Berger v. Trans World Airlines, Inc. (In re Trans World Airlines, Inc.), 96 F.3d 687, 690 (3d Cir. 1996) ("It is well-settled that a known creditor is entitled to formal notice of impending bankruptcy proceedings.... This is true even where, as here, the creditor has actual knowledge of the pendency of bankruptcy proceedings generally, but is not given formal notice of the confirmation hearing.").[9]See also 8 Alan N. Resnick & Henry J. Sommer, Collier on Bankruptcy 11141.06 at 1141-33 (15th ed. rev.2007) (collecting authorities holding that "a creditor that had actual knowledge of the bankruptcy may not be bound by the provisions of the confirmed plan if the creditor did not receive notice of the bar date or the confirmation hearing").[10]
*714 The majority rule properly follows the constitutional standard set out in Mullane. Just as in Mullane, where individual notice of the state law requiring certain hearings on trust fund administration failed to provide adequate notice of the hearings themselves, so mere knowledge of the pendency of a Chapter 11 case fails to put a creditor on notice of the hearing on confirmation or the bar date for administrative claims. See City of New York v. New York, New Haven & Hartford R.R. Co., 344 U.S. 293, 296-97, 73 S.Ct. 299, 97 L.Ed. 333 (1953) (citing Mullane and holding that a creditor without individual notice could not be bound by a claims bar date imposed under the Bankruptcy Act of 1898, despite the creditor's knowledge of the bankruptcy case).
In short, Nazir was not given constitutionally adequate notice either of the hearing on confirmation of United's Chapter 11 plan proposing to eliminate his rights under § 959(a) or of the administrative claims bar date established by the plan. His action in pursuing his administrative claims in the California proceedings therefore was not in contempt of the discharge resulting from confirmation of the plan.
B. Prepetition claims
In addition to claims based on the termination of his employment and acts of harassment allegedly occurring during United's bankruptcy, Nazir's state court complaint also alleges incidents of harassment occurring before United filed its bankruptcy petition. Nazir's prepetition claims are in a different position from the administrative claims arising from alleged post-petition conduct by United. Nazir has not denied that he had actual notice of the May 12, 2003 bar date for filing proofs of prepetition claims; indeed, he filed a timely proof of claim for prepetition compensation. Nazir did not file a timely proof of claim for damages arising from any prepetition employment-related harassment; he has made no showing of excusable neglect under Rule 9006(b)(1) that would allow the period for filing to be enlarged retroactively; and his complaint to the California Department of Fair Employment and Housing cannot serve as a timely informal proof of claim because it was filed on October 3, 2005, long after the deadline for filing prepetition claims had expired.
Under § 502(b)(9) of the Bankruptcy Code, untimely proofs of claim are generally disallowed. Article VIII.F of United's plan properly provides that disallowed claims are to receive no distribution. Nazir could not have presented an effective objection to this provision even if he had been given timely notice of the hearing on plan confirmation. Accordingly, any claims of Nazir arising from prepetition harassment by United were discharged under § 1141(d), and Nazir cannot pursue collection of these claims without violating the discharge injunction.
However, Nazir did not violate the discharge injunction simply by including allegations of prepetition harassment in his state court complaint. The admissibility of discrete, time-barred acts of discrimination is controlled by the rules of evidence. Lyons v. England, 307 F.3d 1092, 1111 (9th Cir.2002). Although Nazir is not able to recover on the basis of prepetition acts of discrimination, those acts may still be admissible to bolster his claim for wrongful discharge. See United Air Lines, Inc. v. Evans, 431 U.S. 553, 558, 97 S.Ct. 1885, 52 L.Ed.2d 571 (1977) (noting that "[a] discriminatory act which is not made the *715 basis for a timely charge ... may constitute relevant background evidence in a proceeding"); Lyons, 307 F.3d at 1111-12 (holding that time-barred denials of promotion were "relevant as background and may be considered by the trier of fact in assessing the defendant's liability for plaintiffs' [later] denials of promotion").
Conclusion
For the reasons stated above, United's motion for reconsideration will be granted only in part. The order resolving United's motion for contempt will continue to deny the relief sought in that motion, but will be amended to state that while Nazir and his counsel have not acted in contempt of United's bankruptcy discharge by pursuing his employment claims in California proceedings, Nazir may not seek recovery in those proceedings for any acts of United that took place before the date of United's bankruptcy filing.
NOTES
[1] United filed an answer to Nazir's state court complaint which, in addition to generally denying Nazir's factual allegations, stated that "to the extent Plaintiffs claims are based on events that occurred prior to Defendant filing its bankruptcy petition or before Defendant emerged from bankruptcy, such claims are barred and/or subject to the exclusive jurisdiction of the bankruptcy court." However, United did not seek to dismiss the complaint on this basis and instead engaged in substantial pretrial litigation in the California action, involving over 25 days of videotaped depositions and the production of over 25,000 pages of documents.
[2] United also sought contempt sanctions based on exculpation provisions of the plan, but since the exculpation provisions expressly exclude intentional conduct, as alleged in Nazir's state court complaint, these provisions plainly are not violated by the pursuit of that complaint.
[3] Because there has been no substantive change in the statutory language since its original enactment only an expansion of the matters to which it applies the early interpretations remain applicable. See Muratore, 375 F.3d at 144 n. 2 (declining to draw any distinction between the current and earlier codifications). For convenience, this opinion uses "§ 959(a)" to refer to the relevant statutory language without regard to the codification in effect at the time of the decisions interpreting that language.
[4] The Supreme Court has recently emphasized that repeal by implication is strongly disfavored. Nat'l Assn. of Home Builders v. Defenders of Wildlife, ___ U.S. ___, ___, 127 S.Ct. 2518, 2532, 168 L.Ed.2d 467 (2007).
[5] These decisions reflect a basic tenet of statutory construction, that a specific statutory provision (§ 959(a)) governs a more general one (the automatic stay). See Busic v. United States, 446 U.S. 398, 406, 100 S.Ct. 1747, 64 L.Ed.2d 381 (1980) ("[A] more specific statute will be given precedence over a more general one, regardless of their temporal sequence.").
[6] This court has made no finding that Nazir's nonbankruptcy proceedings would interfere with United's reorganization, and now that the reorganization has been completed with the confirmation of United's Chapter 11 plan, interference would be Unlikely.
[7] In other words, although "[c]onfirmation automatically discharges all debts other than those provided for in the plan ... `each claimant gets a "new" claim, based upon whatever treatment is accorded to it in the plan itself.'" Holstein v. Bull, 987 F.2d 1268, 1269 (7th Cir. 1993) (quoting In re Benjamin Coal Co., 978 F.2d 823, 827 (3d Cir. 1992)).
[8] United acknowledged receipt of Nazir's claim with the California Department of Fair Employment & Housing on October 10, 2005, two months before the December 12 objection deadline set by the court. United provided notice of the objection deadline and plan confirmation hearing to other parties in interest on October 27 and 28, and has given no reason why timely individual notice could not have been provided to Nazir. Similarly, United provided individual notice of the administrative bar date to other potential administrative claimants on January 27, 2006, and again has given no reason why Nazir could not have been provided with this notice.
[9] The Trans World decision dealt with a situation identical to Nazir's. The operation of a business in Chapter 11 resulted in a claim against the debtor in possession. The plaintiff filed the claim sufficiently in advance of the hearing on plan confirmation that the debtor could have given the plaintiff individual notice of the hearing but did not. Even though the plaintiff was generally aware of the bankruptcy case, the debtor's failure to provide individual notice of the continuation hearing resulted in the plaintiffs claim surviving discharge under the plan.
[10] United also cites In re Longardner & Assocs., Inc., 855 F.2d 455 (7th Cir.1988), as supporting its position that Nazir was not entitled to individual notice of the hearing on confirmation. In Longardner, however, the court dealt with a factual dispute as to whether a creditor had received individual notice of a confirmation hearing. The court considered the evidentiary questions involved and affirmed a finding by the bankruptcy court that the creditor had indeed received individual notice of the hearing. Id. 460, 465. These matters would have been irrelevant had mere knowledge of the bankruptcy satisfied due process. Longardner, then, is consistent with the majority rule requiring individual notice of events in a Chapter 11 case that can result in the loss of creditors' rights. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917462/ | 835 So. 2d 483 (2002)
Alvin HEBERT, Sr. and Marion M. Dupuis Hebert
v.
ANCO INSULATION, INC., A.P. Green Industries, Inc., Armstrong World Industries, Inc., Asbestos Claims Management Corp., f/k/a National Gypsum Company, Asbestos Corporation, Ltd., A.W. Chesterton Company, The Dow Chemical Company, Mortimer Currier, Charlie Halphen, Lester Poirrier, Harold Hoyle, Theodore Trokelson, James E. Campbell, Joe Bristol, Gerard W. Daigle, Malcolm L. McNabb, V.K. Rowe, Dr. Holder, Dr. Gordon, Don Morris, John Calmes, Al Paradiso, Charlie Melancon, Associates Indemnity Corporation, the American Insurance Company, Travelers Casualty and Surety Company, Flexiallic, Inc., GAF Corporation, The McCarty Corporation, AC & S, Pittsburgh Corning Corporation, Rapid American Corporation T & N, Union Carbide Corporation, and Uniroyal, Inc.
No. 2000 CA 1929.
Court of Appeal of Louisiana, First Circuit.
July 31, 2002.
Rehearing Denied November 5, 2002.
Writs Denied February 21, 2003.
*485 Cameron Waddell, Brian Blackwell, Burton LeBlanc, Baton Rouge, for Plaintiffs/2nd Appellants, Marion D. Hebert, Alvin A. Hebert, Jr., Stanley Robert Hebert, Cindy Hebert Himel, Nancy Hebert Villerette, Catherine Hebert Harrelson and Blake J. Hebert.
H. Alston Johnson, III, Baton Rouge, F. Barry Marionneaux, Plaquemine, John R. Tharp, David Bienvenu, Jr., Gregory E. Bodin, Baton Rouge, for Defendant/1st Appellant, The Dow Chemical Company.
H. Alston Johnson, III, John R. Tharp, David Bienvenu, Jr., Gregory E. Bodin, Baton Rouge, for Defendants/Appellees, Harold Hoyle, Harold Gordon, M.D. and Ben Holder, M.D.
Susan Kohn, New Orleans, for Defendant, McCarty Corporation.
David Barfield, Gaye Nell Currie, Jackson, MS, for Defendant, AC & S, Inc.
Julie Difulco Robles, Metairie, for Defendant, ANCO Insulations, Inc.
A. Wendell Stout, III, New Orleans, for Defendant, United States Gypsum.
Thomas Milazzo, James L. Fletcher, Jr., Metairie, for Defendant, Asbestos Corp., Ltd.
Michael G. Durand, Lafayette, for Defendants, Associates Indemnity Co. & American Insurance Co.
Edward Castaing, Jr., New Orleans, for Defendant, A.W. Chesterton.
Edwin Ellinghausen, III, New Orleans, for Defendant, Pittsburgh Corning Corp.
T. MacDougall Womack, Baton Rouge, for Defendant, Our Lady of the Lake RMC.
Charles Giordano, Metairie, for Defendant, Rapid American Corporation.
John Cosmich, Laura Sanders Brown, Jackson, MS, for Defendants, Owen-Illinois, Inc. & Uniroyal, Inc.
*486 Arthur W. Landry, New Orleans, for Defendant, Synkoloid, A Division of Muralo, Inc.
Darrell Sims, New Orleans, for Defendant, Eagle, Inc.
Janice M. Culotta, New Orleans, for Defendant, Armstrong World Industries, Inc.
Before: GONZALES, WHIPPLE, FITZSIMMONS, KUHN and DOWNING, JJ.
FITZSIMMONS, J.
This case involves claims by Alvin A. Hebert, Sr. and his wife, Marion M. Dupuis Hebert, against The Dow Chemical Company ("Dow") for damages based upon Mr. Hebert's contraction of mesothelioma, a disease resulting from exposure to asbestos-containing products. Following trial, the jury answered interrogatories and found Dow strictly liable. Dow appeals from an amended judgment, which ordered Dow to pay plaintiffs the total sum of $265,625.00 as its virile share of the total damage award. Plaintiffs have also appealed various rulings rendered by the trial court during the course of the proceedings below. We affirm the judgment maintaining the exceptions of lack of personal jurisdiction of various defendants; however, we vacate the "amending judgment" on the merits and remand the case to the trial court with instructions.
FACTS AND PROCEDURAL HISTORY
In February of 1999, Mr. Hebert, a retired millwright, was diagnosed with mesothelioma, cancer of the mesothelia cells that line the outside of the pleural membrane and the lining of the chest wall, for which there is usually no cure. Mr. Hebert and his wife[1] then instituted this suit against numerous defendants, including manufacturers of asbestos-containing products, corporate sellers of such products, owners of premises allegedly defective due to the presence of asbestos-containing products, and certain executive officers of Dow, one of the premises owners sued.[2] In general terms, plaintiffs alleged that the defendant corporations had engaged in the design, manufacture, sale, distribution, and/or installation, handling, storage or transportation of asbestos-containing materials.
Dow was sued as a premises owner based on allegations that Mr. Hebert was exposed to asbestos-containing materials while working as a millwright at Dow's Plaquemine, Louisiana facility from approximately 1956 to 1975, during his employment with Nichols Construction and later with National Maintenance. Additionally, the executive officers of Dow who were named as defendants were sued on the basis that they were negligent in failing to provide Mr. Hebert with a safe place to work.
Prior to trial, defendants Harold Hoyle, Dr. Harold Gordon and Dr. Benjamin Holder, all former employees and alleged executive officers of Dow, filed declinatory exceptions raising the objection of lack of personal jurisdiction. Following argument on the exceptions, the trial court maintained the exceptions and dismissed plaintiffs' claims against these defendants without prejudice. Plaintiffs also settled with *487 numerous defendants, and their claims against various other defendants were dismissed with prejudice on motions for summary judgment. Dow also filed a motion for partial summary judgment, seeking dismissal of Mrs. Hebert's claim for loss of consortium. The court granted the motion, and this claim likewise was dismissed with prejudice.
Thereafter, the matter proceeded to trial against Dow and the McCarty Corporation, the only remaining defendants. Following a two-week trial, the jury returned a verdict, finding that Mr. Hebert had sustained an asbestos-related injury. The jury further found that the McCarty Corporation was not at fault. With regard to Dow, while the jury found that Dow was not negligent, it did find that Dow had custody and control of a defective thing which created an unreasonable risk of harm to which Mr. Hebert had been exposed. The jury made the same finding as to one other company on whose premises Mr. Hebert had worked, Kaiser Aluminum Corporation. Additionally, the jury concluded that six manufacturers with whom plaintiffs had settled prior to trial, Garlock Corporation, Johns-Manville Corporation, Pittsburgh Corning Corporation, Owens-Corning Fiberglas Corporation, Armstrong World Industries, Inc. and Flexitallic Gasket Company, Inc., had introduced into commerce unreasonably dangerous products to which Mr. Hebert had been exposed and that these products were substantial contributing causes of his disease. The jury then awarded Mr. Hebert $2,000,000.00 in general damages and $500,000.00 in past and future medical expenses.
In entering judgment in accordance with the jury verdict, the trial court cast Dow with a one-eighth virile share of the verdict, based on Dow's strict liability and the fault of seven of the settling defendants. Thus, judgment was rendered against Dow in the amount of $312,500.00.
Both Dow and Mr. Hebert filed motions for judgment notwithstanding the verdict. While Mr. Hebert's motion was denied in its entirety, Dow's motion was granted in part, on the issue of the award of medical expenses. The trial court then rendered an amended judgment, reducing the total amount awarded for medical expenses from $500,000.00 to $125,000.00. Thus, the amended judgment cast Dow for damages in the amount of $265,625.00, its virile share of the total amended award, plus interest and costs.
Dow suspensively appealed from the amended judgment on the merits, assigning the following as error:
(1) The trial court erred in its application of strict liability to the facts and circumstances of Mr. Hebert's claim against Dow by failing to direct a verdict in favor of Dow on the strict liability claim and then erroneously instructing the jury on the law of strict liability under La. C.C. art. 2317.
(2) The trial court committed legal error by failing to hold that plaintiffs' settlement with the manufacturers of asbestos-containing products to which Mr. Hebert had been exposed on Dow's premises extinguished Dow's secondary or derivative strict liability as premises owner.
(3) The jury erred in failing to allocate any fault to the settling defendants, BASF and Georgia Pacific, because Mr. Hebert's own admissions established that he was exposed to asbestos-containing products on the premises owned by these settling defendants, plaintiffs' own experts opined that every exposure to asbestos-containing products was a substantial contributing cause of Mr. Hebert's disease, and these settling defendants had care or custody of the same unreasonably dangerous thing *488 that formed the basis of Dow's strict liability.
(4) The jury's general damage award of $2,000,000.00 was excessive as a matter of law.
Thereafter, plaintiffs appealed devolutively from three judgments: the judgment granting the exceptions of lack of personal jurisdiction and dismissing plaintiffs' claims against Gordon, Holder and Hoyle; the judgment granting Dow's motion for partial summary judgment and dismissing Mrs. Hebert's loss of consortium claim; and the amended judgment on the merits. They have set forth the following assignments of error:
(1) The trial court erred in granting the exceptions of lack of personal jurisdiction filed on behalf of defendants, Harold Gordon, Benjamin Holder and Harold Hoyle.
(2) The trial court erred in granting the motion for partial summary judgment filed on behalf of Dow and dismissing Mrs. Hebert's claim for loss of consortium.
(3) The jury erred in failing to find that Dow was negligent in causing Mr. Hebert's mesothelioma.
(4) The jury erred in finding Kaiser Aluminum Corporation, Garlock Corporation, Johns-Manville Corporation, Armstrong World Industries, Inc. and Flexatallic Gasket Company, Inc. at fault in causing Mr. Hebert's mesothelioma.
EXCEPTIONS OF LACK OF PERSONAL JURISDICTION
Defendants, Dr. Harold Gordon, Dr. Benjamin Holder and Harold Hoyle, filed declinatory exceptions raising the objection of lack of personal jurisdiction, which were maintained by the trial court. In their first assignment of error, plaintiffs contend that the trial court erred in maintaining these exceptions. Specifically, plaintiffs aver that these defendants submitted themselves to the exercise of personal jurisdiction over them by filing a motion for summary judgment while their exceptions were still pending, thus waiving the exceptions. Alternatively, plaintiffs contend that these defendants had sufficient minimum contacts with the state to permit a Louisiana court to exercise personal jurisdiction over them. Thus, plaintiffs seek to have the judgment maintaining the exceptions of lack of personal jurisdiction reversed and the matter remanded for trial against these defendants.
Turning first to plaintiffs' contention that Gordon, Holder and Hoyle submitted themselves to the jurisdiction of the court, we find no merit to this argument. A declinatory exception raising the objection of lack of personal jurisdiction must be pleaded either prior to or contemporaneously with the filing of an answer or any other pleading seeking relief other than entry or removal of the name of an attorney as counsel of record, extension of time within which to plead, security for costs or dissolution of an attachment issued on the ground of the nonresidence of the defendant. Otherwise, the objection is waived. La. C.C.P. art. 928A.
In the instant case, these defendants did file their exceptions prior to filing an answer or the subsequently-filed motions for summary judgment. While the filing of the motions for summary judgment constituted a general appearance that would have waived any objections raised by the declinatory exception if these actions had occurred before the personal jurisdiction exception was filed, this general appearance did not waive the pending exceptions of personal jurisdiction. See Bickham v. Sub Sea International, Inc., 617 So. 2d 483, 484 (La.1993). As the Louisiana Supreme Court stated in Bickham, "the subsequent general appearance, before trial of the exception, does not constitute waiver of the *489 pending exception." (Emphasis supplied.) Bickham, 617 So. 2d at 484. Thus, the subsequent filing by these defendants of motions for summary judgment before trial of their exceptions did not have the effect of waiving their pending exceptions. This argument lacks merit.
We likewise find no merit to plaintiffs' alternative argument that these defendants had sufficient minimum contacts with this state to warrant the exercise of personal jurisdiction over them. Personal jurisdiction is the legal power and authority of the court to render a personal judgment against a party to an action. La. C.C.P. art. 6. Louisiana's long-arm statute imposes personal jurisdiction over non-residents in the following pertinent circumstances:
A. A court may exercise personal jurisdiction over a nonresident, who acts directly or by an agent, as to a cause of action arising from any one of the following activities performed by the nonresident:
(1) Transacting any business in this state.
(2) Contracting to supply services or things in this state.
* * *
(4) Causing injury or damage in this state by an offense or quasi offense committed through an act or omission outside of this state if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives revenue from goods used or consumed or services rendered in this state.
* * *
B. In addition to the provisions of Subsection A, a court of this state may exercise personal jurisdiction over a nonresident on any basis consistent with the constitution of this state and of the Constitution of the United States.
La.R.S. 13:3201.
The intent of Louisiana's long-arm statute is to procedurally extend personal jurisdiction of the Louisiana courts over nonresidents to comport with the due process clause of the Fourteenth Amendment of the United States Constitution. La. R.S. 13:3201; Jasper v. National Medical Enterprises, Inc., 94-1120, p. 4 (La.App. 1 Cir. 6/23/95), 657 So. 2d 604, 607, writ denied, 95-1836 (La.10/27/95), 661 So. 2d 1347. The limits of Louisiana's long-arm statute and constitutional due process are, thus, coextensive. Superior Supply Company v. Associated Pipe and Supply Company, 515 So. 2d 790, 792 (La.1987). Accordingly, the inquiry into personal jurisdiction over a non-resident involves an analysis of constitutional due process requirements. Superior Supply Company, 515 So. 2d 790 at 792.
The landmark case, International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945), established the constitutional test for the application of personal jurisdiction to a non-resident. The United States Supreme Court held that personal jurisdiction could be constitutionally imposed if there were "certain minimum contacts with [the forum] such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.' ... Whether due process is satisfied must depend rather upon the quality and nature of the activity in relation to the fair and orderly administration of the laws which it was the purpose of the due process clause to insure." International Shoe Co., 326 U.S. at 316, 319, 66 S. Ct. at 158, 160.
Through the years, the United States Supreme Court has broadened its interpretation of "minimum contacts" relative to the ongoing question of specific jurisdiction *490 over an unconsenting out-of-state party to accommodate a changing society. See McGee v. International Life Insurance Company, 355 U.S. 220, 78 S. Ct. 199, 2 L. Ed. 2d 223 (1957); Burger King Corporation v. Rudzewicz, 471 U.S. 462, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (1985). Nevertheless, the Court has admonished that the "constitutional touchstone remains whether the defendant purposefully established `minimum contacts' in the forum State." Burger King Corporation, 471 U.S. at 474, 485, 105 S. Ct. at 2183, 2189. In this regard, the foreseeability that is critical to due process analysis is that the defendant's action and affiliation with the forum state must be such that he should "reasonably anticipate being haled into court there." Purposeful availment requires that the contacts consist of a deliberate engagement in significant activities within a state, as opposed to a "random," "fortuitous," or "attenuated" relationship with the state seeking personal jurisdiction. Burger King Corporation, 471 U.S. at 474, 475, 480, 486, 105 S. Ct. at 2183, 2186, 2189; Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774, 104 S. Ct. 1473, 1478, 79 L. Ed. 2d 790 (1984).
Further, jurisdiction over individual officers and employees of a corporation may not be predicated merely upon jurisdiction over the corporation itself. However, jurisdiction over the corporation may also confer jurisdiction over the individual officers and employees where they are engaged in activities within the jurisdiction that would subject them to the coverage of the state's long-arm statute. Briley Marine Service, Inc. v. Toups, 551 So. 2d 755, 759 (La.App. 1st Cir.), writ denied, 553 So. 2d 476 (La.1989); Cobb Industries, Inc. v. Hight, 469 So. 2d 1060, 1063-1064 (La. App. 2nd Cir.1985).
Thus, the pivotal question before us remains whether the activities of each of these defendants, Gordon, Holder and Hoyle, taken as a whole, reflect that he purposefully availed himself of the privilege of conducting activities within the state of Louisiana to the extent that he should "reasonably anticipate" litigation in Louisiana. Burger King Corporation, 471 U.S. at 474-475, 105 S. Ct. at 2183.
In the instant case, plaintiffs contend that these executive officers of Dow clearly had enough contact with Louisiana to support the exercise of personal jurisdiction. They contend that these defendants carried on activities in Louisiana, acted as consultants to the Louisiana Division of Dow, and committed acts of omission and commission outside of the state of Louisiana that had deleterious effects on the health of Louisiana residents, including Mr. Hebert, and that the Louisiana court, accordingly, may exercise jurisdiction. We disagree.
The record demonstrates that Dr. Harold Gordon was a resident of Michigan, having resided there for the last seventy-five years. He never resided in Louisiana and never owned any property in Louisiana. He began working for Dow in 1946 as plant physician at Dow's Midland, Michigan facility. He eventually became assistant medical director in approximately 1956, and was then promoted to the position of medical director in 1967, a position he maintained until his retirement in 1977.
As an employee of Dow, Dr. Gordon never maintained an office within the Louisiana Division of Dow and was never stationed at the Louisiana Division. He visited Louisiana only four to six times during his thirty-one-year career with Dow and never treated a patient in the state of Louisiana. Even as medical director, Dr. Gordon never had any authority over the Louisiana Division of Dow to require it to comply with any medical requirements or to implement any health and safety plan. *491 Rather, each division of Dow retained responsibility for its own medical program.
Dr. Benjamin Holder, who resided in Florida at the time of the trial, also never resided in Louisiana. In 1953, Dr. Holder began working for Dow as a staff physician responsible for general patient care and evaluation in Midland, Michigan. He held various positions with Dow's Michigan plant through the 1960s and 1970s.
Eventually, Dr. Holder became the medical director for Dow's United States operations in 1979, and he held that position until he became the global coordinator of occupational health in 1981. The following year, Dr. Holder became the corporate medical director, and he held that position until he retired in 1985. However, by the time Dr. Holder assumed a position extending beyond the Midland, Michigan plant, Mr. Hebert was no longer working at Dow's Plaquemine facility.
Moreover, while Dr. Holder acknowledged that he had come to Louisiana "quite a few times" during his career with Dow, he explained that his role was that of a consultant. He stated that as the United States Area Medical Director, he had no direct responsibility over the medical program of any division of Dow. Rather, his only responsibility was to make himself available for support and consultation. He further stated that he had never received any inquiries from the Louisiana division regarding asbestos.
Harold Hoyle similarly never resided in Louisiana, nor did he ever hold an employment position within the Louisiana Division of Dow. Rather, Hoyle resided in Midland, Michigan. Hoyle began working for Dow in 1941 as an estimator for the pipe shop at its Midland, Michigan facility. He eventually became the safety engineer at the Midland facility in 1944. Thereafter, in 1948, Hoyle became Dow's first full-time industrial hygienist and was assigned the responsibility of creating an industrial hygiene department for the company. He explained that at that time, "the company" was comprised of the Midland operations, a Texas division and a recently-acquired company in California that eventually became the Great Western Division of Dow.
Hoyle only visited the Louisiana division of Dow on a few occasions during his employment with Dow. He further stated that although he was Dow's top industrial hygienist from 1948 until 1975, certain divisions of Dow, including the Louisiana Division, hired their own industrial hygienists, over whom he had no direct responsibility. Additionally, Hoyle testified that he never had any authority over maintenance contractors or their employees, such as Mr. Hebert, at Dow's Plaquemine facility. His responsibility was to furnish information and assistance as an internal consultant to divisional industrial hygienists.
Given these facts and considering the record as a whole, we find no error in the trial court's conclusion that there were insufficient contacts with this state to satisfy due process and to properly assert personal jurisdiction over Gordon, Holder or Hoyle. Their contacts with Louisiana do not amount to a course of conduct that would make them amenable to Louisiana's jurisdiction. We do not find that the quantity, quality or nature of the contacts of these individuals with Louisiana make it fair and reasonable to subject them to suit in Louisiana based on the facts of this case. See Briley Marine Service, Inc., 551 So.2d at 759-760. Accordingly, we find no merit to this assignment of error.
EXTINGUISHMENT OF CLAIMS AGAINST DOW BY PRIOR SETTLEMENTS
In this assignment of error, Dow argues that because its liability to plaintiffs herein *492 was based solely on the finding that it had custody or control of a defective thing, the liability of Dow is properly viewed as secondary or derivative to the manufacturers' liability. As such, Dow contends that it did not owe plaintiffs a separate virile share where the manufacturers who actually created the hazard have been released by plaintiffs. According to Dow, the only portion of the debt for which it could have been liable has been fully satisfied by plaintiffs' settlements with the manufacturing defendants found to be at fault by the jury. Thus, it contends, any debt it may have owed was extinguished.
In response to this argument, plaintiffs assert that Dow failed to affirmatively plead the defense of extinguishment of the debt, and, accordingly, it is precluded from arguing this defense on appeal. We agree.
The defendant is required to affirmatively set forth in his answer any matter constituting an affirmative defense upon which he will rely. La. C.C.P. art. 1005. An affirmative defense raises a new matter which, assuming the allegations in the petition to be true, constitutes a defense to the action and will have the effect of defeating plaintiff's demand on its merits. Johnson v. Steele, 98-1726, p. 5 (La. App. 1 Cir. 9/24/99), 754 So. 2d 1006, 1009.
The purpose of the requirement that certain defenses be affirmatively pled is to give the plaintiff fair and adequate notice of the nature of the defense and, thereby, prevent last minute surprise to the plaintiff. Johnson, 98-1726 at p. 5, 754 So. 2d at 1009. The policy behind the requirement that affirmative defenses be raised in answer is sensible and laudable. Because affirmative defenses raise matters for judicial resolution outside of issues raised by plaintiff's petition, plaintiff must be made aware of these matters so that plaintiff can prepare an opposition to the defense and adjust his case, if necessary, in light of the new facts and issues raised by the affirmative defense. Patterson v. State, 95-1668, pp. 8-9 (La.App. 3 Cir. 12/11/96), 685 So. 2d 473, 478.
A defense that liability has been extinguished, discharged or released by the plaintiff's settlement with, and/or release of, a solidary obligor is an affirmative defense that must be specifically pled. La. C.C.P. art. 1005. In the instant case, Dow did not move to amend its answer to assert the affirmative defense of extinguishment of debt upon plaintiffs' settling with various manufacturing defendants. Rather, Dow raised this affirmative defense for the first time after the completion of trial and the rendering of a verdict by the jury, in its motion for judgment notwithstanding the verdict.
While failure to so plead an affirmative defense does not automatically preclude the application of the defense in all cases, the general rule is that pleadings may be enlarged by evidence adduced without objection when such evidence is not pertinent to any other issue raised by the pleadings and, hence, would have been excluded if objected to timely. La. C.C.P. art. 1154; Snearl v. Mercer, 99-1738, 99-1739, pp. 8-9 (La.App. 1 Cir. 2/16/01), 780 So. 2d 563, 572. If the evidence were admissible for any other purpose, the pleadings could not be enlarged without the express consent of the opposing party. Id. In the instant case, the evidence regarding fault of the manufacturing defendants and plaintiffs' settlements with those defendants was relevant to the issue of the assessment of liability to those defendants for purposes of determining the number of joint tortfeasors and, consequently, the number of virile shares, which had the effect of reducing Dow's financial exposure herein. See Carroll v. Kilbourne, 525 *493 So.2d 284, 286-287 (La.App. 1st Cir.1988). Accordingly, applying these legal precepts, we are unable to conclude that Dow's pleadings were expanded at trial to include the affirmative defense of extinguishment of the debt. Thus, Dow's untimely assertion of the affirmative defense of extinguishment of the debt in a motion filed after conclusion of the trial and the rendition of a verdict herein precludes Dow from raising this issue on appeal.[3]
In addition to arguing that the plaintiffs' settlements with the manufacturing defendants extinguished any debt it owed to plaintiffs, Dow further contends that the release of any solidary obligor, such as the manufacturing defendants, without a reservation of rights discharges the debt as to the remaining solidary obligors.[4] The settlement documents, whereby plaintiffs settled with the manufacturing defendants, were excluded from this record, and Dow contends that plaintiffs have failed to prove that they reserved their rights to proceed against Dow, as a solidary obligor. The temporal relationship between the facts of this case and the controlling civil code articles results in a meritorious claim by Dow for the following reasons.
Acts 1979, NO. 431 amended La. C.C. arts. 2323, 2324, 2103 and La. C.C.P. arts. 1811 and 1917 (related generally to comparative negligence).[5] Ushered in with the introduction of comparative negligence in 1979, was a concomitant amendment to La. C.C. art. 2103, which provided that the obligation "shall be divided in proportion to each debtor's fault." The last paragraph in the amendment to article 2103 expressly limited the amendment's application as follows: "The provisions of this act shall not apply to claims arising from events that occurred prior to the time this act becomes effective."
In 1985, La. C.C. art. 2103 was replaced *494 by La. C.C. arts. 1803 and 1804.[6] Louisiana Civil Code article 1803 states: "Remission of debt by the obligee in favor of one obligor, or a transaction or compromise between the obligee and one obligor, benefits the other solidary obligors in the amount of the portion of that obligor." Article 1804 provides for an offense or quasi-offense that "a virile portion is proportionate to the fault of each obligor."
In Cole v. Celotex Corporation, 599 So. 2d 1058 (La.1992), the Louisiana Supreme Court concluded that Act 431 of 1979 applied prospectively. The court concluded that: "when the tortious exposures occurring before Act 431's effective date are significant and such exposures later result in the manifestation of damages, pre-Act law applies." Cole v. Celotex, 599 So.2d at 1066. Employing analogous reasoning, this court has concluded that the pre-Act rules of contribution apply among the defendants.
At the same time that La. C.C. arts. 1803 and 1804 were enacted by the legislature to replace La. C.C. art. 2103, another code article relevant to this case, La. C.C. art. 2203, was coextensively abolished. Until 1985, article 2203 had required an express reservation of rights against other solidary obligors when an obligee entered into a compromise.[7] Utilizing the same precepts employed in, and following, Cole v. Celotex, the pre-Act provisions of La. C.C. art 2203 should equally apply to this issue that affects damages among the alleged tortfeasors. Stated alternatively, in the same way that pre-Act law applies relative to contribution, so too does pre-Act law apply to the requirement that a settling party reserve his or her rights against other solidary obligors pursuant to La. C.C. art. 2203. See also Carona v. State Farm Insurance Company, 458 So. 2d 1275, 1278 (La.1984).
Following oral argument addressing Dow's subpoena duces tecum of the settlement documents involving the manufacturers and plaintiffs' motion to quash same, the trial court pronounced that the settlement documents would be produced for an in-camera inspection. The court, however, failed to thereafter indicate whether, in fact, the inspection had transpired and whether the settlement documents contained the requisite reservation of rights by plaintiffs necessary to preserve their claim against Dow. Given the court's action vis-ā-vis the subpoena duces tecum, it became the responsibility of the court to conduct the inspection and to pronounce its conclusion. The court's failure to render a determination of this critical issue that had been expressly sought by Dow impacts a core issue of the viability of plaintiffs' claims against Dow.
The trial court's error necessitates the vacating of the judgment on the merits and a remand of the case to the trial court for a determination of the unresolved issue of whether the plaintiffs indeed reserved their rights against Dow when they settled with the manufacturing solidary obligors pursuant to La. C.C. art. 2203. It is, furthermore, ordered that the trial court issue an order that the settlement documents of the released solidary obligors at issue be placed into the court record. Resolution of the remaining issues on appeal is held in abeyance pending the outcome *495 of this court's remand. All costs associated with this appeal are assessed such that appellants and appellees shall each incur one-half of the costs.
AFFIRMED IN PART; VACATED AND REMANDED WITH INSTRUCTIONS.
WHIPPLE, J., concurs in part and dissents in part for reasons assigned.
DOWNING, J., concurs in part and dissents in part for the reasons assigned by WHIPPLE, J.
WHIPPLE, J., concurring in part and dissenting in part.
Since this case was initially submitted, I have agreed with the analysis now adopted by the majority on the issues of personal jurisdiction and failure to affirmatively plead the affirmative defense of extinguishment of debt due to the alleged secondary or derivative nature of Dow's liability. However, I respectfully dissent from the majority's decision to vacate the trial court's judgment in this matter and to remand for a determination of whether plaintiffs reserved their rights against Dow when they settled with other solidary obligors.
Although the record contains ample evidence for this court to conduct its review, the majority bypasses resolution of the merits of this appeal, in this voluminous case tried to finality before a jury, on the basis of a perceived defect in the record. In my view, this type of judicial overreaching frustrates, rather than furthers, the interests of justice and undermines the confidence of the public and the profession in the sanctity of a jury verdict.
Failure to articulate a ruling on the record is not the equivalent of failure to rule. Indeed, many discussions and rulings occur off the record in hotly-contested and protracted litigation, as most certainly occurred in the instant case. For a litigant to make a demand for relief at trial, obtain an in camera inspection in connection with the demand and then stand mute for the remainder of the proceedings when the trial court has obviously denied the demand by failing to grant the requested relief after the in camera inspection does not constitute, in my view, clear error by a trial court as would justify later setting aside a verdict on the merits.
It is well established that silence in a court's judgment or ruling with respect to any urged claim or demand constitutes rejection of the claim or demand, and the trial court is not required to articulate its rejection on the record for its rejection to have legal effect.
The record and exhibits in this matter are in excess 3,648 pages. The verdict rendered in this case was the culmination of lengthy and protracted proceedings over a number of years, involving multiple parties, issues and evidentiary rulings by the trial court in the course of a two-week trial. All parties were amply represented by experienced counsel and fully participated in the trial. While the trial court did not provide specific reasons for denying Dow's claim that no reservation of rights had occurred, notably absent from the record of this two-week trial is any objection by Dow raising or addressing the trial court's alleged failure to rule or to specifically articulate its ruling.
With regard to this issue of the alleged lack of a reservation of rights, Dow contends that the release of any solidary obligor, such as the manufacturing defendants, without a reservation of rights discharges the debt as to the remaining solidary obligors.[1] Although the settlement documents, *496 whereby plaintiffs settled with the manufacturing defendants, are not a part of this record, Dow now contends that plaintiffs have failed to prove that they reserved their rights to proceed against Dow, as a solidary obligor.
Former LSA-C.C. art. 2203, upon which Dow relies, provided:
The remission or conventional discharge in favor of one of the codebtors in solido, discharges all the others, unless the creditor has expressly reserved his right against the latter.
In the latter case, he can not claim the debt without making a deduction of the part of him to whom he has made the remission.
Plaintiffs, on the other hand, argue that former LSA-C.C. art. 2203 does not apply herein, because the settlements at issue were confected after new article 1803 was added, which deleted the reservation of rights requirement. As part of the general revision of the law of obligations in the Civil Code by Acts 1984, No. 331, the Legislature changed the law which had previously required an express reservation of rights when an obligee entered into a compromise with one of several solidary obligors. Under LSA-C.C. Art. 1803, effective January 1, 1985, the remission of the debt by the obligee in favor of one obligor or the compromise between the obligee and one obligor does not extinguish an obligation which is solidary, but only benefits the other solidary obligors to the extent of the portion of the released obligor. Weber v. Charity Hospital of Louisiana at New Orleans, 475 So. 2d 1047, 1052 (La.1985).
In Lee v. Missouri Pacific Railroad Company, 540 So. 2d 287, 294 (La.1989), the Louisiana Supreme Court held that a settlement that was confected after the effective date of LSA-C.C. art. 1803 was governed by this new article. In Lee, as in the present case, the cause of action arose before the effective date of LSA-C.C. art. 1803, but the settlement occurred after its enactment. Accordingly, I would conclude that under the dictates of Lee, the settlements entered into in the present case would likewise be governed by LSA-C.C. art. 1803, which has no requirement of a reservation of rights against the remaining solidary obligors.
I do note that in the earlier case of Carona v. State Farm Insurance Company, 458 So. 2d 1275, 1278 (La.1984), the Louisiana Supreme Court, in discussing the reservation of rights issue, held that "[n]ew article 1803 does not apply to the present cases which arose before its effective date." However, it is unclear from the facts of that case whether the settlements had also been confected prior to the effective date of LSA-C.C. art. 1803. Accordingly, absent a ruling from the Supreme Court overruling its later holding in Lee, I would find that this court is bound to apply Lee, which contains a specific pronouncement as to the applicability of LSA-C.C. art. 1803 under facts parallel to those presented herein, rather than this court being at its leisure to analogize to the pronouncements of Cole v. Celotex, 599 So. 2d 1058 (La.1992), regarding the retroactivity of the comparative fault articles. Thus, I would conclude that no reservation of rights was required in the settlement documents.
Moreover, even assuming that former LSA-C.C. art. 2203 applies herein, I find no merit to Dow's assertion that this court should find that plaintiffs' claims against it *497 were extinguished by a failure to reserve their rights against Dow. While Dow argues that plaintiffs' claims against it are extinguished based upon the absence of evidence that plaintiffs reserved their rights to proceed against Dow in the settlement documents, as the party asserting the affirmative defense of discharge or extinguishment of the debt, Dow had the burden of proving its claim. See Frazier v. Freeman, 481 So. 2d 184 (La.App. 1st Cir.1985); see also American Bank v. Saxena, 553 So. 2d 836, 844 (La.1989); Buck's Run Enterprises, Inc. v. Mapp Construction, Inc., XXXX-XXXX, p. 4 (La.App. 1st Cir.2/16/01), 808 So. 2d 428, 431.
Additionally, although Dow contends that plaintiffs never produced the settlement documents herein, I note that on the morning of trial, plaintiffs' counsel informed the court that he had been served by Dow that morning with a subpoena duces tecum, requesting that plaintiffs produce the settlement documents evidencing their settlements with various defendants. In response to the subpoena, plaintiffs orally moved to quash the subpoena, arguing that plaintiffs' actions in providing Dow with a list of the names of the settling defendants were sufficient.
In response to plaintiffs' motion to quash, Dow specifically argued to the court that prior to 1983, the law of solidary obligors provided that release of one solidary obligor without a specific reservation of rights to proceed against the remaining solidary obligors acts as a release of the remaining non-settling solidary obligors. Thus, Dow contended that plaintiffs should be required to produce a copy of the settlement documents to determine if, in fact, they contained a specific reservation of rights by plaintiffs. In response, plaintiffs agreed to produce the documents to the trial court for an in-camera review to determine whether there had been any possible release.
The trial court denied plaintiffs' motion to quash the subpoena duces tecum, but granted the alternative action of ordering that the settlement documents "be produced in-camera." As the parties note, these documents do not appear in the record. However, as stated above, the record is devoid of any objection by Dow at trial to either the trial court's failure to conduct the inspection or any ruling allegedly predicated thereupon. However, even assuming arguendo that this alleged failure or error by the trial court was preserved for appellate review, Dow has not established that it was deprived of the ability to establish a defense by any failure on the part of plaintiffs.[2] Accordingly, on review, I find no basis for overturning the jury verdict on this alleged record deficiency.
In its brief to this court filed after argument of the case before the five-judge panel,[3] Dow further asserts that plaintiffs' objection to producing the settlement agreements and filing a motion to quash creates an adverse inference that the requested documents would have been unfavorable to plaintiffs' position. See Munson v. Munson, 2000-348, p. 9 (La.App. 3rd Cir.10/4/00), 772 So. 2d 141, 147. Additionally, citing Boh Brothers Construction Company, Inc. v. Luber-Finer, Inc., 612 So. 2d 270, 274 (La.App. 4th Cir.1992), writ *498 denied, 614 So. 2d 1256 (La.1993), Dow argues that when a litigant fails to produce available evidence and no reasonable explanation is made, there is a presumption that such evidence would be unfavorable. In effect, Dow suggests that this court should recognize a presumption in its favor that the settlement documents did not contain a reservation of rights because plaintiffs opposed Dow's request for production of these documents with no reasonable explanation.
However, I note that at trial, in support of their opposition to production of the settlement documents, plaintiffs offered the explanation that they had entered into confidentiality agreements with the settling defendants. More importantly, as noted above, the trial court herein ordered production of the documents for an in camera inspection. Thus, under these facts, I believe that an adverse inference or presumption that the evidence would be unfavorable is simply not warranted.
Accordingly, given the absence of evidence in the record to establish that plaintiffs failed to reserve their rights to proceed against Dow in the settlement documents, I would conclude that Dow did not preserve this claim for review, and further, that Dow has failed to carry its burden of proving that the debt to plaintiffs was extinguished on this basis. See Frazier, 481 So.2d at 186. Thus, I respectfully disagree with the majority's decision to vacate the judgment in favor of plaintiffs, and I would urge that any ultimate appeal be resolved on the merits of the remaining issues as follows.
ACCURACY AND ADEQUACY OF JURY INSTRUCTIONS
(Dow's Assignment of Error Number 1)
In this assignment of error, Dow contends that the instructions regarding strict liability read to the jury herein were incomplete and failed to convey the law of this state. Dow further contends that this inadequate jury instruction tainted the jury's fact-finding process, and, accordingly, this court should conduct a de novo review of the record on the issue of strict liability.
The trial court is required to instruct the jurors on the law applicable to the cause submitted to them pursuant to LSA-C.C.P. art. 1792(B). In a jury trial, the judge has a duty to charge the jury as to the law applicable in a case and the correlative right and responsibility to require that the jury get only the correct law. Belle Pass Terminal, Inc. v. Jolin, Inc., 92-1544, p. 35 (La.App. 1st Cir.3/11/94), 634 So. 2d 466, 488, writ denied, 94-0906 (La.6/17/94), 638 So. 2d 1094.
The judge is not required to give the precise instruction submitted by either party, but must give instructions which properly reflect the law applicable in light of the facts of the particular case. Adequate instructions are those instructions which fairly and reasonably point up the issues presented by the pleadings and evidence and which provide correct principles of law for the jury's application thereto. McCrea v. Petroleum, Inc., 96-1962, p. 7 (La.App. 1st Cir.12/29/97), 705 So. 2d 787, 791.
The adequacy of jury instructions must be determined in light of the jury instructions as a whole. Johnson v. Terrebonne Parish Sheriff's Office, 95-1180, p. 7 (La. App. 1st Cir.2/23/96), 669 So. 2d 577, 582, writ denied, 96-0727 (La.4/26/96), 672 So. 2d 907. Whether or not to include a requested jury instruction is a matter within the wide discretion of the trial court and the court's decision will not be overturned absent abuse of that discretion. Gardner v. Griffin, 97-379, p. 4 (La.App. 1st Cir.4/8/98), 712 So. 2d 583, 586.
*499 An appellate court must exercise great restraint before overturning a jury verdict on the suggestion that the instructions were so erroneous as to be prejudicial. The standard of review required of this court in determining whether an erroneous jury instruction has been given requires a comparison of the degree of error with the jury instructions as a whole and the circumstances of the case. Boncosky Services, Inc. v. Lampo, 98-2239, pp. 9-10 (La.App. 1st Cir.11/5/99), 751 So. 2d 278, 285, writ denied, XXXX-XXXX (La.3/24/00), 758 So. 2d 798.
In the instant case, the trial court gave the following instruction to the jury on the law of strict liability:
A premises owner has a duty to keep its property in a reasonably safe condition, including a duty to discover any defects on its property and either correct them or warn potential victims.
Under strict liability, the mere fact of the owner's relationship with and responsibility for the damage-causing thing gives rise to an absolute duty to discover the risks presented by the thing in custody. To find the premises owner strictly liable, the Plaintiff need only prove that the defendant had custody of the premises or custody of the thing that was defective or unreasonably dangerous; and that the defect was a substantial contributing factor to Plaintiff's injury. Fault of a third person is a defense to this cause of action.
Dow objected to this jury charge in the trial court. Specifically, Dow's complaints are that the jury instruction was inadequate in that it failed to define the terms "unreasonably dangerous" and "defective" and it did not set forth Dow's requested charge on the "risk utility test" for determining unreasonable danger. Plaintiffs, on the other hand, contend that the additional charges requested by Dow constitute an analysis of duty, a question of law. Accordingly, they contend that Dow's proposed charge was not a proper question for the jury.
On review, I would conclude that the jury instruction given by the trial court was an accurate statement of the law applicable to plaintiffs' claims. See Kent v. Gulf States Utilities Company, 418 So. 2d 493, 497 (La.1982). Moreover, reviewing the jury instructions in their entirety, I would find that the instructions given were adequate, and I am unable to say that the trial court abused its discretion in declining to give the additional instructions requested by Dow.
The trial court may have chosen not to expound on the law of strict liability beyond the instructions included in the charge to reduce the possibility of confusing the jury. Moreover, the court may have limited an expansive discussion of the law on strict liability in light of the pleadings and facts of this case. See Belle Pass Terminal, Inc., 92-1544 at pp. 38-39, 634 So. 2d at 490. Given the facts to be determined and the issues to be resolved by the jury, I find no abuse of discretion. Accordingly, I find no merit to Dow's assertion that the trial court's failure to specifically charge the jury using the additional language of the cases it relied upon rendered the jury verdict invalid.
STRICT LIABILITY OF DOW
(Dow's Assignment of Error Number 1)
Third-Party Fault Defense
Dow further argues that the trial court erred in failing to render judgment in its favor on the issue of strict liability, in accordance with the jury's answers to specific interrogatories, finding the manufacturers of the asbestos-containing products to be at fault. Dow argues that it could *500 not have been held strictly liable, because the jury's findings of third-party fault by six of the manufacturing defendants operates as a defense to this claim and bars a finding of strict liability on the part of Dow.
Louisiana Civil Code article 2317[4] imposes liability upon the custodian of a defective thing which creates an unreasonable risk of harm to others. In Loescher v. Parr, 324 So. 2d 441, 447-448 (La.1975), the Louisiana Supreme Court held that in order for a plaintiff to recover in strict liability from the owner or custodian of the allegedly defective thing, the plaintiff must prove the vice (i.e., the unreasonable risk of injury to another) in the thing causing the damage and that the damage resulted from this vice.
The resulting liability is strict in the sense that the owner's duty to protect against injurious consequences resulting from the risk does not depend on actual or constructive knowledge of the risk. Under strict liability, the mere fact of the owner's relationship with and responsibility for the damage-causing thing gives rise to an absolute duty to discover the risks presented by the thing in custody. Kent v. Gulf States Utilities Co., 418 So.2d at 497.
Nonetheless, a strictly liable defendant may be absolved of fault "only if he shows the harm was caused by the fault of the victim, by the fault of a third person, or by an irresistible force." Loescher, 324 So.2d at 447. With regard to the defense of third-party fault, the Supreme Court has specifically defined the fault of a third person which exonerates a premises owner from its own strict liability as that which is the "sole cause" of the damage. Olsen v. Shell Oil Company, 365 So. 2d 1285, 1293 (La.1978) (emphasis added). In explaining the defense of third-party fault, the Court stated as follows:
The fault of a "third person" which exonerates a person from his own obligation importing strict liability as imposed by Articles 2317, 2321, and 2322 is that which is the sole cause of the damage, of the nature of an irresistible and unforeseeable occurrence i.e., where the damage resulting has no causal relationship whatsoever to the fault of the owner in failing to keep his building in repair, and where the "third person" is a stranger rather than a person acting with the consent of the owner in the performance of the owner's non-delegable duty to keep his building in repair. (Footnote omitted).
Olsen, 365 So.2d at 1293-1294. The Court further instructed that the owner or custodian of a defective building or thing is not relieved of his responsibility and strict liability to the victim unless the intervening third person's act or fault is in the nature of a superseding cause in Anglo-American tort law. Olsen, 365 So.2d at 1293 n. 15.
In interpreting these pronouncements by the Supreme Court, this court has concluded that the "sole cause" to which the Supreme Court referred is the sole "legal" cause or "responsible" cause, as distinguished from a "cause-in-fact." Hessifer v. Southern Equipment, Inc., 416 So. 2d 368, 373 (La.App. 1st Cir.1982). The essence of the legal cause inquiry is whether the risk and harm encountered by the plaintiff fall within the scope of protection of the duty imposed. Specifically, it involves a determination of whether the duty imposed was designed, at least in part, to afford protection to the class of claimants *501 of which plaintiff is a member from the harm suffered. Roberts v. Benoit, 605 So. 2d 1032, 1054 (La.1991).
In support of its contention that the third-party fault of the manufacturing defendants relieves it of its strict liability to plaintiffs, Dow relies upon the case of Jowers v. Commercial Union Ins. Co., 435 So. 2d 575 (La.App. 3rd Cir.1983). In Jowers, the plaintiff sustained severe concrete burns on his legs while spreading and leveling wet concrete at his parents' home. The plaintiff filed suit against the cement manufacturer and his father's homeowner's insurer. Jowers, 435 So.2d at 576-577. With regard to the manufacturer, the Third Circuit Court of Appeal concluded that the cement manufacturer had knowledge that wet cement or concrete could cause injury to the skin, but failed to warn plaintiff and his father, ordinary "do-it-yourself" home improvers. Thus, the cement manufacturer was deemed liable under both negligence and strict liability principles. Jowers, 435 So.2d at 578-579.
However, with regard to the plaintiff's parents, whom he asserted were strictly liable pursuant to LSA-C.C. art. 2317, the court, with limited analysis, concluded that these homeowners were absolved from strict liability on the basis of the third-party fault of the cement manufacturer. See Jowers, 435 So.2d at 579.
However, I note that in addressing the corresponding fault of a manufacturer and custodian or owner to an injured plaintiff, the Louisiana Supreme Court has specifically held that both the manufacturer and the custodian of a defective thing are strictly liable in solido for any resulting injuries. Brown v. Sears, Roebuck and Company, 514 So. 2d 439, 444 (La.1987); Hunt v. City Stores, Inc., 387 So. 2d 585, 590 (La.1980); see also Francis v. American Well Service and Drilling, Inc., 617 So. 2d 1329, 1332 (La.App. 3rd Cir.1993). In Brown, a child was injured when his left little finger was caught in the space between the moving treads and the side panel of an escalator at a department store. Relying upon LSA-C.C. art. 2317, as interpreted by the Court in Loescher, the Supreme Court concluded that both the manufacturer of the escalator and the custodian were strictly liable in solido. Brown, 514 So.2d at 440, 444. Additionally, with regard to the defense of third-party fault, the Supreme Court instructed as follows:
The court of appeal correctly found that there was no victim or third party fault. Although not unreasonably dangerous "per se," escalators are unreasonably dangerous to small children, making their manufacturers and custodians strictly liable for escalator injuries to those children. LSA-C.C. art. 2317. (Emphasis added).
Brown, 514 So.2d at 445. Thus, the Supreme Court clearly did not view the legal fault of the manufacturer of the defective escalator as the "sole cause" of the damage, of the nature of an irresistible and unforeseeable occurrence or a superseding cause, such that the manufacturer's fault would relieve the custodian of the defective thing of its legal fault on the basis of the defense of third-party fault.
Additionally, in the earlier case of Hunt, another defective escalator case, while the Supreme Court found both the custodian and manufacturer to be at fault, the Court additionally found that the department store, as custodian of the defective escalator, had failed to establish the defense of any fault by a third person which would relieve it of liability.[5]Hunt, 387 So.2d at 589.
*502 In the instant case, Dow was found to be strictly liable as a premises owner, but was also found to be free from negligence. Thus, its liability arose from its relationship with and responsibility for the defective thing, rather than from any finding of active fault on its behalf. Similarly, the manufacturers were found to be strictly liable on the basis that they introduced into commerce unreasonably dangerous products. In strict products liability, the manufacturer is presumed to know of the dangerous propensities of its product, whether or not it has not it has actual knowledge. Weber v. Fidelity & Casualty Insurance Company of New York, 259 La. 599, 602-603, 250 So. 2d 754, 755-756 (1971). The jury in this case made no independent finding of knowledge of the defect, i.e., actual fault, on the part of the manufacturing defendants. Rather, as with Dow, the manufacturing defendants' liability was premised on their relationship with and responsibility for the defective thing.
Based on the Supreme Court's pronouncements in Olsen, Hunt and Brown, I would conclude that Dow, as the strictly liable custodian of the defective product or owner of the premises incorporating the defective product, has not proven the defense of third-party fault for the corresponding strict products liability of the manufacturer of the same defective product. In this case, I would further conclude that the manufacturers' legal fault is not the type of superseding cause or the sole legal cause contemplated under the defense of third-party fault.[6] For these reasons, I would find no merit to Dow's contention that the trial court erred in failing to dismiss plaintiffs' strict liability claims against it on the basis of the jury's findings that six manufacturing defendants were also strictly liable to plaintiffs.
Temporary Condition of Repair
In addition to its claim of third-party fault, Dow argues that a premises owner cannot be strictly liable as a matter of law when the alleged defect occurs during the temporary condition of repair to the premises by an independent contractor. Dow contends that Mr. Hebert's exposure to asbestos-containing products at Dow's Plaquemine facility arose from a condition of maintenance work performed by him while employed by an independent maintenance contractor. Thus, Dow contends, because its duty to maintain its premises free from unreasonable dangers does not extend to the hazards of maintenance work performed on the premises or temporary conditions arising from repair, it is not liable to plaintiffs herein.
While it is true that a temporary condition during repair may not constitute a *503 defect in the premises, this principle does not apply where the flaw or condition is of relative permanence inherent in the thing as one of its qualities. Crane v. Exxon Corporation, U.S A., 613 So. 2d 214, 219 (La.App. 1st Cir.1992), writs granted in part on other grounds, 93-0239, 93-0483, 93-0505 (La.7/1/93), 620 So. 2d 858; Boudreaux v. Farmer, 604 So. 2d 641, 652 n. 10 (La.App. 1st Cir.), writs denied, 605 So. 2d 1373, 1374 (La.1992). In the instant case, the record overwhelmingly demonstrates that the unreasonably dangerous asbestos-containing materials were incorporated into Dow's premises and, accordingly, constituted permanent fixtures on the premises. Thus, I believe these arguments lack merit.
ALLEGED NEGLIGENCE OF DOW
(Plaintiffs' Assignment of Error Number 3)
In this assignment of error, plaintiffs contend that the jury was manifestly erroneous in failing to find Dow negligent. They contend that the jury erred in refusing to find Dow negligent "despite a substantial body of evidence of actual and presumed knowledge of the hazards caused by exposure to asbestos."
As stated above, for a plaintiff to recover in strict liability from the owner or custodian of the allegedly defective thing, the plaintiff must prove the vice (i.e., the unreasonable risk of injury to another) in the thing causing the damage and that the damage resulted from this vice. Loescher, 324 So.2d at 447-448. The difference between strict liability and negligence theories is knowledge. Summerville v. Louisiana Nursery Outlet, Inc., 95-2224, p. 3 (La.App. 1st Cir.6/28/96), 676 So. 2d 238, 240, writ denied, 96-1921 (La.11/1/96), 681 So. 2d 1263. To establish negligence of the premises owner, the plaintiff additionally must prove that the owner knew or should have known of the unreasonable risk of harm posed by the property. Kent v. Gulf States Utilities Co., 418 So.2d at 497.
In support of its contention that Dow knew or should have known of the unreasonable risk of harm posed by its facility, plaintiffs point out that the Plaquemine facility contained miles of asbestos-containing pipe covering and that when Dow eventually implemented its asbestos-abatement program in the 1970s and 1980s, millions of pounds of asbestos-containing materials were removed from the facility. Moreover, plaintiffs further contend that based on the admissions of Harold Hoyle, past director of industrial hygiene affairs at Dow, Dow's knowledge of the hazardous properties of asbestos was clearly established as dating back at least as far as 1948.
Dow, on the other hand, contends that while it had knowledge of certain hazards of asbestos in the 1960s, this knowledge related only to individuals working in asbestos mines and factories where raw asbestos was used. Additionally, Dow contends that mesothelioma was not a foreseeable risk for workers, such as Mr. Hebert, subjected to "bystander exposure" to asbestos-containing products until the mid-1970s. Accordingly, Dow argues, the jury's finding that Dow was not aware that Mr. Hebert's work as a millwright at Dow placed him at an unreasonable risk of contracting mesothelioma was not manifestly erroneous.
Dow asserts that the jury's finding that it was not negligent herein (with the obvious underlying conclusion that Dow did not know nor should it have known of the unreasonable risk of contracting mesothelioma posed by its facility) is entirely consistent with this court's decision in Smith v. Dow Chemical Company, 92-0883, at pp. 7-9 (La.App. 1st Cir.3/28/94), 635 So. 2d 325, 330-331, writ granted, 94-1059 *504 (La.6/24/94), 641 So. 2d 207.[7] In Smith, this court reviewed the trial court's finding that certain employees and executive officers of Dow were negligent in requiring the plaintiff to work under conditions guaranteed to exceed safe exposure limits to a certain chemical known to cause illness at exposure levels above those limits, where the Dow employees knew of the risk. This court concluded that the trial court committed legal and manifest error in its finding of negligence. Specifically, this court noted that the only harm known to a Dow employee at the time of the plaintiff's exposure was the risk of harm to a different classification of workers from exposure to a different chemical that resulted in an entirely different and unrelated illness. Thus, this court concluded that there was no evidence that the particular illnesses from which the plaintiff suffered were foreseeable risks from exposure to the particular chemical at issue therein that were known to the Dow supervisors and employees. Smith, 92-0883 at pp. 4-9, 635 So. 2d at 329-331.
In the instant case, the record establishes that certain Dow employees had knowledge dating back to at least the early 1950s that certain levels of exposure to asbestos could result in injury to the lungs. Contrary to Dow's argument, I do not believe that Smith stands for the proposition that the requisite knowledge in a negligence claim against a premises owner would necessarily be dependent upon actual knowledge of the particular lung injury, i.e., asbestosis versus mesothelioma. Nonetheless, I note that knowledge of the risk of one particular lung injury at a certain level of exposure may not equate to knowledge of a risk of lung injury at a lower level of exposure.
In the case before us, the jury was presented with abundant, yet conflicting, evidence on the issue of Dow's knowledge of the dangers of asbestos. Dr. Arnold Brody, a pathologist specializing in asbestos-related diseases, testified that asbestos was known to cause the lung disease asbestosis (the scarring of the lung from asbestos fibers) in the early 1900s and that asbestos was discovered to be the cause of mesothelioma in 1960. With regard to safe levels of exposure to asbestos, Dr. Brody testified that there is no safe level of exposure to asbestos that would prevent the development of mesothelioma. He explained that even brief exposures to asbestos can cause mesothelioma.
Dr. Victor Roggli, a pathologist who has also specialized in asbestos disease, similarly testified that no level of exposure to asbestos has been identified below which mesothelioma will not occur in humans.
Dr. Richard Lemen, an epidemiologist, past deputy director of the National Institute for Occupational Safety and Health (NIOSH) and past United States Assistant Surgeon General, testified about the history of awareness of asbestos-related diseases. Dr. Lemen similarly explained that the risks to individuals working with asbestos of developing asbestosis were documented in the early 1900s. He opined that by 1930, it was commonly known that asbestosis was caused by asbestos exposure. Additionally, he testified that in the 1930s, recommendations were widely published in industrial publications about methods to prevent the disease by limiting exposure, through adequate ventilation and use of respirators and protective clothing.
According to Dr. Lemen, in 1946, a private organization called the American Conference of Governmental Industrial Hygienists, *505 established the concept of "threshold limit values (TLVs)," which defined an asbestos-exposure limit believed to protect the majority of workers from asbestos disease. However, Dr. Lemen acknowledged that when these TLVs were initially established, they were meant to protect workers from acute toxic effects of asbestos and were not meant to protect against cancer or mesothelioma.
Even prior to the implementation of TLVs by this private organization, the federal government through the United States Public Health Service had recommended a guidance limit in the 1930s, of 5,000,000 particles per cubic foot. When it implemented the concept of TLVs in 1946, the American Conference of Governmental Industrial Hygienists adopted the same guidance limit recommended by the federal government through the United States Public Health Service. This guidance limit was intended to protect the majority of workers from injury, and Dr. Lemen acknowledged that this limit was not changed by the federal government until 1971 or 1972 by the Occupational Safety and Health Administration (OSHA).
Dr. Lemen further testified that, with regard to mesothelioma, the disease itself was described in the late 1930s. However, the first published case reports of workers with this disease occurred in the 1940s. Dr. Lemen opined that by the early 1960s, asbestos exposure was known to cause mesothelioma. However, he further explained that scientists initially thought that the people who were most affected by exposure were those who worked directly with asbestos. Moreover, he acknowledged that in the 1960s, asbestos disease was treated as a disease where dose, or level of exposure, made a difference.
Later, certain studies performed in the 1960s and 1970s indicated that fibers could actually drift away from the area where the material was being applied and affect other workers, a concept labeled "bystander exposure."
With regard to the specific knowledge of Dow and its employees, Dr. Benjamin Holder, an employee in Dow's medical department for over thirty years and its corporate medical director from 1982 to 1985, testified that he first became aware of a causative link between asbestos exposure and mesothelioma in the early 1950s. On the other hand, Harold Hoyle, Dow's first full-time industrial hygienist, testified that, while he was aware of the risk of asbestosis from the time he began working for Dow in 1948, he did not believe that the issue of a causative link between asbestos exposure and mesothelioma was resolved until the early 1970s.
Additionally, Charles Halphen, who was the industrial hygienist at Dow's Plaquemine facility from 1974 to 1986, testified that he did not become aware that asbestos exposure could cause health problems until the 1960s. He further testified that he did not learn that asbestos exposure could cause mesothelioma until 1973 or 1974.
According to Halphen, Dow established baseline exposure levels for every job specification, and it monitored personnel to determine individual exposures to asbestos. However, he acknowledged that, to his knowledge, Dow did not monitor contract personnel on its premises, such as Mr. Hebert.
Charles Melancon, an engineer who worked as a superintendent and manager at the Dow Plaquemine facility during the time Mr. Hebert worked at the facility and who became the safety manager in 1975, testified that he did not become aware that asbestos exposure could cause health problems until the early 1970s.
*506 Dr. Lloyd Balzer, an industrial hygiene engineer called to testify by Dow, opined that in the years 1960 through 1969, industrial hygienists were first discovering the issue of mesothelioma and trying to define it. Thus, from an industrial hygienist's perspective, Dow would not have been able to foresee the hazard of mesothelioma at that time. Additionally, Dr. Balzer further testified that it was not until the mid-1970s when industry began to realize the risk of mesothelioma from bystander exposure to asbestos. Thus, according to Balzer, at the time Mr. Hebert worked at the Dow Plaquemine facility, there was no information available to indicate a risk of contracting mesothelioma from mere bystander exposure.
In sum, based on the record on appeal, the jury was presented with evidence that Dow's knowledge at the time of Mr. Hebert's exposure was limited to knowledge of the risk of lung injury (i.e., asbestosis) above certain exposure levels and that Dow attempted to protect against such risks by attempting to limit exposure at its facilities below those levels. Thus, considering the record as a whole, and the conflicting evidence on the issue of knowledge, I would conclude that there was a reasonable basis in the record to support the jury's obvious determination that Dow did not know nor should it have known of the unreasonable risk of harm presented herein. Accordingly, after careful review of the extensive, conflicting testimony on this issue, I would be unable to conclude that this finding was manifestly erroneous.
FAULT OF THE SETTLING DEFENDANTS
(Plaintiffs' Assignment of Error Number 4; Dow's Assignment of Error Number 3)
In rendering its verdict, with regard to the settling defendants, the jury made specific findings as to the fault of each of those defendants. Dow asserts on appeal that the jury erred in failing to find BASF and Georgia Pacific strictly liable as premises owners. Plaintiffs, on the other hand, argue that the jury erred in finding Kaiser Aluminum Corporation, Garlock, Inc., Johns-Manville Corporation, Armstrong World Industries, Inc. and Flexitallic Gasket Company, Inc. at fault in causing Mr. Hebert's mesothelioma.
A plaintiff's release of a joint tortfeasor reduces the amount recoverable against the remaining tortfeasors by the amount of the virile share (pro rata share) of the one released. Raley v. Carter, 412 So. 2d 1045, 1046 (La.1982). Nonetheless, the remaining tortfeasor is only entitled to a reduction of the award if the parties released are proven to be joint tortfeasors. Thus, a pre-trial settlement shifts the burden of proving liability on the part of the released tortfeasors from the plaintiff to the remaining defendant or defendants. Raley, 412 So.2d at 1047.
When evaluating liability in an asbestos claim, traditional theories of tort liability (e.g., negligence, strict premises liability and products liability) apply, which require proof of causation. Emery v. Owens-Corporation, 2000-2144, p. 12 (La.App. 1st Cir.11/9/01), 813 So. 2d 441, 452, writ denied, XXXX-XXXX (La.5/10/02), 815 So. 2d 842; Summerville, 95-2224 at p. 3, 676 So. 2d at 240. Asbestos cases typically involve multiple defendants, and courts have evaluated the cause-in-fact element as to multiple parties, in that, often, more than one defendant substantially contributed to the plaintiff's injury. Quick v. Murphy Oil Co., 93-2267, p. 8 (La.App. 4th Cir.9/20/94), 643 So. 2d 1291, 1294, writ denied, (La.1/6/95), 648 So. 2d 923; Emery, 2000-2144 at p. 12, 813 So. 2d at 452. Where two or more causes are present, the cause-in-fact element is established if the *507 defendant's conduct or fault was a "substantial factor" in bringing about the plaintiff's harm. Quick, p. 10, 643 So. 2d at 1295.
Whether a party caused another's injuries is a question of fact subject to the manifest error rule. Emery, 2000-2144 at p. 13, 813 So. 2d at 452. Thus, if the jury's findings are reasonable in light of the entire record and are not clearly wrong or manifestly erroneous, they must be affirmed on appeal. Stobart v. State, Department of Transportation and Development, 617 So. 2d 880, 881-882 (La.1993). Accordingly, as a reviewing court, if there is a reasonable basis in the record to support the jury's findings, we must affirm the findings regarding fault of the settling defendants, i.e., whether the fault of these defendants was a substantial contributing factor of Mr. Hebert's injury, absent a showing of manifest error in these findings.
BASF Wyandotte and Georgia Pacific Corporation
When asked in specific jury interrogatories whether Dow had proven by a preponderance of the evidence that certain premises owners were negligent and such negligence was a substantial contributing cause to Mr. Hebert's asbestos-related injury, the jury responded "No" as to both BASF Wyandotte (BASF) and Georgia Pacific Corporation (Georgia Pacific). The jury similarly found that Dow had failed to prove that these two premises owners had custody and control of a defective condition or thing which created an unreasonable risk of harm to which Mr. Hebert was exposed and that such exposure was a substantial contributing factor to Mr. Hebert's injury.
Dow contends that these findings constituted manifest error, because Mr. Hebert admitted to exposure to asbestos-containing products at these facilities in an answer to interrogatories prior to trial. The interrogatory upon which Dow relies requested that Mr. Hebert provide the names and locations of all jobs, plant sites or vessels on which he had worked which "may have involved contact with, exposure to, or use of any asbestos-containing insulation products" as well as the type, brand name and manufacturer of each such product. (Emphasis added). In response to this interrogatory, Mr. Hebert stated as follows:
From 1953 until 1955, Mr. Hebert worked as a machinist at Kaiser in Baton Rouge. In 1956, he worked at Dow until 1975 as a millwright. He also worked at Hercules Oil, Texaco, Standard Oil and Georgia Pacific as a millwright during the 1970's. While at Standard Oil, Mr. Hebert put in turbines. Mr. Hebert continued his work as a millwright at BASF Wyandotte from 1980 until 1985 and at Ashland from 1988 through 1995.
As a machinist and millwright, Mr. Hebert worked with/or around all crafts, including insulators, pipefitters, boilermakers and electricians using asbestos-containing products during the course of their work. Plaintiff has worked with and/or around the following asbestos containing materials: cement/mud, pipecovering, block, gaskets, cloth, asbestos spray, and packing and thus was exposed to harmful asbestos dust from these products.
At this time, plaintiff cannot recall further details regarding the above noted activities and products, and because discovery in this matter is ongoing, plaintiff reserves the right to supplement and/or amend this response.
Dow contends that Mr. Hebert's "admission" contained in this interrogatory answer "does not separate BASF or Georgia Pacific out as sources of exposure," *508 and, accordingly, the admission establishes that Mr. Hebert was exposed as a millwright at BASF and Georgia Pacific "to harmful dust from these (asbestos containing) products." Dow broadly reasons that "no factual basis existed to distinguish BASF and Georgia Pacific from the group of parties legally responsible for Mr. Hebert's damages." Accordingly, Dow argues, these parties should have also been found strictly liable and assigned a virile share.
Clearly, the answer to the interrogatory as set forth above is insufficient alone to sustain Dow's burden of proving that BASF and Georgia Pacific had custody or control of asbestos-containing products in their facilities that were substantial contributing causes to his asbestos-related injury. Mr. Hebert testified that he "guessed" that he was exposed to asbestos at Georgia Pacific, but could not recall any specific products to which he was allegedly exposed at either of these facilities or the duration or intensity of such exposure. Accordingly, given the lack of evidence of record to establish harmful exposure on the premises of BASF or Georgia Pacific, I would find no manifest error in the jury's findings that these premises owners were neither negligent nor strictly liable herein. See Emery, 2000-2144 at pp. 14-15, 813 So. 2d at 453-454; see generally Raley, 412 So.2d at 1048.
Kaiser Aluminum Corporation
The evidence of record demonstrates that Mr. Hebert worked for Kaiser Aluminum as a machinist during the years 1953 to 1956. Mr. Hebert testified that he thought he was exposed to asbestos while he worked at Kaiser, when he handled pump gaskets. He stated that he would have worked with gaskets every time he overhauled a pump or a compressor. When overhauling this equipment, he would remove the old gaskets with a wire brush or an electric grinder. However, he could not provide information as to the manufacturer of the gaskets with which he worked, and, accordingly, it is unclear from the record whether these gaskets actually contained asbestos.
Given the lack of evidence of record to establish harmful exposure on the premises of Kaiser Aluminum, I would conclude that the jury was manifestly erroneous in finding that Kaiser was at fault in substantially contributing to Mr. Hebert's illness.
Garlock, Inc.
Garlock, Inc. manufactured various asbestos-containing gaskets as well as packing material, which were purchased by Dow for use in its Plaquemine facility. Mr. Hebert testified that he used asbestos-containing Garlock packing material, and several Dow employees and contract workers testified that asbestos-containing Garlock products were regularly used at Dow during the time frame in which Mr. Hebert worked at the Plaquemine facility.
As a millwright, Mr. Hebert routinely removed gaskets when performing maintenance work on equipment. He explained that he customarily scraped or chipped the old gaskets off of the equipment and that sometimes they would grind them off, activities which could release fibers into the air.
Accordingly, I would conclude that the record amply supports a finding that Garlock's products substantially contributed to Mr. Hebert's disease. In my opinion, the jury's finding in this regard is not manifestly erroneous.
Johns-Manville Corporation
The record contains ample evidence that Mr. Hebert was exposed to asbestos-containing products manufactured by Johns-Manville Corporation. Mr. Hebert testified he had been exposed to Johns-Manville products in "just about every plant" in *509 which he worked. The record further demonstrates that Dow utilized asbestos-containing insulation and gaskets manufactured by Johns-Manville in its Plaquemine facility while Mr. Hebert worked there. Accordingly, I would likewise conclude that the record amply supports a finding that Johns-Manville's products substantially contributed to Mr. Hebert's disease and that the jury's finding in this regard is not manifestly erroneous.
Armstrong World Industries, Inc.
In his deposition, Mr. Hebert was asked to specifically identify products to which he was exposed from a picture book of asbestos-containing products provided to him by counsel for one of the parties. From that publication, Mr. Hebert identified Armstrong asbestos paper as a product to which he had been exposed. With regard to his exposure to this product, Mr. Hebert stated as follows: "Well, I seen that somewhere too, in some of them plants somewhere, but I don't know exactly what plants it were. Mostly looked like I seen it in just about every plant I went in at one time or another." Mr. Hebert also identified Armstrong gasketing material, stating, "I think I used that.... But I ain't positive on it."
Based on the above, I would conclude that Mr. Hebert's testimony that he may have used Armstrong gaskets was insufficient, in the absence of any corroborating evidence, to establish that this alleged exposure was a substantial contributing cause of his illness. Moreover, with regard to the asbestos paper identified by Mr. Hebert, this product is not listed in the excerpt from the Federal Register introduced at trial by Dow as an asbestos-containing product manufactured by Armstrong. Additionally, there is no information of record to establish when this product may have been manufactured and during which timeframe it may have contained asbestos.
Accordingly, I would conclude that the jury was manifestly erroneous in its finding that Mr. Hebert's alleged exposure to asbestos-containing products manufactured by Armstrong World Industries, Inc. was a substantial contributing cause of his illness.
Flexitallic Gasket Company, Inc.
Mr. Hebert identified several Flexitallic gaskets that he had used during his career. However, he further stated that he was not sure whether the Flexitallic gaskets he used were asbestos gaskets or Teflon gaskets, noting that Flexitallic manufactured both types. Additionally, while the excerpt from the Federal Register does not list Flexitallic as a manufacturer of asbestos-containing gaskets, John Calmes, Sr., a superintendent at Dow's Plaquemine facility during the time Mr. Hebert worked there, confirmed that Dow purchased gaskets from Flexitallic in the 1960s and 1970s that "probably" contained asbestos.
Consequently, I would find no error by the jury in its finding that Mr. Hebert's alleged exposure to asbestos-containing products manufactured by Flexitallic was a substantial contributing cause of his illness.
Because I would conclude that the jury's findings that the products manufactured by Kaiser Aluminum Corporation and Armstrong World Industries, Inc. substantially contributed to Mr. Hebert's illness were manifestly erroneous, I would accordingly make adjustments in the virile share calculation. See Abadie v. Metropolitan Life Insurance Company, 2000-344, pp. 119-120 (La.App. 5th Cir.3/28/01), 784 So. 2d 46, 120. Thus, in my opinion, the amended judgment on the merits should be amended to provide that *510 Dow is liable for a one-sixth virile share of the damages awarded to plaintiffs.
GENERAL DAMAGES
(Dow's Assignment of Error Number 4)
The jury awarded Mr. Hebert $2,000,000.00 in general damages. Dow argues that this award is abusively high and should be reduced by this court.
The trier of fact has great, even vast, discretion in assessing general damages, and an appellate court should not modify the award unless it is beyond that which a reasonable trier of fact could assess for a particular injury to the particular plaintiff under the particular circumstances. Youn v. Maritime Overseas Corp., 623 So. 2d 1257, 1261 (La.1993), cert. denied, 510 U.S. 1114, 114 S. Ct. 1059, 127 L. Ed. 2d 379 (1994). Only if the appellate court finds an abuse of that discretion may it examine prior awards of general damages to determine the amount the trier of fact reasonable could award. Theriot v. Allstate Insurance Co., 625 So. 2d 1337, 1340 (La. 1993).
The record reveals that Mr. Hebert suffered immense pain and numerous hospitalizations as a result of his disease. Mr. Hebert's medical records indicate that as early as September of 1998, he was experiencing chest pain. An abdominal ultrasound performed several months later, on January 27, 1999, revealed a large right pleural effusion. On February 1, 1999, a CT scan of Mr. Hebert's chest was performed, and on February 9, Mr. Hebert underwent a bronchoscopy. Both of these tests yielded similar findings.
Thereafter, on February 16, 1999, a right thoracotomy with biopsy was performed on Mr. Hebert under general anesthesia to determine the cause of the pleural effusion. The surgeon noted that the parietal and visceral pleura contained "whitish glistening thickened areas" and that the lung was covered with "little satellite lesions." He further noted that areas of Mr. Hebert's chest wall were "just one sheet of this thick pleura shining" with "little ripples" in it. Initial examination of the frozen specimen revealed carcinoma, probable mesothelioma.
The procedure further revealed that Mr. Hebert's right lung was trapped and unable to expand. Thus, the surgeon performed "extensive decortication," or scraping or peeling, to free the trapped lung. During the procedure, the surgeon also drilled four one-eighth inch holes in Mr. Hebert's sixth rib in order to suture the rib to the fifth rib to prevent pressure on the sixth intercostal nerve. Mr. Hebert remained hospitalized after this procedure until February 20, 1999. He continued to suffer a great deal of pain following this procedure, which prevented him from sleeping, and he testified that he had to exceed the prescribed dosage of his pain medication in an attempt to find some measure of relief.
On February 17, 1999, the pathologist who reviewed the biopsy specimen confirmed a diagnosis of mesothelioma. At the time of this diagnosis, Mr. Hebert was sixty-eight years old.
By April of 1999, Mr. Hebert was experiencing "significant difficulty" with chest pain, for which he was prescribed Oxycontin and Roxilox. His oncologist noted decreased breath sounds in the right lung.
On August 30, 1999, Mr. Hebert was hospitalized for severe, intractable pain and nausea and vomiting. He was discharged the following day after receiving IV pain medication.
On October 11, 1999, Mr. Hebert was admitted to the hospital for a trial of morphine administration through an intrathecal catheter, as a method of managing his *511 intractable chest-wall pain. He remained hospitalized for three days, after which he was discharged with instructions to return in one week to have a permanent catheter implanted. The implanted pump was utilized to deliver narcotic pain medication directly into Mr. Hebert's cerebral spinal fluid.
Again during the week before trial of this matter, Mr. Hebert was hospitalized for severe chest pain and associated anxiety. With regard to the pain Mr. Hebert has suffered as a result of this tragic disease, his oncologist testified that he has a "great deal" of pain across his chest and that his life is "severely limited" due to this pain. He noted that as of the time of trial, Mr. Hebert had undergone six nerve blocks as a further attempt to control his pain. Mr. Hebert's oncologist explained that the pain and difficulty Mr. Hebert has experienced continually progresses. He additionally testified that Mr. Hebert's life expectancy as of the time of trial was approximately six months. As noted above, Mr. Hebert died on October 24, 2000.
The emotional toll that this disease had taken on Mr. Hebert was readily apparent from his videotaped deposition, which the jury viewed. The pain he was experiencing severely limited his activity and prevented him from engaging in any hobbies or chores around the house. In essence, Mr. Hebert had been relegated to a life of increasing, debilitating pain with the eventual result being his untimely death. Nonetheless, Dow contends the jury's award was "excessive as a matter of law." Based on the evidence presented, I would conclude that the jury's award, while arguably on the higher end of the spectrum of such awards, was within the factfinders' vast discretion. Accordingly, I would decline to modify the award.
DISMISSAL OF MRS. HEBERT'S CONSORTIUM CLAIM
(Plaintiffs' Assignment of Error Number 2)
In this assignment of error, plaintiffs contend that the trial court erred in granting the motion for summary judgment filed by Dow and dismissing Mrs. Hebert's loss of consortium claim.
In the motion for summary judgment, Dow alleged that Mr. Hebert's last possible exposure to asbestos and the operative facts giving rise to any alleged fault on the part of Dow occurred prior to 1975, and, accordingly, any potential remedy available to Mrs. Hebert should be governed by the law as it existed at the time of Dow's alleged conduct. Dow further argued that, because the remedy for loss of consortium was not created until the 1982 amendment to LSA-C.C. art. 2315, Mrs. Hebert was not entitled to assert this claim.
The trial court agreed with Dow's position, and following a hearing on the motion, it granted the motion for summary judgment and dismissed Mrs. Hebert's claim for loss of consortium.
The core of Dow's argument centers around the fact that the derivative right to recover loss of consortium of a tort victim who had not died from his injuries was not legislative enacted until 1982, through amendment to LSA-C.C. art. 2315.[8] This *512 new cause of action has been deemed to be substantive and, therefore, not retroactive in its nature. Lee v. K-Mart Corporation, 483 So. 2d 609, 617 (La.App. 1st Cir. 1985), writ denied, 484 So. 2d 661 (La. 1986).
In reviewing the characteristics of a loss of consortium claim in an analogous asbestosis case, our brethren on the Louisiana Fourth Circuit Court of Appeal stated that a cause of action arises when negligent or tortious conduct causes injury. Coates v. Owens-Corning Fiberglas Corporation, 444 So. 2d 788, 790 (La.App. 4th Cir.1984); see also McDuffie v. ACandS, Inc., 2000-2745, pp. 2-5 (La.App. 4th Cir.2/14/01), 781 So. 2d 623, 624-625. As stated by the court in Coates, "[u]ntil an injured party's condition deteriorates to such an extent that his family is actually deprived of his consortium, service or society, they have suffered no injury." Coates, 444 So.2d at 790. A party's separate cause of action for loss of consortium was thereby deemed to arise as of the time that the injured party begins to suffer the actual loss of consortium. Coates, 444 So.2d at 790-791.
Hence, the time of the exposure or the onset of the injury causing asbestosis is not the determinant in establishing the applicable law governing the separate loss of consortium claim. Rather, it is the loss to the spouse, or relative, of those elements comprising consortium that is the decisive factor. The claim for loss of consortium and the impact of the 1982 amendment to LSA-C.C. art. 2315 should be deciphered independently from the determination of the date on which the cause of action accrued for the disabled spouse.
Applying the aforementioned legal precepts to this case, the record reveals that Mr. Hebert began to experience debilitating symptoms resulting in a diagnosis of mesothelioma in January of 1999. Accordingly, any separate claim for loss of consortium by Mrs. Hebert would have unequivocally arisen well after the legislative amendment to LSA-C.C. art. 2315 to allow for recovery of loss of consortium, service and society. Thus, I would conclude that Mrs. Hebert's loss of consortium claim was viable, and the trial court committed legal error in granting Dow's summary judgment and dismissing this claim.
On appeal, plaintiffs have requested that this court remand the matter to the trial court for trial of Mrs. Hebert's loss of consortium claim. When an appellate court has all the facts before it, the trial court's legal error does not warrant remand. Rather, the appellate court should review the record de novo and render judgment of the merits. See Gonzales v. Xerox Corporation, 320 So. 2d 163, 165-166 (La.1975); Noveh v. Broadway, Inc., 95-2081, p. 6 (La.App. 1st Cir.5/10/96), 673 So. 2d 349, 353, writ denied, 96-1431 (La.9/13/96), 679 So. 2d 109.
In the instant case, Mr. and Mrs. Hebert had been married for forty-six years. They had six children and fifteen grandchildren. Mrs. Hebert related that upon her husband's diagnosis, she was devastated, scared and anxious and that she cried often. While Mr. Hebert had been very actively involved with his family prior to his diagnosis, his condition had rendered him unable to perform most activities. He was no longer able to assist Mrs. Hebert around the house, and his illness clearly interfered with the parties' sexual relationship.
Accordingly, based on the record on appeal, I would find the record supports *513 an award to Mrs. Hebert of the sum of $125,000.00 for loss of consortium.[9]
CONCLUSION
For the above reasons, while I agree with the majority's conclusion that the November 8, 1999 judgment, maintaining the exceptions of lack of personal jurisdiction filed by Harold Hoyle, Benjamin Holder and Harold Gordon should be affirmed, I respectfully disagree with the majority's decision to vacate the March 13, 2000 amending judgment in favor of plaintiffs on the merits and to remand for further proceedings. Instead, I would amend the March 13, 2000 amending judgment on the merits to reflect that Dow is liable for a 1/6 virile share, rather than a 1/8 virile share, rendering it liable to plaintiffs in the amount of $354,166.66 (1/6 of the jury's award as amended by the trial court to reduce the award of medical expenses from $500,000.00 to $125,000.00).
Additionally, with regard to the judgment of the trial court rendered October 25, 1999, and signed July 25, 2000, granting Dow's motion for summary judgment and dismissing Mrs. Hebert's loss of consortium claim, I would reverse that judgment and render judgment on the loss of consortium claim in favor of plaintiff, Marion Hebert, and against Dow in the amount of $20,833.33 (1/6 of the award of $125,000.00 for loss of consortium).
Accordingly, I respectfully concur in part and dissent in part.
NOTES
[1] Mr. Hebert died during the pendency of this appeal. Accordingly, by order dated October 29, 2001, this court granted the motion to substitute parties, substituting Marion D. Hebert, Alvin A. Hebert, Jr., Stanley Robert Hebert, Cindy Hebert Himel, Nancy Hebert Villerette, Catherine Hebert Harelson and Blake J. Hebert, the surviving spouse and children of decedent, as plaintiffs in lieu of Mr. Hebert.
[2] In their original and amended petitions, plaintiffs named a total of thirty-eight defendants.
[3] Although Dow contends in its brief on appeal that it had no notice of the parties with whom plaintiffs had settled until the morning of trial, we note that Dow acknowledged at the beginning of the trial that it had received an amended list of settling defendants four days prior to the commencement of trial. (Thus, it is apparent Dow had received a list of settling defendants, albeit incomplete, even prior to that.) Accordingly, absent any showing of undue duress or restriction by the trial court, we find Dow was not relieved of the obligation to timely amend its pleadings to assert any affirmative defense it wished to raise regarding extinguishment of the debt on the basis of plaintiffs' settlements with a manufacturing defendant.
Additionally, we find no merit to Dow's assertion that it properly raised this affirmative defense in its answer simply by pleading that plaintiffs' injuries were caused by the sole fault of others or by averring that any award to plaintiffs should be reduced to the extent of any settlement or releases of any persons or entities. In sum, reduction by pro rata virile shares on the basis of settlement with a solidary coobligor is an entirely separate defense than extinguishment of the debt in favor of the alleged secondary or derivative obligor by virtue of settlement with the alleged primary obligor.
[4] Although Dow similarly did not amend to specifically plead extinguishment of the debt on this particular basis either, both sides presented argument at the beginning of trial on this issue with regard to a subpoena duces tecum served on plaintiffs. Accordingly, we shall address the merits of Dow's argument herein.
[5] Prior to 1979, and the amendment to La. C.C. art. 2324, the provisions of La. C.C. art. 2103 stated in pertinent part: "As between the solidary debtors, each is liable only for his virile portion of the obligation." (Emphasis added.) "Virile portion" was interpreted as "equal" portion. Efferson v. State, 463 So. 2d 1342, 1352-1353. Negligence was not graded by degrees of fault. See Comparative Fault & Solidary Delictual Obligations: On Further Consideration, 60 Louisiana Law Review 513, 531.
[6] Acts 1984, No. 331, eff. January 1, 1985.
[7] Former La. C.C. art. 2203 provided:
The remission or conventional discharge in favor of one of the debtors in solido discharges all the others, unless the creditor has expressly reserved his right against the latter.
In the latter case, he cannot claim the debt without making a deduction of the part of him to whom he has made the remission.
[1] Although Dow similarly did not amend to specifically plead extinguishment of the debt on this particular basis either, both sides presented argument at the beginning of trial on this issue with regard to a subpoena duces tecum served on plaintiffs. Accordingly, I would address the merits of Dow's argument herein.
[2] While Dow was unable to state with certainty at oral argument on appeal whether or not an inspection had occurred, plaintiffs' counsel affirmatively maintained that the documents had been furnished to the trial court and thereafter returned to plaintiffs at the conclusion of trial.
[3] Following argument of this matter before the five-judge panel, this court requested that the parties submit additional briefs to clarify certain issues.
[4] With regard to a long-latency occupational disease claim, the law in effect at the time of exposure applies. See Cole v. Celotex Corporation, 599 So. 2d 1058, 1066 (La.1992). Thus, the limitations imposed upon strict premises liability set forth in LSA-C.C. art. 2317.1, added by Acts 1996, 1st Ex.Sess., No. 1, § 1, are not applicable herein.
[5] In Hunt, both the custodian and the manufacturer of the escalator were found to have knowledge of the hazard. Hunt, 387 So.2d at 588, 589. Thus, the elements for both negligence and strict liability theories presumably were present.
[6] Even if persuaded by the Third Circuit's holding in Jowers, I note that Jowers is factually distinguishable from the present case. In Jowers, the manufacturer, whose third-party fault was found to be a defense to the fault of the premises owners, was found to be both negligent and strictly liable, based upon its failure to warn of a known risk. Moreover, the homeowner was found to be a do-it-yourself homeowner with no knowledge of the dangerous propensities of wet cement. Jowers, 435 So.2d at 578-579. In the instant case, both Dow and the manufacturing defendants were found to be at fault solely on the basis of strict liability, with no independent negligence. Moreover, while the jury may not have found that Dow had sufficient knowledge of the unreasonably dangerous condition of its premises to render it negligent, Dow clearly had some knowledge of potential hazards of asbestos exposure and, accordingly, was not the type of uninformed, unsuspecting premises owner as was the homeowner in Jowers.
[7] While the Supreme Court granted the plaintiff's writ application in Smith, there is no further reported disposition by the Court on the case.
[8] As amended in 1982, LSA-C.C. art. 2315 provides as follows:
Every act whatever of man that causes damage to another obliges him by whose fault it happened to repair it.
Damages may include loss of consortium, service, and society, and shall be recoverable by the same respective categories of persons who would have had a cause of action for wrongful death of an injured person.
Article 2315 was again amended in 1999, to add language detailing certain items which are not recoverable as damages. The 1999 amendments were specifically declared to apply to all "claims existing or actions filed on its effective date," July 9, 1999.
[9] Plaintiffs have requested that this court remand this matter for trial on the loss of consortium claim. Prior to trial of this matter, Dow filed a motion in limine, seeking to exclude "any evidence regarding any familial relationships of Alvin Hebert because no consortium or relational interests are at issue in this suit." While the record does not reveal a ruling on that motion, I note that Mrs. Hebert's testimony at trial was very brief. However, I would again conclude that if there was additional evidence that plaintiffs deemed relevant to this issue, it was plaintiffs' duty to proffer such evidence in the event the trial court limited the testimony in this regard. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570331/ | 29 So. 3d 295 (2010)
MILTON
v.
STATE.
No. 1D09-2384.
District Court of Appeal of Florida, First District.
February 25, 2010.
Decision Without Published Opinion Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917748/ | 178 B.R. 192 (1995)
In re Michael A. ENNIS and Carolyn Ennis, a/k/a Carolyn Friedell, Debtors.
Bankruptcy No. 94-60780.
United States Bankruptcy Court, W.D. Missouri.
January 27, 1995.
*193 Thomas J. Carlson, Springfield, MO, James G. Tichenor, Des Moines, IA, for Morris Friedell Bertroche Law Offices.
Thomas J. O'Neal, Springfield, MO, for Norwest Bank and Paul Ahler.
Richard V. Fink, Chapter 13 Trustee, Kansas City, MO.
Michael A. Ennis and Carolyn Ennis, pro se.
OPINION AND ORDER DENYING IN FORMA PAUPERIS APPLICATION
KAREN M. SEE, Bankruptcy Judge.
Pro se debtor Carolyn Ennis filed two notices of appeal without the required filing fees, but accompanied by two affidavits of financial status. There was no motion to proceed in forma pauperis, but the affidavits reference such a motion, so debtors apparently seek to appeal two orders without paying the filing fees. The orders appealed from include rulings denying requests to proceed in forma pauperis in the bankruptcy case and ordering debtors to pay the balance of the filing fee for the Chapter 13 case within 10 days. The two orders appealed from and the request in the affidavits filed with the bankruptcy court to proceed in forma pauperis are core proceedings under 28 *194 U.S.C. § 157(b)(2) (A), (B), (E), (G), (K), (L), (M) and (O). The court finds there is no provision to allow debtors to proceed in forma pauperis in their bankruptcy proceeding or in appeals from the bankruptcy proceeding. Debtors must pay the filing fees for the appeals to the Bankruptcy Clerk's Office as prescribed by 28 U.S.C. § 1930.
I. FACTS
In two orders entered January 6, 1995, the court held there is no right to proceed in forma pauperis in bankruptcy and ruled numerous other matters. On January 17, 1995, debtor Carolyn Ennis filed a notice of appeal from each order, along with an affidavit of financial status which states she is unable to pay the costs of commencing and prosecuting the appeal, and seeks to proceed in forma pauperis. Although most of the rulings are interlocutory in nature, debtors have not sought leave to file interlocutory appeals, as required by Bankruptcy Rules 8001(b) and 8003(a).
One of the orders which debtors seek to appeal ruled numerous issues in both the main bankruptcy case and an adversary action. The order denied debtors' demand for a jury trial on various matters, including matters in the main file such as applications to appoint counsel and waive utility deposits; denied a request that court security personnel not be permitted in the courtroom; denied a motion to waive adequate protection deposits to utility creditors; explained why the court would not accede to debtors' request for the court to confer ex parte by telephone with one of debtors' witnesses; denied a request for a third extension of time to file an amendment to an adversary complaint; and denied debtors' request for a continuance of trial.
The order also denied a motion to extend the payment of the filing fee for the Chapter 13 case and ordered debtors to pay the balance within 10 days or the case would be dismissed. When the Chapter 13 case was filed on August 31, 1994, debtors were granted permission to pay the filing fee in installments. Debtors failed to pay the installments and $70 remains unpaid. After entry of the order to pay the balance of the filing fee within 10 days (which is the subject of one of the appeals), debtors filed a "3rd Revised Plan" on January 17, 1995 which again declined to pay the balance of the bankruptcy filing fee and provided that the fee would be paid only when ordered by a higher court. The revised plan was not confirmable for many reasons, including that the filing fee must be paid when the case is commenced (or pursuant to an installment schedule), and in any event prior to confirmation. Bankruptcy Rule 1006; 11 U.S.C. § 1325(a)(2). By a separate order, the Chapter 13 bankruptcy case will be dismissed for failure to comply with the order to pay the balance of the filing fee and also pursuant to the Trustee's motion to dismiss for failure to file a confirmable plan.
The second order debtors seek to appeal, titled Order Granting Friedell Motion to Terminate Automatic Stay, Denying Debtors' Motion for Advance of Funds, and Denying Confirmation of Plan, held that creditor Friedell has a duly perfected, secured claim in the amount of $125,641.91 secured by a perfected lien on $107,000 in funds in the custody of a probate executor. The order granted creditor Friedell's motion for relief from stay to enforce his rights under state law, denied confirmation of debtors' plan, ordered debtors to file an amended plan within 15 days of the hearing, and denied debtors' motion to advance funds which were subject to creditor Friedell's secured claim.
The affidavits filed by debtor Carolyn Ennis along with the notices of appeal state that the affidavit supports her "motion to proceed without being required to prepay fees. . . ." Debtor filed only affidavits and did not file any motion to proceed in forma pauperis on the appeals. However, the court will construe the affidavit to be such a motion. The affidavit addresses only the waiver of fees and costs and not appointment of counsel. However, in order to cover all potential issues, the court will include the issue of appointment of counsel in this order.[1]
*195 At this point it is assumed that information in the affidavits is correct and complete. It is not necessary to review financial status because this order holds there is no authority for debtors to proceed in forma pauperis. However, if this order is modified or reversed, debtors' actual financial status must be reviewed because it appears the affidavits do not sufficiently explain the disposition of assets. For example, the evidence at hearings was that in June, 1992, debtors received a discharge of debts in a Chapter 7 bankruptcy case in Seattle, Washington, and thereafter, a few months before this Chapter 13 case was filed, debtor Carolyn Ennis received a distribution of approximately $50,000 from her mother's estate (her remaining distribution of $107,000 is the subject of the order terminating stay and one of the appeals).[2]
In addition, Mrs. Ennis has a computer and fax modem. She appears to have an expensive habit of mailing and faxing voluminous documents (not pleadings to be filed) to the court, the creditors and parties, and from Mrs. Ennis's notations in certificates of service, to various anonymous parties and media all around the country. The faxes of this type which the court has received have been sent at expensive daytime long-distance rates. A few examples of these documents include a document titled K*A*N*G*A*R*O*O PAPERS, a scene from an allegorical play which Mrs. Ennis has written about her travails, and miscellaneous correspondence berating her estranged husband and co-debtor and calling him "O.J." Ennis, berating in great detail her former in-laws and husband, and telling her life story. The bankruptcy court filing fee could easily have been paid with the money apparently spent on these expensive diversions. Of course, the other possibility is that the faxes are being sent but the telephone bill is not being paid, in which case Mrs. Ennis is not acting in good faith toward that post-petition creditor. In summary, if financial status becomes an issue, proceedings will need to be conducted to determine the sufficiency and the completeness of the financial disclosure.
II. LEGAL DISCUSSION
The Supreme Court has held that 28 U.S.C. § 1915(a), the in forma pauperis statute which allows an indigent person to proceed without paying the filing fee, does not apply in bankruptcy. Therefore, bankruptcy courts cannot waive the bankruptcy filing fee for indigent debtors.[3] Furthermore, the Ninth Circuit has held that a bankruptcy court is not a "court of the United States," as that phrase is defined in 28 U.S.C. § 451, and cannot act under any subsection of 28 U.S.C. § 1915.
A. Bankruptcy Filing Fees
Title 28 U.S.C. § 1930 specifies various fees, including the filing fees for bankruptcy petitions. Bankruptcy Rule 1006 provides that every petition shall be accompanied by the filing fee unless the debtor receives permission to pay in installments.
Title 28 U.S.C. § 1915 provides in pertinent part:
(a) Any court of the United States may authorize the commencement, prosecution or defense of any suit, action or proceeding, civil or criminal, or appeal therein, without prepayment of fees and costs or *196 security therefor, by a person who makes affidavit that he is unable to pay such costs or give security therefor.
* * * * * *
(d) The court may request an attorney to represent any such person unable to employ counsel and may dismiss the case if the allegation of poverty is untrue, or if satisfied that the action is frivolous or malicious.
Section 1915(a) is not applicable in bankruptcy because 28 U.S.C. § 1930(a), which provides the bankruptcy fee schedules, states:
Notwithstanding section 1915 of this title, the parties commencing a case under title 11 shall pay to the clerk of the district court or the clerk of the bankruptcy court, if one has been certified pursuant to section 156(b) of this title, the following filing fees:
(1) For a case commenced under Chapter 7 or 13 of title 11, $130.
Therefore, filing fees for commencing a case under the Bankruptcy Code are expressly excepted from § 1915(a), the in forma pauperis statute. Even though a petitioner might have qualified under § 1915(a) in a district court case, the filing fee in bankruptcy must be paid or the case must be dismissed. In re Richards, 92 B.R. 258 (Bankr. S.D.Ohio 1988). It is constitutional for Congress to require a debtor to pay the entire filing fee. United States v. Kras, 409 U.S. 434, 93 S.Ct. 631, 34 L.Ed.2d 626 (1973).
The Supreme Court in Kras held that 28 U.S.C. § 1915(a) was inapplicable in bankruptcy proceedings. 409 U.S. at 440, 93 S.Ct. at 635. The requirement in § 1930 that an indigent petitioner for voluntary bankruptcy pay filing fees does not deny the petitioner equal protection of the laws and there is no constitutional right to a bankruptcy discharge. Id. at 446, 93 S.Ct. at 638. The right to a bankruptcy discharge is not a fundamental right demanding a compelling government interest before it can be regulated. Id. The requirement that bankruptcy petitioners pay filing fees has a rational basis; therefore, it does not violate equal protection of the laws as applied to indigent persons. Id. at 447-48, 93 S.Ct. at 639.
Debtor has refused to comply with an order to pay the balance of the filing fee. By separate order the Chapter 13 case will be dismissed for failure to pay the bankruptcy filing fee, as previously ordered, and also pursuant to the Trustee's motion to dismiss for failure to file a confirmable plan.
B. Appeals From Bankruptcy Cases
Debtors' affidavit presents the issue of whether debtors are entitled to proceed in forma pauperis on an appeal from a bankruptcy matter when they are not entitled to proceed in forma pauperis on the underlying bankruptcy matter. Title 28 U.S.C. § 1930(c) requires an appellant to pay a filing fee of $105 to the Clerk of the Bankruptcy Court. The fee must accompany each notice of appeal under Bankruptcy Rule 8001(a). In an exhaustive analysis, the Ninth Circuit affirmed the dismissal of a pro se debtor's appeal for failure to pay the filing fee because § 1915(a) applies only to "courts of the United States," which does not include bankruptcy courts, so the debtor was not entitled to in forma pauperis status in an appeal from bankruptcy court. In re Perroton, 958 F.2d 889 (9th Cir.1992).
The phrase "courts of the United States" is defined in 28 U.S.C. § 451 as:
The Supreme Court of the United States, courts of appeals, and district courts constituted by Chapter 5 of this Title, including the Court of International Trade and any court created by Act of Congress the judges of which are entitled to hold office during good behavior.
In a comprehensive analysis of the issue, including all relevant cases, statutes and legislative history, Perroton explained that a proposed statutory change which would have included bankruptcy courts in the definition of § 451 had been deleted and there was a "clear expression of congressional intent to exclude the bankruptcy court from those courts authorized to waive fees under § 1915(a) given the legislative history of § 451." 958 F.2d at 895-96.
Perroton relied in part on a case from the Western District of Missouri, In re Broady, 96 B.R. 221, 222-23 (Bankr.W.D.Mo.1988). *197 Broady denied in forma pauperis status on a bankruptcy appeal because bankruptcy courts are not Article III courts and therefore are not "courts of the United States" in the technical sense. "Accordingly, it appears that bankruptcy courts may not grant leave to appeal in forma pauperis as provided in section 1915(a), Title 28, United States Code." Id. at 223.
Perroton, 958 F.2d at 895, rejected bankruptcy court decisions such as In re Moore, 86 B.R. 249 (Bankr.W.D.Okla.1988), which found bankruptcy courts could grant in forma pauperis status and waive fees, including appeal fees. Perroton also rejected an argument that appeal fees should be waived because the Judicial Conference rule which contains the fee schedule, reprinted in 28 U.S.C. § 1930, would be internally inconsistent because it provides that debtors do not have to pay the filing fee for an adversary action, but the same schedule requires a fee for an appeal from a bankruptcy court's judgment in an adversary action. Perroton noted that there are "no exceptions and this fee must be paid by all appellants." 958 F.2d at 894, n. 15. Even if the rule promulgated by the Judicial Conference contained an inconsistency, "that does not change the fact that, since a bankruptcy court is not a `court of the United States' within the meaning of § 1915(a), it has no authority to act under that section and thus is powerless to remedy the incongruity." 958 F.2d at 894.
Two bankruptcy cases from the Western District of Missouri reached the same result as Perroton and held there is no right for debtors to prosecute appeals in forma pauperis. The first, Broady, is discussed above. The second case, In re Odessa Mfg. Corp., 97 B.R. 1000, 1001[2] (Bankr.W.D.Mo.1989), relied on Broady and United States v. Kras, 409 U.S. 434, 93 S.Ct. 631, 34 L.Ed.2d 626 (1973) (no constitutional right to a bankruptcy discharge). It appears the Eighth Circuit Court of Appeals has not directly addressed the § 451 issue, but in dicta the Court stated that "it is questionable whether a bankruptcy court falls within the definition of `courts of the United States'. . . ." In re Arkansas Communities, Inc., 827 F.2d 1219, 1221 (8th Cir.1987) (regarding whether bankruptcy court could impose sanctions pursuant to 28 U.S.C. § 1927). See also In re Harris, 156 B.R. 814, 815 (Bankr.E.D.Mo.1993) (creditor is not entitled to proceed in forma pauperis in bankruptcy).
The reasoning in Perroton is persuasive. Following Perroton and the case law in this district, the court finds there is no authority to permit waiver of the filing fee in an appeal from a bankruptcy proceeding.
Pursuant to Bankruptcy Local Rule 8.007 and a General Order of the District Court for the Western District of Missouri, entered October 30, 1986 (Local Rule Appendix 8.006), the Bankruptcy Court may dismiss appeals for appellant's failure to perfect the appeal. If the appeal fees are not paid to the Bankruptcy Clerk's Office as required by 28 U.S.C. § 1930 and Bankruptcy Rule 8001(a), the appeals cannot be perfected. Debtors must pay the filing fees for the notices of appeal within 10 days or the notices of appeal will be dismissed.
C. Appointment of Counsel in Bankruptcy Cases
In United States v. Kras, 409 U.S. 434, 93 S.Ct. 631, 34 L.Ed.2d 626 (1973), which held that § 1915(a) does not apply to bankruptcy cases, the Supreme Court did not decide whether § 1915(d), for appointment of counsel, is also vitiated with respect to bankruptcy proceedings. In re Fitzgerald, 167 B.R. 689, 691 (Bankr.N.D.Ga.1994), stated that "[s]ince § 1915(a) is not available in bankruptcy cases, § 1915(d) is probably not applicable to bankruptcy cases." Fitzgerald found that "any such person" in § 1915(d) referred to the "person" in § 1915(a), who had been denied permission to proceed in forma pauperis in bankruptcy by § 1930. There is no provision to appoint or pay counsel for debtors who do not wish to proceed pro se and cannot afford to pay counsel.
The Fitzgerald debtor made five arguments for appointment of counsel: 1) he was not able to afford counsel and had not been able to retain counsel; 2) the issues in the case were complex; 3) the prison library was inadequate; 4) he was not familiar with bankruptcy law; and 5) justice was not being *198 served. As explained in In re Fitzgerald, 167 B.R. 689, 692:
Debtor's statement that he is not able to afford counsel and that he has been unsuccessful in retaining counsel unfortunately applies to many Chapter 7 debtors. Similarly, debtor's statement that he has a limited knowledge of bankruptcy law also applies to many, if not most, debtors. . . . If financial inability to hire a lawyer and lack of expertise in bankruptcy law justified court-appointed counsel, a great many Chapter 7 debtors would qualify for in forma pauperis relief.
In re Gherman also declined to appoint counsel for the debtor, stating: "As provided by the current statute [28 U.S.C. § 1915], in forma pauperis status may be claimed in any civil or criminal action or on appeal. The one exception to this statement is bankruptcy proceedings as the Supreme Court has held that the statute is not applicable to those actions." In re Gherman, 105 B.R. 712, 713 (Bankr.S.D.Fla.1989) (citing 10 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure: Civil 2d § 2673) (emphasis in original). Even if § 1915(d) did apply in bankruptcy court, the section does not authorize expenditure of federal funds to appoint counsel, and does not authorize the court to order an unwilling lawyer to represent the indigent debtor.
III. CONCLUSION
Pursuant to 28 U.S.C. § 1930 and reasons stated above, debtors are required to pay a filing fee for each notice of appeal. There is no statutory authority to permit debtors to proceed in forma pauperis in the bankruptcy case or the appeals of the bankruptcy matters.
Accordingly, it is ORDERED as follows:
1. The request by debtors to proceed with two appeals in forma pauperis is denied.
2. Debtors shall pay to the Bankruptcy Clerk's Office the filing fees of $105.00 for each notice of appeal within 10 days.
3. If the filing fee for a notice of appeal is not filed within 10 days from the date of this order, the notice of appeal will be dismissed without further notice.
NOTES
[1] Debtors previously requested the court to appoint counsel because 27 attorneys had declined to take the case. Debtor Carolyn Ennis alleged that 90% stated the case was too complex and 10% stated other reasons, such as not wanting to travel to court (see order terminating stay, 178 B.R. 177, entered January 6, 1995, note 5). Debtors eventually retained counsel, but they continued to file pleadings pro se and discharged their attorney due to irreconcilable differences. Later, debtors again raised the issue of appointment of counsel in various filings and at hearings, apparently on the basis of inability to pay counsel rather than inability to find an attorney willing to take the case.
[2] The hearings on December 19, 1994 and January 9, 1995 resulted in three orders and a judgment entered January 6 and January 17, 1995.
[3] Congress has authorized a three-year pilot project for waiver of fees for in forma pauperis debtors in Chapter 7 cases in six selected districts. The Western District of Missouri is not one of the six pilot districts. The three-year project commenced October 1, 1994 and is to be supervised by the Judicial Conference of the United States. See Pub.L. 103-121, § 111(d)(3); 28 U.S.C.A. § 1930, Statutory Notes, Report on Bankruptcy Fees. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917753/ | 178 B.R. 837 (1995)
The ESTATE OF Sammy G. DAILY, Plaintiff,
v.
TITLE GUARANTY ESCROW SERVICE, INC., a Hawaii corporation; Lilipuna Associates, a Hawaii limited partnership; Lilipuna Development Corporation, a Hawaii corporation; Lilipuna Venture, Inc., a Hawaii corporation; Michael C. Daily; Terri Daily Wilcox, fna Terri Lynn Daily; Kevin Thomas Shannon; Frank Blazek; Harvey Hee; Rania Michiyo Hee; Doe Corporations 1-50 and Doe Governmental Entities 1-50, Defendants.
Civ. No. 92-0404 DAE.
United States District Court, D. Hawai`i.
February 21, 1995.
*838 *839 Enver W. Painter, Jr., Painter & Luria, Honolulu, HI, for plaintiff.
Roy L. Anderson, Honolulu, HI, for defendants.
W. Thomas Fagan, Stuart T. Feeley, Jerold K. Guben, Reinwald O'Connor Marrack Hoskins & Playdon, Honolulu, HI, Curtis B. Ching, Office of the U.S. Trustee, Honolulu, HI, for Richard M. Kennedy, trustee.
ORDER ADOPTING BANKRUPTCY JUDGE'S REPORT AND RECOMMENDATION; DISMISSING FIRST AMENDED COMPLAINT AS TO DEFENDANTS MICHAEL C. DAILY, TERRI DAILY WILCOX, AND LILIPUNA DEVELOPMENT CORPORATION; AND DISSOLVING PRELIMINARY INJUNCTION THIRTY DAYS AFTER ENTRY OF ORDER
DAVID ALAN EZRA, District Judge.
After reviewing Plaintiff's objections and Defendants' response to those objections, the court ADOPTS the Bankruptcy Judge's Report & Recommendation, and GRANTS the motions to dismiss Plaintiff's First Amended Complaint, with prejudice, as to moving Defendants Michael C. Daily, Terri Daily Wilcox, and Lilipuna Development Corporation. The court further orders that the preliminary injunction enjoining distribution of escrow monies belonging to Lilipuna Development Corporation and Lilipuna Venture, Inc., shall be dissolved 30 days after entry of this order if Plaintiff does not obtain an emergency order from the Ninth Circuit continuing the injunction.
BACKGROUND
On December 13, 1994, United States Bankruptcy Judge Lloyd King entered his Report and Recommendation on two motions by Defendants. Defendant Lilipuna Development Corp. (LDC) moved to dismiss Plaintiff's First Amended Complaint or, alternatively, for summary judgment.[1] Defendants Michael C. Daily and Terri Daily Wilcox also moved for dismissal or for partial summary judgment. Judge King recommended that Plaintiff's amended complaint be dismissed, with prejudice, as to the moving defendants, and also recommended dissolving an injunction enjoining the distribution of sales proceeds now held in an escrow account. On January 13, 1995, Plaintiff filed its objections to Judge King's Report and Recommendation. LDC filed a response to Plaintiff's objections on February 6, 1995.
FACTS
This lawsuit centers on a dispute over entitlement to proceeds of the sale of real property formerly owned by Defendant Lilipuna Associates ("Lilipuna"), a Hawaii limited partnership.[2] Defendant Lilipuna Venture, Inc., (LVI) is the general partner. Defendant LDC is a limited partner. Lilipuna deposited into an escrow account the share of the sales proceeds allocated to LVI, as general partner, and LDC, as a limited partner. The sales proceeds are currently held by the escrow agent, Defendant Title Guaranty Escrow Services, Inc., ("Title Guaranty"), which has been sued only as a stakeholder. As of April 21, 1994, the escrow account held $334,505, with interest accruing.
While the named plaintiff is The Estate of Sammy G. Daily, the real plaintiff in this case, pursuant to 11 U.S.C. § 704(1), is Daily's bankruptcy trustee, Richard Kennedy. Daily, a well-known Hawaii real estate broker and developer, filed a voluntary petition for Chapter 11 reorganization on January 31, *840 1985. The case was converted to a Chapter 7 liquidating bankruptcy on November 22, 1988, and Kennedy was appointed Chapter 7 trustee on January 6, 1989. The original complaint was filed on January 9, 1989. The amended complaint, which is the subject of these motions, was filed on February 2, 1994.
The original complaint alleged that LVI and LDC were mere "alter egos" of Sammy G. Daily ("Daily"), that the purported stock ownership of LVI and LDC by Daily's children was a legal fiction, and that as a result any distribution of sales proceeds by Lilipuna to LVI and LDC belonged to trustee Kennedy, as representative of Daily's bankruptcy estate. After five years of motions and appeals,[3] this court dismissed the original complaint with leave to amend. Dismissal was ordered, in accord with Bankruptcy Judge King's recommendations, because Hawaii state courts have not and are not expected to recognize "reverse alter ego" claims for relief.[4] See Proposed Report & Recommendation to the U.S. District Court, ("Report I") November 12, 1993, at 10-11. The complaint was also dismissed because it failed to name the shareholders of LDC and LVI as defendants, and as a result those shareholders had no opportunity to protect their shareholdings.
Most, if not all, of the shares of LDC and LVI are now owned by Daily's children, Michael C. Daily ("Michael") and Terri Daily Wilcox ("Terri"). Plaintiff's amended complaint alleges that Sammy Daily and his wife Margaret transferred "all or substantially all" of the stock of LDC and LVI to Michael and Terri in February 1983. The transfer of the LDC stock is a matter of serious disagreement. Michael and Terri contend that Daily and his wife never owned the LDC stock, and that the shares were transferred to them by a separate company, Sam Daily Realty, Inc.[5] For purposes of this motion to dismiss, the court assumes the truth of the amended complaint's conclusory allegations.
Plaintiff's amended complaint also alleges that Daily and his wife transferred the stock of LDC and LVI to Michael and Terri for "no consideration or less than reasonably equivalent value and with the effect of hindering, delaying and defrauding Sammy G. Daily's creditors." The complaint does not seek to avoid those transfers. Instead, it seeks a declaration that LDC and LVI are alter egos of Daily and that any money from the sale of the Lilipuna property be held in "constructive trust" for the creditors of Daily's bankruptcy estate. It also seeks an order requiring Title Guaranty to "turnover" to Daily's bankruptcy trustee any money attributable to the sale of the Lilipuna property now being held in an escrow account.
The amended complaint added the shareholders of LDC and LVI as defendants. In addition to Michael and Terri, those defendants include Kevin Thomas Shannon, Frank Blazek, Harvey Hee, and Rania Michiyo Hee. From the amended complaint, it appears that Michael and Terri are the sole shareholders in LDC and the principal shareholders in LVI. The remaining defendants apparently retain few, if any, shares in LVI. Daily himself owned no shares in either corporation *841 at the time he filed his bankruptcy petition.
On April 4, 1994, Michael and Terri moved to dismiss or for partial summary judgment as to the claims against them in the amended complaint. The same day, LDC moved to dismiss or for summary judgment as to the claims against it, and additionally moved to remove the "preliminary injunction" freezing the funds in the Title Guaranty escrow account. The court referred the motions to Bankruptcy Judge King, under 28 U.S.C. 157(c)(1).
Judge King's second Report and Recommendation ("Report II") recommended this court grant the motions to dismiss. In brief, Report II concludes:
(1) State statutes of limitations barred Plaintiff from adding Michael and Terri as defendants to the amended complaint. By January 30, 1989, at the latest, Plaintiff knew or should have known about the alleged fraudulent stock transfers, and thus the applicable statute of limitations expired in early 1991more than three years before the amended complaint was filed. The amended complaint did not "relate back" to the date of the original complaint, because there was no mistake as to the identity of the parties, and the doctrines of "equitable tolling" and "virtual representation" could not save Plaintiff;
(2) Plaintiff's attempt to state a claim based on reverse alter ego must fail, because no such claim has been or is expected to be recognized in Hawaii state courts. Moreover, even if such a claim might be recognized in general terms, it could not be made in this case because: a) Daily, the individual debtor whose debts would be paid from corporate assets, owns no shares of either LVI or LDC; and b) Michael and Terri, who effectively own all the shares of LVI and LDC, cannot be named parties to the amended complaint because of the statute of limitations; and
(3) The amended complaint fails to state a claim for imposing a constructive trust under Hawaii law.
In addition to recommending that the amended complaint be dismissed, with prejudice, as to Michael, Terri, and LDC, Report II also recommends dissolving the injunction enjoining distribution of monies in the escrow account and dismissing Title Guaranty as a defendant. Finally, Report II notes that its reasoning with regard to Michael and Terri applies equally to the other newly-named, individual defendants (Shannon, Blazek, and the Hees), and suggests this court order Plaintiff to proceed or dismiss as to those remaining defendants within a fixed period of time.
Plaintiff makes three general objections to Report II. In summary, Plaintiff argues:
(1) That applicable federal and state law allow a bankruptcy trustee for an individual debtor to institute reverse alter ego claims on behalf of the debtor's estate for the benefit of its creditors. Specifically, Plaintiff contends that a bankruptcy trustee has standing to assert such a claim, despite seemingly contrary Ninth Circuit precedent, and that Hawaii state courts would "follow the prevailing trend in the law" and recognize the doctrine of reverse piercing a corporate veil;
(2) that a corporation's individual shareholders need not be named as parties in an action to reach the corporation's assets through reverse alter ego; and
(3) that the July 7, 1989, injunction be continued, presumably pending an appeal, in order to maintain the escrow account intact until there is a final judgment on the merits.[6]
STANDARD OF REVIEW
After considering the bankruptcy court's proposed findings and conclusions, the district court reviews de novo those matters to which any party has timely and specifically objected. 28 U.S.C. § 157(c)(1). In re Mann, 907 F.2d 923, 926 (9th Cir.1990). The district court may accept, reject or modify the proposed findings of fact and conclusions of law. Fed.R.Bkrtcy.P. 9033.
*842 DISCUSSION
I. Statute of Limitations Timebar
Plaintiff does not specifically object to Report II's conclusion that the applicable statutes of limitations bar Plaintiff from adding Michael and Terri as defendants to the amended complaint. This court, having reviewed the authorities cited in that portion of Report II, adopts the finding that Plaintiff is time barred from adding Michael and Terri as defendants. Report II, at 5-14.
II. Plaintiff's Standing to Assert Alter Ego Claim
Plaintiff's initial objection focuses on an issue that has provoked considerable comment and confusion among courts and scholars.[7] Generally, the question is whether a bankruptcy trustee, who is himself an alter ego, has standing to assert an alter ego claim against non-bankrupt third parties. At issue here is a single sentence in a Ninth Circuit opinion:
[N]o trustee . . . has the power under . . . the Code to assert general causes of action, such as [an] alter ego claim, on behalf of the bankrupt estate's creditors.
Williams v. California 1st Bank, 859 F.2d 664, 667 (9th Cir.1988) (emphasis in original) (quoting from In re Ozark Restaurant Equipment Co., 816 F.2d 1222, 1228 (8th Cir.), cert. denied, 484 U.S. 848, 108 S.Ct. 147, 98 L.Ed.2d 102 (1987)). The position taken by the Williams and Ozark courts regarding a trustee's lack of standing to assert creditors' claims appears to be the minority rule among the federal circuits. See St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 696-701 (2d Cir.1989) (citing cases).
In arguing that Daily's trustee has standing to bring an alter ego claim in the Ninth Circuit, Plaintiff cites three recent cases that distinguish or reason around Williams' seemingly clear statement of law. Kalb, Voorhis & Co. v. American Financial Corp., 8 F.3d 130 (2d Cir.1993); In re Davey Roofing, 167 B.R. 604 (Bkrtcy.C.D.Cal.1994); and In re Towe, 173 B.R. 197 (Bkrtcy.D.Mont. 1994). Both Kalb, Voorhis and Davey declare that Williams' statement that a bankruptcy trustee lacks standing to assert an alter ego claim for creditors is "clearly dicta, because it goes beyond the facts of the case." Kalb, Voorhis, 8 F.3d at 134; Davey 167 B.R. at 607.
Plaintiff's argument also relies heavily on Towe, a recent Montana bankruptcy court decision. Towe similarly limits Williams to its facts, and then distinguishes "personal claims of creditors" (which a trustee has no standing to bring) from "allegations that could be asserted by any creditor" (which a trustee may bring as a representative of all creditors). Towe, 173 B.R. at 200. In so doing, Towe cites from the line of cases that has held directly contrary to Ozark and Williams. See, e.g., Koch Refining v. Farmers Union Central Exchange, 831 F.2d 1339 (7th Cir.1987), cert. denied, 485 U.S. 906, 108 S.Ct. 1077, 99 L.Ed.2d 237 (1988). Not surprisingly, Towe then finds a bankruptcy trustee has standing to assert an alter ego claim. Towe, 173 B.R. at 201. It is important to note that the bankruptcy court decision Towe principally relies upon, In re Western World Funding, Inc., was decided before Williams was handed down. In fact, the district court which reviewed the bankruptcy judge's decision in Western World Funding reversed the decision in part because the district court believed that the Ninth Circuit's intervening order in Williams expressly barred a trustee's alter ego action under 11 U.S.C. § 544(a). In re Western World Funding, Inc., 52 B.R. 743 (Bkrtcy.D.Nev. 1985), aff'd in part and rev'd in part sub. nom. Buchanan v. Henderson, 131 B.R. 859 (D.Nev.1990), rev'd on other grounds, 985 F.2d 1021 (9th Cir.1993).
It is true that Williams involved not an alter ego claim but rather a trustee's lawsuit on behalf of the estate and its creditors against a bank that allegedly participated in *843 the debtor's Ponzi scheme. However, this court is not inclined to dismiss the Ninth Circuit's analysis as dicta. Williams obviously endorsed, if not outright adopted, the Eighth Circuit's reasoning in Ozark. Williams, 859 F.2d at 666-67 (quoting three times from Ozark). In Ozark, the Eighth Circuit carefully analyzed and rejected a bankruptcy trustee's standing to assert an alter ego claim on behalf of the debtor's unsecured creditors under three different areas of the Bankruptcy Code: 11 U.S.C. § 541 (as "property of the estate"); 11 U.S.C. § 544 (the trustee's "strongarm clause"); and 11 U.S.C. § 105 (general equitable principles).[8] Both Williams and Ozark found it "extremely noteworthy" that Congress considered and explicitly rejected giving a trustee authority to bring suits on behalf of the estate's creditors against third parties. Ozark, 816 F.2d at 1227-28 (citing legislative history). Absent a clear statement from the Ninth Circuit, it is imprudent for this court to simply ignore Williams. See Buchanan v. Henderson, 131 B.R. 859, 865 (D.Nev.1990), rev'd on other grounds, 985 F.2d 1021 (9th Cir.1993) (district court, reviewing bankruptcy court's decision on appeal, holding that bankruptcy court erred in finding that trustee had standing under § 544(a) to assert alter ego claim).
Moreover, even if this court assumes that the contested sentence in Williams is dicta or limited to that case's facts, Plaintiff is not necessarily entitled to assert his reverse alter ego claim in this case. Under 11 U.S.C. § 541, the property of the bankruptcy estate includes all legal and equitable interests of the debtor at the commencement of the case. Whether rights belong to the debtor or the individual creditors is a question of state law. Kalb, Voorhis, 8 F.3d at 131; Ozark, 816 F.2d at 1225. The question, then, of whether Daily's bankruptcy trustee has standing to assert a reverse alter ego claim to reach LDC and LVI's assets depends on whether Hawaii state law would permit a shareholder to assert such a claim.[9]In re Schuster, 132 B.R. 604, 607-09 (Bkrtcy. D.Minn.1991); Davey Roofing, 167 B.R. at 605. For example, the court in Davey Roofing granted standing to a corporate bankruptcy trustee only because California state law expressly permitted a corporation to pierce its own corporate veil. Id. at 608.
If there is no right to bring a claim under state law, then there is no cause to assert, as the court did in Towe, that "only the trustee could prosecute such action to recover assets for the estate." Towe, 173 B.R. at 201. Similarly, if this court departs from its reasoning above and assumes that Williams does not bar a trustee's alter ego action under 11 U.S.C. § 544, the trustee's standing to assert the strong arm clause depends on the rights of the debtor's creditors under state law. See, e.g., Western World Funding, 52 B.R. at 780-83.[10] As the following section demonstrates, Hawaii state courts have not recognized the doctrine of "reverse alter ego" or "reverse piercing" and are not expected to do so.[11]
*844 III. Hawaii Courts/Reverse Alter Ego
Hawaii appellate courts have never considered reverse piercing of the corporate veil, not for the benefit of an individual's creditors nor for the benefit of the shareholder himself.[12] The Hawaii Supreme Court has often repeated the "general rule that a corporation and its shareholders are to be treated as distinct legal entities." Chung v. Animal Clinic, Inc., 63 Haw. 642, 645, 636 P.2d 721 (1981); Waterhouse v. Home Insurance Co., 27 Haw. 572, 581 (1923) ("ordinary presumption . . . is that when a corporation has been formed in the manner provided by law, it continues to have existence as a separate and distinct entity"). Hawaii has recognized that the corporate entity may be disregarded to "prevent injustice and inequity," Kahili, Inc. v. Yamamoto, 54 Haw. 267, 271, 506 P.2d 9 (1973), but Hawaii appellate courts historically have been reluctant to pierce the corporate veil. See Evanston Ins. Co. v. Luko, 7 Haw.App. 520, 525, 783 P.2d 293 (1989); State v. Yamada & Sons, Inc., 59 Haw. 543, 546, 584 P.2d 114 (1978); Tropic Builders v. Naval Ammunition Depot, 48 Haw. 306, 324, 402 P.2d 440 (1965). Indeed, in 1981, the last time the Hawaii Supreme Court addressed the issue, it declined to expand the alter ego doctrine. Chung, 63 Haw. at 646, 636 P.2d 721 (holding that exclusive stock ownership and control is not determinative of whether the corporate entity should be disregarded). Because of this history, and because alternative remedies such as avoidance of fraudulent conveyances, conversion and reaching principals through agents are already available in Hawaii courts, the court agrees with Bankruptcy Judge King that the Hawaii Supreme Court would not create a "new" cause of action in the form of reverse alter ego.
This court also concurs with Judge King that Hawaii state courts would share the concerns expressed in Cascade Energy & Metals Corp. v. Banks, 896 F.2d 1557 (10th Cir.), cert. denied, 498 U.S. 849, 111 S.Ct. 138, 112 L.Ed.2d 105 (1990). In Cascade, the Tenth Circuit refused to allow a reverse alter ego claim where the state courts of Utah had not expressly approved of such a cause of action. The Cascade court noted that the reverse alter ego theory bypasses normal judgment collection procedures, and, "to the extent that the corporation has other nonculpable shareholders, they obviously will be prejudiced if the corporation's assets can be attached directly." Cascade, 896 F.2d at 1577.
While there certainly were many more "innocent" shareholders in Cascade than in this case, Michael and Terri (the majority if not sole shareholders of LVI and LDC) face substantial prejudice if the corporate veils of LVI and LDC are pierced because of the alleged misconduct of their father, Daily. As previously discussed, Michael and Terri cannot be made parties to this action, and therefore cannot directly defend their interests against Plaintiff's charges. If Plaintiff succeeds here and the escrow funds are turned over to Daily's estate, the value of Michael and Terri's shares will effectively be wiped out. Plaintiff argues that Michael and Terri cannot be considered "non-culpable" shareholders, because they and Daily are members of the same family and the shares were improperly transferred for little or no consideration. Even assuming the truth of Plaintiff's allegations, Michael and Terri indisputably hold a legal interest in the LDC and LVI stock, and are entitled to defend that interest at least until a court rules that Daily is the equitable owner of the shares.[13]
*845 Most damaging to Plaintiff's argument is the simple fact that at the time Daily filed his bankruptcy petition, he owned no shares in either LDC or LVI. Reverse alter ego is an equitable doctrine; it stretches the imagination, not to mention the equities, to conceive of how someone wholly outside the corporation may be used to pierce the corporate veil from within. Hawaii courts have indicated that stock ownership is a necessary element for a conventional alter ego action. Luko, 7 Haw.App. at 525, 783 P.2d 293 (holding corporate veil cannot be pierced because there was no evidence defendants were shareholders). It seems likely that Hawaii courts would impose the same requirement for a reverse alter ego claim.[14] Moreover, one of the cases relied on by Plaintiff expressly states that a bankruptcy trustee could not maintain a reverse alter ego claim unless the individual debtor held a stock ownership interest in the corporation. Schuster, 132 B.R. at 608.
Plaintiff cites several bankruptcy court decisions in support of his contention that Daily need not be a shareholder, but only one of the cases involves a trustee's reverse alter ego action through an individual debtor. Towe, 173 B.R. at 212. Towe is factually distinguishable, in that the debtor there was the controlling shareholder before he gave away the stock, whereas here there is no evidence Daily ever owned any shares of LDC before the stock was sold to Michael and Terri. Even assuming Daily controlled the stock before it was transferred twelve years ago, the court believes in light of Hawaii law that the proper approach is the one taken by the Fifth Circuit in Zahra Spiritual Trust v. United States, 910 F.2d 240 (5th Cir.1990). The court in Zahra refused to allow a reverse alter ego claim because (like Hawaii) no Texas cases had imposed liability on a conventional alter ego claim when the individual owned none of the corporate stock. Id. at 245. Given Luko and other Hawaii decisions, this court agrees that Hawaii courts "will not treat a corporation and an individual as one and the same unless the individual has some ownership interest in the corporation." Zahra, 910 F.2d at 246.
Apparently realizing his weakness under Hawaii law, Plaintiff insists that the "prevailing trend" is for bankruptcy courts to recognize reverse alter ego claims even in jurisdictions where the state courts have not adopted the doctrine.[15]In re Elkay Industries, Inc., 167 B.R. 404 (D.S.C.1994); In re Richels, 163 B.R. 760 (Bkrtcy.E.D.Va.1994); In re Mass, 166 B.R. 595 (Bkrtcy.M.D.Pa. 1994). Significantly, in each of those cases the debtor owned at least half of the corporation's stock. Additionally, this court shares the concerns of Bankruptcy Judge King:
Since the avoiding powers of a trustee in bankruptcy, even those which rely on state law, are created by the Bankruptcy Code, see, e.g., §§ 544-49, cases allowing a trustee *846 in bankruptcy to pursue reverse alter ego claims, without a state law basis, must be viewed with caution.
Report II, at 21 (emphasis added).
To summarize, while Plaintiff offers a plethora of cases in support of bits and pieces of his claim, he cites no authority that would allow a bankruptcy trustee to assert a reverse alter ego claim through the estate of an individual debtor where (1) the individual debtor owned no stock in the corporation to be pierced; (2) none of the corporation's shareholders are allowed to defend the claim; and (3) state law has not recognized the reverse alter ego doctrine and is not expected to do so. Under these admittedly unusual circumstances, this court will not apply the theory here.
IV. Virtual Representation
Plaintiff argues that Michael and Terri need not be named as defendants in this action because of the principle of "virtual representation." He contends that Michael and Terri have been "virtually represented" from the outset of this case by LDC and LVI, and as shareholders they may have had an affirmative duty to intervene in this suit to protect their rights. The argument amounts to little more than a play on words.
Virtual representation, as defined by the Ninth Circuit, is a corollary principle to collateral estoppel and res judicata. A person technically not a party to a prior action may be bound by the prior decision if his interests are so similar to a named party's that that party was his "virtual representative" in the prior action. United States v. Geophysical Corp. of Alaska, 732 F.2d 693, 696 (9th Cir.1984). One who is not a party of record may be bound if he had a sufficient interest and participated in the prior action. United States v. ITT Rayonier, Inc., 627 F.2d 996, 1003 (9th Cir.1980).
In Plaintiff's case, there is no "prior action" at issue, and the principles of collateral estoppel are premature, if not irrelevant. Theoretically, Plaintiff may seek to invoke the concept of virtual representation at some time in the future if he wants to bind Michael and Terri to a final decision in this case. For now, the virtual reality for Plaintiff is he should have named Michael and Terri as defendants five years ago.
V. Dissolution of Injunction
Initially, there is some confusion as to the nature of the September 25, 1992 court order[16] preventing Title Guaranty from disbursing the monies held in the escrow account. LDC calls it a "preliminary injunction" amounting to a prejudgment attachment of LDC's and LVI's assets. Plaintiff's objections refer to it as a "stay order." The order itself is titled "Preliminary Injunction," and since it clearly was issued under principles of Fed.R.Civ.P. 65, this court will treat it as a preliminary injunction.
Plaintiff contends he is entitled to a continuation of the injunction pending appeal and a final judgment on the merits. In support he cites Fed.R.Civ.P. 62(d) and a line of cases following DeBeers Consolidated Mines v. United States, 325 U.S. 212, 65 S.Ct. 1130, 89 L.Ed. 1566 (1945). Plaintiff makes no effort to distinguish those authorities which state flatly that a preliminary injunction cannot survive a final order of dismissal. Cypress Barn, Inc. v. Western Electric Co., 812 F.2d 1363, 1364 (11th Cir.1987); Venezia v. Robinson, 16 F.3d 209, 211 (7th Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 71, 130 L.Ed.2d 26 (1994). See also 7 Moore's Federal Practice, ¶ 65.07 at 65-144 (1994) ("A preliminary injunction is ipso facto dissolved by a dismissal of the complaint or the entry of a final decree in the cause.")
However, under Fed.R.Civ.P. 62(c), when an appeal is taken from an interlocutory or final judgment dissolving an injunction, the court in its discretion may suspend, modify, restore or grant an injunction during pendency of the appeal under terms the court considers proper to secure the rights of the adverse (non-appealing) party. This court construes Plaintiff's objection as *847 an application to continue the injunction pursuant to Rule 62(c). Rule 62(c) expresses the "power inherent in the court to preserve the status quo where, in its sound discretion, the court deems the circumstances so justify." McClatchy Newspapers v. Central Valley Typographical Union No. 46, 686 F.2d 731, 734 (9th Cir.1982). The criteria to be used in determining whether a court should grant an application under Rule 62(c) are much the same as for a preliminary injunction. See Tribal Village of Akutan v. Hodel, 859 F.2d 662, 663 (9th Cir.1988); Nevada Airlines, Inc. v. Bond, 622 F.2d 1017, 1018 n. 3 (9th Cir.1980).
In the Ninth Circuit, a party seeking injunctive relief must meet one of two tests:
Under the first, a court may issue a preliminary injunction if it finds: (1) the moving party will suffer irreparable injury if the injunctive relief is not granted; (2) the moving party will probably prevail on the merits; (3) in balancing the equities, the non-moving party will not be harmed more than the moving party is helped by the injunction; and (4) granting an injunction is in the public interest.
Alternatively, a court may issue a preliminary injunction if the moving party demonstrates either a combination of probable success on the merits and the possibility of irreparable injury or that serious questions are raised and the balance of hardships tips sharply in his favor. Under the last part of the alternative test, even if the balance of hardships tips decidedly in favor of the moving party, it must be shown as an irreducible minimum that there is a fair chance of success on the merits.
Stanley v. University of Southern California, 13 F.3d 1313, 1319 (9th Cir.1994) (emphasis added). Under the latter test, the formulations represent two points on a "single continuum," such that "if the balance of harm tips decidedly toward plaintiff, the plaintiff need not show as robust a likelihood of success on the merits as when the balance tips less decidedly." Ralph Rosenberg Court Reporters, Inc. v. Fazio, 811 F.Supp. 1432, 1435 (D.Haw.1993) (Ezra, J.) (citing Alaska v. Native Village of Venetie, 856 F.2d 1384, 1389 (9th Cir.1988)).
Plaintiff argues that he would suffer irreparable harm because the release and ultimate distribution of the escrow funds to LDC and LVI's stockholders would render defendants LDC and LVI insolvent and unable to satisfy any subsequent judgment. Plaintiff also contends that he would be required to "pursue multiple transferees in order to recover funds prematurely disbursed," citing Lynch Corp. v. Omaha National Bank, 666 F.2d 1208 (8th Cir.1981). In this case, there are only two stockholders, both of whom are well known to Plaintiff. The possibility of one or two additional lawsuits to recover funds is not the sort of burden or hardship necessary to support continuing an injunction.
As for Plaintiff's argument that LDC and LVI would become insolvent, the general rule is that injunctive relief is not appropriate when money damages are an adequate remedy at law. Flynt Distributing Co., Inc. v. Harvey, 734 F.2d 1389, 1395 (9th Cir.1984) (injunction improper even though plaintiff claimed threatened transfer of assets would render any money judgment ineffectual). Economic loss is rarely irreparable injury for purposes of an injunction. Colorado River Indian Tribes v. Town of Parker, 776 F.2d 846, 850 (9th Cir.1985). Historically, courts have been wary of allowing a plaintiff in a damages action to obtain an injunction sequestering his opponent's assets. DeBeers, 325 U.S. at 222-23, 65 S.Ct. at 1135.
Plaintiff relies heavily on a recent Ninth Circuit decision, In re Estate of Ferdinand Marcos Human Rights Litigation, 25 F.3d 1467 (9th Cir.1994), cert. denied, ___ U.S. ___, 115 S.Ct. 934, 130 L.Ed.2d 879 (1995). Following a lengthy discussion of Supreme Court precedent, Marcos held:
[A] district court has authority to issue a preliminary injunction where the plaintiff can establish that money damages will be an inadequate remedy due to impending insolvency of the defendant or that defendant has engaged in a pattern of secreting or dissipating assets to avoid judgment.
Marcos, 25 F.3d at 1480. The Marcos court undoubtedly was influenced by the horrific facts surrounding former Philippines President *848 Marcos' alleged human rights abuses; indeed, the court stressed that its holding was limited to "only extraordinary cases" in which a plaintiff is primarily seeking money damages rather than injunctive relief. Id.
While the facts in this case are not nearly so dramatic, they do demonstrate an "impending insolvency" of LDC and LVI if escrow is released and the monies distributed to shareholders. Both LDC and LVI hold a single asset: the right to the Lilipuna sales proceeds now held by Title Guaranty. Both LDC and LVI have been non-operating corporations for several years, with no other apparent source of income to satisfy any future judgment against them. Therefore, under a broad reading of Marcos, it appears Plaintiff has established the sort of harm necessary to support a preliminary injunction. Viewed under the alternative test, the balance of hardships tips in favor of Plaintiff. The court recognizes that LDC, LVI, and their stockholders have been waiting more than five years for their share of the Lilipuna sale, but the funds remain safe in escrow, continue to earn interest, and any future judgment for Plaintiff likely would be uncollectible if the funds are released.
Nonetheless, there is yet a critical difference between Marcos and this case. In Marcos, the district court had found a "substantial likelihood" that plaintiffs would succeed on the merits, and in fact by the time the Ninth Circuit considered the injunction plaintiffs had prevailed on liability and been awarded substantial exemplary damages. Id. By contrast, here there is no substantial likelihood or probability that Plaintiff will prevail on the merits, given that Plaintiff has failed to survive a motion to dismiss. Even if the balance of hardships tips decidedly in favor of Plaintiff, he must show "as an irreducible minimum that there is a fair chance of success on the merits." Martin v. International Olympic Committee, 740 F.2d 670, 674 (9th Cir.1984). In this case Bankruptcy Judge King has recommended, and this court concurs, that Plaintiff has no chance of success as a matter of law. It is doubtful that Plaintiff has standing to assert an alter ego claim under Williams, and even if Williams is disregarded, Hawaii state courts would not recognize a reverse alter ego claim under these facts. Because Plaintiff has not shown a probability or even a "fair chance" of success on the merits, his request to continue the injunction pending appeal and a final judgment on the merits must be denied. Martin, 740 F.2d at 675-77 (no fair chance of success on the merits where state law would not accommodate plaintiff's claim).
However, in light of the aforementioned potential hardships to Plaintiff, the court will exercise its discretion under Rule 62(c) to extend the injunction for Thirty (30) days beyond the date of entry of this order. The extension is for the sole purpose of giving Plaintiff time to seek an emergency order from the Ninth Circuit under Rule 62(g) extending the injunction pending appeal. If no such order extending, granting or restoring the injunction is received within the 30-day period, the injunction will be dissolved.
CONCLUSION
For the reasons stated above, the court orders that Plaintiff's first amended complaint shall be dismissed, with prejudice, as to moving Defendants Michael C. Daily, Terri Daily Wilcox and Lilipuna Development Corp. The preliminary injunction enjoining distribution of the Lilipuna sales proceeds now held by Title Guaranty Escrow Service, Inc., shall be dissolved 30 days after entry of this order, unless Plaintiff obtains an emergency order from the Ninth Circuit continuing the injunction. When the injunction is dissolved, stakeholder Title Guaranty shall be dismissed as a defendant. The reasoning of this opinion applies equally to the nonmoving defendants, and the court adopts Bankruptcy Judge King's recommendation that Plaintiff be ordered to either proceed or dismiss as to the remaining defendants within 90 days from the date of this order.
IT IS SO ORDERED.
NOTES
[1] The title of the amended complaint fails to name LDC as a party defendant. However, the parties clearly believe LDC is a defendant. LDC was named as a defendant in the original complaint, and recent pleadings following the amended complaint have added LDC to the title. To avoid confusion and unnecessary delay, the court will treat LDC as a properly named defendant.
[2] The property, known as "Bayview Ridge" and located in Kaneohe, Oahu, was sold for approximately $1.3 million to a third party not involved in this litigation.
[3] See In re Daily, 107 B.R. 996 (D.Haw.1989) (Pence, J.), rev'd, 940 F.2d 1306 (9th Cir.1991). On remand from the Ninth Circuit, the Bankruptcy Court held that the trustee's adversary complaint was a non-core proceeding, and referred the case to this court. Pursuant to 28 U.S.C. § 157(c)(1), this court designated Bankruptcy Judge King to hear Defendants' motion to dismiss and to submit proposed findings of fact and conclusions of law.
[4] A reverse alter ego claim, also known as "reverse piercing the corporate veil," involves a "corporate insider, or someone claiming through such individual, attempting to pierce the corporate veil from within so that the corporate entity and the individual will be considered one and the same." 1 Fletcher Cyclopedia of Corporations, § 41.60 (1990 & Supp.1994). The doctrine has been asserted both for the benefit of shareholders and for the benefit of creditors seeking to impose liability for an individual's debts on corporations allegedly owned by that individual. It has been most frequently used by the government in tax evasion cases, in order to reach corporate assets for the obligations of an individual. Id.
[5] Sam Daily Realty, Inc. is also in Chapter 7 bankruptcy proceedings. Daily was the principal shareholder of the realty corporation. If it is indeed true that Sam Daily Realty, Inc., was the previous sole owner of LDC stock, then Plaintiff, as trustee of Daily's individual bankruptcy estate, would have no standing to attack transfers from the corporation to Michael and Terri.
[6] Defendant LDC's response to Plaintiff's objections includes a request for Rule 11 sanctions against Plaintiff. Such a request is outside the scope of this court's review of Judge King's Report and Recommendation under 28 U.S.C. § 157(c)(1).
[7] See, e.g., Stephen Boyce, Koch Refining and In re Ozark: The Chapter 7 Trustee's Standing to Assert an Alter Ego Cause of Action, 64 Am. Bankr.L.J. 315 (1990); John Wilmore, The Bankruptcy Trustee: Can an Alter Ego Sue in Alter Ego, 65 S.Cal.L.Rev. 705 (1991); Mark Prager & Jonathan Backman, Pursuing Alter Ego Liability Against Non-Bankrupt Third Parties: Structuring a Comprehensive Conceptual Framework, 35 St. Louis U.L.J. 657 (1991).
[8] 11 U.S.C. § 541(a)(1) provides that the bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 544 gives the trustee the rights and powers of a creditor who could have obtained a judicial lien, whether or not such a creditor actually exists, and additionally allows the trustee to avoid certain transfers of the debtor that are voidable under applicable law by a creditor holding an unsecured claim. 11 U.S.C. § 105 enables a bankruptcy court to apply equitable principles which are "necessary or appropriate" in a particular case to carry out provisions of the Bankruptcy Code.
[9] As several courts have noted, it initially seems incongruous that the trustee accedes to the remedy as a shareholder, then turns around and uses his predecessor's past misdeeds to invoke an equitable remedy that ultimately benefits that shareholder's creditors. However, the "piercing doctrine is neither innately pro-debtor nor pro-creditor, and the consequence of a loss of corporate assets to a shareholder's creditors, standing alone, does not mean the remedy should not be applied." Schuster, 132 B.R. at 611. The trustee's duty, of course, is to maximize the return to the estate through whatever remedies are available. 11 U.S.C. § 704.
[10] Those commentators who argue that § 544(a) conceptually allows a trustee's alter ego claim agree that the trustee is granted only "the rights and powers that creditors could have asserted at state law." See, e.g., Boyce, 64 Am.Bankr.L.J. at 320 (emphasis added).
[11] The court notes that if "reverse alter ego" was to be recognized in Hawaii, the equitable remedy arguably should belong solely to those particular creditors who were misled or damaged by the shareholder's fraudulent or inequitable conduct. Cf. Ozark, 816 F.2d at 1225 (alter ego claims belong solely to third-party creditors under Arkansas law). Applying this reasoning, the "real party in interest" here would be only those creditors, and Plaintiff would be barred from asserting the creditors' personal claims under Williams and Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972). For purposes of this motion to dismiss, however, the court examines Hawaii law to determine if anyone, creditor or shareholder, could assert a reverse alter ego claim under state law. See, e.g., Schuster, 132 B.R. at 610 (reviewing various applications of doctrine).
[12] All the reported Hawaii cases involve "conventional" alter ego claims, in which a creditor seeks to impose liability for a corporation's debts on one or more of the corporation's individual shareholders.
[13] Plaintiff mischaracterizes Bankruptcy Judge King's report when he implies that Judge King recommended that this action must be dismissed because Michael and Terri are "indispensable parties." Rather, the point is that Hawaii courtshistorically protective of the separation between a corporation and its shareholders would be particularly unlikely to recognize a reverse alter ego claim where none of the shareholders could be named as defendants because of Plaintiff's inexcusable neglect in failing to comply with the statute of limitations.
[14] The leading authority on corporation law appears to assume that shareholding is a necessary element for reverse alter ego in those jurisdictions where it has been recognized. 1 Fletcher Cyclopedia of Corporations § 41.70 (1990 & Supp.1994) ("Where a creditor proves that controlling shareholders organized or used the corporation to deceive or defraud personal creditors, the separate existence shall be disregarded and the corporation and the shareholders will be treated as one and the same.") (emphasis added).
[15] Plaintiff also cites a recent Ninth Circuit tax case, Towe Antique Ford Foundation v. Internal Revenue Service, 999 F.2d 1387 (9th Cir.1993), which allowed the I.R.S. to make a reverse alter ego claim even though Montana state courts had yet to recognize the doctrine. Rather than conclusively demonstrating a liberal application of causes of action not clearly established under state law, Towe Antique arguably reflects appellate courts' greater tolerance for the government's efforts to collect revenues from tax evaders who hide assets. See, e.g., Shades Ridge Holding Co., Inc. v. United States, 888 F.2d 725, 729 (11th Cir.1989). Although it is not clear from the opinion, it appears the Ninth Circuit decided from a review of Montana cases that the Montana Supreme Court would permit such a reverse piercing claim. Towe Antique, 999 F.2d at 1390-92. By contrast, in this case Bankruptcy Judge King recommended, and this court agrees, that Hawaii courts likely would not establish reverse alter ego as a new cause of action.
[16] The order was first issued on July 7, 1989, and continued in September 1991 and September 1992. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917761/ | 272 So.2d 490 (1973)
Ted C. TOLLETT, Petitioner,
v.
The STATE of Florida, Respondent.
No. 40993.
Supreme Court of Florida.
January 10, 1973.
*491 Tom E. Gilman, Tallahassee, for petitioner.
Robert L. Shevin, Atty. Gen., and Raymond L. Marky, Asst. Atty. Gen., for respondent.
ERVIN, Justice.
By petition for writ of certiorari we have for review a decision of the District Court of Appeal, First District, holding certain recordings of conversations between Petitioner and another person were properly played for the jury during Petitioner's trial. Tollett v. State, Fla.App. 1971, 244 So.2d 458. We have jurisdiction to consider the cause by virtue of a conflict with Walker v. State, Fla.App. 1969, 222 So.2d 760. Article V, Section 4(2), Florida Constitution, F.S.A.; Rule 4.5(c), F.A.R., 32 F.S.A.
Petitioner Ted Tollett, while incarcerated in the Leon County Jail on a possession of marijuana charge, became friendly with a cellmate, one Jess Davis. Captain Campbell,[1] of the Leon County Sheriff's Department, testified that he asked Davis "if he would be willing to help me with Mr. Tollett on making a buy." Davis refused at first; however, he later agreed to work with Campbell.
On four succeeding days following Tollett's release from jail, Davis, at Campbell's instruction, telephoned Tollett. Three of the calls were made from Campbell's office in the Leon County Courthouse. The fourth was made from the Leon County Jail. The conversations between Tollett and Davis made while the latter was in Campbell's office were recorded. The telephone call made while Davis was at the jail was not recorded; however, Campbell listened on an extension telephone.
Pursuant to the instructions given him during the telephone conversations, Tollett came to the jail allegedly for the purpose of selling drugs to Davis. He also went to a motel room to discuss with one posing as Ray Johnson from Tennessee the sale of Mrs. Tollett's unborn child. Johnson was actually Ray Frederick, a special agent with the Florida Bureau of Law Enforcement. *492 The conversation between Tollett and the agent was also recorded.
Tollett and his wife were arrested and charged with attempting to sell an unborn baby and delivering and dispensing contraband at the Leon County Jail. At trial, over defense objections, the recordings were played for the jury. Davis was not present as a witness. No explanation appears in the record as to why Davis was not called by the State as a witness or any reason given for his unavailability. Captain Campbell testified that Davis had consented to having his conversations with Tollett recorded. Both defendants were found guilty of attempting to sell the child; Petitioner was also found guilty of dispensing LSD and contraband to a prisoner.
Petitioner appealed to the First District Court of Appeal. In a 2-1 decision that court affirmed Petitioner's conviction, saying the recordings were properly played before the jury. The court cited Florida authorities holding such recordings admissible when made with the consent of one or more of the conversants. (I. e., Barber v. State, Fla.App. 1965, 172 So.2d 857, and Griffith v. State, Fla.App. 1959, 111 So.2d 282.) While Davis was not present to testify that he had consented to the wiretaps, the District Court majority said Capt. Campbell had properly testified as to Davis' consent and that Campbell's evidence enabled the jury to have "reasonably concluded that Davis gave his express or implied consent to Campbell's tapping and recording of the telephone conversations with [Tollett] ..."
This decision conflicts with the decision of the Third District Court of Appeal in Walker v. State, supra. The Third District Court in Walker referred to its earlier decision in Hajdu v. State, Fla.App. 1966, 189 So.2d 230, and said such recordings could be introduced into evidence "when the actual recipient of the conversation who himself carried the transmitting device was put on the stand." Walker, supra, 222 So.2d at 762.
Respondent contends Petitioner's constitutional rights were not violated and in support of this position the State cites Florida and Federal cases holding recordings made under circumstances similar to those in this case may be properly played for juries. We do not feel those cases are controlling.
In its most recent consideration of this question, the Supreme Court of the United States, in a sharply divided decision, held the Fourth Amendment to the United States Constitution does not forbid electronic surveillance made with the consent of one or more of the conversants. United States v. White, 1971, 401 U.S. 745, 91 S.Ct. 1122, 28 L.Ed.2d 453. The Court said such recordings could be played before a jury even though, as here, the consenting party was not available at trial. In reaching this decision, the Court said that since one speaking with a defendant could testify as to what the defendant said, a recording of such a conversation should also be permissible evidence. According to the Court, "No different result should obtain where ... the informer disappears and is unavailable at trial; for the issue of whether specified events on a certain day violate the Fourth Amendment should not be determined by what later happens to the informer." (Emphasis added.) White, supra, 753-754, 91 S.Ct. 1127.
The result in White, as well as in the other cases relied upon by the State, is based upon an interpretation of the Fourth Amendment to the Constitution of the United States. The Amendment provides:
"The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."
Florida's Constitution, before it was revised in 1968, contained a virtually identical *493 search and seizure provision. The provision was changed, however, when the Constitution was revised. We must look to the search and seizure provision of the 1968 Constitution and for this reason the Federal and pre-1968 Florida cases which are based upon the Fourth Amendment to the United States Constitution and the pre-1968 Florida Constitution and which are relied upon by Respondent cannot be considered controlling. The applicable Florida constitutional provision, found in Article I, is as follows:
"§ 12. Searches and seizures. The right of the people to be secure in their persons, houses, papers and effects against unreasonable searches and seizures, and against the unreasonable interception of private communications by any means, shall not be violated. No warrant shall be issued except upon probable cause, supported by affidavit, particularly describing the place or places to be searched, the person or persons, thing or things to be seized, the communication to be intercepted, and the nature of evidence to be obtained. Articles or information obtained in violation of this right shall not be admissible in evidence." (Emphasis added.)
Thus Section 12 of Article I of the Constitution expressly provides that no warrant shall be issued to intercept a particular communication except upon probable cause supported by affidavit. In Florida, at least, the protection of privacy in the area of communications is constitutionally mandated in express language. This Court is not at liberty to relax this protection afforded by the State Constitution.
The interceptions in the instant case were unquestionably "unreasonable." Under the language of Section 12 of Article I of the 1968 Constitution, the recordings should not have been made by the officer unless he had first obtained an interception warrant, or had secured consent from one of the parties to the communication and established this fact under the safeguards and conditions hereinafter noted. Such a requirement for a search warrant absent clearly established consent is neither unfair nor impractical. The officer had sufficient time. The interceptions occurred over a four-day span. That they were to be made was decided long before they actually were. The officer conducting the interceptions had an office in the County Courthouse. He could have easily obtained a warrant if he had probable cause for suspecting Petitioner would discuss a particular illegal activity during certain conversations with Davis.
To allow police to indiscriminately place "bugs" on telephones without first obtaining warrants is as much a violation of an individual's rights as to allow officers to arbitrarily enter homes without obtaining prior judicial approval. Time and again, courts have held individuals' rights cannot be sacrificed to enable officers to conduct "fishing expeditions."
It has been said that:
"The incidence of party monitoring or consent to overhearing is substantial and is almost certainly increasing. According to Professor Alan Westin, who has done a great deal of work on wiretapping and eavesdropping and has recently published a book on a variety of threats to privacy, `A conservative estimate would be that more than 10,000 wiretaps and bugs are installed annually by local law-enforcement agencies... .' `"(P)articipant recording,"' says Professor Westin, `in which one participant in a conversation or meeting, either a police officer or a co-operating party, wears a concealed device that records the conversation or broadcasts it to others nearby' is done by law enforcement officers `tens of thousands of times each year.'" 68 Col.L.Rev. 211-212.
We are concerned about such activity. If it is uncontrolled, it has no place in a free state. The right to freely enter into private conversations without fear of having *494 those conversations overheard and recorded is an important one.
We take note of Chapter 934, F.S., enacted as Chapter 69-17 at the 1969 legislative session and particularly Section 934.01(4) thereof, which reads in part:
"(4) To safeguard the privacy of innocent persons, the interception of wire or oral communications when none of the parties to the communication has consented to the interception should be allowed only when authorized by a court of competent jurisdiction..." (Emphasis added.)
It is our view that this language should not be interpreted to obviate the necessity of a police officer securing a warrant unless one of the parties has given consent which must be shown through proper testimony not hearsay. "Consents" from police informers with no substantial or requisite interest in the residence or papers or personal effects of a suspect are not legally sufficient to relieve police officers of the necessity of securing search warrants to search the dwelling, person or papers and effects of the suspect; neither should their "consents" except under the safeguards of authentication as hereinafter noted be sufficient to obviate the necessity of securing a warrant for intercepting wire or oral communication.
The quoted language in Section 934.01(4) does not abrogate the rule expressed in Walker v. State, supra, that a participant in a communication must himself take the witness stand and testify that he gave his consent to the interception as a predicate to the introduction of the electronic reproduction of the communication. Its introduction under those circumstances is not violative of the new language in Section 12, Article 1; rather, it is in keeping with the intent of the new verbiage. This is so because it is an elementary rule of evidence that a party to a discussion or communication with a defendant may take the witness stand and testify, subject to cross-examination, as to the contents of his communication or discussion with a defendant and this can include as a logical concomitant to his testimony any tape or electronic recordings of such communications or discussions which he himself made or which he authorized (consented for) police officers to make. Such direct testimony easily falls in the class of those exceptions where establishment of probable cause and securance of a warrant or order are not required.
However, where there is no warrant or no testimony of a participant to the communication that he consented to its interception, the hearsay testimony of the police officer only making the wiretap that he was given consent to make it by an alleged participant to the communication does not obviate the requirements of Section 12, Article I. A denial of constitutional rights cannot be approved by a showing that in all probability the result would have been the same had the proper procedures been followed. Noncompliance with warrant procedures cannot be excused even though those making the search or interception later demonstrate at trial that probable cause in fact existed and that a warrant or order would have been issued had it been requested (Coolidge v. New Hampshire, 1971, 403 U.S. 443, 450-451, 91 S.Ct. 2022, 29 L.Ed.2d 564).
It does not suffice in lieu of a warrant for an intercepting police officer alone to testify by hearsay that consent to intercept had been given him by one of the parties to the communication, any more than a participant in the perpetration of a crime can give consent for police to search the separate residence of his co-participant in which he has no requisite interest, although he could have given information justifying the issuance of a search warrant to make the search.
Davis was alleged by Captain Campbell to be a participant in the intercepted communication. He did not merely provide a "lead" as a confidential informer *495 whose identity could be kept confidential, he was, according to Campbell, a participant in the communication. However, he was not brought forward by the State as a witness or as an affiant in probable cause proceedings to confirm he participated in the communication or that he gave his consent to its interception by Captain Campbell. Analogizing Tollett's situation with those of the accuseds in Spatero v. State, Fla.App.2d, 179 So.2d 873, and Roviaro v. United States, 353 U.S. 53, 77 S.Ct. 623, 1 L.Ed.2d 639, it appears that fundamental fairness at least in view of the new provisions of Section 12, Art. I, Declaration of Rights, Florida Constitution dictates Davis should have been produced by the State as a witness to afford Tollett opportunity to cross-examine Davis in order to "controvert, explain or amplify" the testimony of Captain Campbell concerning Davis' alleged consent and the State's hearsay claim of what Davis allegedly said in the intercepted communication. 353 U.S. at 64, 77 S.Ct. 623.
Spatero also adopted the holding in People v. Durazo, 52 Cal.2d 354, 340 P.2d 594, where it was held error not to make available to accused an informer who as a material witness presumably might have helped support the defense claim of mistaken identity by impeaching the police officer's identification.
Tollett according to his counsel made a diligent but vain effort to obtain Davis as a witness in his behalf at trial.
If the procedure adopted by the State in this case were approved it would be precedent that the State may bypass a magistrate in the matter of probable cause; that at trial the State may introduce an unwarranted intercepted communication without the presence of the alleged participating informant as a material witness to testify as to his consent to the interception or to confirm the hearsay statements attributed to him in the intercepted communication were his. It eliminates an accused's opportunity to cross-examine the alleged informant and opens the door for admission of hearsay testimony of an alleged participant in a communication who is not produced as a witness. Generally, it furthers the invasion of privacy by the police, encourages wiretapping, entrapment and manufactured evidence.
Captain Campbell was not a participant in the communication between Tollett and Davis. He was an outsider to those private communications, at least insofar as Tollett was concerned. It stands to reason Tollett would not have participated in the conversations with Davis had he known Campbell was making the recording. Under these circumstances, Section 12, Article I requires the prior approval of a magistrate of Campbell's intervention into Tollett's subsequent private conversations with Davis or that this constitutional safeguard of privacy be obviated by the fact Davis, a participant in the conversation, testified he gave Campbell consent to make the wiretap.
True, after-the-fact justification of the unwarranted interceptions was attempted. But it, too, was grossly deficient. Davis, though listed as a witness by the State, was not brought forward by the State to testify he gave Campbell his consent to make the wiretap. Tollett had no opportunity to cross-examine Davis. Campbell testified he had Davis' consent but, as Judge Rawls points out in his dissent in the District Court (244 So.2d pp. 461, 462 and 463), Campbell's testimony concerning the alleged consent was replete with hearsay statements of what he alleged Davis said to him. Judge Rawls denotes most cogently how Tollett was denied trial fairness and constitutional safeguards in the introduction of the reproduced communication.
The object of the new language in Section 12, Article I is to insure that before a wiretap is made a judicial officer will determine whether there is probable cause to make the tap. A citizen's privacy is supposed *496 to be protected to the extent of having a magistrate determine in advance whether his private conversations should be "bugged" by the police because of suspected criminality. Captain Campbell did not take the trouble to have a judge determine in advance whether there was justification for the wiretap. He went ahead and made the "tap" without prior judicial approval. This is a circumvention of a citizen's right guaranteed by Section 12, Article I, and cannot be sanctioned.
We also conclude that where wiretaps are made without the advance securance of permission of a magistrate, authentication of the giving of consent to the police to make the wiretap must be established by competent and relevant testimony of a party to the communication, subject to cross-examination by defendant, as a condition precedent to the introduction of the wiretap recording of the communication in evidence against the defendant. We believe that the new language in Section 12 of Article I of the State Constitution to be meaningful requires the safeguards set forth in this opinion.
The decision of the District Court is quashed and the cause remanded for a new trial not inconsistent with this opinion.
CARLTON, C.J., and ROBERTS and McCAIN, JJ., concur.
ADKINS, J., dissents with opinion.
BOYD and DEKLE, JJ., dissent and agree with ADKINS, J.
ADKINS, Justice (dissenting):
I respectfully dissent as this Court does not have jurisdiction.
The majority opinion states that there is conflict between Tollett v. State, 244 So.2d 458 (Fla.App.1st, 1971) and Walker v. State, 222 So.2d 760 (Fla.App.3d, 1969).
In Walker v. State, supra, an employee of an armored service agreed to permit a defendant to rob him and to divide the proceeds. The employee informed the police of the plan and gave the police consent to attach a wiretap to his telephone. They recorded the employee's conversations with the defendant and such recordings were admissible in evidence in a robbery prosecution. From the opinion, it appears that Matthews, the employee, testified at the trial. The Court in its opinion said:
"Turning to the recordings of the phone conversations, we find the law appears clear and well-settled as to the prerequisites which govern the admissibility of the recordings made by the use of a wire tap on a telephone. Here, Matthews gave his consent to the police authorities to attach the wire tap to his telephone. Once that consent has been obtained, recordings made by police authorities pursuant thereto are admissible in evidence." (p. 763)
In Tollett v. State, supra, the tape recording of a telephone conversation between an informer and an accused was held admissible at the defendant's trial as the monitoring and recording was with the express or implied consent of the informer. In other words, the District Courts of Appeal in Walker v. State, supra, and Tollett v. State, supra, held that the recording was admissible if made with the consent of one of the participants. It was only in the case sub judice that the question of hearsay was discussed.
In the Walker case, the Court referred to Hajdu v. State, 189 So.2d 230 (Fla.App.3d, 1966), a prosecution for unlawful practice of medicine, where Claire White, a private detective, visited the defendant with a radio transmitter secreted in her purse and engaged him in conversation. Another detective [Behrens] was stationed *497 outside defendant's home listening to the conversation over a radio receiver. Behrens was improperly permitted to testify to the conversation he had heard broadcast from the secret transmitter to his receiver. The defendant was in his home at the time of the conversation with White. The alleged conversation was never transcribed.
In the Hajdu case, the Court said that the entry into the private premises by the paid private investigator amounted to a trespass. The Court referred to the case of Gomien v. State, 172 So.2d 511 (Fla.App.3d, 1965), where a witness testified concerning a conversation which was recorded by him after being invited into the defendant's premises. The Court in Hajdu v. State, supra, explained that the principles in Gomien v. State, supra, were not applicable. The Court pointed out that if the investigator who entered the home "had recorded the conversation, then upon proper authentication [if otherwise admissible] any such transcription would have been admissible." In the case sub judice there was no trespass and the conversation was recorded.
None of these cases are in conflict. The majority opinion merely adds another qualification to the admissibility of recorded statements in holding that consent cannot be established by the testimony of the officer alone; it must be corroborated by the testimony of an informer. During these times when police officers are unjustly castigated by so many misguided citizens, I think it extremely inappropriate to say that the testimony of an officer relating to consent cannot even be considered by a jury unless corroborated by an informer. This has not been the law in the past and the people certainly did not intend this result when the Constitution was adopted in 1968.
The question of consent is a factual question and we should not place additional strings upon the determination of such a question.
BOYD and DEKLE, JJ., concur.
NOTES
[1] The District Court refers to Campbell as "Lieutenant," but the record describes him as "Captain." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570350/ | 29 So. 3d 1126 (2010)
GRIFFIN
v.
STATE.
No. 2D09-855.
District Court of Appeal of Florida, Second District.
March 10, 2010.
Decision Without Published Opinion Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/232922/ | 208 F.2d 688
NATIONAL LABOR RELATIONS BOARDv.NATIONAL SHOES, Inc. et al.
No. 70.
Docket 22787.
United States Court of Appeals, Second Circuit.
Argued November 4, 1953.
Decided December 15, 1953.
1
COPYRIGHT MATERIAL OMITTED Samuel M. Singer, George J. Bott, Gen. Counsel, David P. Findling, Associate Gen. Counsel, A. Norman Somers, Asst. Gen. Counsel, Elizabeth W. Weston, Washington, D. C., John C. Rohrbaugh, Zanesville, Ohio, for petitioner, National Labor Relations Board, Washington, D. C.
2
Conrad & Smith, New York City, for respondents, Samuel Rubin, Seymour J. Ugelow, Isadore Fried, New York City, of counsel.
3
Before CHASE, Chief Judge, CLARK, Circuit Judge, and BRENNAN, District Judge.
4
BRENNAN, District Judge.
5
The National Labor Relations Board by petition, pursuant to Section 10(e) of the National Labor Relations Act, as amended, hereinafter referred to as the Act, 29 U.S.C.A. § 151 etc., seeks enforcement of its order of March 11, 1953 (103 N.L.R.B. No. 58). The order requires respondents to cease and desist from refusing to bargain collectively with the United Wholesale, Retail and Department Store Union of America, C. I. O., Local 586, as the exclusive representative of employees at respondent's store at Syracuse, New York, and grants other related relief.
6
The order is based upon findings and conclusions of the Trial Examiner adopted by the Board to the effect that the respondents may properly be considered as a single employer in the proceeding before the Board, and that they refused to bargain collectively with the Union, in violation of Section 8(a) (5) of the Act, and thereby interfered with, restrained and coerced employees in the exercise of rights guaranteed in Section 7 of the Act, in violation of Section 8(a) (1). The application is opposed by respondents generally upon the contention that the evidence affords no proper basis for petitioner's order, in that respondent National Shoes, Inc. is not shown to be an employer within the meaning of the Act, and that the evidence is insufficient in law to sustain the Board's findings as to respondents' refusal to bargain collectively. The evidence is undisputed. The litigants differ only in the conclusions to be drawn therefrom. The pertinent facts will be concisely stated.
7
National Shoes, Inc. is a corporation with its principal place of business at the city of New York. It is engaged in the distribution of shoes and related products, and has about eighty retail outlets; all of which it owns and operates. Such outlets are located in several states. Its products are also distributed through other retail outlets, among which is the respondent, National Syracuse Corporation, which was apparently organized about 1951, and which maintains a retail store at Syracuse, New York. Commencing about July, 1951, the Union undertook to organize the employees at the National Syracuse Corporation, Syracuse, New York. About August 9, 1951, at a conference in New York City, the Union was recognized as the bargaining agent, and negotiations looking to the signing of a labor contract were begun. The negotiations were friendly, but were actually nonproductive. Agreement appeared to be imminent on several occasions, but obstacles to the actual signing of the contract were raised by the employer. On November 29, 1951, the Union filed a charge with the Board, which in effect related to respondent's refusal to bargain with the Union. Further negotiations were attempted, and the charge was withdrawn. Negotiations proceeded intermittently but without conclusion. The present complaint was issued on September 24, 1952. A hearing was held on October 20, 1952. The general counsel called two witnesses; Mr. Mac Siegel, who testified generally as to the corporate set-up and business relationships of the two respondents, and Mr. Maurillo, a regional director of the Union, who gave evidence as to the details of the negotiations. The respondents offered no evidence. The Trial Examiner filed an intermediate report containing his findings, conclusions and recommendations, which were adopted by the Board. The order challenged here was signed, and the petition for the enforcement thereof was later filed in this court.
8
An examination of the record discloses that the business and inter-corporate relationships of the respondents are closely integrated. Both corporations have the same president and secretary-treasurer. These two individuals were the organizers and sole stockholders of the National Syracuse Corporation. The Board of Directors of National Syracuse is composed of the same individuals, who are the officers of National Shoes. The labor policy of the National Shoes, Inc. is determined by the officers among whom is witness Mac Siegel, who determines the labor policy of the respondent, National Syracuse Corporation. Some employees of National Syracuse have been hired at New York City. Counsel for both corporations conducted the bargaining negotiations here, some of which were held at New York City. National Syracuse purchases its merchandise from National Shoes, Inc. The relationship between the two corporations, as disclosed above, amply supports the conclusion that the two respondents here involved may be considered as a single employer. N. L. R. B. v. Stowe Spinning Co., 336 U.S. 226, (See note 2, page 227), 69 S. Ct. 541, page 542, 93 L. Ed. 638; N. L. R. B. v. Pennsylvania Greyhound Lines, 303 U.S. 261, 58 S. Ct. 571, 82 L. Ed. 831; N. L. R. B. v. Somerset Classics, Inc., 2 Cir., 193 F.2d 613; N. L. R. B. v. Don Juan, Inc., 2 Cir., 178 F.2d 625.
9
The legality of the finding that the respondents have refused to bargain collectively is primarily one for the evaluation of evidence. Section 8(d) of the Act, 29 U.S.C.A. § 158(d), is the Congressional enactment which requires good faith in collective bargaining negotiations. The same provision by its terms does not require either party to agree to a proposal or require the making of a concession. Judicial interpretation does not disclose the confinement of the statutory requirement within precise limits. "* * * a statutory standard such as `good faith' can have meaning only in its application to the particular facts of a particular case." N. L. R. B. v. American National Insurance Company, 343 U.S. 395, at page 410, 72 S. Ct. 824, at page 832, 96 L. Ed. 1027. It follows that sincerity of effort and intention to arrive at and consummate an agreement are requirements of statute. Their absence constitutes an unfair labor practice. Here the employer has made no clear refusal to negotiate or bargain. Bargaining negotiations were engaged in over a long period of time. The failure of such negotiations is not in itself determinative. N. L. R. B. v. Jones & Laughlin Steel Corp., 301 U.S. 1, 57 S. Ct. 615, 81 L. Ed. 893. However, the duty to bargain "* * * requires more than a willingness to enter upon a sterile discussion of union-management differences." N. L. R. B. v. American National Insurance Company, supra, 343 U.S. at page 402, 72 S.Ct. at page 828.
10
The problem is essentially to determine from the record the intention or the state of mind of respondents in the matter of their negotiations with the Union. In this proceeding, as in many others, such a determination is a question of fact to be determined from the whole record. Evidence was offered and received as to the details of the negotiations, a portion of which covered a period of time prior to six months before the charge was filed. This evidence was principally admissible as a history and as a background for the evaluation of evidence of events and occurrences within such six months' period.
11
The record in this case discloses none of the hostility or bitterness which is sometimes engendered in labor-management disputes. The appearance of bargaining was leisurely maintained by respondents, but the making of a contract was postponed by the reopening of items already settled, and the posing of new demands. A recital of the course of negotiations would only mean the recitation of the detailed evidence in the record. Long delays unaccounted for in the matter of correspondence and the preparation of documents, the postponement of meetings of the negotiators for weeks at a time, and the reopening of questions previously settled, all appear in the record, and all occur or are caused by the actions of the respondents. The effect of such actions individually is not the test of good faith bargaining. The impact of all of such occasions or actions, considered as a whole, and the inferences fairly drawn therefrom collectively, may properly afford a basis for the finding of the Board. N. L. R. B. v. Reed & Prince Mfg. Co., 1 Cir., 205 F.2d 131. Depending as it does upon an appraisal of the whole evidence as it relates to labor-management relations, such a finding may not be lightly disregarded. Universal Camera Corp. v. N. L. R. B., 340 U.S. 474, 71 S. Ct. 456, 95 L. Ed. 456.
12
Here also it appears that while negotiations concerning the question of wages were in progress, without consent or knowledge of the Union, the respondents raised the wages of the employees at Syracuse to fifty dollars per week, when negotiations had not proceeded to the point where a wage scale of forty-nine dollars per week could be embodied in a contract. In August, 1952, it also appears that while negotiations were in progress the wages of a salesman-employee were raised by the unilateral action of the respondents. Such action in itself constitutes an unfair labor practice, Medo Photo Supply Corp. v. N. L. R. B., 321 U.S. 678, at page 685, 64 S. Ct. 830, 88 L. Ed. 1007; See also N. L. R. B. v. Dealers Engine Rebuilders, 8 Cir., 199 F.2d 249 and cases cited at page 252, and is evidence of a failure to bargain in good faith. N. L. R. B. v. Century Cement Mfg. Co., Inc., 2 Cir., 208 F.2d 84.
13
The findings and order of the Board are supported by substantial evidence, and the petition is, therefore, granted. | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/8304523/ | PORTRUM, J.
Elizabeth Sumner seeks to enjoin Henry O’Dell, J'r., from contaminating her water supply, and to require the defendant to use his property in a reasonable Avay, and to use water incident thereto for necessary use but so as not to contaminate and pollute unnecessarily the Avater before it reaches her property.
[[Image here]]
The land on which the spring rises and over which the spring branch runs was formerly one tract, owned by the brother of Mrs. Sumner. He sold her a portion, granting her the right to the use of a spring located about 150 yards above her property line and on the land retained by the grantor. She constructed a spring house on her property so as to use the branch water for household and domestic purposes. She has been in possession of the property and using it in this way for a number of years, but a year or so ago the grantor sold the remaining tract of about forty acres to the defendant O’Dell, and he has recently constructed his fence in such a way as to use the spring branch and its banks, on his property, as a lane over which he drives his mill?: cattle and stock to a back pasture field. His lands adjacent to the creek bank are under cultivation, and at this- time he is asserting no right to. use the water as a necessary incident to the pasturage of the lands adjacent to the. Abater. By reason of the construction of the fences in the manner detailed he has created a lot, with bars enclosing it at the point of the lane leading into the pasture field and also Avith bars enclosing it at the fence crossing the branch a few yards below the head or spring. The spring is within a lot called the house lot and on *498which the residence is located. O’Dell claims to use this lane only for the purpose of driving’ his milk cows to the milk gap at the spring and in the house lot, but, in the proof, it is shown that one or more calves had been confined in this lot. He insists, however, that he confines his calves in the house lot. It is easy to assume that in milking the cows it is necessary to keep them separated from the calves, and, 1o do so, either the calves or the cows must be confined in this so-called branch lot. There is not any dispute but what the use made of the lot has contaminated and befouled the water to an extent making it unfit for the use of the lower riparian owner.
It also clearly appears that if 0 ’Dell had built his fences, which he claims to have built to protect his soy beans, on the south bank of this branch, the cattle could have passed to the milk gap without contaminating and befouling the water. A tenant, who helped to construct the fence, suggested to him that his location of the fence would cause trouble and that he build it on the south side and if he would do so the tenant would consent to the cutting of two or three rows of corn, to make the lane. He replied that the land belonged to him and he had a right to use it in the manner he was attempting to use it. A party representing Mrs. Sumner called his attention to the same thing, and he made him about the same reply.
The parties to this dispute are closely related, Mrs. Sumner being the aunt of Mr. O’Dell’s wife. A great deal of feeling is shown in the record. Mr. O’Dell has indicated in case he wins his lawsuit and the water is decreed his, to use it in a manner that would, greatly injure the lower riparian owner. It is not necessary to go farther into his state of mind.
The only issue presented in the record is, Did the use of the premises amount to an unreasonable use?
“Whether or not the pollution of the waters of a stream is an actual injury to a lower riparian proprietor depends upon whether it is the result of such reasonable use of the stream as the upper owner is entitled to make, or an unreasonable use in excess of his rights. So no actionable injury arises from the pollution resulting from using the water for bathing purposes, reasonable drainage into the stream, or pasturing a reasonable number of cattle on the land bordering on the stream and permitting them to drink therefrom.” Waters—40 Cyc., 594.
In Helfrich v. Cantonsville Water Company, 74 Maryland, 269, 13 L. R. A., 117, it is said in note:
“The right of the owner of land bordering’ on a stream to use it as a pasture in a reasonable way is not affected by the fact that the waters are thereby unfit for use although the waterworks of an incorporated company have been established lower down to supply the public with water from the stream.”
*499The court furtlier said:
“But all abstract rules are subject to considerable modification when they are applied to the exigencies of human life.- The right to the use of a stream of water in its natural purity cannot override other co-equal and co-existing rights; it must certainly yield to those of a more absolute and unqualified character. The tillage of the soil and the tending of flocks and herds were the earliest occupations of the human race. The husbandman soweth his seed and gathereth the harvest to furnish us with food; and the flocks and herds bring forth their increase for our use. It would be most unnatural and unwise to put any unnecessary restrictions on those pursuits which furnish the world with the means of subsistence. We must confess that the right of a man to cultivate his own fields, and to pasture his cattle on his own land, is of an original and primary character, and that it would be oppressive to interfere with the free exercise of it, except under a necessity caused by grave public considerations. The washings from cultivated fields might, and probably would, carry soil' and manure into streams of water, and make them muddy and impure. And so the habits of cattle according to their natural instincts would lead them to stand in the water and befoul the stream. But, nevertheless, the owners of the land must not lose the beneficial use of it. The inconveniences which arise from the pollution of the water by these causes must be borne .by those who suffer from them. The ordinary requirements of domestic life diminish the purity of the atmosphere; but as long as these causes are within the limits of reason and necessity the law recognizes no ground of complaint against them. The reasonable and proper exercise of acknowledged right by one man may, and often does, work annoyance and loss to another; but rights cannot be forfeited for this reason.”
We are of the opinion, applying the rule as above given, that the defendant O’Dell applied the property to an unreasonable and unjustifiable use. In a note to this opinion a sketch of the premises is reproduced from a sketch found in the brief for the appellee. It demonstrates that O’Dell created a calf and cow-lot close to the banks of this spring branch when he could have easily made his lane on the south side of the stream and protected it from unnecessary pollution. This holding does not mean that O’Dell has not the right to throw the field on each side of this branch into a pasture and permit his stock to go to the branch to drink water. It is quite different to confine cattle on the bank and within the stream. Cattle grazing over a boundary spend a greater part of their time grazing; but cattle confined within a lot upon the banks necessarily find no way to escape, and the pollution is unduly increased. No one of the twenty-six witnesses who testified in this, case attempts to say *500how many acres is in what is known as the corn or soy bean patch. One witness says that across this lot is about 150 yards. In the whole tract there are only about forty acres, as we recall the record. It is shown the stream has been kept reasonably free from pollution for a long period of years. It is true that after the crops were removed, calves and possibly some, cattle ran upon the stalk pasture, but the ground was of such small area that the pollution from this source would be inconsequential. There is a difference from using the stream as an' incident to the pasture of the bean field or the corn field on the south, and as an incident to the removal of cattle from a well watered pasture field to the milk gap. If O’Dell can maintain this lane to drive his cattle to the milk gap, we see no reason why he can not maintain it to let his cattle come voluntarily to their calves at the milk gap.
We are of the opinion O’Dell subjected this property and this stream to an unreasonable and unnecessary use and that Mrs. Sumner is entitled to enjoin the pollution of .the running water. This adjudication is confined to the use of the branch as a lane, which is held to be an unreasonable use and, of course, the ad judication, has no bearing upon a reasonable use.
It results that this court is unable to concur in the findings of fact as found by the chancellor, who found that the use was a reasonable one, or that O’D.ell had acquired a prescriptive right to use the property in this manner. The lane was only recently established. The decree of the chancellor is reversed, and a judgment entered here for an injunction restraining the present unreasonable use, as above defined. The appellee will pay the costs of the court below and this appeal.
Snodgrass and Thompson, JJ., concur. | 01-03-2023 | 10-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/1570361/ | 29 So. 3d 1118 (2010)
JENERETTE
v.
STATE.
No. SC09-1869.
Supreme Court of Florida.
February 16, 2010.
Decision Without Published Opinion Review denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917799/ | 178 B.R. 265 (1995)
In re YELLOW CAB COOPERATIVE ASSOCIATION, EIN XX-XXXXXXX, Debtor.
YELLOW CAB COOPERATIVE ASSOCIATION, Plaintiff,
v.
Karen J. MATHIS; the Mathis Law Firm, P.C.; Vicki S. Porter; and Vicki S. Porter, P.C., Defendants.
Bankruptcy No. 93-23733-DEC. Adv. No. 94-1499-SBB.
United States Bankruptcy Court, D. Colorado.
February 17, 1995.
E. Hil Margolin, Denver, CO, for plaintiff.
Vicki S. Porter, Denver, CO, for defendants Vicki S. Porter and Vicki S. Porter, P.C.
MEMORANDUM OPINION AND ORDER ON MOTION TO RECONSIDER ORDER ON MOTION TO DISMISS
SIDNEY B. BROOKS, Bankruptcy Judge.
THIS MATTER comes before the Court on the Motion to Reconsider Order on Motion to Dismiss filed by Vicki S. Porter and Vicki S. Porter, P.C. (collectively "Porter"), on January 6, 1995, the Reply thereto filed by the Debtor on January 26, 1995, and the Response filed by Porter on January 30, 1995. The Court, having reviewed the file and being advised in the premises, makes the following findings of fact and conclusions of law, and enters the following order.
*266 I. Introduction.
The question presented to this Court is whether assets held by the state court Receiver are deemed to be assets of the bankruptcy estate prior to their turnover by the Receiver to the Debtor, or only after turnover to the Debtor. This Court concludes that, unlike assets recovered for an estate pursuant to a trustee's avoidance powers, assets held by the state court Receiver prior to turnover to the Debtor are deemed property of the Debtor's estate pursuant to 11 U.S.C. §§ 541(a) and 543.
II. Factual Background.
Defendant Mathis was appointed as Receiver for Yellow Cab Cooperative Association ("Yellow Cab" or the "Debtor") by the Denver District Court on April 30, 1991. As the Receiver, Ms. Mathis took possession of various Yellow Cab assets. Defendant Vicki S. Porter, P.C. served as counsel for the Receiver post-petition.
Yellow Cab filed a voluntary Petition pursuant to Chapter 11 of the Bankruptcy Code on December 29, 1993. On January 3, 1994, nunc pro tunc December 31, 1994, the judge in the main bankruptcy case, the Honorable Charles E. Matheson, entered an Order temporarily excusing the Receiver's obligation under 11 U.S.C. § 543(b)(1) to turnover the property to the Debtor-in-Possession and instructing the Receiver to act to preserve the property within her custody. The turnover of property was subsequently ordered on January 26, 1994.
During the post-petition period of time that the Receiver had possession over the property, between December 29, 1993 and January 26, 1994, she paid herself, Ms. Porter's firm, other law firms, cab drivers, and other unidentified parties more than $350,000 out of Yellow Cab's funds.[1] Neither the employment of the firms nor the payments themselves received prior Court authorization.
On August 12, 1994, the Debtor filed the within Complaint seeking to recover the fees paid to the Receiver, her firm, and Porter, post-petition.[2] The Receiver filed her Answer on September 13, 1994. Porter filed a Motion to Dismiss and Answer on September 26, 1994. This Court entered an Order on October 18, 1994 setting up a schedule for responsive pleadings.
Porter filed a Brief in Support of the Motion to Dismiss on November 1, 1994, asserting that there is a fundamental distinction between what is property of the bankruptcy estate and what is property of the receivership estate. Porter argues, primarily, that the Bankruptcy Court cannot exercise control over, and the Debtor cannot properly recover, payments made to her for professional services, because the payments were made from assets of the Receiver's estate and not from assets of the bankruptcy estate.
Following and relying, in large part,[3] upon the Debtor's Response filed November 18, 1994, this Court entered an Order denying the Motion to Dismiss on January 5, 1995. The instant Motion to Reconsider, Reply, and Response followed.
III. Discussion.
It appears to be undisputed that the Receiver falls within the Bankruptcy Code's definition of "custodian",[4] and as such is compelled to
deliver to the trustee any property of the debtor held by or transferred to such custodian, or proceeds, product, offspring, *267 rents, or profits of such property, that is in such custodian's possession, custody, or control on the date that such custodian acquires knowledge of the commencement of the case.
11 U.S.C. § 543(b)(1).
Relying primarily on the broad language and the historically broad interpretation of Section 541(a), the Debtor maintains that the assets held by the Receiver were property of the bankruptcy estate and are, therefore, properly subjects of the instant turnover action.
Section 541(a) provides, in part, as follows:
(a) The commencement of a case under section 301, 302 or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
* * * * * *
(3) Any interest in property that the trustee recovers under section 329(b), 363(n), 543, 550, 553, or 723 of this title.
* * * * * *
(6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case.
* * * * * *
11 U.S.C. § 541(a).
Porter, conversely, advocates a much narrower interpretation of the definition of "property of the estate." A bankruptcy estate, she argues, does not consist of property in the possession of a custodian until after it is recovered. Porter strongly asserts that while the assets were held by the Receiver they were property of a "receivership estate," subject to turnover upon court order, and not property of the bankruptcy estate. The drafters of the Bankruptcy Code intentionally and deliberately used the word "recovers" rather than "can recover" in Section 541(a)(3). According to Porter, until such time as the turnover was ordered, the subject assets remained property of the receivership. Citing In re Sweetwater, 55 B.R. 724 (D.Utah 1985) ("Sweetwater I"), aff'd in part and rev'd in part, 884 F.2d 1323 (10th Cir.1989) ("Sweetwater II")[5]
The statute says `[a]ny interest in property that the trustee recovers,' . . . not `that the trustee can recover.' The trustee must exercise his avoiding powers and recover the property before it is considered property of the estate under section 541(a)(3). All the trustee (or debtor in possession) has before he recovers the property is a statutorily created right to bring an action to recover property.
Sweetwater I, supra, at 730 (emphasis added).[6]*268 Accord, Klingman v. Levinson, 158 B.R. 109, 113 n. 1 (N.D.Ill.1993) (fraudulent transfer action); Mater of Thielking, 163 B.R. 543, 545 (Bankr.S.D.Iowa 1994) (same); In re Saunders, 101 B.R. 303 (Bankr.N.D.Fla.1989)
If property that has been fraudulently transferred is included in the § 541(a)(1) definition of property of the estate, then § 541(a)(3) is rendered meaningless with respect to property recovered pursuant to fraudulent transfer actions.
We think that the inclusion of property recovered by the trustee pursuant to his avoidance powers in a separate definitional [sic] subparagraph clearly reflects the congressional intent that such property is not to be considered property of the estate until it is recovered. Until a judicial determination has been made that the property was, in fact, fraudulently transferred, it is not property of the estate.
Saunders, supra, at 305 (emphasis added).
But, see, In re Figearo, 79 B.R. 914 (Bankr. D.Nev.1987)[7]
It is this court's opinion that the estate's interest in the transferred property was acquired upon commencement of the case. 11 U.S.C. § 541(a)(3). The transferee merely held voidable title to the transferred property. See 11 U.S.C. § 548(c). The successful exercise of the trustee's avoiding power causes the affected transfer to become void, allowing the trustee to recover the property under 11 U.S.C. § 550.
Figearo, supra, at 918.
Assuming that the holdings of cases like Sweetwater I and Saunders are correct, still Porters' reliance is misplaced. The instant case is factually and legally distinguishable. Here, the argument is over when assets held by a custodian are included in the scope of estate property, not when property that has been the subject of an avoidance or fraudulent transfer action is so included. See, generally, In re Brown, 734 F.2d 119, 124 (2d Cir.1984) (funds held by a custodian were property of the bankruptcy estate upon the filing of the bankruptcy petition, even where title to the funds had previously passed to the custodian).[8]
This distinction is crucial, for on one hand, cases such as Sweetwater I and Saunders were examining a power of the trustee to avoid transfers, while in the instant case this Court is examining the obligation of the custodian, in this case the Receiver, to turn over assets that she merely holds for the Debtor on behalf of its creditors.[9]
The instant facts are more akin to those addressed by the Supreme Court in *269 United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S. Ct. 2309, 76 L. Ed. 2d 515 (1983). In Whiting Pools the Supreme Court was called upon to decide whether a Chapter 11 debtor could compel the turnover of property that had been seized by a secured creditor pre-petition. In answering the question, the Court determined that the property in question constituted property of the estate, notwithstanding the pre-petition seizure. Whiting Pools, supra, at 202-09, 103 S. Ct. at 2312-15.
The House and Senate Reports on the Bankruptcy Code indicate that § 541(a)(1)'s scope is broad.[10] Most important, in the context of this case, § 541(a)(1) is intended to include in the estate any property made available to the estate by other provisions of the Bankruptcy Code. Several of these provisions bring into the estate property in which the debtor did not have a possessory interest at the time the bankruptcy proceedings commenced. [citing §§ 543, 547, and 548]
* * * * * *
In effect, § 542(a)[11] grants to the estate a possessory interest in certain property of the debtor that was not held by the debtor at the commencement of reorganization proceedings.
Whiting Pools, supra, [462 U.S.] at 205-07, 103 S. Ct. at 2314-15.
Indeed, the Supreme Court observed,
[I]f this were not the effect, § 542(a) would be largely superfluous in light of § 541(a)(1). Interests in the seized property that could have been exercised by the debtorin this case, the rights to notice and the surplus from a tax sale, see n. 4, supraare already part of the estate by virtue of § 541(a)(1). No coercive power is needed for this inclusion. The fact that § 542(a) grants the trustee greater rights than those held by the debtor prior to the filing of the petition is consistent with other provisions of the Bankruptcy Code that address the scope of the estate. See, e.g., § 544 (trustee has rights of lien creditor); § 545 (trustee has power to avoid statutory liens); § 549 (trustee has power to avoid certain post-petition transactions).
Whiting Pools, supra, at 207 n. 15, 103 S. Ct. at 2315 n. 15.
The ethereal dichotomy Porter attempts to raise between property of the receivership/debtor and property of the bankruptcy estate has no real substance. The Bankruptcy Code provides that a custodian may hold both property of the debtor and property of the estate. 11 U.S.C. § 543(a). How can a receiver be required to turn over property of the estate unless she first holds property of the estate?
This Court concludes that the assets held by the Receiver, at the commencement of the within bankruptcy case, were property of the Debtor's estate as of the commencement of the case. Unlike assets recovered by a debtor *270 through its avoidance powers, property in the hands of a receiver is property of the bankruptcy estate at the onset of the case.
In addition to the above-stated reasons, and as previously set forth in this Court's January 5, 1995 Order on Motion to Dismiss, this Court finds that the authority to review and approve professionals' fees, which are part of or related to a bankruptcy case, constitutes a separate and independent basis on which this Court has jurisdiction and authority to hear the within adversary proceeding. See, 11 U.S.C. § 329 and Rules 2016 and 2017, Fed.R.Bankr.P.
Section 329 of the United States Code, and Rule 2017, Fed.R.Bankr.P., give expansive reach to the Bankruptcy Court for reviewing, approving or disapproving, attorney's fees incurred for services `in any way related to the bankruptcy case.' These provisions are meant to protect the creditors and the debtor against overreaching by attorneys. Fees are reviewable by the Bankruptcy Court not withstanding [sic] the source of payment. In re Walters, 868 F.2nd [sic] 665, 667-668 (4th Cir.1989).
Even if payments to a debtor-in-possession's counsel are from third-party funds and not estate funds, under Section 329 the Bankruptcy Court has jurisdiction to review and order the return of improper fees to any entity which paid them. In re Land, 116 B.R. 798 (D.Colo.1990), aff'd and remanded by, 943 F.2d 1265 (10th Cir.1991).
* * * * * *
The argument advanced by [Porter], that neither the Debtor-in-Possession nor the Court have the jurisdiction or authority to examine counsel's transactions, services, and fees with the Debtor, either pre or post-petition, completely ignores the tone, tenor, and content of the Bankruptcy Code and applicable rules.
Finally, it is at least arguable that if the argument advanced by [Porter] in the Motion to Dismiss were to be adopted by the Court, a logical conclusion derived from such a decision would render all disbursements made by the Receiver, and all property otherwise held or controlled by, and then disbursed or distributed by the Receiver, to be beyond the reach of the Debtor-in-Possession and the Bankruptcy Court. A logical extension of [Porter's] argument would completely eviscerate the principles and practices governing bankruptcy law and practice.
Order on Motion to Dismiss, entered January 5, 1995, p. 3 (footnote omitted).
IV. Conclusion.
This Court must, therefore, conclude that assets held by a custodian, here the Receiver constitute property of the estate, as of the commencement of the Debtor's case and prior to their turnover pursuant to Section 543(b)(1). Any other interpretation could deprive the bankruptcy estate of assets and property essential to its rehabilitation effort and thereby frustrate the congressional purpose behind the reorganization provisions of the Code. See, Whiting Pools, supra, 462 U.S. at 208, 103 S. Ct. at 2315.
Accordingly, it is
ORDERED that the Motion to Reconsider Order on Motion to Dismiss filed by Vicki S. Porter and Vicki S. Porter, P.C. on January 6, 1995 is DENIED.
NOTES
[1] The Debtor maintains that Porter received a total of $26,222.90 during this period.
[2] A portion of the second claim for relief deals with Porter and requests relief under 11 U.S.C. § 549(a)(2)(B). A portion of the fourth claim for relief also seeks the disallowance of a $2,500.00 proof of claim purportedly filed by Porter.
[3] This Court also relied upon its inherent authority to review and approve professionals' fees.
[4] The term "custodian" includes a(n)
(A) receiver or trustee of any of the property of the debtor, appointed in a case or proceeding not under this title; (B) assignee under a general assignment for the benefit of the debtor's creditors; or (C) trustee, receiver, or agent under applicable law, or under a contract, that is appointed or authorized to take charge of property of the debtor for the purpose of enforcing a lien against such property, or for the purpose of general administration of such property for the benefit of the debtor's creditors.
11 U.S.C. § 101(11).
[5] The Utah District Court essentially made three distinct holdings: (1) that it had subject matter jurisdiction; (2) that, pursuant to § 1123(a)(5)(B), the plaintiff was neither a "representative of the estate" nor effectively "appointed"; and (3) that, pursuant to § 1123(a)(5)(B) and (b)(4), avoiding powers cannot be assigned. The third holding appears to have been based upon alternative grounds, what was deemed to be overwhelming case law and the conclusion that avoiding powers were not assignable because they were not "property of the estate." The discussion referred to herein and by Porter is, arguably at least, mere dicta.
The Tenth Circuit affirmed on the jurisdictional grounds but reversed the District Court on the § 1123 issues. The Tenth Circuit found that plaintiff fit within the meaning of "representative of the estate," was properly "appointed", and found that the case law was neither overwhelming nor persuasive. More important to the issue presently before this Court, however, the Circuit Court found that the subject "avoidance claims are also claims of the estate" under § 1123(b)(3)(A) and (B). In re Sweetwater, 884 F.2d 1323, 1327 (10th Cir.1989) ("Sweetwater II"), aff'g in part and rev'g in part, 55 B.R. 724 (D.Utah 1985) ("Sweetwater I"). This conclusion could imply a reversal of the apparent dicta regarding "property of the estate" as well.
[6] The Utah District Court appears to have taken a certain degree of editorial liberty with the definition of "property of the estate" in Sweetwater I.
Section 541 defines `property of the estate' to include, among other things, `[a]ny interest in property that the trustee recovers' under sections 544, 547, 549 and 553. Id. §§ 541(a)(3) & 550; see also id. §§ 541(a)(4) & 551 (`property of the estate' also includes any interest in property `preserved for the benefit of or ordered transferred to the estate' under sections 544, 547 and 549).
Sweetwater I, supra, at 730 (emphasis added). Although the emphasized sections are referenced (among others) by Sections 550 and 551, they are not expressly referenced in Section 541(a), "property of the estate." This Court does not agree with the broadened scope of either Section 541(a)(3) or (4) implicit in Sweetwater I, but rather maintains that such assets more properly fall within the broader scope of Section 541(a)(1) ("all [other] legal or equitable interests of the debtor in property as of the commencement of the case").
[7] See also, 4 Collier on Bankruptcy, ¶ 541.16 (15th ed. 1984) ("Section 543 requires a custodian of any of the debtor's property to deliver to the trustee the property, or its proceeds, which are in his [the custodian's] possession, custody, or control on the date he learns of the commencement of the case.")
[8] This portion of In re Brown, 734 F.2d 119 (2d Cir.1984) appears to have been subsequently rejected by the Second Circuit in dicta. In re Colonial Realty Co., 980 F.2d 125, 131 (2d Cir. 1992) (adopting In re Saunders, 101 B.R. 303 (Bankr.N.D.Fla.1989) with regard to a fraudulent transfer action). But, see, In re Ciccone, 171 B.R. 4, 5 n. 2 (Bankr.D.R.I.1994) ("We agree with the holding of Colonial on [the issue of the automatic stay], but do not follow that case in its abandonment of [the holding of the Fifth Circuit in In re] MortgageAmerica [Corporation, 714 F.2d 1266 (5th Cir.1983)] as to the estate property issue. . . . We find no acceptable rationale for departing from the MortgageAmerica holding."). See also, In re Blinder, Robinson & Co., Inc., 139 B.R. 24, 27 (D.Colo.1992) (fraudulent transfer action) (recognizing dispute but declining to decide the issue); Matter of Fletcher, 176 B.R. 445 (Bankr.W.D.Mich.1995) (fraudulent transfer action) (same); In re McElwee, 161 B.R. 41, 44 n. 4 (Bankr.S.D.Ill.1993) (§ 544(b) avoidance action) (same).
[9] This distinction is highlighted by the Bankruptcy Code's divergent approach as between a trustee's avoidance powers and the role of a custodian with respect to 11 U.S.C. §§ 546 and 550.
[10] The legislative history provides, in part, as follows:
The scope of this paragraph [§ 541(a)(1)] is broad. It includes all kinds of property, including tangible or intangible property, causes of action (See Bankruptcy Act Sec. 70A(6)), and all other forms of property currently specified in Section 70A of the Bankruptcy Act Sec. 70A, as well as property recovered by the trustee under Section 542 of proposed Title 11, if the property recovered was merely out of the possession of the debtor, yet remained `property of the debtor.' . . .
Though this paragraph will include choses in action and claims by the debtor against others, it is not intended to expand the debtor's rights against others more than they exist at the commencement of the case.
* * * * * *
This section [§ 543] requires a custodian appointed before the bankruptcy case to deliver to the trustee and to account for property that has come into his possession, custody, or control as a custodian. `Property of the debtor' in section (a) includes property that was property of the debtor at the time the custodian took the property, but the title to which passed to the custodian.
H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 370 (1977); S.Rep. No. 95-989, 95th Cong., 2d Sess. 84-85 (1978), U.S.Code Cong. & Admin.News, 1978, pp. 5787, 5870-5871, 6326 (emphasis added).
[11] "Although this court is confronted with turnover from a custodian, pursuant to § 543, rather than § 542, the two cases are functionally identical." Matter of Willows of Coventry, Ltd. Partnership, 154 B.R. 959, 965 (Bankr.N.D.Ind.1993). This Court agrees. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1542136/ | 386 B.R. 306 (2008)
In re Harold POTTER, Carolyne Potter, Debtors.
Harvey Sender, Chapter 7 trustee, Plaintiff,
v.
Love Funeral Home, Defendant.
Bankruptcy No. 05-44566 EEB. Adversary No. 07-01125 EEB.
United States Bankruptcy Court, D. Colorado.
March 26, 2008.
*307 Richard K. Blundell, Greeley, CO, for Debtors.
Maria J. Flora, Denver, CO, for Plaintiff.
Harvey Sender, Denver, CO, pro se.
John F. Young, Denver, CO, for Defendant.
ORDER
ELIZABETH E. BROWN, Bankruptcy Judge.
THIS MATTER comes before the Court following a trial on the Trustee's Complaint, alleging avoidable post-petition transfers under 11 U.S.C. § 549 and seeking to recover those transfers for the estate under 11 U.S.C. §§ 550 and 551. The Court being otherwise advised in the premises, hereby FINDS and CONCLUDES:
I. Background
The Debtors filed a Chapter 7 petition on October 13, 2005.[1] Plaintiff Harvey Sender is the duly-appointed Chapter 7 trustee of their estate (the "Trustee"). At the time of the bankruptcy filing, the Debtors held several small life insurance policies on the life of Mr. Potter. One of these policies was a Globe Life and Accident Insurance Company ("Globe") policy. Shortly after filing bankruptcy, on November 1, 2005, Mr. Potter died. Mrs. Potter contracted with Love Funeral Home ("Love") to perform his funeral and burial services and to purchase a headstone for *308 his grave. In order to pay Love for its services, Mrs. Potter executed an Assignment of Insurance Policy, assigning a portion of the Globe policy proceeds to Love (the "Assignment"). In due course, Globe issued a check directly to Love in the amount of $8,374. This is the first transfer that the Trustee seeks to recover.
Love also received two checks from Mrs. Potter, each in the amount of $1,378, to purchase the headstone. These checks were drawn on the Debtors' prepetition checking account, which Mrs. Potter continued to use post-petition. The Trustee alleges that the headstone payments were attributable to the proceeds of two life insurance policies, including the Globe policy, both of which were property of the estate. But there were other deposits in the bank account that were not property of the estate, including three post-petition social security checks and other exempt insurance proceeds. Mrs. Potter testified that, in her mind, she used the Globe insurance money to pay for the funeral, burial, and headstone. She could not have afforded to pay for it had she not received this money. But neither party disputes that Mrs. Potter commingled the Globe policy proceeds with other funds that were not property of the estate. Neither party provided any evidence that would allow the Court to trace the source of the headstone payments.
II. Discussion
Section 549(a) allows the Trustee to avoid unauthorized post-petition transfers of property of the estate. In order to prevail under this statute, he must prove (1) there has been a transfer of property, (2) from property of the estate, (3) the transfer occurred after the commencement of the case, and (4) the transfer was not authorized under the Code or by the bankruptcy court. See, e.g., Schieffler v. Coleman (In re Beshears), 196 B.R. 464, 466 (Bankr.E.D.Ark.1996); Geekie v. Watson (In re Watson), 65 B.R. 9, 11 (Bankr. C.D.Ill.1986). If he establishes these elements, then § 550(a) specifies from whom he may recover. His recovery may be from "(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate or mediate transferee of such initial transferee." Whether a transferee falls into the first or second camp is significant. Section 550(b)(1) provides defenses to the latter group that are not available to the former. It limits the trustee's recovery rights by prohibiting recovery from immediate or mediate transferees of the initial transferee that take "for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided." 11 U.S.C. § 550(b)(1). The good faith exception is available only to an "immediate or mediate transferee." The "initial transferee" and the "entity for whose benefit such transfer was made" are strictly liable, regardless of good faith, value, or lack of knowledge of the voidability of the transfer. Rupp v. Markgraf, 95 F.3d 936, 938 (10th Cir.1996).
A. Were the Transfers from Property of the Estate?
The only element of the Trustee's prima facie case under § 549 in dispute is whether the property transferred was property of the estate. No one disputes that the payment Love received directly from Globe represented proceeds from an insurance policy that was property of the estate. But as to the Trustee's claims to recover the value of the two checks in payment of the headstone, the parties dispute whether these checks were in fact drawn on funds that were property of the estate. The money in Mrs. Potter's checking account came from several different sources that *309 were not property of the estate, including exempt property and post-petition income (social security). Since a § 549 claim may only lie if the transferred property was estate property, it was incumbent on the Trustee to demonstrate that the funds drawn by these checks were attributable to the life insurance proceeds that were property of the estate.[2]
In Burtch v. Hydraquip, Inc. (In re Mushroom Transp. Co., Inc.), 227 B.R. 244 (Bankr.E.D.Pa.1998), the court dealt with a similar issue of a commingled bank account in the context of a trustee's § 549 claims. In that case, the former bankruptcy trustee had embezzled large sums of money from several bankruptcy estates. He then deposited the funds into his personal account, where they were commingled with his other legitimate sources of income. The successor trustee in the Mushroom estate filed § 549 claims against numerous defendants, claiming they were in receipt of approximately $500,000 of the estate's funds. The court held that, in order to establish a § 549 claim, "the plaintiff must trace the proceeds of funds stolen from the consolidated Mushroom estate to the defendants." Id. at 252. The commingling of funds did not preclude the claim, but it imposed the burden of tracing. The court discussed common law presumptions typically utilized to satisfy the tracing requirement, such as the "lowest intermediate balance rule." In the absence of this proof, the court dismissed the claims.
Bankruptcy Rule 6001 does not shift the burden of tracing to Love. The rule states, "[a]ny entity asserting the validity of a transfer under § 549 of the Code shall have the burden of proof." There are two ways to interpret this rule. One way is to view it as shifting the burden to the defendant on all elements of the claim and any defense.
The other possible interpretation is to view it as only shifting the burden as to the "validity" of the transfer, which is in essence an affirmative defense to a trustee's assertion that the transfer was unauthorized. For example, if the trustee in a converted case brought a claim to avoid the debtor-in-possession's grant of a post-petition lien on estate property, without prior court authorization, the defendant would have the burden of establishing the validity of the transfer despite the lack of a court order, such as demonstrating that a prior court order encompassed this lien as well. Under this second interpretation of Rule 6001, the burden remains on the trustee to establish a transfer, made post-petition, from estate property, and at least the burden of going forward with a showing that it was unauthorized. If the trustee were to meet this burden, then the burden would shift to the defendant to establish the validity of the transfer.
This Court adopts the latter interpretation. It is in keeping with the weight of authority that places the burden on the trustee to establish the elements of a § 549 claim, including the element that the transfer involved property of the estate. *310 See, e.g., Jobin v. Youth Benefits Unlimited (In re M & L Bus. Mach. Co., Inc.), 164 B.R. 148, 153 (D.Colo.1994), aff'd 59 F.3d 1078 (10th Cir.1995); Gibson v. United States (In re Russell), 927 F.2d 413, 417 (8th Cir.1991); Vasquez v. Mora (In re Mora), 218 B.R. 71 (9th Cir. BAP 1998), aff'd 199 F.3d 1024 (9th Cir.1999); Nelson v. Kingsley (In re Kingsley), 208 B.R. 918, 920 (8th Cir. BAP 1997). As a result, the Trustee had the burden to trace these funds in order to satisfy the "property of the estate" element and, having failed to do so, his claims to recover the value of the two checks also fail.
B. Who was the Initial Transferee or Party Benefitted?
The Globe payment made directly to Love does not suffer from this same failing. No one disputes that the $8,374 check came from property of the estate, and that all other elements of § 549(a) have been met as to this payment. The only issue that remains as to the Trustee's ability to avoid this payment is whether Love may assert a good faith defense under § 550(b)(1). Is Love the "initial transferee" or the party "for whose benefit such transfer was made," and therefore strictly liable? Or is Love a subsequent transferee?
The Court must answer this question because, if Love is a subsequent transferee, it will prevail against the Trustee's remaining claim. The evidence established that Love accepted all three payments for value, in good faith, and without any knowledge that the payments might be avoidable in bankruptcy. Love fully performed its contracts with Mrs. Potter to provide funeral and burial services, and the headstone. While this value was given to the Debtors, and not to the trustee or the estate, the "statute emulates the pattern of other rules protecting good faith purchasers. All of the courts that have considered this question have held or implied that value to the transferor is sufficient." Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d 890, 897 (7th Cir.1988) (citations omitted). In terms of knowledge, Love did not know of the Debtors' bankruptcy filing until it was served with the Summons in this action, over one year after its receipt of Mrs. Potter's final payment. There was no suggestion by the parties that using an assignment of the insurance proceeds was a highly unusual or inherently suspicious transaction. Love commonly offers to take an assignment of insurance proceeds to spare its clients the added task of dealing with the insurance company directly. The form of Assignment used in this case is one that Love commonly uses. There was no evidence of any discussion between Mrs. Potter and Love that they should use this policy instead of the exempt policy in order to maximize her exemptions. It was Mrs. Potter who made the selection to use the Globe policy for this purpose instead of the other policies. Her decision was based on its face amount, which was close in amount to the amount she would owe Love and it would not require an assignment of several small policies to provide for full payment. In fact, the Trustee did not dispute, and the Court finds, that if Love is a subsequent transferee, it has satisfied the good faith exception.
The Bankruptcy Code does not define the term "initial transferee." The Tenth Circuit has adopted the definition set forth by the court in Bonded Financial, which holds that the initial transferee is the first party to exercise dominion and control over the money or other asset. Malloy v. Citizens Bank (In re First Sec. Mortgage Co.), 33 F.3d 42 (10th Cir.1994). In the case of funds on deposit, dominion and control has been defined as "the right *311 to put the money to one's own purposes." Id. at 44 (quoting Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d 890, 893 (7th Cir.1988)); See also Bailey v. Big Sky Motors, Ltd. (In re Ogden), 314 F.3d 1190, 1202 (10th Cir.2002); Rupp v. Markgraf, 95 F.3d 936 (10th Cir.1996). Bonded Financial and the Tenth Circuit decisions interpreting § 550 involved prepetition transfers and, in large part, they focus on the distinction between the initial transferee and a party who acts only as an intermediary or conduit. Thus, they are not directly applicable to the present case. But they contain a great deal of analysis that is instructive.
Bonded Financial is, in many respects, the seminal decision in this area. In this case, Ryan was a person in control of a number of companies. He had obtained a personal loan from the defendant bank to be used as working capital for one of his companies. He caused a second company, Bonded Financial, to issue its check, payable to the bank, and sent the check to the bank with a note, directing the bank to deposit the money into his personal account at this same bank. He later instructed the bank to apply those same funds from his account to the loan. When Bonded Financial filed bankruptcy, its trustee sought to recover the loan payment from the bank as a fraudulent conveyance.
The Bonded Financial court could have simply viewed this transaction as a payment from Bonded Financial to the bank on account of the bank loan, which payment was for Ryan's benefit. Then clearly the bank would have been the initial transferee. Instead the court viewed this as two separate transactions. The first transaction was the transfer of funds by check from Bonded to Ryan, which were deposited into Ryan's account. It held that, because Ryan had sent a note to the bank, directing it to deposit the funds in his account, the bank had merely followed his instructions and had not exercised control over the funds. Then a second transfer occurred when the bank, acting on Ryan's later instructions, withdrew the funds from the account and applied them to the indebtedness. The court held that the bank acted only as an intermediary in the first transaction and Ryan was the initial transferee. When the bank applied the funds to the loan, it was a subsequent transferee, entitled to assert the good faith exception.
In First Security Mortgage Co., the debtor company's funds were deposited into an attorney's trust account. While it does not state so expressly, it appears that the attorney disbursed the funds for his own purposes. After the company filed bankruptcy, the trustee sued the bank as the initial transferee to recover the debtor's funds, claiming a fraudulent conveyance. Adopting the reasoning of Bonded Financial, the Tenth Circuit held that the bank was a mere conduit, not the initial transferee.
In Ogden, a real estate developer had engaged in a Ponzi scheme. He placed some of the investor money in an escrow account with a title company. The escrow company released funds back to two investors. The bankruptcy trustee sued these investors to recover the funds as a preferential transfer. They defended in part by claiming that the title company was the initial transferee. The Tenth Circuit found the investors to be the initial transferees and held that the title company was a mere conduit.
In Rupp v. Markgraf, the wife of the company's principal caused the bank to issue a cashier's check, drawn on the debtor company's account, to pay the principal's obligation. In the trustee's suit to recover this prepetition payment, the Tenth Circuit held that the bank was a *312 mere conduit. The principal was held liable under § 550(a)(1). While the principal was not the initial transferee, he was the person for whose benefit the transfer was made. The funds were never in his account, he was not the payee or the remitter of the cashiers' check, and he could not personally access the funds, but they were used to-pay his debt. The Tenth Circuit deemed the Markgrafs, who were owed money by the principal, and who were the recipients of the cashier's check, to be the initial transferees.
In Bonded Financial and the Tenth Circuit decisions, the courts did not have to address the question of whether the debtor could be the initial transferee of a post-petition transfer. In several § 549 cases, courts have held the debtor or its principal may be the initial transferee.[3] In these § 549 cases, like the present case, the debtor or its principal converted estate property to his or her own use.
In Ross v. John Mitchell, Inc. (In re Dietz), 94 B.R. 637 (9th Cir. BAP 1988), aff'd 914 F.2d 161 (9th Cir.1990), the panel agreed with the bankruptcy court's finding that the debtor was the initial transferee of misappropriated estate funds. The debtor operated two businesses as a sole proprietor. The Chapter 7 trustee continued to operate one of the businesses and hired the debtor to assist him for a period of time. Unbeknownst to the trustee, the debtor moved estate funds into an unknown account and continued to operate the other business, which the trustee had not elected to continue. The debtor hired employees, who performed post-petition services, and paid them from the secret account. When the trustee discovered the defalcation, he sued to revoke the debtor's discharge and to recover the funds from the employees. The bankruptcy court found the debtor to be the initial transferee and the employees to be subsequent transferees. Two of the employees established the good faith exception. The other nine did not. On appeal, the Bankruptcy Appellate Panel upheld the court's ruling that the initial transfer was the debtor's deposit of the funds into the secret estate account and held the debtor was the initial transferee of this transfer, despite the fact that the money remained property of the estate when he put it into the secret account. His acts of dominion and control over these funds made him the initial transferee.
In Poonja v. Charles Schwab & Co., Inc. (In re Dominion Corp.), 199 B.R. 410 (9th Cir. BAP 1996), the principal of the Chapter 11 debtor company opened a brokerage account in the company's name. Post-petition, the principal made personal purchases of luxury goods and services, using a credit card issued by the brokerage, secured by funds and securities in the account. Following conversion of the case, the trustee discovered the defalcation and sued to recover the value of the account. He named the brokerage company, the credit card bank, and the merchants who had provided goods and services. The panel applied the Bonded Financial definition of a "transferee," as one who exercises dominion and control over the asset. While making no specific mention of the status of the merchants on appeal, the *313 court concluded that the principal was the initial transferee, not the brokerage.
In Still v. American National Bank & Trust Co. (In re Jorges Carpet Mills, Inc.), 50 B.R. 84 (Bankr.E.D.Tenn.1985), the principal of the debtor withdrew funds from the debtor company post-petition by means of a cashier's check drawn on the company's account. He gave it to his bank to repay his personal loan. The bank had no knowledge that the funds came from the company because the cashier's check showed the principal as its remitter. The court held that the principal, not the bank, was the initial transferee. See also Brown v. Harris (In re Auxano, Inc.), 96 B.R. 957 (Bankr.W.D.Mo.1989).
The Trustee argued forcefully in closing that, if the Court were to follow the lead of these other § 549 cases, holding the debtor to be the initial transferee, it would render § 550(a)(1) meaningless. Certainly, this would be true in the context of a prepetition transfer that a trustee seeks to avoid as a fraudulent conveyance action under § 544 or § 548, or as a preference under § 547. In these prepetition transfer actions, if the debtor's own actions made him the initial transferee, it would render § 550(a)(1) meaningless. But should courts interpret "initial transferee" in the context of a § 549 claim more expansively? Some commentators have criticized the courts for making their interpretations of § 550(a)(1) fit a certain result, without remaining faithful to the statutory language. See Larry Chek and Vernon O. Teofan, "The Identity and Liability of the Entity For Whose Benefit a Transfer is Made Under Section 550(a): An Alternative to the Rorschach Test," 4 J. BANKR.L. & PRAC. 145 (1995). Is a court guilty of a results oriented approach if it holds the person who converts estate property to be the initial transferee?
Recognizing the difference between a transferee and an intermediary, developed in Bonded Financial, and adopted by many circuits, was itself a judicially-created exception to the literal language of § 550. In doing so, the court cautioned against the practice of many bankruptcy courts in relying on "equity" to relieve a transferee from a literal construction that they perceived as inequitable. But in acknowledging that the definition of a "transferee" was susceptible to varying interpretations, it acknowledged that a court could remain faithful to the language of the statute and still embrace an interpretation that "employed considerations of policy to define `transferee' under § 550(a)(1)." Bonded Fin. Servs. v. European Am. Bank, 838 F.2d 890, 895 (7th Cir.1988). Yet it cautioned further that "[d]oubts about this use of equity do not imply that courts should take `transferee' for all it could be worth rather than for what a sensible policy implies it is worth." Id.
Many years before this judicial exception arose, in Bank of Marin v. England, 385 U.S. 99, 87 S.Ct. 274, 17 L.Ed.2d 197 (1966), the Supreme Court confronted a case in which the defendant bank had been sued as a transferee for honoring prepetition checks post-petition. The court did not articulate the conduit distinction, but instead ruled that the language of § 70d, § 550's predecessor under the former Bankruptcy Act, was not to be strictly applied when to do so would yield an inequitable result. "Yet we do not read these statutory words with the ease of a computer. There is an overriding consideration that equitable principles govern the exercise of bankruptcy jurisdiction." Id., 385 U.S. at 103, 87 S.Ct. 274.
The Court does not suggest that the result in this case should be dictated by notions of justice and equity alone, without consideration of the actual language of the *314 statute. But the principles laid out by the Supreme Court and the circuits encourage this Courts to adopt an interpretation of "transferee" in the context of a § 549 claim that reflects sound policy. The primary focus of all of these cases is on identifying the first party who has, or could have, exercised dominion and control over the asset and holding that party to be the initial transferee.
In the present case, Mrs. Potter was the first party to exercise dominion and control over the Globe policy and its proceeds. As in Bonded Financial, the transfer at issue was actually a two-step transaction. When the Debtors filed bankruptcy, they owned the Globe policy, which was a contract that gave them the right to payment on the happening of a condition subsequent. This contract became property of the estate. After the bankruptcy filing, Globe's payment obligation matured. Mrs. Potter executed an assignment of a portion of this contract right. However unwittingly, by executing the Assignment, she usurped this asset from the bankruptcy estate. Globe later issued two checks in accordance with her instructions, one directly to Love for Mrs. Potter's benefit and one directly to Mrs. Potter, which she deposited into the prepetition checking account. The act of executing the Assignment was the first transfer. The checks made payable to Love and Mrs. Potter were subsequent transfers. "Transfer" is defined by § 101(54), as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property...." The execution of the Assignment fits within this broad definition of a "transfer." Thus, there is a basis for finding Mrs. Potter to be the initial transferee when she executed the Assignment.
Finding Mrs. Potter to be the initial transferee also comports with sound policy. Mrs. Potter, however unintentionally, exercised dominion and control over the Globe policy. She caused Globe to transmit the funds to Love and to herself. There is no appreciable difference between Mrs. Potter telling Globe to pay Love and her telling Globe to pay herself as far as the estate is concerned.
By way of contrast, Love had no way to protect itself from this situation. It provided goods and services, without any reason to suspect the voidability of the transaction. Holding Love liable for this transfer would in essence impose a duty on every merchant to conduct a bankruptcy search on its customer before parting with its goods or services. In the case of a preferential claim, the transferee can attempt to assert defenses to the action, such as a contemporaneous exchange for new value or that the transaction occurred in the ordinary course of business. Faced with a fraudulent conveyance claim, a transferee has the opportunity to prove that it gave reasonably equivalent value. In the case of a party who contracts with a trustee or debtor-in-possession to provide something of value post-petition, that party ordinarily has the ability to assert an administrative expense priority claim for payment. But in the context of a trustee or debtor who converts estate property to his own use, there is no corresponding benefit to the estate that will allow the assertion of the priority claim. In our context, no protection is available unless the transferee is held not to be the initial transferee. For these reasons, the Court holds that, in the context of a § 549 claim in which a party has wrongfully converted estate property to his own use, he is the initial transferee. Thus, Mrs. Potter was the initial transferee when she executed the Assignment and Love was a subsequent transferee.
*315 III. Conclusion
For the foregoing reasons, the Trustee's claims against Defendant Love Funeral Home fail. Judgment shall enter in favor of the Defendant and against the Trustee, dismissing the Complaint.
NOTES
[1] This case was filed before October 15, 2005, when most provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") became effective. Thus, this case is governed by the law in effect prior to BAPCPA and all statutory references to the Bankruptcy Code are to 11 U.S.C. §§ 101-1330 (2004), unless otherwise specified. All references to the Federal Rules of Bankruptcy Procedure are to Fed. R. Bankr.P. (2004), unless otherwise specified as well.
[2] The issue of tracing first surfaced in the parties' closing arguments. The Trustee complained that he was not notified prior to trial that Love disputed that these checks represented property of the estate. Love had not raised this issue in the Joint Pretrial Statement. But Love pointed out that the Complaint failed to include an allegation that this money was property of the estate and so there had been no need for Love to assert its denial of this fact. While the Court sympathizes with the Trustee's predicament, it has to agree with Love. The Complaint contains no allegation that the transfers were made from property of the estate. Love's Answer included, among others, a defense that the Complaint failed to state a claim for relief.
[3] One court has, without analysis, held that the initial transferee of a § 549 transfer cannot be the debtor, essentially reading into § 549 that the transfer must be a "transfer of property of the estate from the debtor." See, e.g., Keller v. Hoyle, Morris & Kerr (In re Blinder, Robinson & Co., Inc.), 199 B.R. 976, 983 (D.Colo.1996). It likely could have reached the same conclusion, however, by finding Mrs. Blinder, as the alter ego of the debtor, to be the initial transferee, but then concluded that her attorneys, as subsequent transferees, could not fit within the good faith exception. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1542150/ | 386 B.R. 785 (2008)
In re Gary E. KRAUSE, Debtor.
United States of America, Plaintiff, and
Linda S. Parks, Trustee, Intervener,
v.
Gary Krause and Richard Krause, Defendants and
Drake Krause and Rick Krause, Intervener.
Bankruptcy No. 05-17429. Adversary No. 05-5775.
United States Bankruptcy Court, D. Kansas.
April 21, 2008.
*790 Thomas W. Curteman Jr., US Department of Justice Tax Division, Hilarie E. Snyder, Washington, DC, for Plaintiff,
Gary E. Krause, pro se.
Michael Morris, Wichita, KS, for Intervener and Defendant,
Gaye B. Tibbets, Scott M. Hill, Hite Fanning and Honeyman LLP, Linda S. Parks, Wichita, KS, for Intervener,
MEMORANDUM OPINION
ROBERT E. NUGENT, Chief Judge.
TABLE OF CONTENTS
I. INTRODUCTION ......................................................................----
A. Nature of Case.................................................................----
B. Procedural History.............................................................----
C. The June 4, 2007 Sanctions Order...............................................----
*791
II. FINDINGS OF FACT...................................................................----
A. Krause's Business Ventures and Corporate Activity..............................----
1. Real Estate Partnerships Section 8 Housing Projects.....................----
2. Barton Enhanced Oil Recovery Income Fund ..................................----
3. Energy Associates, Inc.....................................................----
4. Federal Gasohol Corporation................................................----
5. Financial Investment Management Corporation................................----
6. Development Associates, Inc................................................----
7. Drake Enterprises, Inc.....................................................----
8. PHR, L.L.C.................................................................----
9. Polo Executive Rentals.....................................................----
10. Quivira Associates.........................................................----
1. Krause's IRS Examinations..................................................----
2. Krause's Tax Court Litigation..............................................----
3. Krause's Tax Assessments and Federal Tax Liens.............................----
4. IRS Collection Summons.....................................................----
C. Krause and Teresa Briggs ......................................................----
1. Krause's Premarital Holdings...............................................----
2. Krause's Antenuptial Agreement.............................................----
3. Gary's and Teresa's Health.................................................----
4. Krause's Personal Financial Statements.....................................----
5. Krause's Transfers to Teresa ..............................................----
a. Mission Property.......................................................----
b. Note Receivable Assignments............................................----
c. Security Interests in Partnership Interests............................----
d. Quivira................................................................----
6. Krause's Disclaimed Inheritance............................................----
7. Paine Webber and Merrill Lynch Accounts ...................................----
8. Krause's Control and Management of the PW and ML Accounts
D. Trusts.........................................................................----
1. Creation of Krause Children Trusts (KCTs)..................................----
2. Gary E. Krause Trust (GEKT) and Krause Irrevocable Trust (KIT)
3. Transfers to Trusts........................................................----
a. KCTs...................................................................----
b. GEKT ..................................................................----
c. KIT....................................................................----
4. Gary's Control over Trust Assets...........................................----
a. Mission property.......................................................----
b. 7711 Oneida Property and Teresa's Gift Mortgage .......................----
c. Wentworth Property-Section 1031 Tax Free Exchange......................----
d. Gary's Car Loan from KCT...............................................----
e. FIMCO loan from KCT for Dream Swing Investment.........................----
E. Gary-Teresa 2000 Divorce ......................................................----
1. Teresa's Allegations of Tax Fraud..........................................----
2. Reconciliation and $170,000 Settlement.....................................----
3. 2002 Divorce...............................................................----
F. Post-Divorce Activity..........................................................----
1. Domination of KCT Assets...................................................----
2. Reimbursement of FIMCO/Fed Gas for Krause Living Expenses and
Credit Card Bills........................................................----
3. Lease of Oneida to FIMCO and Krause .......................................----
G. IRS Collection Activity........................................................----
1. July 2005 Collection Summons ..............................................----
2. Creation of PHR, LLC and Transfer of Oneida Property ......................----
3. Krause Files Bankruptcy....................................................----
4. Government Commences this Adversary Proceeding.............................----
III. ANALYSIS AND CONCLUSIONS OF LAW
*792
A. Dischargeability of Krause's Tax Debt Under 11 U.S.C. § 523(a)(1)(C)
1. Fraudulent Tax Return .....................................................----
2. Willful Evasion of Collection..............................................----
B. KCTs as Krause's Nominees .....................................................----
1. Krause's Property Interest in the KCTs Under Kansas Law....................----
a. Statute of Limitations.................................................----
b. Badges of Fraud........................................................----
c. Transfers of Life Insurance Policies...................................----
d. Resulting Trust Theory for Krause's Property Interest..................----
2. The KCTs as Krause's Nominees Under Federal Law............................----
a. Control Over the KCTs..................................................----
b. Use of KCTs to Pay Personal Expenses...................................----
c. Relationship Between Taxpayer and KCTs.................................----
d. Lack of Oversight Over Taxpayer's Actions .............................----
e. Lack of Consideration for Transfers....................................----
C. Fraudulent Transfers...........................................................----
1. The Court's Determination of KCTs Nominee Status Renders a
Determination on the Fraudulent Transfer Claims Moot.....................----
2. Quivira....................................................................----
a. Facts Pertaining to Quivira............................................----
b. Fraudulent Transfer of Quivira Ownership Interest......................----
D. Permanent Injunction ..........................................................----
IV. CONCLUSION.........................................................................----
I. INTRODUCTION
Just ... follow the money ...[1]
Gary E. Krause is a man who has everything and owns nothing, largely by his own design. As will be described at considerable length in this opinion, debtor and defendant Gary E. Krause has spent the last two decades taking actions intended to shield his assets from the collection efforts of the United States. Following the money over the trail of Krause's asset manipulation is torturous. It involves numerous inter-entity and intra-family transfers that often occurred in close temporal proximity to proceedings or determinations by the IRS or the Tax Court that adversely affected Krause. At the center of these manipulations is Krause's antenuptial agreement with his former wife, Teresa Briggs, and transfers he made to her that violate the clear terms of that agreement. The sheer number and scope of the transactions assure that these are not coincidences. And, all of Krause's schemes had one ultimate goal: the protection of his property by placing it in the names of third parties or entities while retaining its full use and control.
Both the United States and chapter 7 trustee, Linda S. Parks sue for a determination that assets held by corporations, partnerships, and trusts associated with Krause are in fact his assets, subject to his dominion and control, and therefore subject to the legitimate claims of his principal creditor, the Internal Revenue Service.
The Court conducted a nine-day trial on the claims of the United States of America ("Government") and the chapter 7 trustee in this multiple count adversary proceeding. The Government appeared by Hilarie E. Snyder and Thomas W. Curteman, Jr. *793 with the United States Department of Justice, Tax Division. The chapter 7 trustee Linda Parks ("Trustee") appeared in person and by her attorney, F. James Robinson of Hite, Fanning & Honeyman L.L.P. The interveners Drake Krause and Rick Krause ("Interveners"), Krause's sons and trust beneficiaries, appeared by their attorney, John Val Wachtel of Klenda, Mitchell, Austerman & Zuercher, L.L.C. The defendant-debtor Gary E. Krause ("Krause" or "Gary") appeared pro se. The defendant Richard Krause ("Richard"), trustee of the Krause Children Trusts ("KCT") and Krause's brother, appeared only as a witness and did not otherwise appear or participate at trial in defense of the plaintiffs' claims against him as trustee.
After the close of the evidence, the Court directed the parties to submit briefs on one legal issue. The Court has now fully reviewed the evidence, including designated deposition testimony and the parties' briefs,[2] and is ready to rule.
A. Nature of Case
Krause owes the Government approximately $3,359,001 for federal income taxes for the years 1975, 1978-1983, 1986, 1994 and 1995.[3] Nearly all of this claim is secured by notices of federal tax lien. The Government and the Trustee seek to have the five KCTs that Krause created in the late 1980's and 1990 declared to be Krause's nominees, rendering KCT-held assets his property and subject to the Government's federal tax liens. They then seek turnover of that property to the bankruptcy estate. They also seek a determination that certain property and assets held by the KCTs were fraudulently transferred to the trusts under the Statute of Elizabeth as enacted in Kansas,[4] the Kansas Uniform Fraudulent Transfer Act ("KUFTA"),[5] or 11 U.S.C. § 548. Finally, the Government seeks to have Krause's tax debt excepted from his discharge under 11 U.S.C. § 523(a)(1)(C) and for entry of a permanent injunction enjoining him from transferring trust property and assets.
B. Procedural History
Krause filed his voluntary chapter 7 petition on October 10, 2005, after he unsuccessfully attempted to quash an IRS collection summons seeking KCT records. The Government filed a petition in the United States District Court for the District of Kansas to enforce the summons.[6] Krause is licensed to practice law in Kansas but does not hold himself out as a practicing lawyer. He elected to proceed without counsel in this case since his attorney withdrew in October 2006 after the Court rejected Krause's request to pay his attorney from potential assets.[7] Richard is Krause's brother, a podiatrist, and is the named trustee of all of the KCTs. Richard was also initially represented by counsel but his attorney withdrew when the Court declined to permit KCT funds to be used to pay his attorney.[8] Richard has not actively participated in the proceedings since filing an answer to the adversary complaint. He remains a party defendant and the trustee of the KCTs. The Interveners are Gary's two sons, Drake and Rick, who are the named beneficiaries of *794 the KCTs. At the time of trial, Drake was a freshman" in college and Rick was a senior in high school.
The Government commenced this adversary proceeding against Gary and Richard on November 1, 2005. In its complaint, the Government sought to enjoin transfers of property and assets, a declaration that the KCTs and several other entities and trusts connected to Krause the Gary E. Krause Trust, the Krause Irrevocable Trust, Federal Gasohol Corporation (Fed Gas), Financial Investment Management Corporation (FIMCO), Drake Enterprises, Inc., and PHR, LLC are his nominees and subject to federal tax liens, to except from discharge Krause's tax liability pursuant to 11 U.S.C. § 523(a)(1)(C), and to set aside alleged fraudulent transfers by Krause and have its federal tax lien attach to fraudulently transferred property.
On November 21, 2005, the Government obtained an ex parte temporary restraining order preventing the transfer of assets held by the above entities and trusts. The Court conducted a two-day hearing on the preliminary injunction and the Court granted the Government's request, effectively freezing all assets and accounts of the above entities and trusts during the pendency of this adversary.[9]
Shortly thereafter, the Trustee intervened in this adversary proceeding and filed her own turnover complaint.[10] Like the Government, the Trustee alleged that the entities and trusts were Krause's nominees and property of the bankruptcy estate subject to turnover. The Trustee also sought to avoid and preserve for the estate fraudulent transfers allegedly made by Krause into the trusts.
Approximately one year later, after Richard's counsel withdrew and Richard ceased to participate in the proceedings, Drake and Rick were permitted to intervene to protect their, purported interests as beneficiaries of the KCTs and to defend the validity of the KCTs.[11]
Following a protracted and contentious discovery period, all parties filed dispositive motions. Krause and Interveners filed motions to dismiss and for partial summary judgment.[12] Highly summarized, they asserted that the Government lacked standing to pursue the fraudulent transfer claims and that both plaintiffs' fraudulent transfer claims were barred by applicable statutes of limitation and repose. They also challenged the plaintiffs' nominee claim as a "reverse piercing" claim that is not cognizable under Kansas or Tenth Circuit law. The Government and the Trustee also filed comprehensive motions for summary judgment on all their claims.[13] In three separate opinions, the Court denied all of the motions, thus leading to a trial of the claims.[14]
C. The June 4, 2007 Sanctions Order[15]
Early in the course of discovery, the Government served requests for production of documents on Krause, seeking, inter alia, information, communications, and records maintained by Krause on computers. When Krause failed to produce this electronic evidence, the Government and the Trustee obtained an order compelling Krause to turnover his actual computers for inspection. Upon inspection, the plaintiffs discovered that Krause had loaded and operated a wiping software program *795 on his computers that permanently destroyed or erased electronic evidence.
This discovery led plaintiffs to move for discovery sanctions and contempt proceedings for spoliation of electronic evidence.[16] They sought entry of default judgment on all of their claims, including a determination that all of the entities and trusts at issue be deemed to be Krause's nominees. The Court conducted a three day evidentiary hearing on the motions and then issued its sixty-one page opinion on those motions ("Sanctions Order"), finding that Krause willfully destroyed electronic evidence and assessing sanctions against him.[17] The Court also entered partial default judgment against Krause as a sanction for his spoliation of electronic evidence, determining that the following entities were Krause's nominees and that the assets held by them were subject to turnover as property of the estate: Gary E. Krause Trust, Krause Irrevocable Trust, FIMCO, Fed Gas, Drake Enterprises, Inc. and PHR, LLC. The Court declined to default Krause with respect to the KCTs, leaving the Government's and the Trustee's nominee claims with regard to the KCTs for trial.
II. FINDINGS OF FACT
The Court makes the following findings of fact from the evidence presented at trial. Interspersed throughout these findings are the uncontroverted facts established by the summary judgment motions that were previously deemed established for purposes of trial pursuant to Fed. R.Civ.P. 56(d).[18] The Court may reference from time to time the previously defaulted entities to place in context their relationship to Krause and the events in this case as well as to demonstrate Krause's pervasive pattern of removing his name from virtually all of his assets.
A. Krause's Business Ventures and Corporate Activity
Krause is a self-described entrepreneur. He has been involved in a variety of business ventures and industries including real estate development, management services, and oil and gas or energy development. Gary obtained his masters in business administration and juris doctor degrees in 1973. He obtained his Kansas law license in 1973. He began work with Garvey Industries in the 1970's; he worked the for several years before leaving Garvey and striking out on his own in the late 1970's. While at Garvey, Krause was involved in finding international investors for Garvey ranching and real estate development and housing enterprises. In more recent years, Krause has been involved with enterprises and individuals overseas in developing what Krause has termed an "antiaging product."
1. Real Estate Partnerships Section 8 Housing Projects
Krause became aware of Section 8 real estate while employed at Garvey. When he left Garvey, Krause became involved in several Section 8 housing projects. He acknowledged that he used Section 8 housing as a tax shelter. Section 8 housing is low-income housing subsidized by the federal government's contribution to reach market rental rates.[19] The following limit *796 partnerships were Section 8 housing projects established by Krause: Liberal Commons Ltd., Norton Commons Ltd., Great Bend Duplex Housing Ltd., Hutchinson Duplex Housing Ltd., Liberal Duplex Housing Ltd., Norton Duplex Housing Ltd., and Rural Housing Associates, Inc.
2. Barton Enhanced Oil Recovery Income Fund ("Barton")
Barton was one of a number of partnerships created in the early 1980's by various promoters for the development of previously unprofitable oil and gas properties using new and unproven technologies. Krause was the tax matters partner for Barton and admitted that the enhanced oil recovery (EOR) partnerships were tax shelters. For the years 1981 and 1982, the IRS challenged the legitimacy of Barton's debt structure and the tax benefits flowing to the Barton investors. This became the "test case" under the Tax Equity and Fairness Reform Act of 1985 (TEFRA) that is the subject of the Tax Court case filed by Krause to contest the IRS's disallowance of certain tax deductions based upon the partnership's debts.[20] Krause's Tax Court challenge was unsuccessful and the disallowed deductions flowing to the Barton partners forms the basis for part of Krause's income tax liability.
3. Energy Associates, Inc. ("Energy")
Although the record is unclear, it appears that Energy was formed in the 1970's or early 1980's and that Gary owned 100% of its stock. Energy was the corporate general partner of Barton. The IRS determined that Energy's payment of Krause's personal expenses in 1981, 1982 and 1983 constituted taxable income to Krause. This determination was one of several that were the subject of notice of tax deficiencies and unsuccessful challenge by Krause and comprises part of Krause's income tax liability.
4. Federal Gasohol Corporation ("Fed Gas")
Gary established Fed Gas in 1980. The original purpose of Fed Gas was a venture to convert a winery into an ethanol plant. Later on, Fed Gas was involved in the operation of an oil tanker, the MV Sillery, in the Caribbean. Fed Gas paid management fees to Financial Investment Management Corporation ("FIMCO") for its operational and management services in connection with the tanker. Fed Gas also financed the tanker operations and held a mortgage on the tanker to secure its loan to the owner of the tanker. Gary was the sole owner of Fed Gas until 1989, when he transferred Fed Gas to the Gary E. Krause Trust for no consideration. Gary is the sole beneficiary and Richard is the trustee of that trust. Gary continued to manage Fed Gas, even after the transfer to the Gary E. Krause Trust. He is the sole signatory on the Fed Gas accounts. Fed Gas was the primary generator of Krause's income in the 1990's.
*797 5. Financial Investment Management Corporation ("FIMCO")
Krause founded FIMCO in 1980 together with C. Norris Taylor with whom he had worked at Garvey Industries. At formation, Krause was the majority shareholder of FIMCO, owning 51%, or 510 shares of stock, while Taylor owned 49%, or 490 shares of stock. FIMCO largely provided financial and management services for Krause's other entities but did not own any assets; Taylor referred to it as a "shell company" in his testimony. Taylor described FIMCO's activities as a servicing operation for Krause's other companies and business interests, providing accounting, tax return preparation, and operational management.
Taylor acquired an additional 4,000 shares in FIMCO in 1985, becoming its president and the owner of 90 per cent of its stock. On September 1, 1992, Krause transferred his 510 shares of FIMCO stock to Taylor thereby making Taylor the 100% owner of FIMCO. Taylor did not pay Krause any consideration for the transfer, although each share had a par value of $1. This transfer was made within 40 days after the Tax Court disallowed Barton's and the related partnerships' losses and accrued interest deductions,[21] and within two years after the IRS issued Gary notices of deficiency for his personal Forms 1040 for tax years 1975-1983 and 1986. Some five months after Krause's transfer, Taylor signed a contract dated February 8, 1993 obligating him to transfer FIMCO upon his retirement to the Krause Irrevocable Trust of which Krause is the sole beneficiary.
While Taylor was owner and president of FIMCO, Krause retained signing authority on the corporate bank account. When Taylor retired on February 5, 2001, Krause became president of FIMCO again and was the only authorized signatory on the FIMCO bank account. On September 9, 2002, Taylor transferred FIMCO to the Krause Irrevocable Trust, belatedly complying with his previous contractual obligation. The Krause Irrevocable Trust paid no consideration for that transfer. Richard, the trustee of the Krause Irrevocable Trust, provided no oversight when it acquired FIMCO. Richard testified that Gary negotiated the transaction. Since the 2002 transfer of FIMCO to the Krause Irrevocable Trust, Krause has controlled FIMCO without any oversight from Richard.
Operating under Gary's direction, FIMCO invested in various ventures, including Live Wire Media Partners, L.L.C. which was formed to acquire and operate a radio station. FIMCO financed part of its interest in Live Wire through a Liberian company called Overseas Trust Company.[22] FIMCO has contributed at least $215,120 to Live Wire since 2003.[23] Richard played no role in evaluating this transaction, but rather delegated the entire responsibility for this acquisition and all of FIMCO's business dealings to Gary. FIMCO also invested in Dream Swing Machine, L.L.C, a company formed to acquire a golf swing aid. FIMCO engaged in the Dream Swing investment at a time when Gary was the president. According to Richard and Gary the KCT 1 loaned $25,000 to FIMCO to fund the investment.
6. Development Associates, Inc.
This entity holds 10-20 acres of undeveloped land in Reno County, Kansas. It was intended to be another Section 8 housing development but that never came to fruition. Gary was its sole shareholder, director *798 and officer. He transferred Development Associates to the Gary E. Krause Trust on July 26, 1989 for no consideration from the trust, shortly after the IRS issued notice of examination of Gary's 1986 personal return.
7. Drake Enterprises, Inc.
Drake Enterprises was incorporated in October 1988. Teresa Briggs ("Teresa"), Gary's wife at the time, was its sole shareholder. Gary and Teresa are its only directors. Teresa ran her "Cookie Diet" business through Drake Enterprises for a period of time and according to Gary, Drake Enterprises owned the formula developed for the Cookie Diet. In February of 1996, Teresa conveyed the Mission property (Gary's former residence and marital home) to Drake Enterprises, which later sold the Mission house to third parties. Gary, as president of Drake Enterprises, signed a limited power of attorney to attorney Nelson Van Fleet to enable Van Fleet to appear on behalf of Drake Enterprises in connection with the closing of the sale of the Mission property. Gary signed the 1989 federal tax return of Drake Enterprises as vice-president. Drake Enterprises no longer owns any assets.
8. PHR, LLC
In late July or early August, 2005, shortly before Richard was due to appear on August 5, 2005 to respond to the IRS Collection Summons with KCT records, Gary formed a limited liability company called PHR, LLC. Gary testified it was formed to hold title to the family's residence on Oneida Circle (the "Oneida property") to effectuate a Section 1031 tax free exchange with another residential property he intended to acquire (the Wentworth property).[24] On August 5, 2005, Richard signed trustee warranty deeds conveying title to the Oneida property from the KCT 1 to PHR. The deed was recorded August 11, 2005. Gary prepared the operating agreement (dated August 7, 2005) for PRH, LLC[25] using a form LLC agreement. KCT 1, 2 and 5 were listed as the members of PHR. PHR was one of the entities upon which the Court defaulted Gary in its Sanctions Order, deeming PHR to be Krause's nominee.
9. Polo Executive Rentals ("Polo")
Polo is the named lessor under lease agreements with Gary and FIMCO for the Oneida property.[26] Polo has no record title interest in the Oneida property. Polo owns no assets. It is a non-entity, merely being a name on the checking account into which lease payments were purportedly deposited by Gary and FIMCO. It is unclear when the account was established but the lease agreements are dated with the year 2000. Richard signed the lease agreements on behalf of Polo. Gary testified the Polo account is owned or controlled by the KCT 1.
*799 10. Quivira Associates ("Quivira")
Quivira holds title to 145-160 acres of real property in Stafford County, Kansas where a hunting lodge is located. It was incorporated in 1986 by Richard, who is also the president. Richard and Gary use the property for hunting. In addition, the pasture ground is rented out to a tenant part of the year to run cattle.
Initially Kanzoil Corporation (100% owned by Gary) owned 4,000, shares or a one-third interest in Quivira. In 1989, Gary transferred the shares to Teresa. In 1998, Teresa transferred the shares to the Gary E. Krause Trust or the Interveners.[27] A more detailed discussion of the chain of transfers is contained later in this opinion.[28]
B. Krause and the IRS
Krause's tax battles with the IRS began in the 1980's when the IRS sent letters both to Krause individually indicating that it was initiating an examination of his personal tax returns and to Krause, as Barton's tax matters partner, indicating that it was auditing Barton and other EOR partnership returns.
Marsha Waterbury, a revenue officer and 34 year employee of the IRS, explained the examination or audit process at trial as follows. First, an examination letter or audit letter is sent to the taxpayer, notifying the taxpayer that his tax return is being examined. The letter may be accompanied by a request to meet with the taxpayer and a request for additional information or documents to be brought to the meeting. After its examination and review, the IRS issues a notice of deficiency which, based upon the IRS's review of the information and return, makes changes to the taxpayer's return.
Once a notice of deficiency is issued, a taxpayer can respond in several ways. The taxpayer can agree with the changes and voluntarily pay the tax deficiency ending the tax dispute. The taxpayer can challenge the tax deficiency and file a petition with the United States Tax Court. If the taxpayer is unsuccessful in the Tax Court, he can appeal the Tax Court decision to the applicable Circuit Court of Appeals and from there, to the United States Supreme Court. If the taxpayer loses the tax appeals, the notice of tax deficiency stands and the taxpayer can either voluntarily pay the tax liability or suffer the IRS's collecting the deficiency. Once the tax deficiency has been fully litigated through the courts, or no challenge to the tax deficiency is made by the taxpayer, but the tax deficiency remains unpaid, the IRS then assesses the taxes. Once the tax assessment is made, the IRS then attempts to collect the taxes from the taxpayer or the taxpayer's property by levy or attachment. Included in the IRS's arsenal of collection tools is the ability to file a notice of federal tax lien on all of a taxpayer's property.[29]
1. Krause's IRS Examinations
During the period from February of 1980 to July of 1985, the IRS selected Gary's personal Form 1040 returns for the tax years 1975 through 1983 for audit. This audit pertained to multiple tax issues, principally the deductions Gary took in connection with operating losses of his enhanced oil recovery ("EOR") partnerships and also his alleged failure to report as *800 income personal expenses paid by his wholly owned company Energy Associates, Inc. in years 1981, 1982 and 1983.[30] The IRS issued a notice of deficiency on October 25, 1990 increasing Krause's tax liability by approximately $558,000 plus penalties and interest. Krause filed Tax Court case no. 1279-91, discussed below, to challenge the deficiency.
Beginning on June 28, 1983 and through 1986, the IRS notified Gary in his capacity as Barton's tax matters partner that it was also auditing Barton's 1982 and 1983 partnership tax returns. Additionally, on June 28, 1983, the IRS sent Gary a notice informing him that it was auditing the 1981 and 1982 tax returns for his other EOR entities, Cardinal Oil Technology Partners, Energy Associates, Inc., Caxton Oil Technology Partners, and Harrow Oil Technology Partners.[31] These audits questioned deductions taken by the partnerships for reported losses incurred by their respective enterprises stemming from their debt obligations. The IRS challenged the validity of those debt obligations. On April 11, 1986, the IRS issued a notice of administrative adjustment disallowing all partnership losses. Acting as tax matters partner, Krause filed Tax Court case no. 16425-86 (the "Barton Tax Case"), also discussed below, to challenge the administrative adjustment.
On April 5, 1989, the IRS advised Gary that it was also examining his 1986 personal return.[32] The scope of the examination was limited to certain Schedule C bad debt losses he claimed. The IRS challenged both the existence of a debtor-creditor relationship as well as Gary's assertion that the debt had become worthless during the tax year. According to Gary, the bad debt losses he claimed arose from loans he made to real estate partnerships Liberal Commons, Ltd. and Norton Commons, Ltd. The result of this audit was a notice of deficiency increasing Krause's income for 1986 by some $395,000 representing the disallowed bad debt loss and more than $3.15 million representing disallowed partnership net operating loss (NOL) carryforward. Krause then filed Tax Court case no. 1268-91 to challenge the bad debt findings. The NOL deficiency remained in controversy in the Barton Tax Case at that time.
On January 15, 1997, the IRS notified Gary that it was examining his 1994 Form 1040 and, on July 11, 1997, the IRS expanded its examination to include his 1995 Form 1040.[33] This audit resulted in upward adjustments to these returns of some $150,000 in taxes and penalties owed. These adjustments were a continuing consequence of Gary's claiming NOL carryforward benefits from the abusive EOR tax shelters on his 1040 returns for 1994 and 1995. Even though the Barton Tax Case had been resolved adversely to Gary on appeal by June of 1994, he nevertheless included these losses on both his 1994 and 1995 returns. According to Gary's accountant, David Holste, C.P.A., these partnerships did not file their final returns until 1994 and 1995, resulting in the flow-through of income and other tax benefits from the partnerships to Gary and the other partners. Holste also stated that had he known that the Tenth Circuit had affirmed the Barton Tax Case on appeal, a conclusion adverse to Gary, he would have prepared Gary's 1994 and 1995 returns differently. This audit resulted in an assessment *801 of some $60,725 for tax year 1994 and $239,267 for tax year 1995.
2. Krause's Tax Court Litigation
On May 28, 1986, after the IRS disallowed deductions taken by Barton for losses allegedly incurred by the partnership, Gary petitioned the United States Tax Court (No. 16425-86) and challenged the IRS decision.[34] According to the Tax Court, the Barton Tax Case was the test case for over 2,000 related, pending TEFRA partnership matters. Alleged total tax deficiencies at issue in connection with this group of related cases and TEFRA partnerships were in excess of $2 billion. On July 29, 1992, the Tax Court disallowed Barton's and the other partnerships' losses and accrued interest deductions, stating:
In summary, presented to us in this case is a chain or multi-layered series of obligations, stacked or multiplied on top of each other via the numerous partnerships to produce debt obligations in staggering dollar amounts, using a largely undeveloped and untested product, in a highly risky, very speculative, and non arm's-length manner in an attempt to generate significant tax deductions for investors. The transactions did not, and do not, constitute legitimate for-profit business transactions.
Losses of the partnerships are disallowed under section 183, and accrued interest deductions are disallowed due to the non-genuine nature of the underlying debt obligations.[35]
The Tenth Circuit Court of Appeals affirmed the Tax Court decision in 1994, and the Supreme Court denied certiorari in 1995.[36] Because Barton and the other EOR ventures were structured as partnerships, the disallowance of the partnership losses flowed through to the investors in those partnerships and significantly increased the individual partners' tax liabilities, including those of Krause.
On October 25, 1990, the IRS issued notices of deficiency to Krause personally which notified him that the IRS had determined that he had underpaid his taxes for the years 1975-1983 and 1986 by, in part, failing to report certain income paid to him by Energy Associates, by taking deductions for losses he claimed by participating in EOR partnerships such as Barton, and for disallowance of bad debt losses.[37] On January 22, 1991, Krause personally petitioned the Tax Court to challenge his 1986 deficiencies attributable to the bad debt losses disallowed by the IRS (Tax Court case no. 1268-91).[38] On that same day, Krause also petitioned the Tax Court to challenge his personal tax deficiencies for the years 1975 through 1983 (Tax Court case no. 1279-91).[39] Ten years later, in February 2001, Gary and the Commissioner settled their disputes with respect to Krause's 1975-1983 and 1986 tax years. In accordance with the settlement, Gary agreed that he owed taxes for 1975, 1978 through 1983, and 1986.[40] With respect to the bad debt losses for the year 1986, Gary agreed to the IRS's deficiency of $11,153.
*802 On July 13, 1999, the IRS mailed Gary a notice of deficiency for tax years 1994 and 1995, which Gary did not challenge. The IRS assessed the deficiencies for those taxes in December 1999 pursuant to a settlement that Krause believed would put the EOR matters behind him. Krause testified that when the IRS assessed the 1975 through 1986 liabilities arising from the disallowed partnership NOLs, he "gave up" because he had no way to ever repay these liabilities.
3. Krause's Tax Assessments and Federal Tax Liens
In total, the IRS assessed federal income taxes, interest, and penalties in the following amounts and filed notices of federal tax liens in Sedgwick County, Kansas on the following dates:
Tax Date of Tax Lien
Year Amount Assessment Filed
1975 $ 11,990.45 05/31/2001 10/12/2001
1978 $393,919.32 05/31/2001 10/12/2001
1979 $104,665.13 07/13/2001 11/16/2001
1980 $178,438.54 07/13/2001 11/16/2001
1981 $ 89,294.04 07/13/2001 11/16/2001
1982 $711,092.52 05/31/2001 10/12/2001
1983 $784,180.78 05/31/2001 10/12/2001
1986 $ 40,460.99 07/13/2001 11/16/2001
1994 $ 60,725.01 12/01/1999 04/06/2001
1995 $239,267.18 12/01/1999 04/06/2001
At the date of his bankruptcy petition, with interest and penalties, Gary owes the United States about $3,359,001 for tax years 1975, 1978 through 1983, 1986, 1994, and 1995.
4. IRS Collection Summons
As an IRS Revenue Officer, Marsha Waterbury's duties include collecting unpaid taxes from taxpayers. Her duties begin after a tax assessment is made. Waterbury because responsible for the Krause account in June of 2005. She reviewed IRS records and files from the 1980's as well as the prior revenue officer's activity. According to Waterbury, the prior revenue officer had contact with Krause regarding his unpaid taxes, but Krause had been uncooperative. Krause has made no payments on the tax liabilities since the taxes were assessed. In the course of her review and investigation Waterbury found no assets titled in Krause's name.
On July 8, 2005, Waterbury served a collections summons issued pursuant to 26 U.S.C. § 7602 on Richard, as trustee of the trusts, to appear before her at the IRS offices in Wichita on August 5, 2005. The summons required that he provide, inter alia, "all records in [his] possession" pertaining to the KCTs and the Gary E. Krause Trust.[41] Upon receiving the summons, Richard contacted Gary and asked him how to respond. Gary referred Richard to attorney Brian Grace to respond to the summons. Rather than comply with this summons, Richard, through his attorney, filed a Petition to Quash Summons in the United States District Court for the District of Kansas on July 28, 2005.[42] This action was later dismissed.
C. Krause and Teresa Briggs
Teresa Briggs figures prominently in Krause's asset activities. Krause met Teresa in 1982. At that time, Teresa *803 owned and ran an advertising agency and Gary was involved in his EOR partnerships as well as a variety of other business enterprises. They were married on April 5, 1986. Because of Gary's failed first marriage, he insisted on an antenuptial agreement. According to Gary, the attorneys worked on the terms of an antenuptial agreement for nearly a year before the final agreement was executed by Gary and Teresa on April 4, 1986, the day before their wedding.
After they were married, Teresa worked for the Fleming Companies in advertising and marketing for a period of time. She ceased working outside the home upon the birth of her youngest son, Rick. Teresa acknowledged that she was not a "numbers" or detail person, but by all accounts was talented in marketing, advertising, and creative work. She also holds a real estate license and buys properties and refurbishes them for rent or resale. While they were married, Teresa started her Cookie Diet venture. As the name suggests, Teresa oversaw the development of a formula for a nutritional cookie and began marketing the product. The evidence suggests that Teresa conducted the Cookie Diet venture from home as she raised the children. Teresa testified that the Food and Drug Administration ultimately shut down the Cookie Diet business. Teresa also retained an interest in her family's business, a basement/foundation repair concern. Thus, while Gary owned more property than Teresa, she did bring some property into the marriage.
1. Krause's Premarital Holdings
Prior to his marriage to Teresa, Krause personally owned the following:
a) partnership interests in several limited partnerships, including: Cardinal Oil Technology Partners, Caxton Oil Technology Partners, Harrow' Oil Technology Partners, Bishop Energy Technology Associates, Barton Enhanced Oil Production Income Fund, and Trojan Energy Technology Associates;
b) 100% of the stock of Energy Associates, Inc.;
c) 100% of the stock in Federal Gasohol Corporation;
d) 51 % of the stock or 510 shares of Financial Investment Management Corporation ("FIMCO");
e) 100% of the stock of Development Associates, Inc., which owned real property in Reno County;
f) general partnership interests in several real estate limited partnerships, including Great Bend Duplex Housing Ltd., Hutchinson Duplex Housing Ltd., Liberal Commons Ltd., Norton Commons Ltd., Newton Associates, Liberal Duplex Housing Ltd., and Norton Duplex Housing Ltd.;
g) 100% of the stock of Rural Housing Associates, Inc.;
h) sole ownership of the real property and personal residence at 37 N. Mission Road, Wichita, Kansas; and
i) 100% of the stock in Kanzoil Corporation.
In 1986, Krause was also the president of Federal Gasohol Corporation, Energy Associates, Inc., FIMCO, and Development Associates, Inc., as well as a director of Quivira Associates.
2. Krause's Antenuptial Agreement[43]
Gary and Teresa entered into the antenuptial agreement ("Agreement") on April 4, 1986. In doing so, they agreed to keep their separate property and preclude any claim that their separate property would *804 become marital property. The Agreement recognized that Gary and Teresa had their own separate businesses, and in fact the Agreement's introductory recitals state that "each party hereto is presently operating and conducting a business venture and each is desirous of continuing such venture after their marriage to each other."[44] Under the Agreement, Teresa waived any right, title or interest in and to Gary's assets and separate property. Those assets listed by Gary included the interests listed above: the Mission property; his interest in the real estate limited partnerships; Rural Housing Associates, Inc., Western Associates of Kansas, Inc.; his interest in the oil technology partnerships; Energy Associates, Inc.; and a note receivable from Beverly Terrace Apartments, Inc. Gary acknowledged at trial that it would have been in his best interest to list all of his assets in the Agreement but conceded that he did not. For example, he omitted his interest in FIMCO and Fed Gas. Nor did Gary disclose several notes owed to him by his companies, notes that he later assigned to Teresa. At the time the couple executed the Agreement, Gary knew that the IRS was auditing his personal tax returns as well as those of the Barton, Cardinal and Caxton oil partnerships. Indeed, Krause filed the tax court petition challenging the Barton tax deficiency in May of 1986, only a month after his marriage to Teresa.
Among the salient provisions of the Agreement was the ability to deem and treat separate property as marital property. Under paragraph 6 of the Agreement, Gary and Teresa did not consider their separate property to be held as marital property except as they might subsequently agree in a separate written agreement that referenced the Agreement. None of the transfers referenced in this opinion were documented in a manner that complied with this provision.
Paragraph 8 of the Agreement sets forth the rights of the parties upon a divorce. It provides that Teresa would receive $1,000 per month as alimony for a maximum of 120 months. Paragraph 9 addressed the property division between the parties. If Gary and Teresa remained married for a period of ten (10) years and she commenced the divorce action, Teresa would receive the greater of $50,000 or one-half of the marital assets as her property division.[45] Thus, the total amount of cash that Teresa stood to receive under the Agreement in the event of a divorce was $170,000. At all times during the marriage, Gary was to carry a $250,000 life insurance policy on his life with Teresa as the named beneficiary. In addition, if Gary died while he and Teresa had a minor child, Teresa was to inherit their principal residence.
Paragraph 12 of the Agreement required Gary to establish a Krause Children Trust upon the birth of children of the marriage; the trust was intended to be in lieu of child support in the event of a dissolution of the marriage. Specifically, the Agreement states:
A. Upon the first child being born as issue of said marriage, Gary shall commence a spendthrift trust known as the "Krause Children Trust" and placed at a bank within the City of Wichita. Said trust shall name as trustees an individual named by each of the parties and a third person named by the two designated trustees. The original corpus of the trust shall be Fifty Thousand Dollars ($50,000.00). The corpus shall be increased by Fifty Thousand Dollars ($50,000.00) upon *805 the second child being born as issue of said marriage or upon the Fifth (5th) birthday anniversary of the first child born as issue of said marriage, whichever event first occurs.
B. In the event a third (3rd) child is born as issue of said marriage, or upon the fifth (5th) birthday anniversary of the second (2nd) child being born whichever first occurs, Gary agrees to add to the corpus of said trust assets equal to Fifty Thousand Dollars ($50,000.00). Regardless of the number of children born as issue of said marriage, the contributed total of the corpus of said trust shall not exceed One Hundred Fifty Thousand Dollars ($150,000.00) unless Gary should elect to add to said corpus.
C. The trust so established shall be a spendthrift trust with three (3) trustees, one to be named by Gary, one to be named by Teresa, and the third to be selected by the other two trustees. The corpus of the trust estate shall be invested by the trustees, along with all accumulated earnings and income therefrom. Provided, however, that in the event of termination of the contemplated marriage by divorce, ... and beginning on the date of the entry of a decree of divorce ..., the current earnings or income derived from the trust estate shall then be paid annually, or at other intervals if convenient, to Teresa for the general benefit, welfare, health and education of the child or children born of the marriage. The trust shall provide that Teresa will continue to receive the current earnings or income from the trust estate until such time as each respective child attains the age of 25 years, or dies, whichever occurs first....
D. Upon the birth of the first child born as issue of said marriage, Gary agrees that he will maintain a policy of insurance on his life in the amount of Five Hundred Thousand Dollars ($500,000.00) naming as beneficiary or beneficiaries the trustee or trustees of a testamentary trust to be created by his last will and testament which trust shall be a spendthrift trust for the general benefit, welfare, health and education of the child or children born as issue to said marriage. Said obligation to maintain life insurance under this subsection shall terminate upon the termination of the contemplated marriage by divorce...
* * *
F. In the event that the children born as issue of said marriage desire higher education beyond their high school education, Gary agrees to pay for said higher education under the following terms and conditions:
. . .
iv. Said obligation will not be due until funds have been exhausted from all other resources including but not limited to the above mentioned trusts, ...
The parties hereto agree and understand that the intended purpose of establishing and creating the trust aforementioned, is to provide for the support and wellbeing of children born to Gary and Teresa's marriage, if any, in the event Gary and Teresa should terminate their marriage by divorce ... before their children should attain the age of 25 years. Gary and Teresa acknowledge, understand and agree that all payments and income received by Teresa pursuant to said trust arrangement for the benefit of the children is in lieu of child support *806 payments to which the custodial parent would normally be entitled pursuant to the laws of the State of Kansas. Teresa acknowledges and agrees that said trust income is deemed wholly and completely sufficient and satisfactory to her in light of her financial circumstances and station in life to allow her to adequately and sufficiently support the parties' children therefrom....
In addition to these provisions in the Agreement, Gary orally advised Teresa that they would file separate tax returns.
Teresa and Gary had two sons. The eldest, Drake Krause, was born on May 4, 1988 and his brother, Richard ("Rick") Krause, was born on November 28, 1989. Teresa filed for divorce in 2000 but she reconciled with Gary and the case was dismissed. Proceedings in the 2000 divorce action are discussed in more detail later in this opinion. Gary and Teresa later separated again and were ultimately divorced in November of 2002.
3. Gary's and Teresa's Health
Gary testified at trial that the transfers to Teresa and the KCTs were motivated in part by his concern about his health and family health history. Gary's mother died in 1982 at age 62 of heart disease and his father, diagnosed with prostate cancer in 1985, died in June of 1990. Gary discovered he had heart abnormalities in the early 1980's when he submitted to a medical examination in connection with an application for a life insurance policy. He has a heart arrhythmia and has had several stents inserted to alleviate blockages. According to Gary, medical tests in 1988 or 1989 detected that he had suffered a heart attack at some point previously. He undergoes an annual angiogram to monitor his heart condition. According to Teresa, Gary is an alcoholic who was abusive at times during their marriage.
Teresa endured a difficult pregnancy while carrying their second child. During that pregnancy, she and Gary underwent divorce counseling. Teresa testified that she was angered by the antenuptial agreement and by Gary's insistence that she not work outside the home. She resented giving up her own career and was concerned for her financial security and the boys' future should something happen to Gary, notwithstanding the provisions made for them by the antenuptial agreement.
Sometime in the early 1990's, Teresa was diagnosed with Scleroderma. She described Scleroderma as a condition where one's soft tissues lose their elasticity resulting in severe pain. She took pain and anti-inflammatory medications to relieve her symptoms, but soon became addicted to the prescription drugs. She suffered from depression and in March of 1998, had a mental breakdown. After her 2002 divorce from Gary, Teresa went through a withdrawal program for her prescription drug addiction. Teresa continues to treat her Scleroderma today.
Teresa's memory of events during this period, and even today as evidenced by her testimony at trial, is poor. The Court is unsure whether her poor recall of events is attributable to memory loss resulting from her drug addiction or simply not being a "detail" person when it comes to financial matters. As the discussion of Teresa's and Gary's divorce battles will demonstrate, Teresa's present trial testimony about what she understood about the couple's financial affairs and how Gary dominated them differs greatly from the views she expressed in 2000. This, taken with the fact that she continues to reside in the same house as Gary, leads the Court to suspect that he had, by the time of this trial, exerted some influence over her. No party introduced evidence from medical witnesses regarding either Gary's or Teresa's *807 state of health during their marriage or their current medical conditions.
4. Krause's Personal Financial Statements
Krause's personal financial statements dated September 15, 1988 and December 31, 1988 both listed as an asset notes receivable in the amount of $90,107.[46] This receivable was comprised primarily of notes made and given to Krause by FIMCO ($35,525.76) and Liberal Commons, Ltd. ($51,281.69). This asset remained unchanged on Krause's statement of assets and liabilities dated June 30, 1989.[47] The Liberal Commons, Ltd. note is the same note that Krause wrote off as a bad debt on his 1986 tax return and is the same note that he transferred to Teresa in 1989 as noted below. In addition, the notes receivable listed by Krause on his June 30, 1989 financial statement omitted several other existing notes owed to Krause that he transferred to Teresa in 1989.[48]
On all three financial statements, Krause listed the Mission property (his personal residence) as his asset with a value of $275,000. As noted below, Krause transferred a one-half interest in the Mission property to Teresa when he deeded the Mission property to himself and Teresa as joint tenants with right of survivorship in April of 1988. Teresa's interest in the Mission property was not disclosed on any of these financial statements. Krause made yet another financial statement on December 31, 1989,[49] again listing the Mission property as his sole asset notwithstanding the prior transfer of one-half of his interest to Teresa in April of 1988 and the conveyance of his entire remaining interest in the Mission property to Teresa in November of 1989, as noted below.
While Krause admitted his financial statements were incomplete, he testified that senior vice-president Bill Foster of Union National Bank suggested to Krause that they could be less than complete. Unfortunately, the correspondence from Union National Bank requesting updated financials from Krause contains no such reference and Foster did not testify at trial. The Court finds that Krause's explanation for his omissions is simply not credible based not only upon Krause's own exhibits, but also the Court's experience with lenders' requests for financial statements.
5. Krause's Transfers to Teresa
By 1989, Teresa knew that Gary was embroiled in litigation with the IRS. According to Gary, after the birth of his sons, he wanted Teresa to stay home and raise and care for Drake and Rick. He testified that he made the group of transfers described below to induce Teresa to stay home with the boys and provide financial security to Teresa. However, instead of making these transfers directly to the KCT as required by the antenuptial agreement, Gary began directly transferring and conveying assets to Teresa in November of 1989. Not coincidentally, only a few weeks earlier, on October 27, 1989, he had learned that his 1987 personal tax return examination concerning his claimed "bad debt loss" for a series of promissory notes he had taken from the Section 8 partnerships and other entities would be closed as "unagreed" after Krause failed to execute the forms evidencing his previous assent to the IRS's adjustment.[50] On November 29, *808 1989, Gary transferred all of these notes to Teresa along with security interests in the Great Bend and Hutchinson Duplex projects. On the same date, he transferred notes from Fed Gas and Kanzoil to Teresa. Also in November of 1989, he transferred all of his stock in Fed Gas to the Gary E. Krause Trust. All of these transfers to Teresa were done in writing, but none of the writings references the antenuptial agreement. All of the assets involved were assets owned by Gary prior to the marriage and, according to the antenuptial agreement, his separate property.
At trial, Gary conceded that these transfers could have been accomplished through estate planning or a will, rather than by inter vivos transfers and assignments. Gary never rescinded or tore up the antenuptial agreement, which suggests to this Court that its purpose was more to shelter his assets than to provide financial security for his wife and children.
a. Mission property
When Gary and Teresa married they resided in the Mission property, Gary's separate property. Teresa had waived any interest in the property by virtue of the antenuptial agreement. On or about April 5, 1988, Gary conveyed to Teresa an interest in the Mission property; Teresa and Gary executed a quit claim deed on the Mission house naming themselves joint tenants with rights of survivorship.[51] On November 29, 1989, Gary conveyed all of his interest in the Mission house to Teresa by quit claim deed, making Teresa the sole owner of the Mission property. On January 2, 1996, Teresa transferred the Mission house to Drake Enterprises, Inc. by warranty deed.[52] On March 4, 1998, Drake Enterprises sold the Mission property to Stephen and Judy Burns. The same day, Gary executed another quit claim deed conveying any interest he may still have had in the Mission house to Drake Enterprises.[53] The proceeds from the sale of the Mission property were deposited in the Paine Webber account, described later in this opinion.
b. Note Receivable Assignments
On November 29, 1989, Krause assigned to Teresa a series of promissory notes owed to him by his companies.[54] These included a promissory note between Gary E. Krause and Fed Gas, whereby Fed Gas agreed to pay Krause $695,161.86; a promissory note between Gary E. Krause and Rural Housing Associates, whereby Rural Housing agreed to pay Krause $188, 938.94; a promissory note between Gary E. Krause and Liberal Commons Ltd., whereby Liberal Commons agreed to pay Krause $189,676.18; a promissory note between Gary E. Krause and Barton, whereby Barton agreed to pay Krause $75,000.00; and a promissory note between Gary E. Krause and Kanzoil Corp. whereby Kanzoil agreed to pay Krause $20,072.00. Krause admitted at trial that he believed the Liberal Commons note was worthless when he assigned it to Teresa and that he had previously written it off as a bad debt on his 1986 tax return.
Krause testified at his deposition that the only consideration Teresa provided for these assignments was love, devotion and *809 the commitment to raise his two sons. At trial, Krause's story changed somewhat in that he claimed he made these transfers to induce Teresa to quit her job and become a stay-at-home mother and raise the boys.
Additional assignments and transfers followed the November 1989 transfers. On June 27, 1990, Krause transferred to Teresa another promissory note to Gary E. Krause from Norton Commons Ltd., whereby Norton Commons agreed to pay Krause $3,276.37. On December 1, 1990, Krause transferred to Teresa a second promissory note to Gary E. Krause from Liberal Commons Ltd., whereby Liberal Commons agreed to pay Krause $37,015.44. Again, none of the above assignments made reference to the antenuptial agreement.
As detailed below, payments on these assigned notes were made to Teresa and deposited into either the Paine Webber or Merrill Lynch money market accounts.[55] A significant portion of the funds deposited to these accounts found their way into the KCTs.
c. Security Interests in Partnership Interests
On November 29, 1989 Krause granted Teresa a security interest in his general partnership interest in two housing complexes, Great Bend Housing Duplex Ltd. and Hutchinson Duplex Housing Ltd. Krause granted these security interests even though he was not indebted to Teresa. He admitted that by granting the security interests, it clouded title to his interest in these limited partnerships. The security agreements executed by Krause also made no reference to the antenuptial agreement.[56] As in the case of the assigned notes, these partnerships, acting through Gary, deposited substantial sums in the Paine Webber and Merrill Lynch accounts.
d. Quivira
On November 29, 1989 Krause transferred to Teresa, his or his company Kanzoil's ownership interest in Quivira which holds the hunting lodge and leases pasture acreage. Teresa could not remember any details of this transfer. In 1998 or 1999, Teresa transferred her interest in Quivira to the Gary E. Krause Trust or to her sons, as discussed more fully at pages 100-104, infra.
6. Krause's Disclaimed Inheritance
According to both Gary and Richard, they met with their father, Lawrence Krause, around the holidays in either 1988 or 1989. Lawrence was ill with cancer. According to Gary, during this meeting and discussion he waived an inheritance from his father, Lawrence. He also stated that his father held a power of appointment over certain testamentary trusts of Gary's grandfather Adam and his grandmother Florence Krause. Gary directed Lawrence to direct any inheritance from the Adam and Florence trusts to the GEKT. He directed that his share of Lawrence's estate be given to Teresa and his boys. Gary's explanation for the waiver was that he did not need the inheritance. At one point in his testimony, Gary referred to a waiver document that his uncle George had prepared and he signed, but that document was never presented at trial.
Richard's recollection of this family meeting varies slightly. At trial, Richard claimed that he did not know Gary had tax problems until 1992 or 1993. However, Richard had previously testified in deposition and in other hearings in this case that *810 he and his father were well aware of Gary's tax disputes with the IRS much earlier, in 1989. Richard testified that the disallowed Barton deductions had posed problems for both Lawrence and Richard. While Richard denied at trial that Gary's waiver of the inheritance was motivated by his IRS problems, both the Trustee and the Government impeached Richard with prior testimony from the preliminary injunction hearing. At that hearing, Richard testified unequivocally that Gary waived his inheritance because he knew he might have to face the IRS at some point with regard to these liabilities. Having observed Richard's demeanor on both occasions, the Court believes his prior testimony to have been truthful. Gary himself testified at trial that his tax problems were a factor in waiving his inheritance. Thus, the Court finds it more likely than not that Gary's inheritance waiver in 1989 was motivated by his tax problems.,
7. Paine Webber (PW) and Merrill Lynch (ML) Accounts
Shortly before June 1991, at Krause's instance, and with his assistance, Teresa opened a Merrill Lynch account solely in her name with a deposit of a $150,000 check drawn on the account of Energy Associates, Gary's wholly owned company. Teresa neither managed nor paid attention to the ML account, and Teresa did not know who funded the account.
Shortly before February 1992, Krause assisted Teresa in opening a Paine Webber account solely in her name. Gary prepared the majority of the checks written on the PW account and decided what bills were paid and when. Teresa's only responsibility over this account was to sign the checks. Krause concedes that the handwriting on the monthly statements for the PW account is his own. Teresa left the monthly statements, deposit slips, and cancelled checks for both the PW and ML accounts at the Oneida property where Gary continued to live after their divorce in 2002.
Krause's companies and businesses made deposits totaling $204,803 into Teresa's ML account.[57] In addition to the $150,000 opening deposit by Energy Associates on June 29, 1991, Norton Commons and Liberal Commons made deposits of $3,276 and $11,851, respectively, on August 22, 1991. On August 27, 1991, Energy Associates made a $39,676 deposit.
Krause entities made deposits totaling $664,615.10 into Teresa's PW Account:[58]
DATE AMOUNT PAYOR
11/24/1993 $ 99,000.00 Great Bend Duplex Housing,
Ltd.
11/24/1993 $ 16,000.00 Great Bend Duplex Housing,
Ltd.
12/17/1993 $ 50,000.00 Hutchinson Commons
12/31/1993 $ 7,425.00 Great Bend Duplex Housing,
Ltd.
12/31/1993 $ 1,200.00 Great Bend Duplex Housing,
Ltd.
3/16/1994 $ 19,800.00 Great Bend Duplex Housing,
Ltd.
3/16/1994 $ 9,164.31 Hutchinson Duplex Housing
Ltd.
5/12/1994 $ 1,800.00 Great Bend Duplex Housing,
Ltd.
5/12/1994 $ 11,137.50 Great Bend Duplex Housing,
Ltd.
1/10/1995 $ 88,938.94 Rural Housing Associates
11/24/1995 $ 97,415.37 Rural Housing Associates
1/12/1996 $ 18,325.00 Norton Commons
1/16/1996 $ 18,062.00 Liberal Commons
10/11/1996 $ 14,606.85 Liberal Commons
10/11/1996 $ 12,236.00 Norton Commons
3/13/1998 $142,351.73 Drake Enterprises/Sale of
Mission Home
4/23/1998 $ 23,393.00 Norton Commons
10/5/1998 $ 1,378.80 Drake Enterprises
10/15/1999 $ 18,109.09 Norton Commons
10/29/1999 $ 12,651.45 Kanzoil
12/1/1999 $ 1,539.06 Development Assoc.
These deposits represent proceeds from the sale of the Mission property and payments by the depositors on their notes assigned to Teresa in 1989. It is unclear where the depositors got the money to pay Teresa, but it is quite clear that these payments were caused or made by Gary *811 with assets that he controlled. Teresa had no financial or other involvement with any of these entities, she did not know the source of the funds, and she did not know why these funds were deposited into her accounts.
8. Krause's Control and Management of the PW and ML Account
While Krause and Teresa were married, the funds in the PW account were used, in part, to pay their living expenses. From time to time, Teresa would write herself checks on this account. She testified that these funds were to cover living expenses. In the course of her 2000 divorce case with Gary, she advised her attorney that Gary would only allow her to have household money if she signed five to ten blank checks on this account every month. He would then use these checks for purposes of his own. While nearly all of the PW checks are signed by Teresa, nearly all of the pay information on them is either handwritten in Gary's hand or typed. Many checks are house payments on the Mission residence, but some are direct payments to the KCTs or to life insurance companies for premiums on Gary's life insurance. Also paid from the PW account are deposits to the Gary E. Krause Trust and an investment in Spaghetti Jack's, Inc.[59] Notably, on September 22, 1995, Teresa made a withdrawal of $296,675, ostensibly to purchase the Oneida house. As will be detailed later, the Oneida house was originally titled in Teresa's name and subsequently transferred to the KCT 1.
All of the transfers out of the ML account involved transfers of money to the KCTs. All but two of the transfers into this account come from funds paid by Energy Associates and two of the Section 8 partnerships. As with the PW account, all of the deposits appear to come from assets formerly owned or controlled by Gary. And, in the case of both accounts, none of the transfers of property from Gary's entities appear to reference the antenuptial agreement.
D. Trusts
1. Creation of Krause Children Trusts ("KCTs")
On December 5, 1988, while the Barton Tax Court case was pending and while the IRS was auditing Gary's personal returns for 1975 through 1983 and 1986, Gary established the KCT 1 for the benefit of his eldest son, Drake, as contemplated by the antenuptial agreement.[60] On December 23, 1989, after Rick's birth, Gary established the KCT 2 for Drake and Rick.[61] On May 18-19, 1990, Gary created the KCT 3, 4, and 5.[62] Drake and Rick were the beneficiaries of these five KCTs, and Krause's brother, Richard, was the named trustee for all of the KCTs.
None of the KCTs had three trustees as contemplated by the antenuptial agreement. Furthermore, the Court heard no evidence that Teresa received distributions of trust income from the KCTs after her and Gary's divorce in 2002, as the antenuptial agreement provided. Although Gary established five KCTs, the antenuptial agreement contemplated only one KCT.
The format and terms of the KCT instruments were virtually identical. All of the KCTs were ostensibly created as inter vivos, irrevocable spendthrift trusts. Each KCT contained a provision whereby Gary, as grantor, renounced his interest in the *812 trust property and prohibited him from using trust property to meet his legal obligations:
No part of the principal or income of any Trust established herein shall ever revert to or be used for the satisfaction of legal obligations of the Grantor. Grantor renounces for himself and his estate any interest, either vested or contingent, including any reversionary right or possibility of reverter, in the principal and income of the Trusts, and any power to determine or control, by alteration, amendment, revocation, termination, or otherwise, the beneficial enjoyment of the principal or income of the Trust.[63]
Gary testified that by 1993, he had met his $150,000 funding obligation for the KCT as contemplated by the antenuptial agreement. He made a series of deposits into KCT 1, described on his own exhibits as "gift from Gary and Teresa" or "gift from Gary."[64] These deposits continued until 1998. Some were made from the ML and PW accounts that were initially funded with assets attributable to Gary.
Article III, paragraph 3 of the KCT agreement prohibited Gary from dealing with trust property unless adequate consideration was provided; the same provision precluded Gary from borrowing money from the KCTs unless adequate interest or security was provided. Only the trustee (Gary's brother, Richard) was authorized to direct and control the investments of the KCTs.
The trustee of the KCTs possessed all of the powers enumerated in the KCT trust agreement as well as the powers conferred under Kansas law by the Kansas Uniform Trustees' Powers Act.[65]
2. Gary E. Krause Trust ("GEKT") and Krause Irrevocable Trust ("KIT")
In February 1989, Krause's father, Lawrence E. Krause, ostensibly established two trusts, the Gary E. Krause Trust ("GEKT") and the Krause Irrevocable Trust ("KIT"). Gary is the sole beneficiary of both trusts. Richard is the trustee for both these trusts. Lawrence Krause died in June of 1990. Like the KCTs, these trusts contain spendthrift language that purports to shelter their assets and income from the beneficiary's creditors.
3. Transfers to Trusts
a. KCTs
The following funds were transferred from one of the brokerage accounts to an account in the name of one of the KCTs:[66]
KRAUSE CHILDREN'S TRUST 1
DATE AMOUNT PAYOR
12/30/1993 $ 4,000 Teresa's Paine Webber
Account
3/31/1998 $50,000 Teresa's Merrill Lynch
Account
3/31/1998 $40,000 Teresa's Merrill Lynch
Account
3/31/1998 $50,000 Teresa's Paine Webber
Account
12/6/1999 $30,000 Teresa's Paine Webber
Account
KRAUSE CHILDREN'S TRUST II
DATE AMOUNT PAYOR
4/6/1998 $90,000 Teresa's Merrill Lynch
Account
4/6/1998 $50,000 Teresa's Paine Webber
Account
KRAUSE CHILDREN'S TRUST III
DATE AMOUNT PAYOR
4/6/1998 $90,000 Teresa's Merrill Lynch
Account
4/6/1998 $50,000 Teresa's Paine Webber
Account
According to Gary, he made no contributions to the KCTs after 1993 and Teresa *813 made no contributions to the KCTs after 1998.
In addition to funds" transferred from the ML and PW accounts, Krause transferred several life insurance policies to the KCTs as shown below:
Date Policy Names/Numbers Payee
July 12, 1991 Prudential policy KCT 1
31889332
July 31, 1991 New England n/k/a Met KCT 4
Life policies 06688112,
06615461, 08392342,
06070162, and 02526725
June 4, 1991 Maccabees policy 4108-193 KCT 4
August 31, 1991 Maccabees policy 4110-925 KCT 2 and
July 30, 1991 Maccabees policy KCT 3
21N7001592
June 8, 1994 Aurora policy KCT 3
C113244399L
b. GEKT[67]
Although Krause's father ostensibly established the GEKT, Krause and not his father transferred his existing ownership interest in the entities listed below to the GEKT. On July 26, 1989, Krause transferred 100% of the stock of Development Associates. On October 31, 1989, Krause transferred 100% of the stock of Fed Gas to the GEKT.
These transfers were made after the filing of the Barton Tax Court case in 1986 and after the IRS notified Krause about his personal audits between 1980 and 1985. The GEKT paid no consideration for either Fed Gas or Development Associates, which still owned real property in Reno County. Richard, the trustee, has no recollection of ever negotiating on behalf of the GEKT its acquisition of Gary's company, Fed Gas, and never asked why Gary wanted to transfer Fed Gas to the Trust. Gary exercised control over the assets of the GEKT, including the operation of Fed Gas, without any oversight by Richard, and it was Richard's practice not to inquire about the use of the GEKT assets. The GEKT is one of the trusts previously defaulted by the Court under the Sanctions Order.
c. KIT[68]
Upon his retirement, C. Norris Taylor was required to transfer his FIMCO stock (previously conveyed to him by Gary) to the KIT. Although he retired on February 5, 2001, he did not comply with this 1993 contractual obligation until the transfer of the FIMCO stock to the KIT in September of 2002. This transfer vested KIT with a 100 per cent ownership interest in the company. The KIT paid no consideration to Taylor for his transfer of FIMCO stock. Consistent with his conduct with other trusts, Richard was not involved when the KIT acquired FIMCO even though he was the nominal trustee. Richard testified that Gary negotiated the transaction. Richard further testified that he did not know whether the FIMCO assets in the KIT had been invested wisely because Gary totally controls FIMCO without any oversight from Richard as trustee of the KIT. This control is demonstrated by Gary's causing FIMCO to contributing hundreds of thousands of dollars to Live Wire Media Partners, LLC for an investment and acquisition of a radio station.[69] Richard played no role in evaluating this transaction, but rather delegated the entire responsibility for this acquisition and all the rest of FIMCO's business dealings to Gary. The KIT is one of the trusts the Court previously defaulted under the Sanctions Order.
4. Gary's Control over Trust Assets
a. Mission property
In March of 1998, approximately three years after the purchase of the Oneida home, Drake Enterprises sold the Krauses' *814 former family home at 37 N. Mission Road. The Mission property was Gary's separate property at the time of his marriage to Teresa and was among the assets he conveyed to Teresa in November 1989 with no reference made to the antenuptial agreement and after he was fully aware that the IRS was examining several of his tax returns. In January 1996, Teresa transferred title to the Mission home to Drake Enterprises, an entity owned by her but apparently managed by Gary as president. In March of 1998, Krause, acting as president of Drake Enterprises, granted a limited power of attorney to G. Nelson Van Fleet, Esq. to close on the sale of the Mission property for Drake Enterprises. Krause signed the warranty deed as president of Drake Enterprises conveying the Mission property to the buyers, Stephen and Judy Burns. The $142,351.73 sale proceeds were deposited into Teresa's PW account. Shortly after depositing the proceeds of this sale, on March 31, 1998, three checks for $50,000 were drawn on this account, one each made payable to the KCTs 1, 2 and 3.[70]
b. 7711 Oneida Property and Teresa's Gift Mortgage
Teresa purchased the home at 7711 Oneida in September of 1995 using $296,675 from the PW account. According to her testimony, she acquired the money to purchase 7711 Oneida from "moneys gifted to me [by Gary]." On September 22, 1995, within weeks of the closing, Teresa executed a promissory note and "mortgage" in favor of the KCT 5 on 7711 Oneida for $305,000.[71] Title to the property remained in Teresa's name and the KCT 5, as the mortgagee, filed the mortgage of record in the Sedgwick County Register of Deeds office.[72] Teresa never received $305,000 from the KCT 5 and she never made any payments on this note or "mortgage." At trial, Gary referred to this transaction as the "gift mortgage."
Teresa deeded her entire interest in 7711 Oneida to the KCT 1 on February 11, 1999.[73] On February 15, 1999, Richard signed and issued a check in the amount of $64,816 from the KCT 1 account to Teresa for the Oneida property.[74] This transaction resulted in KCT 1 holding legal title to the property, subject to KCT 5's mortgage. This mortgage has never been released. As explained later in this opinion, the Oneida property was held by the KCT 1 until August of 2005, when Richard was served with the IRS Collection Summons.
At times during 1999, the Krause family resided in California for the ostensible purpose of occupying a residence close to a special school for Drake. While the Krause family was in California, the Oneida premises remained vacant. Gary returned to Kansas in 2000, and on December 16, 2000, Polo Executive Rentals (previously referenced as merely a name on a checking account) leased the ground floor of the Oneida property to Gary for $371 per month.[75] Richard signed this lease in his individual capacity. On February 24, 2000, Polo leased the "lower level floor and kitchen common area" of the Oneida property to FIMCO for $971 per month.[76] Richard signed this lease *815 individually and C. Norris Taylor signed for FIMCO. Rental payments, if made at all, were sporadic. Richard made no effort to enforce the terms of either lease. These leases remained in force when Gary filed his bankruptcy petition on October 10, 2005.
As noted previously, Polo does not exist as an entity separate from any of the other entities and is simply a name on a bank account. Krause drafted each of the leases. Although Krause listed Polo as a creditor on his bankruptcy schedules, this purported entity has never filed a proof of claim.
c. Wentworth Property-Section 1031 Tax Free Exchange
On May 4, 2005, Richard, as trustee of KCT 1, signed a contract to purchase real property located at 14215 E. Wentworth Ct., Wichita, Kansas (the "Wentworth property") from James and Jonna Ellis.[77] This property abuts Crestview Country Club in an exclusive neighborhood in East Wichita and was intended to be the new home for Gary and his sons. The realtor who arranged this contract was Andrew Peressin, a close friend and confidant of Gary's. Peressin owns a home nearby the property in question. Under the contract, KCT 1 agreed to pay the Ellises $415,000 for the home. Not coincidentally, on August 5, 2005, KCT 1 conveyed title to the Oneida property to PHR, LLC.[78] This conveyance was purportedly made to further a tax-free exchange of property under § 1031 of the Internal Revenue Code.[79] Perhaps more important is the fact that on July 8, 2005, Richard Krause had received the IRS collection summons to appear and deliver to the IRS all records pertaining to the trusts and, as will be discussed below, consulted with Gary about how to proceed. According to Peressin's trial testimony, he agreed to handle the sale of this home to the KCT 1 for a reduced commission in order to save both Gary and the sellers some money. Peressin recommended that since the Oneida house was held in trust by KCT 1, it could be sold by the trust and its proceeds used to acquire the Wentworth house while deferring taxation on any gain on the Oneida sale. Although Richard was supposedly the decision-maker on the Wentworth purchase, Peressin appears to have had most of the discussions concerning the deal with Gary.[80] Peressin said that Gary conferred with an individual named Wes Tenaka who is supposedly an expert in § 1031 exchanges. According to Peressin, PHR was set up to act as owner of the Oneida property and having that property held by PHR might have furthered completion of a § 1031 exchange. Peressin also testified that the sale contract would have to have been amended to reference a § 1031 transaction and that such an amendment was never made. Because there was not a party who sought to buy Oneida at this time, no tax-free exchange had yet been structured. By the time of Gary's bankruptcy filing, the Wentworth sale had not closed and after entry of the preliminary injunction in this case in December of 2005, closing became impossible.
d. Gary's Car Loan from KCT
In February, 2000, Krause used $13,125.18 from the KCT 1 account located *816 at Southwest National Bank to purchase a car from Andrew Peressin for Gary's personal use. Gary testified that he used the "wrong" trust (it should have been the GEKT) to acquire the vehicle, resulting in his needing to issue a note to KCT 1.[81] Gary repaid the note with ten per cent interest, but the payments were not made regularly as a conventional car loan would have required and the loan payoff was ultimately deposited into a KCT 3 account, rather than KCT 1. In addition, Gary's exhibit of this transaction showed that the KCT 3 held, a lien on this vehicle even though the funds to purchase it came from the KCT 1.[82] This transaction occurred with Richard's knowledge and cooperation. No explanation was given why the GEKT did not simply repay KCT 1 to correct the "error" of using the wrong trust.
e. FIMCO Loan from KCT for Dream Swing Investment
In 1999, while his sons were age 10 and 11, Gary used KCT 1 assets to provide $25,000 in financing to Dream Swing Machine L.L.C., a limited liability company established by Gary and owned by FIMCO, to market a product used to help improve a golfer's swing. Richard did not "seek" the advice of any independent financial advisors before making the investment, instead he relied solely on Gary's advice. C. Norris Taylor, who was at that time president of FIMCO, ran this company. FIMCO acquired the patent for the swing device from a Wichita golf instructor. Krause testified that KCT 1 loaned FIMCO $25,000 to invest in Dream Swing's manufacture and marketing of a golf swing trainer. Under the "agreement" between KCT 1, FIMCO and Fed Gas, KCT 1 would receive an option to purchase membership equity in the LLC. FIMCO and Fed Gas each guarantied the loan. KCT 1 was repaid the loan, with interest.[83]
E. Gary-Teresa 2000 Divorce
In April of 2000, Teresa filed for divorce. The divorce case quickly became contentious with Teresa filing contempt motions for Gary's failure to pay temporary support and motions to compel discovery to gain documents and discovery responses from Gary. Teresa subsequently moved to join the KCTs as parties in the divorce, contending that part of the trust estates contained marital property to which she was entitled. In her motion, Teresa alleged:
3. Respondent [Gary] has historically funded the Trusts [KCTs] using the following method: Respondent deposited funds obtained from an unknown source in a Merrill Lynch U.S. Treasury Money Fund or a Paine Webber Resource Management account that is marital property but is held in the name of Petitioner [Teresa]. Respondent then forced Petitioner to sign blank checks drawn on such account, which Respondent completed by making such checks payable to one or more of the Trusts in amounts of Respondent's choosing. Respondent either handwrote or typed all information regarding the payee and the check amount on the blank checks that had been signed by Petitioner. . .
4. ... although Respondent is not the named Trustee of the Trusts, Respondent has directed and continues to direct the distribution of funds from the Trusts by completing *817 checks written on the Trusts' bank accounts, which the Trustee merely signs at Respondent's direction ... Respondent either handwrote or typed all information regarding the payee and the check amount on checks drawn on the bank accounts of one or more of the Trusts and signed by Trustee ...
5. .... although Respondent is not a named trustee of the Trusts, Respondent retains control over the trust assets by representing to third parties that he is a co-trustee of the Trusts ...
6. .... Respondent routinely borrows funds from the Trusts to pay Respondent's personal and household expenses.
7. .... Respondent also withdraws funds from the Trusts for his personal use by directing the trustee of the Trusts to make distributions to Petitioner's and Respondent's minor children and to Respondent's personal friends; such funds are then given to Respondent, who uses them to pay his personal and household expenses ...[84]
The domestic court granted the motion to join the KCTs as parties in August of 2000.[85]
During the pendency of the divorce, Teresa made a number of allegations against Gary relative to the KCTs and tax fraud, both in pleadings filed with the court and in communications with her divorce attorney. The contents of Teresa's divorce attorney's file were admitted into evidence. Those pleadings and papers, prepared contemporaneously, paint a very different picture during this time period than did Teresa's testimony at trial seven years later.
1. Teresa's Allegations of Tax Fraud
In completing the client questionnaire for her divorce attorney, Teresa was unable to provide information concerning Gary's finances or income. She did indicate that he was a recovering alcoholic and was verbally and physically abusive.[86]
Consistent with the motion to join the KCTs, Teresa asserted in correspondence with her divorce attorney that she was signing blank checks on the PW and ML accounts and Gary was supplying the remaining information. In correspondence dated May 24, 2000 Teresa wrote:
This account [Paine Webber] was in my name and my husband used it to pass money through.
Each month he made me sign 5 to 10 blank checks before he gave me a check for groceries and household expenses. He heard me mension [sic] once that I could prove 1 had no knowledge of where the money went because my signature was on the line but his handwriting filled in the checks. After this, he typed all checks ...
Today, he is using this same system by having his brother Trustee of Krause Children's Trust sign blank checks.[87]
Teresa wrote on an example of one of the checks made payable to Gary:
Steve [her divorce attorney], I have been signing blank checks on this account since 1992.... This is how I believe $ tranfered [sic] to Children's Trust.[88]
*818 I had to sign blank checks each month before Gary would give me the household money. At first he handwrote checks, then after I mensioned [sic] this fact on the phone, within a week checks were all blank and he typed them in later. I had no knowledge money was being funneled into the Trust Acct through me.[89]
During the pendency of the divorce, Teresa alleged that Gary had hidden assets in offshore accounts and threatened to report Gary to the IRS. Several veiled references to reporting Gary to the IRS are reflected in the divorce file.[90] At one point in April of 2000, Gary dared Teresa to contact the IRS and supplied her a note with the IRS contact information.[91] On August 30, 2000 (the day after the domestic court hearing on the motion to join the KCTs) Teresa finally contacted the IRS indicating that "she wants to inform on ex and all the offshore money he has, like over a million."[92] The contact was recorded in the IRS's database and was noted as having "fraud potential." No evidence was presented that Teresa had any further communications with the IRS regarding Gary after late August of 2000, and she has not voluntarily cooperated with the IRS since that time, perhaps because of the divorce "settlement" discussed below.
2. Reconciliation and $170,000 Settlement
In early October 2000, after the domestic court joined the KCTs in the divorce, Gary prepared a divorce settlement agreement and presented it directly to Teresa, via e-mail, notwithstanding the fact that both were represented by counsel.[93] Under this proposed agreement, Gary offered to pay Teresa $170,000 as a property settlement in exchange for Teresa's dismissal of the KCTs from the divorce case. At the time of this agreement, Gary had no liquid assets with which to fund the $170,000 property settlement. The Court notes, too, that $170,000 is the exact amount of money to which Teresa would have been entitled under the antenuptial agreement.[94] It is clear, notwithstanding Gary's denials at trial, that the intention behind making the reconciliation agreement was to secure the dismissal of the KCTs from the divorce action.
Gary accomplished this settlement in the following roundabout manner.[95] On January 31, 2001, Fed Gas (wholly owned by the GEKT and effectively controlled by Gary) paid $170,000 to Teresa, supposedly to repay a promissory note held by her.[96] At trial, the Trustee adeptly linked this payment to Gary's proposed $170,000 property settlement obligation to Teresa and proved that it was funded by the buyout of Fed Gas's interest in the tanker, MV Sillery, completed with the help of accomplices in Switzerland. Gary is acquainted with a money manager/attorney in Switzerland, Urs Kallen, who was associated with an entity called Brayford Investments, Ltd, a British Virgin Islands company. Both Brayford and Fed Gas *819 had provided financing or capital infusions to Caribbean Oil and Supply Co. (COSCO), and a British Virgin Islands company, the successor operator of the Sillery (flagged in Belize). Fed Gas had also loaned money to Trafalgar Marine, Ltd., a Nevis company and the owner of the Sillery, provided financing to Caribbean Atlantic Petro Co. (CAPCO), another British Virgin Islands company and the previous operator of the tanker, and provided management services. In November of 2000, while the divorce action was pending, and after Gary's October 5, 2000 e-mail to Teresa containing the proposed "Divorce Settlement Agreement" providing for the $170,000 settlement, Fed Gas entered into an agreement with Overseas Trust, a Liberian company, by which Overseas agreed to pay all obligations owed by Trafalgar, CAPCO and COSCO to Fed Gas in exchange for Fed Gas selling its stock in COSCO to Brayford, Fed Gas releasing its mortgage on the tanker, and Overseas paying additional consideration of $430,000 over 3 years to Fed Gas as "consulting fees."[97] Overseas Trust Company is run by another Swiss lawyer, Urs Trepp, who was a colleague and classmate of Urs Kallen. On January 29, 2001, CAPCO wired $336,515 to Fed Gas' account.[98] The general ledger for Fed Gas shows that the next day, January 30, Fed Gas issued a $170,000 check to Teresa.[99] Thereafter, on May 31, 2001, the state court entered an order dismissing the KCTs from the divorce case, with prejudice.[100] Teresa then allowed the divorce case to be dismissed for lack of prosecution on June 25, 2001.
Gary strenuously denied the existence of any connection between CAPCO's January 29 wire and the payment to Teresa, but the Court finds the coalescence of these circumstances too compelling to overlook. It is apparent that this series of transactions was executed for the sole purpose of securing the dismissal of the trusts from the Krause divorce case and in a manner consistent with Gary's habit of using other entities to pay his debts and expenses.
3. 2002 Divorce
Teresa's and Gary's reconciliation did not last. She testified that she and Gary separated again in 2001 and she again filed for divorce in 2002. In November of 2002, Gary sought an emergency divorce citing stress and his heart condition.[101] The domestic court granted the emergency divorce. No provisions were made in that case for child support, alimony or maintenance.
F. Post-Divorce Activity
From the time of the 2002 divorce until the date of the bankruptcy, FIMCO (which is owned by the KIT) and Fed Gas (which is owned by the GEKT) paid Gary's family's personal and home expenses, including phone, electricity, utilities, insurance, country club membership, medical expenses, computers, and lawn care. For example, in April 2005, FIMCO "purchased" automobiles for Krause's sons, Drake and Rick. The automobile titles identify the owner of each automobile as FIMCO. Gary lived in the Oneida home from 1995 until September 2007 except for a brief period of time when he resided in California and the house was temporarily vacant. During this twelve year period, Teresa, then KCT 1, and finally PHR, LLC held legal title to the Oneida property. Gary paid no regular rent to the owners of the Oneida property, except for a brief period in 2000 or *820 2001 when he had his lease with Polo discussed previously. Even after his divorce in-2002 and continuing through his bankruptcy, Gary continued to live rent-free in the Oneida home.
Krause did not report the living expenses contributed by FIMCO or Fed Gas as income on his federal income tax returns. He reported no wages or salary for the years 1998-2004. In fact, for the five years preceding his bankruptcy, 1999-2004, Gary reported no taxable income on his federal tax return.[102] During this same period, Gary reported minimal income from his businesses and partnerships and those years of positive income were offset by net operating losses. After the year 2000 Gary held no personal bank account until 2006, after he filed bankruptcy.[103]
1. Domination of KCT Assets
Although he made some minor investment decisions regarding certificates of deposits, Richard was an essentially passive trustee for the KCTs, and told Gary that he wanted it that way. Richard was unaware of who contributed money to the trusts or the sources of that money, describing his conduct as "stick your head in the sand and then you don't know what is going on." Richard does no accounting on behalf of the trusts and testified that he keeps no ledgers or records beyond aggregating bank statements in binders. He keeps no computer records of the trust activity. Richard simply receives the bank statements and forwards copies of them to Gary.
Whenever Gary needed a check from the KCT accounts, Richard would "grab the checkbook out, I sign it and I take it to Gary and I say, fill it out. I don't have to look at it." Gary then completed the payee information and amount and distributed the check to the appropriate party. Richard never objected to, or disagreed with, Gary about expenditures of any of the KCT funds. He did not exercise independent oversight over how the trusts' funds were spent. Gary, not Richard, told Richard whom to pay and when. Gary selected the private schools that Drake and Rick attended even though the KCTs paid the tuition charges.
Richard did make investments in certificates of deposits and recommended the purchase of gold coins, but Gary initiated the KCT funding of FIMCO's investment in Dream Swing. Gary initiated the financing of his personal car with KCT funds. Either Gary or C.N. Taylor, but never Richard, prepared the annual tax returns for all of the trusts. Richard never reviewed the trusts' tax returns for accuracy, but he did sign them.
In addition, in January of 1991, Gary opened an account, the Merrill Lynch Government Fund Account, using $50,000 funds from the KCT 1 Union National Bank account.[104] The Merrill Lynch account identified Gary as co-trustee of the KCT 1: "GARY E. & RICHARD D. KRAUSE TTEE [Trustees] FBO KRAUSE CHILDREN'S TRUST # 1 DTD 12-5-88"[105] when at no time was Gary ever a "co-trustee" of any of the KCTs. Gary had signatory authority on this Merrill Lynch account.[106] The account statements were sent to the Sutton Place address in Wichita where Gary maintained his business office. Richard was wholly unaware of this account until *821 the preliminary injunction hearing in December of 2005.
Perhaps most telling to the Court with respect to the degree of control exercised by Gary over the KCTs are Exhibits 795, 796 and 797 introduced by Gary at trial. These, exhibits purport to be a summary or spreadsheet of the cumulative transactions in each bank account held by KCT 1, 2 and 3. Gary prepared these exhibits in the fall of 2006 in connection with this litigation. Richard did not assist in the preparation of the exhibits. Gary supplied the source and description or purpose of the listed transactions. It was obvious to the Court from Richard's testimony about these exhibits at trial that he had little or no personal knowledge or recollection of the recorded transactions. Richard admitted that he would have been unable to describe the debits and credits without use of the exhibits prepared by Gary. Richard did not independently verify the information recorded on the exhibits by Gary.
2. Reimbursement of FIMCO/Fed Gas for Krause Living Expenses and Credit Card Bills
Between November 2004 and August 2005, Richard signed six checks from the KCT 1 bank account that Gary drafted and made payable to Fed Gas, nominally owned by the GEKT of which Gary Krause was the sole beneficiary; those checks were in the amounts of $8,920.12, $5,058.73, $2,831.62, $2,282.42, $6,288.43, and $14,700.00.[107] At his deposition, Richard did not know why these checks were paid to Fed Gas, and admitted that he did not exercise much independent oversight on how the money from KCT 1 was spent. At trial, Richard testified that the checks were used to reimburse Fed Gas for Drake and Rick's expenses and other living expenses.
Prior to these checks reimbursing Fed Gas, FIMCO paid Gary's living expenses, including utilities, insurance, credit card bills, Crestview Country Club bills, phone bills, housecleaning or maid service, and trash service.[108]
3. Lease of Oneida to FIMCO and Krause
As noted above, Gary claims that he and FIMCO "lease" space at 7711 Oneida from Polo Executive Rentals; however, Polo does not exist as an entity separate from any of the other entities and is simply a name on a bank account. Gary drafted the leases, which Richard signed. Neither Gary nor FIMCO paid rent to Polo on a regular basis, and Richard never enforced the terms of the lease agreements. And, although Gary listed Polo as a creditor, this purported entity never filed a proof of claim. Gary lived at the Oneida house for a twelve year period, mostly rent free.
G. IRS Collection Activity
Despite huge tax debts and little or no taxable income on his 1998 through 2004 tax returns, Krause continued to financially support his family. Teresa did not work outside the home after 1990 and suffered from scleroderma, a debilitating medical condition, so the family's financial support did not come from her. Additionally, Krause's sons, born in 1988 and 1989 are both full-time students, and, until this year, both were minors, so the family's financial support did not come from them. Despite subpoenaing banks (including Bank of America, Commerce Bank, and Intrust Bank) and requesting personal bank account records from Gary, the United States received no evidence that Krause had maintained a single personal bank accounts *822 from 1986 through 2005, despite Gary's protestations to the contrary.
1. July 2005 Collection Summons
As discussed supra, on July 8, 2005, IRS Revenue Officer Waterbury served a collections summons on Richard, as trustee, to appear at the IRS offices in Wichita on August 5, 2005 and provide, inter alia, all records in his possession pertaining to the GEKT and the KCTs.[109]
2. Creation of PHR, LLC and Transfer of Oneida Property
Approximately one week after filing the petition to quash the IRS collection summons, on August 5, 2005, Richard signed a deed conveying 7711 Oneida from KCT 1 to a newly formed company named PHR, LLC.[110] The Operating Agreement for PHR, LLC was signed two days later, on August 7, 2005.[111] The members of PHR were KCT 1, 2 and 5. Richard left all the details of the PHR transaction to Gary. As noted above, Gary attempts to "explain" this transfer by contending that it was necessary to get the property out of the trust to effectuate a tax-free exchange for the Wentworth property. The Court previously defaulted PHR under its Sanctions Order.
3. Krause Files Bankruptcy
On October 10, 2005, less than two weeks after the Government sought to enforce the IRS collection summons, Gary sought relief from the IRS summons by filing his chapter 7 bankruptcy petition. By the time he filed bankruptcy, Krause had transferred nearly all of his premarital holdings, including his Mission home, Development Associates, Inc. (which held real property in Reno County), Fed Gas, FIMCO, and his or Kanzoil Corporation's interest in Quivira Associates (which held the hunting lodge in Stafford County). Those Krause entities that were not transferred, or encumbered, were essentially defunct.
According to the schedules and statement of financial affairs filed by Krause, he received an income of approximately $5,500 for the first nine months of 2005 but the source of that income was not identified in question 1 of the Statement of Financial Affairs. On question 2, Krause represented that he held or controlled two vehicles, one owned by Drake Enterprises, Inc. (a 1990 Mazda Miata) and one owned by FIMCO (a 2006 Jeep Grand Cherokee). On question 18, Krause identified several businesses in which he was currently involved: Norton Commons, Ltd.; Liberal Commons, Ltd.; Rural Housing Associates, Inc.; Barton Limited Partnership; FIMCO; and Fed Gas. On Schedule A, Krause states he owns no real property. On Schedule B, Krause listed no bank accounts and no vehicles. He did identify his ownership interests in Norton Commons, Liberal Commons, Rural Housing Associates and Barton as well as his beneficial interest in the GEKT and the KIT. Other than creditors IRS and Kansas Department of Revenue, Krause's other debts included several minor medical expense claims, his guarantee obligation on Norton Commons estimated at $120,000, and Polio [sic] Executive Rentals/KCT # 1 for his residential lease of 7711 Oneida in the amount of $21,518. On Schedule I, Krause listed his occupation as a self-employed entrepreneur with no monthly income. He represented that his living expenses were paid with distributions from the GEKT. Krause declared monthly expenses of $2,171 on Schedule J.
Krause amended Schedule B on November 23, 2005 to add his working interest in *823 an oil and gas lease in Stafford County. He amended no other schedules until August 23, 2007, after the Sanctions Order was issued defaulting and declaring PHR, LLC (owner of 7711 Oneida) to be his nominee. At that point, he amended Schedule C and filed a provisional claim of homestead exemption with respect to the 7711 Oneida property,[112] it on the date Krause filed his bankruptcy petition.
4. Government Commences this Adversary Proceeding
The Government filed the instant adversary proceeding on November 1, 2005. The Court granted the Government's application for a preliminary injunction on December 2, 2005. Since that time, the funds and assets in the KCTs have been frozen, preventing their transfer, distribution, or exchange.
During the pendency of this case, Krause's personal and financial situation has changed. Following the Sanctions Order, Krause was evicted from the 7711 Oneida property and the property was turned over to his bankruptcy trustee in September of 2007. He now resides with his two sons at 9302 Shannon Way Circle, an affluent neighborhood in east Wichita. His ex-wife Teresa occupies the basement of this rental property. According to Gary, Teresa located this rental property when she returned from Arizona in 2006, and she has lived at this address since that time. Gary stated that he pays full rent. Teresa testified at trial that she had lived in the Shannon Way basement for about three months. She indicated that the rent was $2,500 per month. There is no written lease, and other than identifying the landlord as a retired dentist, Teresa could not identify the landlord. In late summer or fall of 2006, Krause began receiving $8,000 per month as a consulting fee from Omnimedica, a Swiss entity with whom he has collaborated on the anti-aging project.
III. ANALYSIS AND CONCLUSIONS OF LAW
Before addressing the merits of the plaintiffs' claims, brief comment about the credibility of the principal trial witnesses is in order. In the factual findings, the Court assessed Teresa Briggs' credibility and recall of events at trial as poor, whether attributable to memory loss, to her not being a detail person, or to some form of influence exerted over her to cause her to dramatically change her trial testimony when compared with information she provided during her 2000 divorce. Teresa gave no reasonable explanation why she continues to reside in the same house with Gary, albeit in the basement, seven years after their bitter first divorce proceeding and allegations of Gary's abuse during their marriage. The quality of her recollection, combined with the Court's suspicion that she remains under Krause's influence, significantly devalues the weight this Court elects to give to her trial testimony.
Richard Krause testified at length about the administration of the KCTs. Little of that testimony, however, was based upon his personal knowledge. Much of his testimony regarding the KCTs, which was elicited by Gary, came from his reading from exhibits prepared by Gary or from the trust instruments themselves. In addition, some of Richard's trial testimony contradicted his earlier deposition testimony. Having heard Richard testify at previous hearings concerning some of these same matters, it was clear that Richard had been "coached" on his new-found knowledge regarding some of these same events. The Court discounts much of Richard's trial testimony as incredible.
This brings us to Gary. The Court credits Gary for his intellect and shrewdness, *824 but very little for his honesty. After hearing only parts of this saga in pretrial matters, the Court was eager to hear Gary's explanations for the transfers and transactions at issue. Very little was explained. Gary's explanations and justifications of the manner in which he conducts his financial affairs beggar belief.
Having commented on the evidence and the reliability of Krause's key witnesses, the Court now turns to the legal claims of the Government and the Trustee.
A. Dischargeability of Krause's Tax Debt Under 11 U.S.C. § 523(a)(1)(C).
The Government first seeks a determination that Krause's substantial income tax debt should be excepted from discharge under § 523(a)(1)(C) of the Bankruptcy Code. That subsection excepts from discharge any debt which is a tax (1) with respect to which the debtor made a fraudulent return; or (2) which the debtor has willfully attempted to evade or defeat in any manner.[113] The Government has the burden of proving by a preponderance of the evidence that Krause's tax debt should be excepted from discharge.[114] The Government asserts that it has proven both prongs of § 523(a)(1)(C) in this case.
1. Fraudulent Tax Returns
As noted in the Court's ruling on the Government's motion for summary judgment on this claim, there are no Tenth Circuit cases addressing the fraudulent return prong of § 523(a)(1)(C) but there are cases from other circuits. The legal principles and standards emanating from those cases are recited here. The elements of a fraudulent return are (1) knowledge of the falsehood of the return; (2) an intent to evade taxes; and (3) an underpayment of the taxes.[115] In general, courts considering whether a return is fraudulent under the discharge exception of § 523(a)(1)(C) apply the same standards as determining whether to impose the civil fraud penalty under § 6663 of the Internal Revenue Code.[116] The courts have identified certain activities by the taxpayer as "badges of fraud" from which to infer or circumstantially prove fraudulent intent. Those badges include: (1) understatement of income on a consistent basis; (2) failure to maintain adequate records; (3) failure to file tax returns; (4) implausible or inconsistent behavior by the taxpayer; (5) concealing assets; (6) failure to cooperate with taxing authorities; and (7) unreported income from an illegal activity.[117]
With these legal principles, the Court now turns to Krause's tax returns in question. It is not readily apparent which returns the Government contends were fraudulent and therefore the Court collectively examines all of the returns that generated Krause's income tax liability.[118] As *825 discussed below, some of the badges of fraud are present but some are not.
This Court has the benefit of the Tax Court's opinion in Krause's challenge to the deductions disallowed by the IRS with respect to the enhanced oil recovery partnerships and the resultant tax liability flowing to the partners.[119] This opinion relates to Krause's returns for tax years 1975-1983. As noted previously, the audit of Krause's returns for these years pertained to multiple tax issues, some of which related to deductions he took in connection with operating losses of his enhanced oil recovery partnerships, but also included the failure to report as income, personal expenses paid by his wholly owned company Energy Associates, Inc. in years 1981, 1982 and 1983. The Tax Court findings, as summarized in this Court's summary judgment ruling,[120] noted that the partnerships' debt was structured in a manner to guarantee the greatest possible tax benefits to the investors (deductions and operating losses) without any legitimate profit motive. In upholding the IRS determination of the tax deficiencies and penalties, the Tax Court declined to enhance Krause's taxes for negligence or intentional disregard of regulations, as it could have done under 26 U.S.C. § 6653. While it is apparent from the Tax Court's opinion that the businesses in which Krause was involved, and that generated his massive tax debt, were likely shams devised without any profit motive, no actual fraud is attributed to him, nor is it asserted that the returns he filed as tax matters partner were false per se.[121]
The Court cannot conclude that the Government met its burden of proof that all of Krause's returns for years 1975 and 1978 through 1983 were fraudulent. While he obviously claimed deductions that the IRS disallowed in connection with the oil recovery partnerships and sought to maximize his tax benefits from participation in the partnerships, the Court can discern no evidence that he acted with the requisite fraudulent intent.[122] The disallowed deductions resulted in additional income and an attendant tax liability, but there was no proof that Krause recognized the impropriety of the claimed deductions during the years they were taken.[123] It was not until the Barton test case was adjudicated that the improper deductions were determined. However, Krause did fail to report as income personal expenses paid by his corporation for three consecutive years in 1981, 1982 and 1983. This is the type of unreported income the courts view with disfavor and provides some evidence of the first badge of fraud.[124] The *826 Government did not, however, elicit directly from Krause that he understood at that time that he needed to report these paid personal expenses as income.[125] None of the unreported income was attributable to an illegal activity by Krause, and therefore, the seventh badge of fraud is not present. Nor are the second, third, or fourth badges of fraud present. There was abundant evidence of the fifth and sixth badges of fraud. Krause employed a pervasive scheme to transfer assets out of his name, individually, and used his companies, his wife, and the trusts to fund his lifestyle and his family's living expenses.[126] He failed to cooperate with the IRS in that he directed his brother's course of action to quash the IRS's collection summons, resisted the Government's discovery of assets in this adversary proceeding, and affirmatively spoiled electronic evidence during the pendency of the adversary.[127] Although it is a close question, the Court concludes that the Government has not proven by a preponderance of the evidence that the returns for 1975, 1978, 1979, 1980, 1981, 1982, and 1983 were fraudulent.
This brings us to Krause's tax return for the year 1986 and the challenge to his bad debt losses claimed with respect to his real estate partnerships Liberal Commons, Ltd. and Norton Commons, Ltd. These notes were assigned to Teresa on November 29, 1989 soon after Krause received notice that his 1986 tax return was being adjusted. The Government questions Krause's claiming the notes receivable as bad debt in 1986, but then transferring them to Teresa in 1989. Although Krause also challenged the IRS's deficiency and petitioned the Tax Court, this tax liability was resolved by agreement, along with the 1975-1983 tax years. Krause ultimately agreed to the amount of deficiency determined by the IRS with respect to his 1986 return. It does not appear that the 1986 return involved any unreported income as the 1981, 1982 and 1983 returns did.
Krause testified that the notes receivable he initially claimed were uncollectible later turned out to be partially collectible as a result of his participation in a settlement of class action litigation with the federal government over these Section 8 housing projects. Indeed, as noted above, Teresa received substantial payments on these notes after 1989. What the Court did not hear, however, is that Krause knew or believed the debts were actually collectible at the time he claimed them as uncollectible and deducted them as bad debt losses. The lack of this evidence negates the first badge of fraud that he knew the return was false when it was filed. The fact that he ultimately settled with the IRS and conceded the IRS's position, does not, of itself, establish that he knew the return was false.
The best evidence on the first badge of fraud may be the fact that Krause later assigned (in 1989) the Liberal Commons and Norton Commons notes to his wife.[128]*827 Assuming these were the same debts referenced on the 1986 return, this suggests either that Krause believed the debt was collectible some three years later or that Krause knew the notes were worthless when he assigned them to his wife. The Government has not proven that Krause knew the debts were collectible when he filed his 1986 tax return. The Court concludes from its review of the above badges that the same badges are present for the 1986 return as the previously analyzed returns but they are not enough for the Court to find the 1986 return was fraudulent. It is, however, a close question.
Finally, the Court addresses Krause's tax returns for the years 1994 and 1995. The tax liabilities resulting from these returns are attributable to Krause's net operating loss deductions carried forward from the EOR partnerships. The Court concludes that these years' returns stand on a different footing. Krause had received the Barton Tax Court decision (in 1992) and the Tenth Circuit Court of Appeals decision affirming the Tax Court (in 1994) before he filed his 1994 and 1995 returns. Thus, he was clearly on notice that the deductions for his partnership investments were improper and were being disallowed. Nevertheless, he continued to claim these deductions. The evidence at trial demonstrated that Krause did not inform his CPA David Holste of the adverse Tax Court decision, and Mr. Holste testified that he would have prepared these returns differently had he known of the adverse tax court ruling. Given the presence of these additional badges of fraud, the Court concludes that Krause's 1994 and 1995 returns were fraudulent and that the tax liability associated with these years should be excepted from discharge.
2. Willful Evasion of Collection
The Court next considers the willful evasion prong of § 523(a)(1)(C). It does so in light of the fresh start policy of the bankruptcy laws. The willful evasion discharge exception contains both a conduct element and a mental state requirement.[129] The conduct element is satisfied by a showing that debtor engaged in affirmative acts to avoid payment or collection of taxes, either through commission or omission.[130] Unlike the fraudulent return exception to discharge, the willful evasion exception does not require proof that the debtor acted with fraudulent intent.[131] Rather, a debtor's actions are willful if they are done "voluntarily, consciously or knowingly, and intentionally," a less stringent standard than fraud.[132]
Dalton v. I.R.S.[133] is the leading Tenth Circuit authority on this exception. There, the Court of Appeals held that more than non-payment of one's taxes is required to establish a willful evasion.[134] It also held that concealment of assets to avoid payment or collection of taxes may constitute a willful evasion.[135]Dalton quoted with *828 approval the following passage from Spies v. United States, interpreting the similar phrase "a willful attempt in any manner to evade or defeat" found in the Internal Revenue Code:
Congress did not define or limit the methods by which a willful attempt to defeat and evade might be accomplished and perhaps did not define lest its effort to do so result in some unexpected limitation. Nor would we by definition constrict the scope of the Congressional provision that it may be accomplished "in any manner." By way of illustration, and not by way of limitation, we would think affirmative willful attempt may be inferred from conduct such as keeping a double set of books, making false entries or alterations, or false invoices or documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal.[136]
The Dalton court concluded that the transfer of property by debtor to his wife with knowledge of a pending tax investigation constituted a concealment of assets and a willful evasion of a tax within the meaning of § 523(a)(1)(C).[137]
The evidence presented at trial demonstrates that Krause engaged in multiple affirmative acts to conceal his assets and avoid payment or collection of taxes.[138] He transferred his companies (Development Associates, Inc., Fed Gas and FIMCO) to trusts while he continued to run their businesses. He used Fed Gas and FIMCO to pay his personal and family living expenses. His companies held title to his vehicles. He transferred notes owed to him by his companies to his wife and ran payments on those notes through accounts set up in his wife's name (ML and PW accounts) but controlled by him.[139] He opted to keep no bank or other financial accounts or real property in his own name, lest the IRS find and levy against these accounts or property. And, all of these transfers occurred with no consideration and at a time when Krause was embroiled in tax litigation with the IRS.[140] He transferred his Mission home to his wife, notwithstanding the antenuptial agreement, and then had their next home (7711 Oneida), which was purchased with the funds paid on supposedly worthless promissory notes, titled in only his wife's name. Teresa later transferred the home to the KCT 1 which, in turn, conveyed it to PHR, LLC on the eve of bankruptcy and after the IRS had served its collection summons on the KCTs.[141] Krause lived in *829 the Oneida home rent-free, even after his divorce, for all but a brief period of time. The Court could regurgitate other conduct by Krause that corroborates his intent to avoid payment or collection, but the picture is crystal clear.[142] Beginning in 1989, Krause "arranged" his assets so that they would be held by his wife or trusts and beyond the reach of the IRS and its federal tax liens.[143] Even though title was held by others or transferred to his wife or the trusts, Krause retained control over them, and personally benefitted from the assets.[144]
In addition, the evidence is overwhelming that Krause acted voluntarily, consciously, knowingly and intentionally.[145] While Krause suggests that he observed the formalities required for his companies and the trusts, which he clearly learned how to do from his legal training, it does not negate the fact that his transfers and conduct were voluntary, knowing and intentional. As the Tenth Circuit noted in Dalton:
To permit the true nature of a transaction to be disguised by mere formalisms, which exist solely to alter tax liability would seriously impair the effective administration of the tax policies of Congress.[146]
The Court is also mindful of Krause's variously stated motives for his conduct. He contends that he transferred property to his wife out of love and affection and to induce her to stay home and raise their then young boys. He also claims these transfers were done to protect his wife and family were he or Teresa to succumb to their respective health problems. But those transfers ran directly counter to his and his wife's stated intent in the executed antenuptial agreement and that agreement was never rescinded. He retained control over property that he transferred to Teresa. For example, there was no plausible reason to establish separate accounts in his wife's name to receive note payments on notes that Krause assigned to his wife. He could have just as easily made those note payments to her personal bank account. No lucid explanation or motive for his wife's execution of a so-called "gift mortgage" on the Oneida property has ever been given by Krause or his ex-wife. His ex-wife couldn't even describe the *830 transaction or its purpose, let alone provide a legitimate non-tax evasion motive. No consideration exchanged hands for the mortgage. Krause even ignored provisions of the antenuptial agreement in the creation and funding of the KCTs. While the initial establishment of two trusts may have been made pursuant to the antenuptial agreement for the benefit of the children, it is apparent that the KCTs also served the dual purpose of "parking" Krause's assets out of sight and reach of the IRS. Further, the manner in which the KCTs were administered belies any claim that Krause had no control over them. If health concerns drove these transfers, Krause could as easily have transferred the property himself to a trust specifically designed to protect the children or made a will for that purpose. Instead, he chose a labyrinthine disposition of assets that had the additional benefit of stymying his principal creditor, the IRS, for nearly two decades.
Based upon the quality, if not the sheer quantity, of evidence presented by the Government, the Court is left with the inescapable conclusion that Krause engaged in a long-term and pervasive pattern of conduct of willfully evading the payment or collection of his income tax liability. He is not the honest but unfortunate debtor who is entitled to bankruptcy relief. The entirety of Krause's income tax liability should be excepted from discharge as a willful evasion under § 523(a)(1)(C).
B. KCTs as Krause's Nominees
This brings the Court to the crux of the trial whether the KCTs should be declared to be Gary Krause's nominees, subjecting them to turnover of their assets as property of the bankruptcy estate, to which the Government's federal tax liens attach.
Throughout these proceedings the Government and the Trustee have relied upon United States v. Dawes[147] in support of their nominee claim. In that case, the United States District Court for the District of Kansas recognized and applied the nominee theory in a federal tax lien case.[148] The District Court held that trusts in which the taxpayers had transferred their property were nominees of the taxpayers and the property held by the trusts were subject to federal tax hens. The District Court applied five factors to determine whether a trust serves as a taxpayer's nominee:
1) the taxpayer's control over the nominee and its assets; 2) the use of trust funds to pay taxpayer's personal expenses; 3) the relationship between the taxpayer and the nominee; 4) the lack of internal controls and the lack of nominee oversight of taxpayer's actions; and 5) the lack of consideration for transfers of property.[149]
Analyzing and applying those factors, the District Court found:
... that the Daweses retained control over the nominee and its assets. As already noted, they freely used the trust funds for their personal expenses. There is no indication that they had other sources to pay for these personal expenses. They maintained no personal checking accounts for such expenses. The trustees exercised only superficial control and oversight of the Daweses' *831 transactions. Additionally, the Daweses received no consideration for the transfer of their property. As a result, the court must find that the Plainsman served as the nominee of the Daweses.[150]
More recently, the Tenth Circuit Court of Appeals issued a published decision in Holman v. United States[151] that explored the nominee theory in more detail. Holman provides this Court with clear guidance for analyzing a nominee claim in the federal tax lien setting. As the Tenth Circuit stated:
The nominee theory focuses upon the taxpayer's relationship to a particular piece of property, [citation omitted] The ultimate inquiry is whether the taxpayer has engaged in a legal fiction by placing legal title to property in the hands of a third party while actually retaining some or all of the benefits of true ownership.[152]
Under § 6321 of the Internal Revenue Code, the IRS may enforce a tax deficiency by imposing a lien on any "property" or "rights to property" belonging to the taxpayer.[153] Thus, if a third party holds property as the taxpayer's nominee, the IRS's federal tax lien attaches to that property.[154]
The Holman court explained that application of the nominee theory requires a two step process involving both state and federal law.[155] First, the court must examine state law to determine if the taxpayer has a property interest or rights in the property the IRS seeks to reach.[156] If so, then the court must determine whether under federal law the nominee theory should apply, using the five factors recognized above.[157] Because the lower court in Holman did not undertake the state law inquiry, the Tenth Circuit vacated the district court's decision and remanded the case for this determination.[158]
The Court now looks at the present case in light of Holman's teachings, and finds that the Government and the Trustee have glossed over the state law inquiry required by Holman.[159] They appear to have analyzed the nominee claim looking exclusively at federal law and the five factors for imposing a nominee lien on the KCTs. Accordingly, this Court will endeavor to determine whether Krause has a property interest or rights in the KCTs to which a tax lien could attach.
*832 1. Krause's Property Interest in the KCTs Under Kansas Law
Courts have applied a number of state law legal theories to establish the taxpayer's property interest in nominee cases.[160] Some courts have looked to federal law for guidance in determining whether a nominee relationship exists if a state's law on nominee ownership is undeveloped.[161] The Government and the Trustee have not clearly articulated Krause's property interest in the KCTs under state law, but in their summary judgment papers, they asserted that Krause may be found to be an equitable owner of the KCTs, citing the Tenth Circuit case of United States v. Miller Bros. Const. Co.[162]
The Court has carefully read Miller Bros. and is not convinced that it supplies the state law predicate necessary to establish the property interest of Krause in this case. In Miller Bros. the government sought to foreclose its federal tax liens against real property. The taxpayer purchased the property in question in 1952 but never took legal title to the property. He had the seller of the property deed it to his brother-in-law and sister-in-law. The property was subsequently mortgaged as security for a loan made to the taxpayer. Legal title changed hands several times in the next few years (but never vested in the taxpayer), ending up with a leasing company named Rapidways. Rapidways entered into a lease and option to purchase agreement with another company, Fairfax, which was managed by the taxpayer. Legal title was to be transferred to Fairfax upon payment of the lease payments and option price, but that never occurred. At all times after the taxpayer purchased the property, he took actions consistent with ownership of the property, including building a house on it and using it as his permanent residence. When the government sought to foreclose its tax liens, it joined Rapidways as the holder of the legal title and asserted that the property was subject to its tax liens. The court concluded that the legal title was held by Rapidways as security for loans and the lease and that the taxpayer was the equitable owner of the land. It therefore concluded that the property was subject to the taxpayer's tax liability and the government's tax liens could be foreclosed on the property.
Without ever specifically mentioning a state law nominee theory, the Tenth Circuit stated:
*833 The paramount issue on appeal concerns taxpayer's interest in the land in question. The government contended, and the district court found, that taxpayer was the equitable owner of the land and that legal title thereto was held by others, including Rapidways, only as a security interest. Rapidways asserts that taxpayer never had an interest in the land that could be reached by the government....
We find no merit in Rapidways' position. It is clear that the option contracts given to taxpayer were part of more complex refinancing arrangements in which he remained the equitable owner of the land. Taxpayer stated, in his deposition, that the land was conveyed as a security interest and not as an absolute sale.[163]
It appears the Tenth Circuit applied Kansas law since the relevant property was located in Kansas, but it did not cite to any specific Kansas authority for the conclusion that the taxpayer had an equitable interest in the land under those circumstances.[164] While Miller Bros. differs from the present case on the facts, it is persuasive authority for distinguishing between the debtor-transferor's retained equitable interest in property he has fraudulently conveyed and the legal title held by his transferee. But, while that court generally recognized this distinction, the Miller Bros. opinion lacks the specific Kansas law predicate for finding Krause's alleged equitable interest in the KCTs that the later panel in Holman seems to require.
Kansas law, however, does recognize that the donor of a fraudulent conveyance retains an equitable interest in the transferred property. In Gorham State Bank v. Sellens,[165] the Kansas Supreme Court held that under Kansas law legal title passes to the donee of a fraudulent conveyance but equitable title remains with the donor. Such an equitable interest in property is subject to attachment even when the legal title is held by a third party.[166] The Kansas Supreme Court noted the policy that "a debtor's property shall be liable for his debts, and he cannot avoid liability by a fraudulent transfer."[167] Thus, this Court concludes that Krause does have an equitable interest in the KCT property, subject either to attachment of validly filed and perfected federal tax liens, or to recovery by the Trustee, if it determines that Krause fraudulently conveyed property to the KCTs.
a. Statute of Limitations
This Court has previously denied Krause's and the Interveners' motions for summary judgment based on the expiration of the statutes of limitation or repose that, in an ordinary situation, might bar pursuit by the Trustee or the Government of a fraudulent conveyance claim.[168] It must be recognized that, while many of the transactions that led to the vesting of legal title of Krause's property in entities other *834 than himself happened long ago, whether a party can sustain a fraudulent conveyance claim at present is a different question than whether it can be shown that the ancient conveyances were fraudulent when they occurred. Thus, because the alleged fraudulent conveyances relate to the question of whether the KCTs are Krause's nominees, the statute of limitations issues raised by Krause and the Interveners are nothing but red herrings.[169]
b. Badges of Fraud
The Court next analyzes Krause's transfers to the KCTs to determine whether they were fraudulent, and whether Krause, as the donor of those conveyances, has an equitable interest in the transferred property under Kansas law. The Court applies the badges of fraud to determine if Krause's transfers to the KCTs were made with the intent to hinder, delay, or defraud creditors.[170] This analysis is particularly pertinent to the $454,000 admittedly transferred by Krause from the PW and ML accounts to the KCTs. The Court finds that Krause structured the payments by first assigning notes receivable from his companies to his then-wife, Teresa. When his partnerships and companies made purported payments on those notes to Teresa, they were then deposited not in Teresa's personal bank account, but into two accounts established by Krause in Teresa's name: the PW and ML accounts. From there, Krause exerted almost total control over these accounts and directed transfers from those accounts to the KCTs. In effect, Krause used the notes receivable and the PW and ML accounts as conduits for the transfer of money to the KCTs. These two-layered transfers not only depleted the assets of Krause's companies and business, so his creditors could not reach them, but he then also placed those assets into accounts and trusts in the names of third parties, which the Court finds was also done with the intent to hinder, delay and defraud the IRS.
The evidence demonstrates the existence of several badges of fraud in this fraudulent scheme. The grantees of these multiple-layered transfers were his wife, accounts held in his wife's name, and the KCTs, of which Krause's brother was the sole named trustee and Krause was the settlor. Thus, there is a familial relationship between the grantor and the grantees.
Second, at the time of these transfers, both Teresa and Richard were well aware of Gary's dispute with the IRS and his tax litigation. Indeed, the $454,000 transferred from the PW and ML accounts to the KCTs occurred largely in 1998 and 1999, after the Tax Court decided Barton adversely to Krause in 1992 and after he had lost his tax appeals. Although the Court cannot conclude that either Teresa or Richard knew these funds were among the last of Krause's assets subject to execution, Krause, who was the settlor of the KCTs, most certainly knew the extent of his remaining assets.
Third, no consideration was given by Teresa for the notes Krause assigned to her and the KCTs provided no consideration for the transfers. The Court finds that the transfers were not made pursuant *835 to his antenuptial agreement, because Krause testified that he had met his antenuptial obligations to fully fund the KCT by 1993.
Fourth, Richard made no inquiry into these large transfers at the time they were made and he had no knowledge of the source of these funds. He essentially admitted that "he didn't want to know." At best, Richard acquiesced in Krause's fraudulent scheme by accepting the transfers without question or inquiry.
Fifth, the manner in which Krause structured and carried out these transfers was contrary to normal business procedures. There was no reason to establish the PW and ML accounts for receipt of the payments on the notes assigned to Teresa. Krause's companies could have simply made payments on those notes to Teresa's personal bank account. If Krause had wanted to gift assets to the KCTs, he could have done so directly instead of running the assets through Teresa and these accounts.[171] Based upon all this evidence, the Court concludes that Krause fraudulently transferred $454,000 to the KCTs and that, as donor, he had an equitable interest in the monies under Kansas law.
c. Transfers of Life Insurance Policies
In denying the parties' motions for summary judgment, the Court found that Gary owned and subsequently assigned six life insurance policies to several of the KCTs.[172] At trial, he testified that one or two of these policies were taken out or maintained to fulfill his obligation under the antenuptial agreement to maintain life insurance of which Teresa was the beneficiary, and which had a death benefit value of $250,000.[173] He ultimately admitted that the policy in question was the Aurora Life policy number C11324399L. He testified that this policy was formerly carried by Executive Life, but that Executive entered receivership and Aurora was its successor. There is no evidence in the record as to how Gary paid for these policies.
In December of 1990, Teresa obtained $56,318.92 of the cash value of this policy and paid it to the KCT 1. Krause justified this action by stating that Teresa intended to gift these funds to the trust. Instead, the "gift" was structured as a loan with Richard giving Teresa a note for a like amount on behalf of the KCT. Teresa then incrementally forgave the note over the next several years. The circumstances surrounding this loan are not very clear. The evidence is, however, that Gary, not Teresa, requested the loan and received the money. Thereafter, in June of 1994, Gary assigned the policy to KCT 3. Gary also testified at trial that he had assigned some of the death benefit to FIMCO in early 1994.
It is clear from the evidence that in 1990, Gary, not Teresa, owned the policy and Gary, not Teresa, obtained the loan of its cash value to transfer to Teresa who, in turn, transferred it to the KCT 1 in return for a note she subsequently forgave. This series of transactions resulted in Gary's property, the cash value, being *836 conveyed to the KCT 1, for no consideration, at a time when his tax issues were coming to a head. In fact, this transfer was made shortly after the IRS, on October 25, 1990, issued its notices of deficiency to Krause personally for tax years 1975-1983 and 1986. Neither Gary, nor Teresa, ever explained the purpose or necessity of this transfer of funds to the KCT 1. In the absence of a better explanation from him, the Court can only conclude that this transaction was motivated by his desire to obscure as many of his assets as possible from IRS collection efforts. Similarly, there was no explanation given by Krause why the other five insurance policies were transferred to the KCTs. Given his systematic course of conduct to remove assets from his name, the Court can only conclude that Gary intended to hide his ownership of these policies when he transferred them to the KCTs without consideration. Thus, the Court concludes that Gary fraudulently transferred the life insurance policies and the cash value of the Aurora Life policy to the KCTs.
d. Resulting Trust Theory for Krause's Property Interest
Although the parties did not address any other state law basis for Krause's property interest in the KCTs, the Court believes that Kansas law on resulting trusts may supply an alternative state law basis for Krause's property interest. The Court will therefore address this state law theory.
Kansas law contemplates the creation of a resulting trust where a transfer is made to one party but the consideration is paid by another.[174] A resulting trust is created by operation of law and is a matter of equity.[175] Under Kan. Stat. Ann. § 58-2407 (2005), such a conveyance is presumptively fraudulent as against the prior creditors of the party supplying the consideration and the transferee is said to hold the property in trust for those creditors having demands arising prior to the transfer.[176] The Court notes that this statute first appeared in the General Statutes of 1868 as an "exception" to what is now Kan. Stat. Ann. § 58-2406 (2005) which provides that when a conveyance for valid consideration is made to a party and the consideration is paid by another, no trust arises for the benefit of the payor and title properly vests in the transferee "subject to the provisions of the next two sections." The exceptions in Kan. Stat. Ann. § 58-2408 (2005) are situations where (1) the transferee takes the property in his own name without the payor's consent; (2) the transferee purchases the property with funds not rightly his own; or (3) where it is shown that by agreement, and in the absence of any fraudulent intent, the transferee was to hold the property in trust for the payor.[177] The bulk of the Kansas cases deal with the third exception. This Court could find no pertinent cases interpreting KAN. STAT. ANN. § 58-2407 as to fraudulent transfers resulting in creditors' trusts, but notes that the language is unambiguous and clear.
KAN. STAT. ANN. § 58-2407 grants the creditors of a person supplying consideration *837 for a transfer to another a trust interest in the property unless the fraudulent intent of the payor "is not disproved." In the present case, Gary supplied much of the funds contained in the ML and PW accounts by virtue of having assigned the real estate partnership and Fed Gas promissory notes to Teresa and directing those note payments to the ML and PW accounts. These funds can be directly traced to the purchase of the Oneida property in 1995, which was initially titled in Teresa and eventually conveyed to KCT 1. The resulting trust that arises is legally distinct from the actual KCTs. As the treatises note, a resulting trust is not actually a trust; instead, it is "an equitable remedy designed to prevent unjust enrichment and to ensure that legal formalities do not frustrate the original intent of the transacting parties."[178]
Here, the Court could easily conclude that the purchase of the Oneida home with funds essentially provided by Gary, but titled in Teresa, and later KCT 1, created a resulting trust for the benefit of Gary's creditors. This statute allocates the burden to prove a lack of fraudulent intent to Gary. Given his lack of any reasonable or credible explanation for these transfers (particularly in light of the existing antenuptial agreement), a Kansas court would likely conclude that, at least as to the Oneida home (and to the insurance policies), a resulting trust is shown.[179]
2. The KCTs as Krause's Nominee Under Federal Law
Having determined that Krause had a property interest in the property of the KCTs under state law, the Court now addresses the question of whether the KCTs should be deemed to be Krause's nominees under federal law. The Court analyzes and applies the five factors enumerated in Dawes and Holman to determine the ultimate inquiry "whether the taxpayer [Krause] has engaged in a legal fiction by placing legal title to property in the [trusts] while actually retaining some or all of the benefits of true ownership."[180] As discussed below, all five factors clearly exist in this case.
a. Control Over the KCTs
This first factor looks at the taxpayer's control over the nominee and its assets. Krause established the KCTs, not one trust as contemplated by the antenuptial agreement but five trusts, purportedly for his two sons. He selected his brother, *838 Richard, as trustee of the KCTs, not three trustees selected between him and Teresa as the antenuptial agreement contemplated. Krause testified that he had fully funded the trust with $150,000 as required by the antenuptial agreement by 1993. He determined not only what assets went into the KCTs but also the timing of those transfers and the disbursements therefrom. He prepared checks on the PW and ML accounts in Teresa's name and required her to sign whatever checks he gave her. Giving Teresa's allegations in the divorce credence, she also signed blank checks for Krause and he then later completed them, filling in the payee and the amount. The funds in these PW and ML accounts came from Krause, his companies, or the sale of his assets transferred to Teresa (i.e., the Mission property).[181] Krause then turned around and caused funds of at least $454,000 to be transferred to the KCTs in 1998 and 1999. Teresa was apparently oblivious to these transfers as they were occurring, and Krause prepared the monthly reconciliation of the PW and ML accounts.
It was Krause, not his brother as trustee of the KCTs, who was able to explain the source of the property going into the KCTs and the purpose of the disbursements from the KCTs. No evidence was more compelling than Exhibits 795, 796, and 797, a running compilation of activity in KCT 1, 2 and 3 prepared for trial, not by the trustee of the KCTs, but by Krause himself. Richard did not attempt to verify the accuracy of those exhibits nor compare them to the bank statements. Richard did nothing more than read from these exhibits at trial; except for the most basic entries of interest accumulations, he was unable to explain the debits or credits appearing on the spreadsheets.
The manner in which Krause handled deposits to and checks drawn on the KCT accounts also indicates his total control. It was Krause, not the trustee, who endorsed for deposit to the KCTs, checks drawn on "Teresa's" ML and PW accounts. Krause prepared the deposit slip for funds transferred to the KCTs.[182] Krause commonly filled out the checks on the KCT accounts and procured his brother's signature on them. Given Teresa's allegations made during her divorce proceeding of how the PW and ML accounts were handled, the Court has little doubt that Richard signed blank checks on KCT accounts in the same manner that Teresa did, and delivered them to Krause who later completed the payees and amounts.
Krause prepared the tax returns for the KCTs over a ten-year period, from 1994 to 2004, and signed tax returns as Richard's attorney-in-fact during the same period.[183] On those few occasions that Krause did not personally prepare the tax returns, he selected the tax preparer for the KCT returns.
In January of 1991, Krause opened an account, the Merrill Lynch Government Fund Account, using $50,000 funds from the KCT 1 Union National Bank account.[184] He put this account in the name of "GARY E. & RICHARD D. KRAUSE TTEE [Trustees] FBO KRAUSE CHILDREN'S *839 TRUST # 1 DTD 12-5-88," when he had never been a trustee of the KCT 1.[185] Krause had signatory authority on this Merrill Lynch account.[186] The account statements were sent to the Sutton Place address in Wichita where Krause maintained his business office. Richard was unaware of this account until the preliminary injunction hearing in December of 2005.
Krause borrowed money from KCT 1 to purchase a car for his personal use. Richard did not prepare or submit any of the information for this borrowing. Gary prepared the promissory note, and handled the titling and registration of the vehicle and the lien notation. Although Richard admitted that it was an error for the KCT 1 to loan the money to Gary and that it was intended for the GEKT to loan the funds, neither Richard nor Gary ever corrected the "error." Instead of having the GEKT pay back KCT 1 for the supposedly erroneous loan, Gary set up a personal promissory note to KCT 1 and granted a security interest in the vehicle to secure repayment.[187] He repaid that note, but with sporadically-timed payments, an arrangement this Court doubts he could ever have made with a conventional lender.
The Court concludes that there is overwhelming evidence of Krause's control over the KCTs.
b. Use of KCTs to Pay Personal Expenses
This factor looks at whether the taxpayer used the alleged nominee for his personal benefit. Krause benefitted personally by using the KCTs to pay his personal expenses in several ways. After the Oneida house was purchased in 1995 for nearly $300,000 with funds Krause or his companies deposited in the PW account,[188] Krause directed Richard to have the KCT 1 "purchase" the Oneida property. The KCT 1 paid approximately $65,000 to Teresa in 1999 and the Oneida property was transferred to the KCT1. Krause lived at the Oneida property during all this time except for a brief period in 1999 when he and his family temporarily resided in California. When Krause returned to Kansas he purportedly leased the Oneida property from Polo Executive Rentals, a non-entity. Except for a few lease payments during 2000, Krause did not pay rent. Richard never enforced the lease against his brother and Gary continued to reside in the Oneida property until September of 2007. Krause listed "Polo c/o KCT 1" as an unsecured creditor with a $21,000 claim on his bankruptcy schedules.
Prior to his divorce, Krause used his companies, Fed Gas and FIMCO, to pay personal and family living expenses, including phone bills, country club bills and membership fee, computers, house cleaning or maid service for Oneida, lawn service, utilities, medical expenses, and purchase of vehicles. After his divorce, Krause began to direct that the KCTs reimburse him or his companies, Fed Gas and FIMCO, for many of those personal *840 and living expenses, including credit card bills.[189] While Krause or his companies had paid private school tuition expenses for his boys prior to his divorce, after his divorce he began to have the KCTs reimburse those expenditures. Between November 2004 and August 2005, KCT 1 issued six checks to Krause's company, Fed Gas, for reimbursement of expenses. Krause, through his company Fed Gas, was not only reimbursed by the KCT 1 for expenses, but according to Krause's own witness Mark Bernat, unallocated expenses of Fed Gas were credited against the Fed Gas note assigned to Teresa, reducing the note balance. In short, Krause used the KCTs to perform many of his legal support obligations as a parent.
Richard and Gary repeatedly testified that the KCTs were intended for Drake's and Rick's education. Yet the inconsistent and relatively few number of checks drawn on KCT accounts for educational needs is startling, especially when compared to the other non-educational uses the KCTs funded. Richard testified that he would pay any educational expenses and tuition that were presented to him. The Trustee used a demonstrative exhibit at trial to show those payments.[190] The first payments from the KCTs for educational expenses and tuition began in 1999. While the Krause family was in California in 1999, the KCTs made payments for the boys' education in August, September, November and December of 1999. In 2000, payments for the boys' education were made in May and November. In 2001, payments for the boys' education were made in January, March and May. The KCTs paid no educational expenses or tuition in 2002 and 2003. In 2004, Richard paid educational expenses from the KCTs only in June. In sum, between 1999 and October 2005, when Krause filed his bankruptcy, Richard made payments from the KCTs for tuition or educational expenses a mere total of 10 months out of 82 months.
Krause used the KCT 1 as his personal bank. Instead of obtaining a car loan through conventional methods or using the GEKT, of which he was the only beneficiary, to fund his purchase of a car from his friend Andrew Peressin, Krause used KCT 1 to finance his car purchase. While Krause argues that he paid the money back with a market rate of interest, the payoff of the "car loan" went to KCT 3 and it was KCT 3, not KCT 1, that was noted as the lienholder on the certificate of title.
In November of 2000, the KCTs reimbursed Krause for the expenses and support of Rick that Krause was ordered to pay by the domestic court in the first divorce.[191] Krause used the KCTs to pay legal defense fees incurred prior to the bankruptcy filing, including preparation of the frivolous petition to quash the IRS collection summons that he directed his brother file.[192] He and Richard also attempted to use KCT funds to pay their personal legal expenses after the bankruptcy was filed, but the Court denied their requests.[193]
During closing argument, Krause argued that because funds from the KCTs were not used exclusively for his benefit, *841 the KCTs cannot be declared his nominees. Krause does not cite to any cases supporting his "exclusive and full use" argument, but relies instead on the IRS Manual. Section 5.17.2.5.7.2(2) (12-14-2007), Nominee Liens, provides:
A nominee situation generally involves a fraudulent conveyance or transfer of a taxpayer's property to avoid legal obligations. To establish a nominee lien situation, it must be shown that while a third party may have legal title to the property, it is really the taxpayer that owns the property and who enjoys its full use and benefit. No one factor determines whether a nominee situation is present, but a number of factors taken together may. The following list is neither exhaustive nor exclusive, but nominee situations typically involve one or more of the following:
A. The taxpayer previously owned the property.
B. The nominee paid little or no consideration for the property.
C. The taxpayer retains possession or control of the property.
D. The taxpayer continues to use and enjoy the property conveyed just as the taxpayer had before such conveyance.
E. The taxpayer pays all or most of the expenses of the property.
F. The conveyance was for tax avoidance purposes. (Emphasis added).
The Court concludes that Krause's "exclusive and full use" argument is untenable. First, the Internal Revenue Manual ("IRM") does not have the force of law.[194] While the manual provisions constitute persuasive authority as to the IRS's interpretation of the statute and the regulations, they are not binding authority.[195] Second, the IRM is ambiguous. In Section 5.17.2.5.7.2(2) (12-14-2007), it mentions "full use and benefit" in the second sentence and then "continued use" in the last sentence. Assuming, arguendo, that the KCTs had never been established, the funds would have been used no differently. According to Gary, he set up the KCTs because of his antenuptial obligation. This obligation stems from his marital and parental duties. Thus, a portion of the funds, whether titled in the KCTs or Gary personally, would have been used to shelter, educate, and maintain the boys' lifestyle. Arguably then, the IRM does not require exclusive and full use. Third, many factors are considered in determining whether a nominee situation exists. No one factor is dispositive. To require "exclusive use" or "full use," as suggested by defendants, would be contrary to the concept of a non-exhaustive or nonexclusive list. How the funds were used is simply one factor to consider. Fourth, an "exclusive and full use" requirement for nominee status would create a loophole that allows taxpayers to easily avoid nominee status by using a nominal part of the trust funds for someone else's benefit.
Finally, there are no published cases that mention "exclusive use and enjoyment" or "full use and benefit" as a requirement to determine nominee status. *842 To the contrary, Holman instructs that "[t]he ultimate inquiry is whether the taxpayer hag engaged in a legal fiction by placing legal title to property in the hands of a third party while actually retaining some or all of the benefits of true ownership."[196] The Court concludes that Krause's "exclusive use" argument is without merit, as he most certainly retained significant benefits of true ownership.
c. Relationship Between Taxpayer and KCTs
The third factor dealing with the relationship between the taxpayer and the nominee is satisfied here. A close, familial relationship exists between Krause and the KCTs. Krause was the grantor of each of the KCTs. His brother, Richard, was the sole trustee of each of the KCTs. While the trust instruments vested broad powers and discretion in Richard, the evidence at trial established a pattern of conduct whereby Richard blindly complied with his brother's requests, suggestions and direction in administering the KCTs.
d. Lack of Oversight Over Taxpayer's Actions
The fourth factor concerning lack of internal controls and lack of nominee oversight of a taxpayer's actions is also satisfied. Krause controlled the KCTs with virtually no oversight from Richard. His brother's testimony regarding his philosophy concerning the KCTs is most revealing. Richard wanted to be a passive trustee and did not want to spend a lot of his time on the trusts. He testified that he was willing to serve as trustee of the KCTs so long as it was not "complicated." He did not know the source of funds contributed to the KCTs and he described this philosophy as "stick your head in the sand and then you don't know what is going on." Richard admitted to giving Gary signed blank checks and permitting Gary to complete them. He did not ask for or obtain receipts for checks at the time he signed them. He kept no books or records regarding KCT activity and performed no bookkeeping or accounting of the KCTs' activities. Without exception, Richard agreed to every investment or disbursement suggested or requested by Gary. He exercised no independent oversight on how KCT funds were spent, nor did he make any effort to independently determine the wisdom of any investments. It was Gary who suggested that KCT 1 purchase the Oneida property from Teresa. It was Gary who suggested the Dream Swing investment. When Richard was served with the IRS Collection Summons in the summer of 2005, he contacted Gary and responded lockstep with Gary's direction. Richard also delegated to Gary the preparation and even the signing of the KCT tax returns. Richard transferred the Oneida property to PHR, LLC without receiving consideration; he did not enforce the alleged "mortgage" given by Teresa in favor of the KCT 5. And when it came time to defend the KCTs from the Government's and the Trustee's claims in this proceeding, Richard defaulted on his duties as trustee and deferred to Krause and the KCT beneficiaries. The very presence of the Interveners in this case underscores Richard's complete failure to act independently of Krause in administering the trust assets.
The evidence is overwhelming that Richard exercised no oversight over his brother's activities vis-a-vis the KCTs.
*843 e. Lack of Consideration for Transfers
The Government and the Trustee have also demonstrated the existence of the last factor, whether there was adequate consideration for the transfers. The vast majority of the transfers to the KCTs were comprised of sources linked to Krause or his companies and were without consideration: (1) sale proceeds of $142,000 from the 1998 sale of the Mission property that Krause had deeded to Teresa during their marriage were deposited into the PW account Krause established in Teresa's name and from there were transferred to the KCTs 1, 2 and 3; (2) Krause's companies transferred in excess of $800,000 into the PW and ML accounts that Krause established in Teresa's name; some of these deposits into the PW and ML accounts consisted of payments on the notes allegedly owed Krause by his companies and which he assigned to Teresa in 1989. From the PW and ML accounts, Krause caused at least $454,000 to be transferred to the KCT 1, 2 and 3 during 1998 and 1999; and (3) Krause transferred six life insurance policies he owned to the KCTs in 1991 and 1994.
No consideration exchanged hands between the KCTs and the transferors. The Court does not find persuasive Krause's defense that the consideration was the prior antenuptial agreement or love and affection. In addition, the Court notes that Krause had satisfied his funding obligation for the KCTs under the antenuptial agreement by at least 1993. Thus, the extensive transfers of cash from the PW and ML accounts in 1998 and 1999 were not part of Krause's initial cash funding of the KCTs required by the antenuptial agreement.
In summary, applying the factors under federal law, the Court finds that Krause's relationship to the KCTs and the assets and property they hold are such that Krause has effectively retained the benefits of true ownership in those assets. The Court concludes that the KCTs are Krause's nominees. The Government's tax lien attaches to the property held by the KCTs and such property is subject to turnover to the Trustee as property of the bankruptcy estate. Judgment should be entered in favor of the Government and the Trustee on their nominee claims.
C. Fraudulent Transfers
Having resolved the nominee theory in favor of the Government and the Trustee, the Court considers whether it need decide the alternative fraudulent transfer claims asserted here. At the close of trial, the Court raised the question whether the fraudulent transfer claims would be moot if it decided the nominee claims in favor of the plaintiffs. The parties submitted legal memoranda on this question.[197]
1. The Court's Determination of KCTs Nominee Status Renders a Determination on the Fraudulent Transfer Claims Moot
If the assets and property held by the KCTs are held as Krause's nominees, the Court questions whether it also needs to determine whether such property held by the KCTs was fraudulently transferred to the KCTs.[198] The Court agrees with the *844 Government and Trustee on this issue and concludes that the fraudulent transfer claims are moot with respect to property held by the KCTs. However, the fraudulent transfer claims remain viable with respect to property not held by the KCTs. Krause's transfer of his interest in Quivira Associates falls into this category and will be addressed in the next subsection.
The Court concludes that its question is answered by two cases: May v. A Parcel of Land,[199] and the Holman case discussed in the preceding section.[200] Both are federal tax liability cases discussing attachment of a federal tax lien to property held by a taxpayer's nominee.
In May, the government argued that its federal tax lien attached to property titled in the taxpayer's wife under the common-law nominee theory and, alternatively, under the theory that the taxpayer fraudulently transferred the property to his wife to shield it from the IRS' collection efforts and that the transfer was void under the Alabama Uniform Fraudulent Transfer Act.[201] Under either of the government's theories, its federal tax lien attached to the property either as property held by the nominee or as property fraudulently transferred.
The court in May first addressed the government's nominee theory and, after applying the law to the uncontroverted facts,[202] concluded that the taxpayer's wife held title to the property as her husband's nominee and thus federal tax hens filed against him attached to the property.[203] Having found for the government on the nominee theory, the district court concluded that "it is unnecessary to reach the Government's alternative argument that James May fraudulently transferred the Property...."[204]
In Holman, the Tenth Circuit Court of Appeals addressed an issue of proof to establish the nominee theory. The government asserted a federal tax lien against real property in which the taxpayer's wife and a friend held legal title, claiming that they held the property as the taxpayer's nominees. The taxpayer's wife challenged the validity of the tax lien attaching to this property, claiming that her husband had never transferred legal title to the property to her. The Holman court concluded that it was not essential to the imposition of a nominee lien that the taxpayer actually transfer legal title to a third party, as follows:
A delinquent taxpayer who has never held legal title to a piece of property but who transfers money to a third party and directs the third party to purchase *845 property and place legal title in the third party's name may well enjoy the same benefits of ownership of the property as a taxpayer who has held legal title. In both instances, the third party may be the taxpayer's nominee.
Thus, as the IRS argues, this court has recognized that a tax lien may be enforced when the taxpayer has never held legal title to the property but has directed that title be placed in a third party's name.[205]
As a result of this conclusion, the Tenth Circuit held that the lack of a transfer of legal title by the taxpayer to a third party was insufficient by itself to defeat a nominee lien.[206] Since no transfer of title is required to establish a nominee claim, the holding of Holman suggests that a finding of a fraudulent transfer is also not required.
Krause and the Interveners argue, without benefit of authority, that the Internal Revenue Manual ("IRM") requires a finding of fraudulent conveyance to establish the nominee theory, and therefore contend that this Court must decide the fraudulent transfer claim before it can even consider applying the nominee theory. This Court rejects their argument on the express authority of Holman.[207]
Krause and the Interveners also argue that the Court must decide both the fraudulent transfer and the nominee theories, citing to United States v. Dawes.[208]Dawes does not support this position. In Dawes, the district court did make a finding of fraudulent transfer before going on to find that trusts served as the taxpayers' nominee or alter ego. In doing so, the Dawes court addressed both theories separately, and its findings were made in the alternative.[209]Dawes does not stand for the proposition that proof of a fraudulent transfer is a precondition to determining a nominee claim. Moreover, it is not evident from the district court's opinion in Dawes that the necessity of ruling on both theories was raised as an issue or determined by the district court.[210] The district court could have just as easily organized its *846 opinion to discuss the nominee theory prior to the fraudulent conveyance theory.
While the factual basis necessary to establish each theory may bear similarities and have some common elements, the fraudulent transfer and nominee theories are discrete claims used by the government to assert that its federal tax liens attach to property held by a third party. The distinction was explained in Smith v. United States:[211]
Fraudulent transfer requires pleading elements in addition to what is required to demonstrate that a transfer was made to a nominee. A nominee theory focuses on whether or not the taxpayer is the true beneficial owner of the property based on how the taxpayer treats the property. Oxford Capital Corp. v. United States, 211 F.3d 280, 284 (5th Cir. 2000). A fraudulent conveyance theory looks at the conditions at the time of the conveyance, and whether the transfer was affected with the intent of preventing a creditor from collecting on its interests. Kirkeby v. Sup. Ct., 33 Cal.4th 642, 648, 15 Cal.Rptr.3d 805, 93 P.3d 395 (2004). Fraud is not necessarily required to prove a nominee theory under California law. Sequoia Property & Equip, v. United States, 1998 WL 471643, *3 (E.D.Cal.1998) (Wanger, J.).[212]
Finally, the Court also rejects Krause's "reverse piercing" argument. Krause persists in recasting the Government and the Trustee's federal common law nominee claim as impermissible reverse piercing of the trusts under Kansas law. The Court has previously considered this argument and rejected it.[213] The claim presented at trial by the Government and the Trustee was a nominee claim. That is the claim the Court has decided today.
The Court concludes that based upon its determination of the Government's and the Trustee's nominee claim, it need not and does not reach the question of whether Krause fraudulently transferred property to the KCTs. The Government's federal tax liens attach to the property held by the KCTs as Krause's nominees. However, since none of the KCTs hold an interest in Quivira Associates, the Court must determine whether Krause fraudulently transferred his interest in Quivira to Teresa and others.
2. Quivira
As noted previously, Quivira holds title to a quarter section of real property in Stafford County. Quivira was formed by Richard in 1986 to acquire the property,[214] and Krause, or his wholly-owned company Kanzoil, owned a one-third interest in Quivira. Gary and Richard use the property for recreational hunting and also lease the pasture ground to a tenant for cattle grazing part of the year. A "hunting lodge" is located on the property.
Krause caused his or Kanzoil's one-third interest in Quivira to be conveyed to Teresa *847 in November 1989, at the same time he conveyed the Mission property to Teresa and assigned the company note receivables to her.[215] There is no dispute that the interest in Quivira was assigned to Teresa in 1989. However, the parties do dispute to whom Teresa later transferred the Quivira interest. Gary contends Teresa transferred her interest in Quivira to Rick and Drake in 1998. As explained below, the books and records of Quivira suggest that Teresa transferred her interest in Quivira to the GEKT.
a. Facts Pertaining to Quivira
Before applying the badges of fraud to the Quivira transfer(s), the Court reviews the evidence pertaining to Quivira. Teresa's familiarity with Quivira was sketchy at best. She recognized it as the "hunting lodge." Teresa believed she had an ownership interest in Quivira but could not recall how she acquired that interest and did not know if she had ever sold whatever interest she might have. On cross-examination, she indicated that she had no recollection of any Quivira ownership transactions. She testified that she spent little to no time at the Quivira property, while Gary regularly hunted on the property.
When originally formed, Quivira had three shareholders who owned a one-third interest: Richard, Kanzoil Corporation, and Southwest Properties Co., Inc. Each contributed $4,000, for total capital stock of $12,000.[216] Krause was the 100% shareholder of Kanzoil and Kent Weltmer was the principal of Southwest Properties. The Court thus concludes that Krause initially controlled, through his company, a one-third interest, or 4,000 shares, in Quivira. According to Krause, the Quivira property was encumbered by an interest held by Fed Gas, which had provided the funds for Kanzoil to acquire the 4,000 shares of stock.[217] In 1990, Quivira bought back Southwest's 4,000 shares and reflected them as treasury stock.[218] This left 4,000 shares of stock each for Richard and Kanzoil/Fed Gas and later, Teresa.
According to Gary's trial testimony, Kanzoil transferred its interest in Quivira to Teresa in 1989, and in late 1998, Teresa transferred those shares equally among her sons, Drake and Rick.[219] Neither Teresa nor her sons paid any consideration for the stock. With respect to Krause's transfer to Teresa in 1989, this occurred during the time when Krause's individual tax returns and the Barton tax return were being audited and while Krause was litigating the Barton tax issues in the United States Tax Court. The transfer to Teresa did not reference the antenuptial agreement, and in fact, no writing evidenced the transfer other than the stock certificate issued in Teresa's name.
The books and records of Quivira provide information that conflicts with Gary's trial testimony. Quivira's federal tax returns *848 contradict the second transfer from Teresa to her sons and in fact, the tax returns would indicate that neither Drake nor Rick owned any interest in Quivira. According to Krause, the Quivira tax returns were prepared by FIMCO.[220] One return introduced into evidence by Krause shows that another of his companies, Energy Associates, Inc., prepared the Quivira return for tax year 1989.[221] The tax return for 1990 shows Richard and Teresa each owning 50% of the stock of Quivira and $4,000 of treasury stock; this is consistent with the testimony regarding the transfer to Teresa in late 1989 and the buy-back of Southwest Properties' one-third interest in 1990. The same is true for the 1991, 1993, 1994, 1996, 1997, and 1998 tax returns.[222] The Quivira tax returns for 1999, 2000, 2001, and 2002, however, show Richard and the GEKT (of which Gary is the beneficiary) each owning 50% of Quivira.[223] The tax returns then suggest that Teresa transferred her 4,000 shares to the GEKT, rather than to her sons, in late 1998 or early 1999. For tax years 2003-2005, Quivira only listed Richard as "50% or More Owners;" the other 50% shareholder (whoever that was) was not identified.[224]
The Quivira annual reports also contradict Gary's trial testimony concerning the ownership of Quivira. He testified that the Quivira annual reports were prepared by C. Norris Taylor until he retired and then by Mark Bernat, both former FIMCO employees. The first annual report for 1986 shows Kanzoil Corporation as one of three shareholders.[225] However, the 1987 annual report shows Fed Gas as one of three shareholders.[226] The annual report for 1988 shows Gary individually as one of three shareholders.[227] The Quivira annual report for 1989 is missing. The annual reports for 1990 and 1991 show Teresa as one of two shareholders of Quivira, thus evidencing the transfer to her in late 1989 and supporting the buy-back of Southwest Properties stock during 1990.[228] The annual report for 1999, however, shows the GEKT as a shareholder, thus suggesting a transfer from Teresa to the Trust in late 1998 or 1999.[229] The GEKT was again shown as a shareholder on the 2000 annual report.[230] None of the annual reports introduced into evidence reflect that Drake or Rick were ever stockholders in Quivira.
*849 As recently as November of 2005, after Krause filed his bankruptcy, he was still linked to Quivira. The insurance billing statement for the Quivira property was sent to Krause as the named insured of the Quivira property.[231] Krause continues to hunt on the Quivira property to this day.
Given these factual circumstances, the Court concludes that Krause transferred his interest, or caused the interest of his companies (Kanzoil or Fed Gas) in Quivira to be transferred to Teresa in late 1989 and then to the GEKT in late 1998 or 1999. The only documentary evidence of Interveners' ownership interest in Quivira is the stock certificates issued to them. The Court simply places more credence in publicly filed documents and tax returns than it does in the stock certificates, which may be easily manipulated. Even some of the internal books and records of Quivira, such as the supporting schedules and statements to the tax returns, clearly evidence Krause's interest in Quivira either individually or through his companies. Having determined that Krause transferred his interest in Quivira to Teresa, and that she transferred the Quivira ownership interest to the GEKT, the Court next examines whether those transfers were fraudulent.
b. Fraudulent Transfer of Quivira Ownership Interest
The effect of the fraudulent transfer claims asserted by the Government and the Trustee differ slightly. While the Trustee has the power to avoid a fraudulent transfer and preserve the same for the benefit of the bankruptcy estate,[232] the Government may also prove a state law fraudulent transfer with the consequence that its federal tax lien attaches to the fraudulent conveyed property.[233] This technical distinction was discussed previously by the Court when ruling on Krause's and the Interveners' pretrial motion to dismiss the Government's fraudulent transfer claims for lack of standing. The Court will not repeat that analysis here and refers readers of this opinion to the Court's previous ruling.[234]
The Court is also mindful of Krause and the Interveners' continued assertion that the fraudulent conveyance claims are barred by statutes of limitations and statutes of repose, defenses which they preserved at the close of trial. The Court previously denied Krause's and the Interveners' motions for summary judgment based on these defenses. The Court will not repeat its analysis here other than to note its previous conclusion that the Trustee enjoys the same limitations period as the Government and because that statute of limitations had not expired when Krause commenced his bankruptcy case, the Trustee's state law fraudulent conveyance claim pursued under 11 U.S.C. § 544(b) is timely because she asserted the claim within two years of Krause's bankruptcy petition.[235]
The state law fraudulent conveyance claims originally pled are KAN. STAT. ANN. § 33-101, § 33-102, § 33-103, *850 § 33-204, § 33-205 and the common law.[236] The Court will first address the plaintiffs' common law fraudulent transfer claims regarding Quivira. At common law, the courts apply a number of badges of fraud from which a court may infer that the transfers were made with the intent to hinder, delay or defraud creditors.[237] The common law badges of fraud are described as: (1) a relationship between the grantor and grantee; (2) the grantee's knowledge of litigation against the grantor; (3) insolvency of the grantor; (4) a belief on the grantee's part that the asset transferred was the grantor's last asset subject to a Kansas execution; (5) inadequacy of consideration; and (6) consummation of the transaction contrary to normal business procedures.[238] In addition, the fraud must be proven by clear and convincing evidence. The parties agree that this is a correct recitation of the badges of fraud; where they disagree is on the facts and the inferences drawn from the facts when applying those badges of fraud.
The Court's analysis of the facts surrounding the Quivira transfers lead it to conclude that several badges of fraud are present. Close relationships between the grantor and grantee exist. Gary and Teresa were husband and wife at the time of the transfers. Gary is the beneficiary of the GEKT and Richard, his brother, is the trustee of the GEKT. No explanation was proffered at trial for the second transfer, a transfer that effectively returns the ownership interest to Gary.[239] Even if the Court were to consider the alleged transfer from Teresa to her minor sons, no explanation is given why it was necessary to convey a 50% interest in Quivira to minor children in 1998. No explanation is given why this ownership interest in Quivira was not transferred to the KCTs, for the benefit of the minor children, if it was truly intended to be conveyed to the boys. The Court concludes that the transfers made here were simply window dressing to disguise Gary's continuing interest in Quivira.[240]
Both grantees here, Teresa and the GEKT, knew that Gary was embroiled in tax audits, litigation or disputes with the IRS at the time of the two transfers in 1989 and 1998. Indeed, the second transfer to the GEKT was made after Gary had lost his challenge in the Tax Court (1992) and the Tenth Circuit had affirmed (1994). The second transfer was made after the IRS had issued notices of deficiencies for several years. Both Richard, trustee of *851 the GEKT, and Gary, beneficiary of the GEKT, were fully aware of Gary's looming tax liability by this time and the second transfer of the ownership interest in Quivira was an attempt to place another of Gary's assets in the hands of a third party and beyond reach of the IRS.[241]
The third badge of fraud insolvency of the grantor runs in favor of Krause. There was no evidence presented at trial that Krause was insolvent at the time of the 1989 transfer to Teresa. The 1998 transfer to the GEKT is a closer question because by this time most of Krause's holdings had been transferred to trusts. The Court concludes, however, that the Government and Trustee have made an insufficient showing of Krause's insolvency in 1998.
The fourth badge of fraud transfer of Gary's last asset weighs both in favor of and against him. There was no clear evidence that Krause's interest in Quivira was his last asset at the time of either the 1989 or 1998 transfers. It is apparent, however, that Teresa received a substantial portion of Gary's assets in 1989. It is also revealing that Gary made those transfers (including his Quivira interest) when he was protected from any claims Teresa might have to that property under their antenuptial agreement. In fact, Gary's transfers of his separate property to Teresa are directly contrary to the antenuptial agreement. By the time of the 1998 transfer to the GEKT (or the boys), however, nearly all of Gary's corporate holdings had been transferred to the GEKT or the KIT. The oil partnerships were essentially defunct. His separate property had been transferred to Teresa (notes receivable and Mission property). He had waived his inheritance. Thus, by 1998, Quivira would have been one of the few remaining assets that Gary had.
The fifth badge of fraud inadequacy of consideration has been clearly established by the evidence. Neither Teresa nor the GEKT paid any consideration for Gary's or his companies' ownership interest in Quivira, and Gary received nothing of value for the transfers.
The sixth and final badge of fraud at common law is consummation of the transaction contrary to normal business procedures. While the transfers themselves may have complied with Quivira's bylaws and a stock certificate duly issued, it is not a "normal business procedure" for Gary in 2005 to be named the insured on property in which he allegedly has no insurable interest.[242] The normal business procedure would be to address insurance matters to the president of the corporation, Richard. Nor is it normal to incorrectly identify the stockholders of the corporation on the tax returns. If the Court is to believe the testimony of Gary, and even Richard, the tax returns (and the annual reports) are in error when they show the *852 GEKT as a shareholder of Quivira. Yet those tax returns and annual reports were prepared by Gary's company, FIMCO, and were never amended to correctly identify the actual shareholders. And Richard signed those documents, under penalty of perjury, as president of Quivira.
The Interveners argue that to prove a fraudulent transfer claim, the Government and the Trustee must show that the grantee participated in the fraudulent scheme.[243] While there is no direct evidence of Richard's participation as trustee of the GEKT, the circumstantial evidence certainly points to his acquiescence in the transfer. He accepted the transfer without questioning Gary as to its purpose. The GEKT paid no consideration for Quivira. Richard well knew by 1998 that Gary had lost the Barton Tax Case and was facing a large tax liability. As trustee of the GEKT, Richard knew that Gary had transferred Fed Gas and Development Associates to the GEKT in 1989 for no consideration, at a time when Gary's father, the grantor of the trust, was still living.[244] Richard had delegated the management and operation of those entities to Gary, without any oversight on his part. In short, Richard's total failure to exercise his duties as a trustee of the GEKT, and acceding authority over the GEKT assets to Gary, is tantamount to participation in the fraudulent transfer.
If this Court were reviewing the Quivira transfers in isolation, it might be inclined to give Krause the benefit of the doubt. But here, when considered in light of all of the other transfers and machinations employed by Krause to hide assets and place property out of reach of the IRS, the Court is firmly convinced that the Quivira transactions were similarly made with the intent to hinder, delay or defraud the IRS, particularly when viewed with the parallel time line of Krause's tax disputes with the IRS.[245] Because of the result the Court reaches under state common law, it does not reach the fraudulent transfer claim asserted under the KUFTA, 11 U.S.C. § 548 or other state law theories. The transfers of the Quivira ownership interest are void, and the Government's federal tax liens attaches to Gary's 50% ownership interest in Quivira. The Trustee may avoid the transfers under 11 U.S.C. § 544(b) and preserve the same for the benefit of the estate under 11 U.S.C. § 551.[246]
D. Permanent Injunction
Because the Government has prevailed on its nominee claim with respect to the KCTs, the fraudulent transfer of Quivira, and the nondischargeability of Krause's income tax liability as a willful evasion under 11 U.S.C. § 523(a)(1)(C), it has succeeded on the merits. Nothing the Court heard at trial would alter or affect in any way its previous findings and conclusions *853 regarding the remaining factors for granting the preliminary injunction in December of 2005, and it incorporates them here as though fully set forth in this opinion.[247] Indeed, the breadth of the evidence received at this trial and at the previous spoliation trial make clear that Gary, with Richard's indulgence, has secreted his assets and would, whether in the absence of an injunction or in spite of one, continue to do so. Judgment should therefore be entered, granting a permanent injunction restraining and enjoining Gary Krause and Richard D. Krause, Trustee of the Krause Children Trusts 1-5, from transferring, liquidating, disposing of, or distributing any property, funds, or assets held by the Krause Children Trusts 1-5 except as ordered by this Court. The defendants shall cooperate with the Government, the Trustee, financial institutions, and life insurance companies to carry out the terms of this Memorandum Opinion, including but not limited to, executing any instruments or documents necessary to effectuate a turnover of all property, funds, and assets held by the Krause Children Trusts 1-5. Moreover, Gary and Richard are restrained and enjoined from transferring any assets of any kind to any other Krause entity or trust without obtaining the prior order of this Court.
IV. CONCLUSION
Gary Krause, either with the cooperation or acquiescence of his brother Richard, has engaged in a decades-long scheme to keep all of his assets out of his own name while enjoying the benefits of those assets and utilizing the KCTs as a vehicle for supporting himself and his family, while artfully avoiding the legitimate claims of his principal creditor, the IRS. Nearly every action taken by Gary over the past 22 years reflects an intent to avoid his creditors. Even after four lengthy evidentiary hearings, this Court is unable to divine what the legitimate business purposes, if any, of Gary's enterprises are, nor can it fathom how he makes his money. With the exception of a copied paycheck from FIMCO, a company that Krause controlled, Krause offers no evidence of income via pay, rents, revenues, or other sources. Yet, he has lived lavishly despite lacking any visible means of support. He has simply failed to supply any legitimate purpose for these tortured financial arrangements.
The Court concludes that the KCTs are his nominees and that the liens of the IRS attach to the property of the trusts as though it were titled in himself. The Court also concludes that the Government's tax liens attach to Gary's 50% interest in Quivira, which he fraudulently transferred to Teresa and the GEKT. In addition, the property held by the KCTs, as Gary's nominees, is subject to turnover to the Trustee, and the interest in Quivira that Krause fraudulently transferred should be recovered and retained for the benefit of the estate pursuant to § 544(b) and § 550. Richard Krause, as trustee of the KCTs, is therefore directed to forthwith turnover any and all trust property in his custody and control to the Trustee under § 542. Richard, as trustee of the GEKT, is further ordered to turnover custody and control of the GEKT's interest in *854 Quivira to the Trustee on the same basis. Gary and Richard are restrained and enjoined from transferring or trafficking in any asset attributable to Gary, whether held in the Trusts or otherwise maintained, in the absence of an order of this Court.
Judgment should be entered in favor of the Government on its claim under 11 U.S.C. § 523(a)(1)(C). Gary's tax debt attributable to tax years 1994 and 1995 is excepted from his discharge as a fraudulent return and the entirety of Gary's tax debt is excepted from his discharge as a willful evasion.
Judgment should be entered in favor of the Government and the Trustee on their nominee claims. The Krause Children Trusts 1-5 are determined to be the nominees of Gary E. Krause. The Government's federal tax liens attach to all property and assets held by the nominee KCTs. The assets and property held by the nominee KCTs constitute property of the estate and are subject to turnover to the Trustee.
Judgment should be entered in favor of the Government and the Trustee on their claims with respect to the fraudulent transfer of Gary's interest in Quivira Associates, Inc. to Teresa and the Gary E. Krause Trust. The Government's federal tax lien attaches to the fraudulently conveyed Quivira interest and the Trustee is entitled to avoid the transfer under 11 U.S.C. § 544(b) and preserve the same for the benefit of the estate under 11 U.S.C. § 550.
Judgment should be entered in favor of the Government on its claim for a permanent injunction.
In light of the determinations reached today, the Trustee's Second Motion for Sanctions for Spoilation of Evidence[248] and the Government's Second Motion for Contempt and Default Judgment[249] are MOOT.
The Court strongly discourages post-trial motions; any such motions shall be limited to five (5) pages in length.
A Judgment on Decision will issue this day.
NOTES
[1] Attributed to "Deep Throat," former senior FBI officer, William Mark Felt, II, in William Goldman's screenplay for the 1976 motion picture, "All the President's Men," based upon Carl Bernstein and Bob Woodward's 1974 book of the same name about their experiences reporting the Watergate Affair that ultimately led to the impeachment and resignation of President Richard M. Nixon.
[2] Dkt. 515-518.
[3] No. 05-17429, Proof of Claim No. 3 filed January 25, 2006 amending Claim No. 1.
[4] Kan. Stat. Ann. §§ 33-101, 33-102 (2000).
[5] KAN. STAT. ANN. § 33-201 et seq. (2000).
[6] Ex. 314. The IRS collection summons was issued pursuant to Internal Revenue Code ("IRC") (Title 26, U.S.C.) § 7602 and the enforcement action was authorized by § 7604.
[7] Dkt. 128, pp. 15-22; Dkt. 148, 174.
[8] Dkt. 128. pp. 22-25; Dkt. 151, 179.
[9] Dkt. 17, 80.
[10] Dkt. 42, 50.
[11] Dkt. 232.
[12] Dkt. 395, 400, 408, 410.
[13] Dkt. 405 and 415.
[14] Dkt. 482, 493 and 494.
[15] United States v. Krause (In re Krause), 367 B.R. 740 (Bankr.D.Kan.2007).
[16] Dkt. 219 and 235.
[17] Dkt. 314.
[18] Dkt. 493 at p. 19; Dkt. 494 at p. 39.
[19] As described by one bankruptcy court, "Section 8" refers to Section 8 of the United States Housing Act of 1937, as amended by the Housing and Community Development Act of 1974, 42 U.S.C. § 1437f. The Section 8 program provides low-income tenants with a subsidy towards rent of a participant unit, requiring the tenants themselves to pay no more than thirty (30%) percent of their adjusted income, 42 U.S.C. §§ 1437f(c)(3)(B)(1), 1437a(a)(1), with the balance of the established rent paid by the federal government, 42 U.S.C. § 1437f(c)(1), under a program administered by local housing authorities. See 42 U.S.C. § 1437f(b). See In re Sweeney, 215 B.R. 97, 99 (Bankr.E.D.Pa.1997).
[20] See Krause v. Commissioner, 99 T.C. 132, 1992 WL 178601 (1992), aff'd sub. nom., Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir.1994) cert. denied 513 U.S. 1079, 115 S.Ct. 727, 130 L.Ed.2d 631 (1995) for the general background regarding these partnerships and the tax issues. For ease of reference, this Tax Court case will be referred to as the Barton Tax Case in this opinion.
[21] See Krause, 99 T.C. at 177-78.
[22] Ex. 34.
[23] Ex. 24.
[24] The Court questions whether a like-kind exchange of real property used as personal residences qualifies as a tax-free exchange under IRC § 1031. In order to qualify for tax free treatment of a like-kind exchange, the exchanged properties must be held "for productive use in a trade or business or for investment." See 26 U.S.C. § 1031(a)(1). The Oneida property was used as Krause's residence and family home; it was not a business or investment property. See Starker v. U.S., 602 F.2d 1341, 1350-51 (9th Cir. 1979). However, the Court need not make a determination because a like-kind "exchange" with the Oneida property never occurred.
[25] As conceded at trial, the operating agreement erroneously referred to PHR as PRH, L.L.C. Gary stated that it is a single entity correctly named PHR, L.L.C.
[26] Ex. 209 and 210.
[27] The parties dispute which party was the transferee from Teresa. As discussed in more detail infra, the documentary evidence is conflicting as to the true owner of the Quivira shares.
[28] See pp. ___-___, infra.
[29] See IRC, 26 U.S.C. § 6321.
[30] Ex. 253 pp. 7-30; Schedule 1-A, Explanation of Adjustments, p. 18 note q; Exhibit F, pp. 26-28.
[31] Ex. 253, p. 4.
[32] Ex. 253, pp. 5-6, 31-37.
[33] Ex. 253, pp. 38-41.
[34] Ex. 3, p. 1-9.
[35] Krause v. Commissioner, 99 T.C. 132, 175-76 (1992).
[36] Krause v. Commissioner, 99 T.C. 132, 150 (1992), aff'd. sub. nom., Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir.1994) cert. denied, 513 U.S. 1079, 115 S.Ct. 727, 130 L.Ed.2d 631 (1995).
[37] Ex. 2.
[38] Ex. 3, p. 13-16.
[39] Ex. 3. p. 17-46.
[40] Ex. 3, pp. 47-48; 49-50.
[41] Ex. 48. See 26 U.S.C. § 7602(a) provides, in part: "For the purpose of ... collecting any such liability, the Secretary is authorized (1) to examine any books, papers, records, or other data which may be relevant or material to such inquiry; (2) to summon the person liable for tax .. or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax ... or any other person the Secretary may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry;....,
[42] Ex. 312, 313.
[43] Ex. 14.
[44] Id. (Emphasis added).
[45] Ex. 14, ¶ 9B (Emphasis added).
[46] Ex. 533 and 534. These and subsequent financial statements were made to Union National Bank in Wichita.
[47] Ex. 535.
[48] See Ex. 15.
[49] Ex. 536.
[50] Ex. 303.
[51] According to Gary's testimony in an earlier hearing in these proceedings, this conveyance to his wife was a gift for the anticipated birth of their first son.
[52] By the fall of 1995, Teresa had purchased a new residence in her own name, the Oneida property, to which she, Gary and the boys moved.
[53] According to Gary, this conveyance was a formality to enable Drake Enterprises to convey clear title to the Mission property.
[54] Ex. 15.
[55] See pp. 810-11, infra.
[56] Ex. 16.
[57] See Ex. 28.
[58] See Ex. 27.
[59] Spaghetti Jack's, Inc. was a fast-food concept. There is no evidence that it was related to any of the entities discussed here.
[60] Ex. 5.
[61] Ex. 17.
[62] Ex. 18, 18B, 18C.
[63] Art. V, para. 2.
[64] Ex. 795-797.
[65] Ex. 822.
[66] See Ex. 27 and 28.
[67] Ex. 6
[68] Ex. 7.
[69] See Ex. 34.
[70] See Ex. 13, 255 and 80 at bates stamp DOJ3720.
[71] Ex. 204.
[72] The Court notes that the mortgage dated September 22, 1995 was not recorded until April 7, 1998. See Ex. 204 at bates stamp DOJ1173.
[73] Ex. 204.
[74] Ex. 41, 41B
[75] Ex. 209.
[76] Ex. 210.
[77] Ex. 213.
[78] Ex. 51.
[79] See p. 798, supra.
[80] In prior hearings, Peressin has testified that he and Gary have known each other since the 1970s when they worked together at Garvey Industries, Int. In addition, Gary and Peressin through their companies FIMCO and Lincoln, both invested in Live Wire Media. See Ex. 34.
[81] Ex. 40.
[82] Ex. 770.
[83] Ex. 236, 237 and 238.
[84] Ex. 193.
[85] Ex. 194.
[86] Ex. 369.
[87] Ex. 366.
[88] Ex. 367 at T2037.
[89] Ex. 367 at T2039.
[90] Ex. 373, 374, 375.
[91] Ex. 355.
[92] Ex. 22.
[93] Ex. 356.
[94] As noted above, under the Agreement, Teresa was entitled to receive 120 $1,000 monthly payments in lieu of alimony and a $50,000 payment in lieu of child support in the event of a divorce or separation resulting from an action commenced by Teresa (as this one was). See Ex. 14, ¶¶ 8 and 9(b).
[95] Tr. Vol. III, pp. 14.
[96] Ex. 358 and 359.
[97] Ex. 24B.
[98] Ex. 360, 361
[99] Ex. 359.
[100] Ex. 362.
[101] Ex. 200.
[102] Ex. 261, Form 1040, line 39.
[103] During discovery, Gary produced no personal banking records to the Government for the period 1999-2005.
[104] Ex. 795, p. 2
[105] Ex. 601.
[106] Ex. 603, p. 2.
[107] Ex. 86.
[108] See e.g., Ex. 330-338, 342-352.
[109] Ex. 253, pp. 46-48. See also pp. 802-03, supra.
[110] Ex. 51.
[111] Ex. 50.
[112] No. 05-17429, Dkt. 71 and 74.
[113] Section 523(a)(1)(C) contains two separate exceptions to discharge that are to be read in the disjunctive. In re Tudisco, 183 F.3d 133, 137 (2d Cir.1999); In re Epstein, 303 B.R. 280 (Bankr.E.D.N.Y.2004).
[114] Grogan v. Gamer, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
[115] In re Fliss, 339 B.R. 481, 486 (Bankr. N.D.Iowa 2006); In re Schlesinger, 290 B.R. 529, 536 (Bankr.E.D.Pa.2002).
[116] 26 U.S.C. § 6663. See Berkery v. Comm'r, I.R.S., 192 B.R. 835, 841 (E.D.Pa.1996), aff'd 111 F.3d 125 (3d Cir.1997); In re Sommers, 209 B.R. 471, 481 (Bankr.N.D.Ill.1997); In re Carey, 326 B.R. 816, 821 (Bankr.E.D.Cal. 2005); In re Fliss, 339 B.R. 481, 486 (Bankr. N.D.Iowa 2006).
[117] Berkery, supra at 841; Sommers, supra at 481; Carey, supra at 822; Fliss, supra at 487 (identifying additional badges of dealing in cash and failing to make estimated tax payments).
[118] In closing argument, the Government focused on the 1986 return (Norton and Liberal Commons bad debt loss) and the 1994 and 1995 returns.
[119] Krause v. Comm'r, 99 T.C. 132, 1992 WL 178601 (1992), aff'd sub. nom., Hildebrand v. Comm'r, 28 F.3d 1024 (10th Cir.1994), cert. denied, 513 U.S. 1079, 115 S.Ct. 727, 130 L.Ed.2d 631 (1995).
[120] Dkt. 494, pp. 33-34.
[121] Even though there was no fraud penalty or finding of fraud in the Tax Court case, the Government is not precluded from asserting and proving a fraudulent return in the bankruptcy proceedings. See Levinson v. United States, 969 F.2d 260 (7th Cir.1992), cert. denied, 506 U.S. 989, 113 S.Ct. 505, 121 L.Ed.2d 441 (1992); In re Carey, 326 B.R. 816 (Bankr.E.D.Cal.2005).
[122] See Berkery v. Commissioner, I.R.S., 192 B.R. 835, 839 (E.D.Pa.1996) (Finding of liability for income tax deficiency alone is not a finding of fraud for dischargeability purposes.).
[123] See Schlesinger, supra at 540 (A tax obligation arising from improper tax deductions will be dischargeable it the impropriety of the deduction was unknown to the debtor when his return was filed.).
[124] Carey. 326 B.R. at 823 (Under reported income was result of taxpayer's use of sham trusts to avoid personal tax liability).
[125] But it is reasonable to assume that Krause, as a licensed lawyer, possessed this knowledge.
[126] Carey, 326 B.R. at 824 (Taxpayer's use of sham trusts was designed to hide income and avoid personal tax liability while retaining complete control over the assets and income); Fliss, 339 B.R. at 487 (noting that fraudulent intent may also be inferred from making transfers to family members, making transfers for inadequate consideration, and making transfers that reduce the taxpayer's assets subject to execution);
[127] Carey, 326 B.R. at 823 (Taxpayer filed frivolous pleadings and IRS was required to enforce summonses and defend against motions to quash those summons.).
[128] It was not clearly shown at trial that the notes assigned to Teresa in 1989 represented the same debt claimed as bad debt losses on the 1986 return.
[129] In re Jacobs, 490 F.3d 913, 921 (11th Cir.2007); In re Tudisco, 183 F.3d 133, 136 (2d Cir. 1999).
[130] Jacobs, supra; Tudisco, supra at 137.
[131] See In re May, 251 B.R. 714, 718-19 (8th Cir. BAP 2000); In re Swenson, 381 B.R. 272, 299 (Bankr.E.D.Cal.2008).
[132] Dalton v. I.R.S., 77 F.3d 1297, 1302 (10th Cir. 1996), citing Toti v. United States (In re Toti), 24 F.3d 806, 809 (6th Cir. 1994). See also, In re Jacobs, 490 F.3d 913 (11th Cir. 2007); In re Tudisco, 183 F.3d 133 (2d Cir. 1999); In re Fegeley, 118 F.3d 979 (3rd Cir. 1997); In re Birkenstock, 87 F.3d 947 (7th Cir. 1996); In re Burner, 55 F.3d 195 (5th Cir. 1995); In re May, 251 B.R. 714 (8th Cir. BAP 2000).
[133] 77 F.3d 1297 (10th Cir. 1996).
[134] Id. at 1301.
[135] Id. at 1302.
[136] Dalton, 77 F.3d at 1301, quoting Spies v. United States, 317 U.S. 492, 499, 63 S.Ct. 364, 87 L.Ed. 418 (1943).
[137] Id. at 1302-04.
[138] See May, 251 B.R. at 718 (Conduct aimed at concealing income and assets constitutes a willful attempt to evade or defeat taxes.).
[139] See In re Gardner, 360 F.3d 551, 558 (6th Cir.2004) (Placing assets in the name of others amounts to an affirmative act of tax evasion; debtor used nominee checking accounts.)
[140] See Birkenstock, supra at 951-52 (Debtors created family trust and conveyed all property to the trust and attempted to attribute personal income to the trust while disputing their tax liability.).
[141] See In re Swenson, 381 B.R. 272 (Bankr. E.D.Cal.2008) (Debtors were actual, beneficial owners of residence and it was property of their bankruptcy estate, even though debtors' father and sister held title to property, father and sister paid little or no consideration for the residence, debtors paid the repair and maintenance costs, debtors maintained exclusive possession of residence, and father and sister acquired title to residence when debtors were facing $500,000 in federal income tax liabilities.).
[142] To mention just a few, Krause reported no taxable income for years 1999-2004. Krause had no personal bank account after 2000. Krause owned no home or vehicles. Krause lived in the Oneida property rent-free and continued to reside with his ex-wife after their divorce. In fact, Krause's conduct is similar in many respects to the debtor's conduct in In re May, 251 B.R. 714 (8th Cir. BAP2000).
[143] See In re Griffith, 206 F.3d 1389, 1396-97 (11th Cir.2000) (Section 523(a)(1)(C) applies to debtor's conduct occurring after the assessment to avoid payment of the tax; debtor's intra-family transfers of property for little or no consideration was a willful evasion of payment of taxes.); In re Klayman, 333 B.R. 695 (Bankr.E.D.Pa.2005) (Systematic course of conduct by debtor over 25-year period where he transferred real property to third parties, failed to maintain bank accounts, used his corporation to pay personal debts and to hold automobiles satisfied conduct element of willful attempt to evade taxes; debtor engaged in this conduct without his lifestyle suffering and he benefitted from the assets without owning them.)
[144] See Burner, 55 F.3d at 200 (Debtor created a shell entity to hide income and assets aimed at avoiding the imposition of a tax assessment.).
[145] Birkenstock, 87 F.3d at 951 (Debtor's conduct prior to the tax year in question was sufficiently related in time and character to be probative regarding whether the debtor's actions were deliberate evasion.); Epstein, supra.
[146] Dalton, 77 F.3d at 1304 quoting Commissioner v. Court Holding Co., 324 U.S. 331, 334, 65 S.Ct. 707, 708, 89 L.Ed. 981 (1945).
[147] 344 F.Supp.2d 715 (D.Kan.2004), aff'd 161 Fed.Appx. 742 (10th Cir. Dec.5, 2005).
[148] Dawes was decided on the government's motion for summary judgment, unopposed by the defendants. Id. at 717.
[149] Id. at 721, citing Shades Ridge v. United States, 888 F.2d 725, 729 (11th Cir.1989) and Loving Saviour Church v. United States, 728 F.2d 1085, 1086 (8th Cir.1984).
[150] Id. at 722.
[151] 505 F.3d 1060 (10th Cir.2007)
[152] Id. at 1065.
[153] 26 U.S.C. § 6321. The reach of the federal tax lien extends to real or personal property, property exempt under state law, fraudulently transferred property, and property not unilaterally alienable, such as spendthrift trusts. See Drye v. United States, 528 U.S. 49, 59, 120 S.Ct. 474, 145 L.Ed.2d 466 (1999) (exempt status under state law does not bind the federal collector); United States v. Craft, 535 U.S. 274, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002) (federal tax lien attaches to property that is subject to restraints on alienation); Bank One Ohio Trust Co., N.A. v. United States, 80 F.3d 173, 176 (6th Cir. 1996) (tax lien attached to taxpayer's interest in spendthrift trust notwithstanding restraint on alienation).
[154] 505 F.3d at 1065.
[155] Id. at 1067-68.
[156] Id. at 1067, citing Drye v. United States, 528 U.S. 49, 58, 120 S.Ct. 474, 145 L.Ed.2d 466 (1999) and Spotts v. United States, 429 F.3d 248, 251 (6th Cir.2005).
[157] Id. at 1068.
[158] Id. at 1067.
[159] See Dkt. 407, pp. 42-44.
[160] See e.g. Spotts v. United States, supra, on remand 2007 WL 2137784 (E.D.Ky. Jul.23, 2007) (constructive trust under Kentucky law); Dawes, supra (fraudulent conveyance under Kansas law); Drye, supra (interest as an heir to mother's estate that taxpayer attempted to disclaim was property under Arkansas law); United States v. Craft, 535 U.S. 274, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002) (taxpayer who was a tenant by the entirety possessed property or rights to property under Michigan law); United States v. Novotny, 184 F.Supp.2d 1071 (D.Colo.2001), aff'd 71 Fed.Appx. 792 (10th Cir.2003) (Because transfers of property to trust did not comply with Colorado statute, the property was not legally conveyed and trusts did not hold legal title to property; taxpayers remained fee simple owners of property); United States v. Thornton, 859 F.2d 151 (Table) (4th Cir.1988) (resulting trust under Maryland law).
[161] See May v. United States, 2007 WL 3287513 (11th Cir. Nov. 8, 2007) (Alabama law failed to delineate a test for determining the "real intent" of a title transfer between spouses); Scoville v. United States, 250 F.3d 1198 (8th Cir.2001) (Court looked to Missouri law "badges of fraud" for determining whether a conveyance is fraudulent since those elements were similar to determining whether a property holder is a nominee under federal law).
[162] 505 F.2d 1031, 1036 (10th Cir.1974). See Dkt. 407, pp. 42-43.
[163] 505 F.2d at 1036.
[164] This Court's own research of Kansas law would support this conclusion. See Roberts v. Osburn, 3 Kan.App.2d 90, 589 P.2d 985, rev. denied 225 Kan. 845 (1979) (discussing split of legal and equitable title to land); Graham v. Claypool, 26 Kan.App.2d 94, 978 P.2d 298 (1999) (purchaser of sale of real estate using a contract for deed becomes the equitable owner of the property and the seller, who holds legal title, retains a secured interest in the property to protect future payments).
[165] 244 Kan. 688, 772 P.2d 793 (1989).
[166] See Bremen State Bank v. Loffler, 121 Kan. 6, 245 P. 742 (1926).
[167] 244 Kan. at 692, 772 P.2d 793, quoting Bremen State Bank v. Loffler, supra.
[168] Dkt. 493, pp. 11-18.
[169] See Dkt. 482, pp. 4-5. The statute of limitations defense would be pertinent to Krause's property that was not transferred to the KCTs and is not the subject of a nominee theory (i.e. Quivira Associates).
[170] See Mohr v. State Bank of Stanley, 244 Kan. 555, 770 P.2d 466 (1989) (6 badges of fraud recognized at common law).
[171] Mohr, supra at 568, 770 P.2d 466.
[172] See Dkt. 493, p. 5. See also, pp. 812-13, supra.
[173] Under paragraph 10 of the antenuptial agreement, Gary's obligation to carry life insurance applied "in the event the parties remain married." While married, Gary was prohibited from changing Teresa as the beneficiary. See Ex. 14.
[174] See University State Bank v. Blevins, 227 Kan. 40, 605 P.2d 91 (1980) (discussing law of resulting trusts).
[175] Stauth v. Stauth, 2 Kan.App.2d 512, Syl. ¶ 5, 582 P.2d 1160, rev. denied 225 Kan. 846 (1978).
[176] See KAN. STAT. ANN. § 58-2407 (2005).
[177] See University State Bank, supra (applying KAN. STAT. ANN. § 58-2408 (2005) statutory exception to find a resulting trust).
[178] 76 AM.JUR.2D Trusts § 135 (2008).
[179] The Court observes that KAN. STAT. ANN. § 33-101 (2000) may provide another legal basis for Gary's property interest in the KCTs under state law. That statute provides: "All gifts and conveyances of goods and chattels, made in trust to the use of the person or persons making the same shall, to the full extent of both the corpus and income made in trust to such use, be void and of not effect, regardless of motive, as to all past, present or future creditors ..." Although the express trusts created here by Gary, the KCTs, were by their terms not expressly for Gary's use, they were effectively administered for Gary's use by Richard's total acquiescence and assistance in all of Gary's requests. See Herd v. Chambers, 158 Kan. 614, 627-28, 149 P.2d 583 (1944) ("From our examination of all the legal authorities herein referred to, and giving the language to be found in ... [section] 33-101... we have no difficulty in reaching the conclusion that where a conveyance of personalty is made in trust for the use of the person making the same it is void irrespective of any fraudulent intent on the part of the grantor.").
[180] Holman, 505 F.3d at 1065.
[181] The ML account opened in Teresa's name in June of 1991 was funded with a $150,000 deposit from Energy Associates, Inc. (Gary's company). Teresa could not explain why Energy Associates funded the opening of this account.
[182] See Ex. 25.
[183] See Ex. 451-461; 468-478; 485-495.
[184] Ex. 795, p. 2.
[185] Ex. 601.
[186] Ex. 603, p. 2.
[187] Although it was the KCT 1 that made the car loan to Gary, it was KCT 3 that held the lien on the vehicle and to whom the loan payoff was made. See Ex. 770. No plausible explanation was given for this convoluted and layered transaction.
[188] The funds in the PW account were comprised of the proceeds from the sale of the Mission property in 1998, some $142,000, which Krause had deeded to Teresa, and the payments by Krause's companies on the notes assigned by Krause to Teresa in 1989.
[189] See e.g., Ex. 631, 632, 633, 634.
[190] See Ex. 795, 796 and 797, the supporting exhibits for the demonstrative exhibit.
[191] Ex. 797, p. 9, 11-17-00 $3,000 debit.
[192] Ex. 797, p. 12, 8-29-05 $3,011.50 debit.
[193] Dkt. 128.
[194] See Reisman v. Bullard, 14 Fed.Appx. 377, 379, 2001 WL 856960, *2 (6th Cir.2001); Valen Mfg. Co. v. United States, 90 F.3d 1190, 1194 (6th Cir. 1996); Griswold v. United States, 59 F.3d 1571, 1576 n. 8 (11th Cir. 1995); Anderson v. United States, 44 F.3d 795, 799 (9th Cir. 1995); and Rhone-Poulenc Surfactants and Specialties. L.P. v. C.I.R., 114 T.C. 533, 570 (U.S.Tax Ct.2000).
[195] Anderson, supra at 799.
[196] Emphasis added. 505 F.3d at 1065.
[197] Dkt. 515, 516, 517 and 518.
[198] As a practical matter, the Court has already decided the fraudulent conveyance theory when it applied state law to determine that Krause had a property interest in the KCTs for the nominee claim. See pp. 832-37, supra.
[199] 458 F.Supp.2d 1324 (S.D.Ala.2006), aff'd May v. United States, 2007 WL 3287513 (11th Cir. Nov.8, 2007).
[200] 505 F.3d 1060 (10th Cir.2007).
[201] 458 F.Supp.2d at 1327, 1333.
[202] The case was presented to the district court on cross-motions for summary judgment. Id. at 1327.
[203] Id. at 1340.
[204] Id. at n. 28. See also United States v. Davenport, 412 F.Supp.2d 1201, 1208-10 (W.D.Okla.2005) (In the Government's action to foreclose its federal tax liens, the district court found that the taxpayers fraudulently transferred property to various trusts and that those transfers were void; thus, the federal tax lien attached to the fraudulently transferred property and based upon this determination, the district court concluded that it "need not determine whether the trusts are the Davenports' nominees.").
[205] Id. at 1065 [citation omitted.]. See also LiButti v. United States, 107 F.3d 110, 125 (2d Cir.1997) (explaining that for nominee purposes an actual transfer of the property from the taxpayer to a third party is not required; a third party may be found to be a taxpayer's nominee by "finding that [the taxpayer] funded the acquisition and reacquisition of the [property].")
[206] Id. at 1066.
[207] In addition, Krause and the Interveners do not accurately rely on the IRM. Section 5.17.2.5.7.2(2) (12-14-2007) states that a nominee situation generally involves a fraudulent conveyance or transfer of a taxpayer's property to avoid legal obligations. The word "generally" indicates a fraudulent conveyance is not a prerequisite. It indicates only that it is not uncommon for a nominee claim to involve a fraudulent conveyance or a transfer of property.
[208] 344 F.Supp.2d 715 (D.Kan.2004).
[209] In addressing the taxpayers' conveyance of real property, the district court stated: "The Government first argues that the transfer of Parcels 1-8 was fraudulent and must be set aside. In the alternative, the Government argues that Plainsman Property Company holds Parcels 1-9 as nominees of the [taxpayers]." Id. at 720.
[210] In Dawes, supra the district court noted that there were no fraudulent transfer allegations with respect to one parcel of real property, Parcel 9. However, Parcel 9 was subject to the government's tax lien because a trust held it as a nominee. 344 F.Supp.2d at 722. Thus, it is apparent that Dawes did not require a finding of fraudulent transfer to establish a nominee claim.
[211] 2007 WL 2554142 (N.D.Cal.2007).
[212] Id. at *3.
[213] See Dkt. 494, pp. 37-38. See also Dkt. 434, Final Pretrial Order.
[214] Ex. 782. Richard has been the president of Quivira at all times.
[215] See pp. 808-09, supra. Among the notes receivable Gary assigned to Teresa was a $20,000 note from Kanzoil.
[216] Ex. 721; Ex. 174B, pp. 1-3.
[217] An equity contributions worksheet in the 1997 tax return supports this testimony. It can be interpreted to read that Kanzoil or Fed Gas (both Krause's companies) owned a one-third interest in Quivira from 1986 to 1988 and made capital contributions during this three year period. See Ex. 732, p. 12.
[218] See Ex. 732, p. 12
[219] See Ex. 780, Stock Certificate No. 4 dated December 8, 1989 and Stock Certificate No. 5 and 6 dated April 30, 1998.
[220] Ex. 737 shows FIMCO as the paid preparer for the 2002 Quivira tax return. No evidence was introduced that Quivira received a 1099 tax form or W-2 form from FIMCO.
[221] Ex. 724. No evidence was introduced that Quivira received a 1099 or W-2 from Energy Associates.
[222] Ex. 725, 726, 728, 729, 731, 732, 732A. Interestingly, the journal entries worksheet dated 12/31/97 for the 1997 return showed a $500 capital contribution by Richard and a $700 capital contribution for Teresa. See Ex. 732, p. 7. But the computer generated spread sheet on the next page of the exhibit attributes the capital contribution to "GEK" [Gary E. Krause] rather than Teresa. See Ex. 732, p. 8. See also Ex. 732A, p. 7 for tax year 1998, again attributing capital contributions to Gary, rather than Teresa. And the state franchise tax was paid by "EA" [Energy Associates]. See Ex. 732, p. 11.
[223] Ex. 734, 735, 736, 737
[224] See Ex. 738, p. 6; Ex. 740, p. 6
[225] Ex. 174B, pp. 1-4.
[226] Ex. 174B, pp. 5-8.
[227] Ex. 174B, pp. 9-10.
[228] Ex. 174B, pp. 11-17.
[229] Ex. 174B, pp. 21-22.
[230] Ex. 219.
[231] Ex. 54.
[232] See 11 U.S.C. §§ 544(b), 548(a)(1), 551.
[233] Pursuant to the Internal Revenue Code, 26 U.S.C. § 6321, federal tax liens, attach to fraudulently conveyed property deemed void under state law. See Dawes, supra; Davenport, supra; Macks v. Clinton, 843 F.Supp. 1440 (M.D.Fla.1993).
[234] See Dkt. 482.
[235] See Dkt. 493, pp. 11-16.
[236] KAN. STAT. ANN. §§ 33-204 and 33-205 are part of the Kansas Uniform Fraudulent Transfer Act. Because the KUFTA did not become effective until January 1, 1999 the Court will not analyze the Quivira transfers under the KUFTA, except for those transfers, if any, occurring on or after January 1, 1999.
[237] See Mohr v. State Bank of Stanley, 244 Kan. 555, 770 P.2d 466 (1989) (6 badges of fraud recognized at common law). Cf. KAN. STAT. ANN. § 33-204(b) (11 statutory badges of fraud listed under the KUFTA).
[238] Mohr, supra at 568, 770 P.2d 466
[239] See Koch Engineering Co. v. Faulconer, 239 Kan. 101, 107, 716 P.2d 180 (1986) (a finding of badges of fraud may warrant an inference of fraud if unexplained in the evidence); City of Arkansas City v. Anderson, 243 Kan. 627, 634, 762 P.2d 183 (1988) (transfers between members of a family are properly subjected to stricter scrutiny as are transfers between persons and a corporation wholly owned by them).
[240] City of Arkansas City, supra at 635, 762 P.2d 183 (the relationship badge is established where transfer is only a matter of bookkeeping, transferring title to one pocket to another while remaining in control of the property for all practical purposes)
[241] To the extent Krause claims the tax returns and annual reports are erroneous in their listing of the GEKT as a shareholder of Quivira, there was no evidence presented that Krause ever attempted to amend or correct the error. See City of Arkansas City, supra at 634, 762 P.2d 183.
[242] The suggestion that the sixth badge of fraud is absent because Gary complied with the bylaws and duly issued a stock certificate for the stock transferred to Teresa (and then she transferred to the GEKT) is faulty. Just as the execution of an "estate plan" to transfer assets to children through a closely held corporation was deemed fraudulent in City of Arkansas City, supra at 638, 762 P.2d 183, so too here Gary's compliance with the bylaws and issuance of stock certificates to transfer his interest in Quivira to Teresa and back to the GEKT must be deemed fraudulent.
[243] Mohr v. State Bank of Stanley, supra at 568, 770 P.2d 466 (quoting Credit Union of America v. Myers, 234 Kan. at 778, 676 P.2d 99).
[244] Ex. 6. The GEKT permitted other persons to transfer or contribute property to the trust corpus. See Art. II, ¶ 4; Art. IV, ¶ 2.
[245] See Koch Engineering Co. v. Faulconer, 239 Kan. at 105, 716 P.2d 180 noting that the enumerated badges of fraud are not intended to be exclusive.
[246] The Court also notes that the GEKT was one of the trusts that the Court defaulted in the Sanctions Order, due to Gary's spoliation of evidence. Accordingly, by finding that the second transfer of Quivira was made to the GEKT, the ownership interest in Quivira is arguably subject to turnover on this additional basis, without reaching the fraudulent transfer claims.
[247] See Prairie Band Potawatomi Nation v. Wagnon, 476 F.3d 818, 822 (10th Cir.2007) (The only measurable difference between the standards for a preliminary injunction and the standards for a permanent injunction is that the latter requires a showing of actual success on the merits while the former requires a showing of substantial likelihood of success on the merits.)
[248] Dkt. 416.
[249] Dkt. 422. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917413/ | 835 So.2d 42 (2003)
Jasper JOINER
v.
STATE of Mississippi.
No. 2001-KA-00809-SCT.
Supreme Court of Mississippi.
January 16, 2003.
David O. Bell, Oxford, for Appellant.
*43 Office of the Attorney General by Billy L. Gore, for Appellee.
Before SMITH, P.J., EASLEY and GRAVES, JJ.
EASLEY, J., for the Court.
PROCEDURAL HISTORY
¶ 1. On December 3, 1999, a grand jury for Lafayette County, Mississippi, returned an indictment charging Jasper Joiner (Joiner) with operating a motor vehicle while under the influence of alcohol and negligently causing the death of Mary Callie Harwell (Harwell) in violation of Miss.Code Ann. § 63-11-30 (Rev.1996). After a trial, the jury returned a verdict of guilty. Joiner was sentenced to twenty-five years in the custody of the Mississippi Department of Corrections. Joiner's motion for JNOV was denied, and he then appealed.
FACTS
¶ 2. At approximately 4:20 p.m. on October 7, 1999, the vehicle operated by Joiner struck the vehicle of Harwell, who was traveling south on Highway 7 in Lafayette County, Mississippi. All witnesses who saw the accident testified that Joiner did not stop at the stop sign prior to entering Highway 7, at a high rate of speed, resulting in the collision. The evidence reflects and Joiner admits that he was drinking and driving. Joiner's blood alcohol content was .18%. Joiner testified that he stopped before driving onto Highway 7.
¶ 3. Harwell was transported to Baptist Hospital in Oxford, Mississippi, by ambulance and was pronounced dead upon her arrival. Dr. Thomas Fowlkes testified that he was on duty at the emergency room when paramedics brought in Harwell. Dr. Fowlkes was accepted by the trial court as an expert in the field of medicine. Dr. Fowlkes determined that Harwell died from massive head trauma. The triage report indicated three diagnoses: (1) traumatic cardiac arrest; (2) motor vehicle accident; and (3) multiple trauma. Dr. Fowlkes testified that in his opinion the victim's cardiac arrest was caused by the trauma. The testimony revealed that the massive head injuries caused stoppage of the heart and cessation of blood circulation.
¶ 4. The jury returned a guilty verdict. Joiner argues that there was no showing that the collision was the cause of death. Joiner contends that "[w]hile it may be an unlikely coincidence, it is still entirely possible for the victim to [have died] of natural causes before the collision." Joiner contends that "[a]n autopsy presents more conclusive evidence and protects the right of the accused to demand proof of his guilt beyond a reasonable doubt." Joiner appeals to this Court raising the following issue:
Whether this Court should overrule its decision in Hopson v. State, 615 So.2d 576 (Miss.1993).
DISCUSSION
¶ 5. Miss.Code Ann. § 63-11-30(1) (Rev.1996), at the time this accident occurred, made it a crime "for any person to drive or otherwise operate a vehicle within this state who (a) is under the influence of intoxicating liquor ... [or] (c) has an alcohol concentration of ten one-hundredths percent (.10%) or more for persons who are above the legal age to purchase alcoholic beverages under state law...." Furthermore, "[e]very person who operates any motor vehicle in violation of the provisions of subsection (1) of this section and who in a negligent manner causes the death of another ... shall, upon conviction, be guilty of a felony...." Miss.Code Ann. § 63-11-30(4) (Rev.1996). Therefore, the State must prove that Joiner not only consumed *44 alcohol prior to the accident, but that he performed a negligent act that caused the death of another. Hedrick v. State, 637 So.2d 834, 837-38 (Miss.1994). It has been made clear that § 63-11-30(5) "contains no requirement that the negligence has to be caused by the alcohol." Ware v. State, 790 So.2d 201, 216 (Miss.Ct. App.2001).
¶ 6. The corpus delicti in a homicide case consists of (1) the death of a human being, and (2) a criminal agency. Steele v. State, 544 So.2d 802, 807-08 (Miss.1989). In the case sub judice, the death of Harwell is not in dispute. However, Joiner contends that the State did not prove the required criminal agency. Joiner argues that only an autopsy could determine the cause of death beyond a reasonable doubt.
¶ 7. This State has held for many years that "[n]either an autopsy nor medical evidence is required to establish the corpus delicti." Hopson v. State, 615 So.2d 576, 579 (Miss.1993)(citing Miskelley v. State, 480 So.2d 1104 (Miss.1985)); McCraw v. State, 260 So.2d 457 (Miss. 1972); King v. State, 251 Miss. 161, 168 So.2d 637 (1964). Joiner argues that an autopsy would have determined the cause of death beyond a reasonable doubt. Although Joiner provides no legal authority, he now asks this Court to overrule Hopson and all other long-standing cases of this State, and reverse his sentence because there was no autopsy. It is well established that this Court will not review any issue where the party has failed to cite relevant authority. Williams v. State, 708 So.2d 1358, 1360-61 (Miss.1998)(citing Hoops v. State, 681 So.2d 521, 526 (Miss. 1996)); Kelly v. State, 553 So.2d 517, 521 (Miss.1989). Nevertheless, the summation of Joiner's argument contained in his brief is as follows:
In Hopson, this Court held that neither autopsy nor medical evidence is required to establish corpus delicti in a homicide case. This Court held that criminal agency causing death may be proved by circumstantial evidence and by reasonable inferences to be drawn from evidence.
While this ruling certainly meets the preponderance of the evidence standard, appellant argues that the reasonable doubt standard requires such proof. While it may be an unlikely coincidence, it is still entirely possible for the victim to die of natural causes before the collision. Here, there was a finding of cardiac arrest. Dr. Fowlkes stated his opinion that the arrest was a result of the collision. He may be more likely than not to be rightbut that is not the standard. Reasonable doubt still exists. An autopsy presents more conclusive evidence and protects the right of the accused to demand proof of his guilt beyond a reasonable doubt.
We disagree with Joiner's contention.
¶ 8. Hopson is just one of many long-standing cases holding that there is no need for an autopsy or medical evidence when proving corpus delicti. Hopson, 615 So.2d at 579. In Hopson, the defendant was driving his vehicle while heavily intoxicated, and veered off the paved road striking a five-year-old boy. One eyewitness saw all of the events transpire while another eyewitness only saw the events immediately before and after the child was struck. Hopson contended that the State failed to prove corpus delicti because it did not establish the child's death resulted from criminal agency. Id. The defendant stated "[N]o one gave their opinion as [to] the cause of death." This Court held that "the testimony of the examining physician, when viewed in harmony with the testimony elicited from the two eyewitnesses observing the incident, either in whole or in part, overwhelmingly established that the *45 cause of the child's death was blunt trauma received when he was struck by the Hopson's automobile." Id. at 580.
¶ 9. "The state may prove the crime (corpus delicti) by circumstantial evidence, but where the case is based wholly on circumstantial evidence, the state must prove the defendant's guilt beyond a reasonable hypothesis consistent with innocence." Steele v. State, 544 So.2d at 808 (quoting Hester v. State, 463 So.2d 1087, 1093 (Miss.1985)); Hemphill v. State, 304 So.2d 654, 655 (Miss.1974) (quoting Westbrook v. State, 202 Miss. 426, 32 So.2d 251, 251 (1947)). The hypothesis Joiner asserts, that Harwell died of natural causes prior to the collision, is not reasonable. By his own admission, "it may be an unlikely coincidence." (emphasis added). Joiner further admits, that "[Dr. Fowlkes] may be more likely than not to be right." Whether Harwell died of natural causes or as a result of the collision was a question for the jury.
¶ 10. The overwhelming weight of the evidence shows Joiner had a blood alcohol level of .18%. Several eyewitnesses saw Joiner drive through a stop sign without stopping just an instant prior to colliding with Harwell's vehicle. Dr. Fowlkes, the emergency room physician who examined Harwell's body, determined that she died of traumatic cardiac arrest caused by the trauma received in the collision. We know that Harwell was driving her vehicle. For Joiner to assert that an autopsy is necessary because, regardless of the likelihood, Harwell may have died of natural causes just seconds before he negligently ran a stop sign while intoxicated is not a reasonable hypothesis consistent with innocence.
CONCLUSION
¶ 11. Joiner has not established a compelling rationale or provided legal authority to persuade this Court to overrule Hopson, and the numerous cases that preceded it. Accordingly, the judgment of the trial court is affirmed.
¶ 12. CONVICTION OF AGGRAVATED DUI AND SENTENCE OF TWENTY-FIVE YEARS IN THE CUSTODY OF THE MISSISSIPPI DEPARTMENT OF CORRECTIONS, AFFIRMED.
PITTMAN, C.J., McRAE AND SMITH, P.JJ., WALLER, COBB, DIAZ, CARLSON AND GRAVES, JJ., CONCUR. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2157204/ | 705 N.W.2d 339 (2005)
SPORLEDER v. CROUSE CARTAGE CO.
No. 03-0836.
Court of Appeals of Iowa.
August 17, 2005.
Decision without published opinion. Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2584684/ | 233 P.3d 827 (2010)
235 Or. App. 572
TUCKER
v.
BELLEQUE.
A139241.
Court of Appeals of Oregon.
June 2, 2010.
Affirmed without opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570397/ | 895 F. Supp. 762 (1995)
MARYLAND NATIONAL BANK, Plaintiff,
v.
RESOLUTION TRUST CORP., as receiver for Augusta Federal Savings Bank, Defendant.
Civ. No. L-92-1761.
United States District Court, D. Maryland.
August 3, 1995.
*763 *764 *765 *766 Mark C. Treanor and Stephen J. Hughes of Treanor, Pope & Hughes, Towson, MD, for plaintiff Maryland Nat. Bank.
Paul N. Sameth of Adelberg, Rudow, Dorf, Hendler & Sameth, Baltimore, MD, for defendant Resolution Trust Corporation as receiver for Augusta Federal Savings Bank.
MEMORANDUM
LEGG, District Judge.
The Court now decides the motion for summary judgment filed by the Resolution Trust Corporation ("RTC"). For the reasons given below, the Court shall DENY the motion.
I. FACTS
The following facts are undisputed. On September 17, 1989, Augusta Federal Savings Bank ("Augusta"), through Senior Credit Officer Robert Schmuff, issued a check for $76,000, payable to Donald Cohen and Tyme-N-Tyde Marina, with which Cohen was to purchase a boat. The check bore a restrictive endorsement requiring the joint endorsement of both payees on the check. Cohen endorsed the check, forged the endorsement of Tyme-N-Tyde Marina, and deposited the money into his account at Maryland National Bank ("MNB"). As explained below, Cohen used the money for various activities, none of which involved buying a boat.
On November 4, 1989, Augusta, again acting through Schmuff, issued a check for $68,000, drawn payable to Walter Rupp and the Full Tilt Marine Company, as a loan for Rupp to buy a boat. Like the Cohen check, this check bore a restrictive endorsement requiring the joint endorsement of both payees. Like Cohen, Rupp endorsed the check, forged the endorsement of the Full Tilt Marine Company, and deposited the check into his own account at MNB. Like Cohen, Rupp used the money for purposes other than boat-buying.
Upon discovering the forgeries, Augusta instituted suit against MNB in the Circuit Court for Baltimore County to recover the amount of the checks. The Circuit Court granted summary judgment for Augusta and reserved judgment on the issue of damages.
Subsequently, the RTC assumed the role of conservator for Augusta, and the Circuit Court substituted RTC for Augusta as the proper party plaintiff in the case against MNB. The RTC's attorney, Robert Parsons, entered his appearance and conducted the case. For its part, MNB filed notices of deposition of several Augusta officers, including Robert Schmuff.
Before MNB took the depositions, however, the RTC accepted MNB's previously outstanding offer of $85,000 to settle the litigation. The parties entered into a release on November 19, 1991, by which the RTC discharged MNB from any and all liability resulting from the payment of the Cohen and Rupp checks.
About two days later, MNB officials discovered an article in the Baltimore Sun. The article reported that the United States Attorney's Office had indicted Schmuff for loan kiting in his capacity as Senior Credit Officer for Augusta. The kiting allegedly involved the creation of fictitious boat loans to business associates of Schmuff.
Eventually, Cohen and Schmuff pled guilty to the loan-kiting plan. According to their plea, Schmuff, in his capacity as Senior Credit Officer and Vice President for Consumer Loans at Augusta, engaged in a pattern of loan-kiting by approving fraudulent loans. He would cover losses from those loans with the proceeds of subsequent fraudulent loans for cars, boats and other collateral that either did not exist or had never been purchased. Schmuff invested the money from the loans in various car dealerships which he and Cohen owned and operated, and he spent the money on various personal expenses. Eventually, the scheme included other people, including Rupp, who received a kickback for applying for the fictitious loans.[1]
Upon learning of the scheme, MNB filed suit in this Court, alleging that, had it known the true nature of the Cohen and Rupp loans, it could have escaped liability under the "fictitious *767 payee rule."[2] In its complaint, MNB claims that RTC and Augusta fraudulently concealed the true nature of the Cohen and Rupp loans until after the execution of the release. In the alternative, MNB asks the Court to set aside the agreement due to mutual mistake.
The RTC now moves for summary judgment, and MNB resists. The Court shall grant summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). "The summary judgment inquiry thus scrutinizes the [non-moving party's] case to determine whether the [non-moving party] has proffered sufficient proof, in the form of admissible evidence, that could carry the burden of proof of his claim at trial." Mitchell v. Data General Corp., 12 F.3d 1310, 1316 (4th Cir. 1993); accord Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888-89, 110 S. Ct. 3177, 3188-89, 111 L. Ed. 2d 695 (1990). In determining whether there exists a genuine issue of material fact, the Court views the facts, and all reasonable inferences to be drawn from them, in the light most favorable to the non-moving party. Overstreet v. Kentucky Central Life Ins. Co., 950 F.2d 931, 937-38 (4th Cir.1991).
II. DISCUSSION
A. The D'Oench, Duhme Doctrine
1. The Interaction between Common Law Doctrine and the Analogous Statute
First, the RTC contends that the D'Oench, Duhme doctrine and its statutory codification, 12 U.S.C. § 1823(e), preclude MNB's claim.[3] As explicated below, both doctrines shield the RTC from unwritten agreements between a failed bank and a borrower. Generally, courts use the common law D'Oench, Duhme doctrine as a "safety net" for claims that elude the grasp of § 1823(e) but should not apprehend the banking authority. In re NBW Commercial Paper Litigation, 826 F. Supp. 1448, 1460-61 (D.D.C.1992); see e.g., Brookside Assocs. v. Rifkin, 49 F.3d 490 (9th Cir.1995).
Although courts often construe the § 1823 and the D'Oench, Duhme doctrine in tandem, E.J. Sebastian Assocs. v. RTC, 43 F.3d 106, 108 (4th Cir.1994), in fact they differ slightly. E.I. du Pont de Nemours & Co. v. FDIC, 32 F.3d 592, 597 (D.C.Cir.1994); Vernon v. RTC, 907 F.2d 1101, 1105-06 (11th Cir.1990). Because of these differences, the Court shall analyze the common law D'Oench, Duhme doctrine and its statutory counterpart separately.
2. 12 U.S.C. § 1823(e)
Section 1823(e) of Title 12 of the United States Code provides:
No agreement which tends to diminish or defeat the interest of the [RTC] in any asset acquired by it under this section or section 1821 of this title, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the [RTC] unless such agreement
(1) is in writing,
(2) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,
(3) was approved by the board of directors of the depository institution or its loan committee, which approval shall *768 be reflected in the minutes of said board or committee, and
(4) has been, continuously, from the time of its execution, an official record of the depository institution.
The Court begins its analysis with the statute's language. Reves v. Ernst & Young, ___ U.S. ___, ___, 113 S. Ct. 1163, 1169, 122 L. Ed. 2d 525 (1993); Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S. Ct. 2051, 2056, 64 L. Ed. 2d 766 (1980). By its terms, § 1823(e) only protects those assets "acquired by [the RTC] under [section 1823] or section 1821...." Section 1823 concerns the management of RTC funds, and § 1821 pertains to the RTC's conservatorship and receivership powers.
The settlement agreement at issue in this case concerns none of these functions. The RTC did not acquire the settlement agreement through its conservatorship or receivership powers under § 1821 or § 1823, nor did the RTC acquire the agreement "as security for a loan or by purchase or as receiver...." Therefore, the settlement agreement is not an "asset acquired" under § 1823(e), and the statute does not protect the RTC's interest in the settlement agreement. John v. RTC, 39 F.3d 773, 776 (7th Cir.1994); e.g., In re Century Centre Partners Ltd., 969 F.2d 835, 838 (9th Cir.1992) (assets acquired by Federal Deposit Insurance Corporation ("FDIC") as fund manager not covered by § 1823(e)), cert. denied, ___ U.S. ___, 113 S. Ct. 2997, 125 L. Ed. 2d 690 (1993); Thigpen v. Sparks, 983 F.2d 644, 645-46 (5th Cir.1993) (§ 1823(e) does not apply to bank's sale of assets).
Section 1823(e)'s focus on the records of the depository institution further suggests a regard only for the assets of the bank over which the RTC assumes control, rather than the assets of the RTC in general. Under § 1823(e), the agreement must have been "executed by the depository institution. ... contemporaneously with the acquisition of the asset by the depository institution. ..." 12 U.S.C. § 1823(e)(2) (emphases added). The agreement must also be "approved by the board of directors of the depository institution," 12 U.S.C. § 1823(e)(3) (emphasis added), and continuously "an official record of the depository institution." 12 U.S.C. § 1823(e)(4) (emphasis added). Thus, the terms of § 1823(e) "limit[] the statute's application to an agreement affecting the [RTC's] interest in an asset of the bank," Brookside Assocs., 49 F.3d at 495 (emphasis added), not of the RTC. See E.I. du Pont, 32 F.3d at 597 (§ 1823(e) only covers "conventional loan transactions.").
Langley v. FDIC, 484 U.S. 86, 108 S. Ct. 396, 98 L. Ed. 2d 340 (1987) does not affect this reasoning. In Langley, the Supreme Court held that a mortgage note that a bank had fraudulently procured remained an "agreement" within the meaning of § 1823(e) and, therefore, any fraudulent statements by the bank must have been recorded according to § 1823(e) to be valid against the FDIC. MNB's attack on the RTC's § 1823(e) defense does not depend on the existence vel non of an "agreement," the issue Langley addressed. Rather, MNB's claim challenges the RTC's assumption that the settlement agreement constitutes an "asset acquired" by the RTC under the statute. Because the settlement agreement does not qualify as an "asset acquired" under the RTC's conservatorship or receivership powers, § 1823(e) does not preclude MNB's claim.
3. The Common Law D'Oench, Duhme Doctrine
In D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942), the Supreme Court held that federal policy does not permit the assertion of an unwritten agreement between a bank and a borrower against the federal banking authorities. D'Oench, Duhme, 315 U.S. at 459-60, 62 S.Ct. at 680-81; FDIC v. Hadid, 947 F.2d 1153, 1157 (4th Cir.1991). The D'Oench, Duhme doctrine, as this holding is called, "enable[s] the FDIC or RTC to rely on official bank records to set forth the rights and obligations of the financial institution to the exclusion of extraneous matters." RTC v. Allen, 16 F.3d 568, 574 (4th Cir.1994); see also Murphy v. FDIC, 38 F.3d 1490, 1500 (9th Cir.1994) (en banc) ("D'Oench, Duhme prevents a debtor from using an oral agreement not to call his note against the FDIC.").
*769 Typically, the D'Oench, Duhme doctrine "arises to bar a claimant from disputing the enforcement of a written loan agreement based upon an oral agreement that the claimant professes to have entered into with a bank official." E.J. Sebastian, 43 F.3d at 109. The doctrine thereby operates as a parol evidence rule, preventing the debtor from asserting an unwritten agreement against the RTC to vary the terms of a written agreement. See FDIC v. State Bank of Virden, 893 F.2d 139, 144 (7th Cir.1990).
In deciding whether the D'Oench, Duhme doctrine applies in a particular case, the Court primarily considers whether the alleged "scheme or arrangement" would tend to mislead the FDIC or the RTC. D'Oench, 315 U.S. at 460, 62 S.Ct. at 680-81; E.J. Sebastian, 43 F.3d at 108; Timberland Design, Inc. v. First Service Bank for Sav., 932 F.2d 46, 50 (1st Cir.1991). The application of the doctrine necessarily requires a conflict between the alleged side agreement and the written document; if the side agreement comports with the written document, D'Oench does not present its assertion against the banking authority. E.J. Sebastian., 43 F.3d at 109; John, 39 F.3d at 777.
The Court also considers whether the alleged agreement would necessarily appear in the bank's records. Generally, if the agreement would not ordinarily reside in the bank's records, the D'Oench, Duhme doctrine does not bar its assertion, E.I. du Pont de Nemours and Co. v. FDIC, 45 F.3d 458, 459 (D.C.Cir.1995); Motorcity of Jacksonville, Ltd. v. Southeast Bank, N.A., 39 F.3d 292, 298-99 (11th Cir.1994), because D'Oench does not include in its ambit non-banking transactions. E.J. Sebastian, 43 F.3d at 109. For example, tort actions not based on secret agreements between a bank and a borrower overcome the D'Oench, Duhme barrier, e.g., In re Geri Zahn, Inc., 25 F.3d 1539, 1543 (11th Cir.1994); Hanson v. FDIC, 13 F.3d 1247, 1252 (8th Cir.1994), and a bank's contract for services apparently clear the D'Oench hurdle as well. E.J. Sebastian, 43 F.3d at 109.
In this case, MNB does not dispute the validity of a written agreement between MNB and Augusta, the situation presented in most D'Oench cases. Rather, the RTC is using D'Oench to contest the enforceability of an agreement between MNB and the RTC.
This distinction subverts the RTC's argument. First, no possibility exists that the settlement agreement would deceive the RTC, because the RTC was a party to the agreement. As stated above, D'Oench applies only to agreements between "a bank and a borrower," Hadid, 947 F.2d at 1157, not the receiver and another party. Similarly, the alleged oral agreement does not contradict any written agreement with Augusta. Further, because the RTC itself allegedly committed the fraud, this transaction would not appear in the bank's records. Thus, this case resembles a freestanding claim, as in E.J. Sebastian or Zahn, supra, more than the typical D'Oench case.
In summary, the D'Oench, Duhme doctrine and § 1823(e) protect the RTC against certain unwritten agreements made by a bank over which the RTC assumes control, but they do not shield the RTC from the legal consequences of its own actions. Because D'Oench and § 1823(e) do not apply where the RTC is alleged to have defrauded a claimant, the Court shall reject the RTC's D'Oench defense.
B. The Applicability of Federal Law
In reviewing the papers, the Court realized that the parties had assumed, without arguing, that Maryland law governed the instant claim. Nevertheless, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") the jurisdictional grant in this case, provides that "any civil action, suit, or proceeding to which the [Resolution Trust] Corporation is a party shall be deemed to arise under the laws of the United States...." 12 U.S.C. § 1441a(l)(1) (emphasis added).
In light of this language, the Court asked the parties to file briefs discussing whether federal law or Maryland law applied to this case. See D'Oench, Duhme, 315 U.S. at 456, 62 S.Ct. at 678-79 (claim by FDIC involves question of federal law, not state law); Id. at 467-75, 62 S.Ct. at 678-79 (Jackson, J., concurring) (explaining majority's fashioning of *770 federal rule for banking claim); Allen, 16 F.3d at 574 (under § 1441a(l)(1), federal law applies where the RTC is a party). Instead of addressing the question, however, the briefs addressed the applicability of the D'Oench, Duhme doctrine. Rather than asking the parties again to file briefs, the Court shall decide the issue itself to expedite the proceedings.
The Court shall apply Maryland law to the instant claims. First and foremost, this case does not present a conflict between a state and a federal policy, a necessary precondition to the application of a federal common-law rule. O'Melveny & Myers v. FDIC, ___ U.S. ___, ___, 114 S. Ct. 2048, 2055, 129 L. Ed. 2d 67 (1994); see, e.g., D'Oench, Duhme, 315 U.S. at 455-59, 62 S.Ct. at 678-80 (conflict between Illinois's commercial paper policy and federal policy necessitated application of federal law); see also RTC v. Maplewood Investments, 31 F.3d 1276, 1290-94 (4th Cir. 1994) (interpreting O'Melveny & Myers to mandate application of state law in claim by RTC). Second, because the RTC comes into this case as Augusta's receiver, it assumes the rights and responsibilities of Augusta, O'Melveny & Myers, ___ U.S. at ___, 114 S.Ct. at 2053, and any claims good against Augusta under state law apply with equal force against the RTC. Id. at ___, 114 S.Ct. at 2054. Third, because MNB brings its claims under Maryland law, Maryland law should govern the case. FDIC v. Cocke, 7 F.3d 396, 400 (4th Cir.1993), cert. denied, ___ U.S. ___, 115 S. Ct. 53, 130 L. Ed. 2d 12 (1994); see RTC v. Everhart, 37 F.3d 151 (4th Cir.1994) (Virginia statute of limitations governed RTC's commonlaw claims against failed bank's directors). Finally, the parties, by failing to address this issue, have waived any objections they may have had to the Court's ruling. Accordingly, the Court now examines the Maryland law on this issue.
C. MNB's Fraud Claim
1. The Elements of Fraud Under Maryland Law
To recover for fraud under Maryland law, a plaintiff must show:
(1) that the representation made is false;
(2) that its falsity was ... known to the speaker ... (3) that it was made for the purpose of defrauding the person claiming to be injured thereby; (4) that such person not only relied upon the misrepresentation, but had a right to rely upon it in the full belief of its truth, and that he would not have done the thing from which the injury resulted had not such misrepresentation been made; and (5) that he actually suffered damage resulting from such fraudulent misrepresentation.
Martens Chevrolet, Inc. v. Seney, 292 Md. 328, 439 A.2d 534, 537 (1982).
The RTC does not contest that it declined to reveal its knowledge of the Schmuff scheme to MNB. Instead, the RTC notes that MNB did not specifically ask about the availability of the "fictitious payee" defense during discovery, and neither Augusta nor the RTC supplied inaccurate, incomplete or misleading information. Because nondisclosure cannot support an action for fraud in Maryland, the RTC argues, MNB's fraud claim must fail.
To an extent, the RTC is correct. In Maryland, "nondisclosure does not constitute fraud unless there exists a duty of disclosure." Impala Platinum Ltd. v. Impala Sales (U.S.A.), Inc., 283 Md. 296, 389 A.2d 887, 903 (1978). Consequently, to sustain its fraud claim, MNB must either point to an affirmative misrepresentation by the RTC or show that the RTC had a duty to disclose its knowledge of the Schmuff scheme. MNB attempts both.
First, MNB points to statements by Augusta officers and attorneys concerning the Cohen and Rupp loans. Langley, supra, however, prevents the MNB from holding the RTC legally accountable for the alleged misrepresentations of Augusta.
Next, plaintiff argues that the RTC's failure to supplement Augusta's pleadings to reflect its knowledge of the Schmuff scheme amounted to a violation of Maryland Rule of Civil Procedure 1-311, which states that the attorney's signature on a pleading certifies that the pleading is true to the best of the attorney's knowledge. This rule, MNB argues, imposed a duty on the RTC to disclose the Schmuff scheme in its court papers.
*771 MNB's argument fails for two reasons. First, as stated above, Langley prevents MNB from using fraudulent representations by Augusta against the RTC. Also, MNB has not pointed to any false statements made during discovery; actually, it appears that Augusta and the RTC took great care in wording its discovery responses to avoid misstating the facts or disclosing the truth. Third, the record contains no indication that Augusta knew that any of its assertions in their pleadings were false when made. In fact, according to MNB, Augusta and the RTC learned about the Schmuff scheme in early 1991, months after the July 1990 filing of the complaint.[4] Therefore, MNB has shown no violation of Rule 1-311.
Third, MNB points to a colloquy between the Baltimore Circuit Court and Robert Parsons, counsel for the RTC during a hearing on the issue of damages:
THE COURT: What does history tell us about Mr. Cohen's intentions about going to sea?
MR. PARSONS: ... I think from the documents I have seen, which is all I can represent to Your Honor, he was interested in going to sea....
THE COURT: All right. So [Augusta's] point is that he came to them as far as they knew as a real live boat buyer, he said give me the money, they had negotiations and discussions and they gave him the money, and to protect themselves was the boat to collateralize this loan?
MR. PARSONS: Yes, sir.[5]
MNB uses Parsons's statements for two purposes. First, it argues that Parsons, by making false statements to the Court, violated his duty as an attorney under Maryland Rule of Professional Conduct 3.3(a) (1995). That rule forbids a Maryland attorney from "mak[ing] a false statement of material fact or law to a tribunal" or failing to disclose a material fact "when disclosure is necessary to avoid assisting a criminal or fraudulent act by the client." Thus, MNB argues that the RTC, through Parsons, had a duty to disclose the Schmuff scheme to the Baltimore Circuit Court, the breach of which may support an action for nondisclosure.
Even assuming for the moment that Parsons knowingly misrepresented material facts to the Circuit Court, that fact could not create a cause of action in favor of MNB. The Maryland Rules of Professional Conduct state explicitly, "Violation of a Rule should not give rise to a cause of action nor should it create any presumption that a legal duty has been breached." Maryland Rule of Professional Conduct (Scope). In light of this language, Maryland law refuses to impose liability for a breach of a rule of professional conduct. Kersten v. Van Grack, Axelson & Williamowsky, P.C., 92 Md.App. 466, 608 A.2d 1270, 1275-76 (1992); Schatz v. Rosenberg, 943 F.2d 485, 492 (4th Cir.1991) (Maryland's ethical rules not intended "to create actionable duties in favor of third parties"), cert. denied, 503 U.S. 936, 112 S. Ct. 1475, 117 L. Ed. 2d 619 (1992). Consequently, MNB may not use the Maryland Rules of Professional Conduct as the basis of a fraud action.
Alternatively, MNB uses Parson's statement as an affirmative misrepresentation. MNB alleges that Parsons had learned of the Schmuff scheme by the time he made his statement to the Circuit Court, and that therefore Parsons knowingly misrepresented the facts at the hearing. To support this allegation, MNB submits the affidavit of Martin Popp, a former Augusta Vice President, who alleges that the RTC knew of the Schmuff scheme in early 1991, well before the hearing.[6] The RTC denies this allegation.
In light of Popp's affidavit, Parson's statement is susceptible to several interpretations. Among these interpretations lies the possibility that Parson's misstated his knowledge of the true nature of the loans. Although the Court makes no findings about Parsons's *772 state of mind, a jury could reasonably choose this interpretation. Therefore, the Court shall leave the resolution of this matter for trial.
The question remains whether a fraud plaintiff may hold a defendant liable for a misrepresentation made to a third party under Maryland law. The Court answers the question in the affirmative. Generally, "[o]ne who makes a fraudulent misrepresentation is subject to liability to the persons ... whom he intends or has reason to expect to act or refrain from action in reliance upon the misrepresentation...." Restatement (Second) of Torts § 531. Maryland law, referring to this rule, has long allowed plaintiffs to sue for injuries caused by fraudulent misrepresentations made to third parties. See, e.g., State v. Fox, 79 Md. 514, 29 A. 601 (1894); cf. Smith v. Rosenthal Toyota, Inc., 83 Md.App. 55, 573 A.2d 418, 421 (rejecting fraud claim based on misrepresentations to third-party because plaintiff could show no reasonable reliance on misrepresentations), cert. denied, 320 Md. 800, 580 A.2d 219 (1990). Additionally, Parson's speaking on the purpose of the loans negated the RTC's privilege to remain silent on the issue and imposed upon the RTC a duty to disclose its knowledge of the Schmuff scheme. E.g., Walsh v. Edwards, 233 Md. 552, 197 A.2d 424, 427 (1964); Fowler v. Benton, 229 Md. 571, 185 A.2d 344, 351 (1962).
In short, a reasonable jury could find that Parsons, in making his statement to the Circuit Court, had reason to expect that MNB would accept it as true and act accordingly. Also, given the posture of the litigation at that time, a reasonable jury could infer that MNB in fact reasonably relied on Parsons' statement, and that its reliance induced it to entering into the release. Thus, MNB has provided evidence sufficient to support its fraud claim at the summary judgment stage.
2. The RTC's Defenses
a. The Reasonableness of MNB's Reliance
As its first defense, the RTC argues that MNB knew or should have known of the Schmuff scheme prior to settlement. On this basis, the RTC disputes the reasonableness of MNB's reliance on any alleged misrepresentations.
The Court disagrees. Maryland law considers reliance unreasonable only where "the [true] facts should be apparent to one of [plaintiff's] knowledge and intelligence from a cursory glance or he has discovered something which should serve as a warning that he is being deceived...." Gross v. Sussex, 332 Md. 247, 630 A.2d 1156, 1167 (1993) (quoting W. Page Keeton, et al., Prosser and Keeton on the Law of Torts § 108 (5th ed. 1984)). Thus, even if MNB had an opportunity to learn the truth, it may still show reasonable reliance. Gross, 630 A.2d at 1165. As to the RTC's assertions regarding MNB'S actual knowledge of the scheme, the Court finds them arguable and shall accordingly allow the RTC to present its view of the facts before a jury.
b. The 1991 Release
The settlement agreement contains an integration clause and a waiver of further claims and defenses. The RTC argues that these provisions block MNB's claim. In Maryland, however, a party may always challenge a contract on grounds of fraud, even when the contract contains an integration clause. Rosenthal Toyota, 573 A.2d at 422. Accordingly, the Court repudiates this argument.
c. MNB's Failure to Offer Status Quo Restoration
Next, the RTC argues that MNB failed to offer to restore the parties to their status quo ante, which the RTC claims is a necessary prerequisite for equitable relief under Maryland law. This argument misstates Maryland equity jurisprudence; it also makes little sense. As consideration, MNB received only an ending to the litigation, and the Court fails to see how MNB could return that in light of the RTC's resistance. The return of consideration is unnecessary where restoration is impossible. Funger v. Mayor and Council of Somerset, 244 Md. 141, 223 A.2d 168, 174 (1966). Under these circumstances, Maryland equity rules did not require MNB to offer to restore the parties to *773 the status quo before instituting this litigation. Hence, the RTC's argument fails.
D. Exhaustion of Administrative Remedies
The RTC also argues that the Court lacks subject matter jurisdiction over this case because MNB failed to exhaust its administrative remedies pursuant to 12 U.S.C. § 1821(d). This is wrong for two reasons: first, the requirements of § 1821(d) apply only to claims against the failed depository institution and second, the RTC has already rejected MNB's claim.[7] The Court therefore declines this argument.
E. MNB's Mutual Mistake Claim
The RTC contends that MNB cannot sustain a claim of mutual mistake in light of its purportedly inconsistent allegations of fraud. To the contrary, Federal Rule of Civil Procedure 8(e)(2) permits a party to "set forth two or more statements of a claim ... regardless of consistency." Thus, this argument fails as well.
The Court, however, does not believe that the facts of this case can be shoehorned into a "mutual mistake" theory. Accordingly, the release could not be overturned if both sides were truly ignorant of Schmuff's fraud when they executed it. The RTC has not made this argument in its summary judgment motion, however, and therefore the Court will take up this matter at trial.
III. CONCLUSION
Whatever the rules are in a commercial context with respect to the duty owed to an adversary, that duty changes once the adversarial party makes a representation in open court. A party entering into a settlement agreement is entitled to rely upon the direct representations made by an adversary in a court of law to a judge. Once an attorney has made such a direct representation of fact, he is duty-bound to advise the court and opposing counsel if he subsequently learns that the representation was false.
In a court of law in response to a direct question from a judge, the RTC's attorney represented that, as far as the RTC knew, Augusta issued the checks in question pursuant to bona fide boat loans. This representation ultimately proved incorrect. If MNB proves at trial that the RTC or its attorneys knew the true facts before the release was executed, then the release and settlement agreement will be set aside.
In short, MNB may proceed with its case. Neither the D'Oench, Duhme doctrine nor 12 U.S.C. § 1823(e) stand in MNB's path and MNB has come forth with sufficient evidence to substantiate its fraud claim. Accordingly, the Court shall DENY the RTC's summary judgment motion.
The Court shall issue an appropriate Order.
NOTES
[1] Amended Compl.Exh.L.
[2] In relevant part, Maryland's fictitious payee rule provides, "An endorsement by any person in the name of a named payee is effective if ... a person signing as or on behalf of a maker or drawer intends the payee to have no interest in the instrument." Md.Com.Law I Code Ann. § 3-405(1)(b) (1992).
[3] The RTC does not cite the D'Oench, Duhme doctrine for the proposition that no oral agreement or understanding between Augusta and MNB can be invoked against the RTC. As detailed in the main text, the RTC argues instead that, even if it misrepresented to MNB the facts underlying the settlement agreement to MNB, the D'Oench, Duhme doctrine protects it from liability.
[4] Affidavit of Martin Popp, ¶¶ 6-9, p. 1. Original Opp. to Def.Mot. For Summary Judgment Exh. O ("Popp Affidavit").
[5] Transcript of April 3, 1991 Motions Hearing before the Circuit Court for Baltimore City at 13-15 (Amended Complaint Exh. F).
[6] Popp affidavit ¶¶ 6-9.
[7] Amended Compl. Exh. N. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917455/ | 835 So. 2d 157 (2002)
John W. RICE et al.
v.
Bill ENGLISH et al.
1010968.
Supreme Court of Alabama.
May 24, 2002.
*158 Mark G. Montiel, Montgomery, for appellants.
Bill Pryor, atty. gen., and John J. Park, asst. atty. gen., for appellees Bill English, Gloria Sinclair, Albert O. Howard, Alfonza Menefee, Johnny H. Williamson, Nancy O. Robertson, Lamar Turner, Jimmy Stubbs, Reese McKinney, Jr., Alfred Q. Booth, John E. Hulett, J. MacDonald Russell, Dwight Faulk, William C. Stone, and James Bennett.
James E. Williams, Flynn Mozingo, and C. Mark Bain of Melton, Espy & Williams, P.C., Montgomery; and Larry T. Menefee,
*159 Montgomery, for Governor Don Siegelman.
Robert D. Segall and Shannon L. Holliday of Copeland, Franco, Screws & Gill, P.A., Montgomery, for Senator Henry Sanders and Senator Lowell Barron.
LYONS, Justice.
This case involves a state-law challenge to the new redistricting plan for Alabama senate districts. That plan, proposed by Act No. 2001-727, 2001 Ala. Acts (hereinafter "the redistricting plan"), was approved by Governor Don Siegelman on July 3, 2001, and was precleared by the Attorney General of the United States on October 15, 2001. John W. Rice, William McCall Harris, and Patricia Christine N. Wood (hereinafter collectively referred to as "the Rice plaintiffs") challenged the redistricting plan, naming as defendants state election officials and contending that the plan failed to satisfy the one-person, one-vote standard they viewed as mandated by Art. IX, § 200, Ala. Const.1901. The Montgomery Circuit Court entered a summary judgment in favor of the state election officials. This appeal followed.
I. Constitutional Background
Art. IX, § 200, Ala. Const.1901, describes the duty of the Legislature in the creation of senate districts. It provides:
"It shall be the duty of the legislature at its first session after taking of the decennial census of the United States in the year nineteen hundred and ten, and after each subsequent decennial census, to fix by law the number of senators, and to divide the state into as many senatorial districts as there are senators, which districts shall be as nearly equal to each other in the number of inhabitants as may be, and each shall be entitled to one senator, and no more; and such districts, when formed, shall not be changed until the next apportioning session of the legislature, after the next decennial census of the United States shall have been taken; provided, that counties created after the next preceding apportioning session of the legislature may be attached to senatorial districts. No county shall be divided between two districts, and no district shall be made up of two or more counties not contiguous to each other."
(Emphasis added.)
Section 200 prohibits a districting plan that divides a county between two districts. In other words, county lines must be preserved in any redistricting plan. To accommodate the obvious fact that only a remarkably fortuitous circumstance would permit absolute equality in population between districts while observing the integrity of county lines § 200 speaks in practical terms of the goal that the population of the districts be equal. It requires the districts to be "as nearly equal to each other in the number of inhabitants as may be."
In earlier litigation challenging the constitutionality of Alabama legislative districts on the basis of population disparity under the "one-man, one-vote" requirement as expressed in Reynolds v. Sims, 377 U.S. 533, 84 S. Ct. 1362, 12 L. Ed. 2d 506 (1964), the Supreme Court discussed the necessity of harmonizing the requirement of § 200 for integrity of county lines with the requirement for substantial equality of population in legislative districts. Of course, pursuant to the Supremacy Clause in Art. VI of the United States Constitution, any provisions of § 200 that conflict with the Fourteenth Amendment to the United States Constitution would not be enforceable. Such a result was reached in Sims v. Amos, 336 F. Supp. 924 (M.D.Ala.), aff'd, 409 U.S. 942, 93 S. Ct. 290, 34 L. Ed. 2d 215 (1972), in which the three-judge panel held:
*160 "In approving the crossing of county lines, we necessarily fail to give effect to that part of Art. IX, § 200, Alabama Constitution of 1901, which forbids splitting any county between two or more legislative districts. We find that the requirements of equal protection necessitate, in some instances, that county lines give way in drawing legislative districts. To the extent that Section 200 forbids such, it must yield for `when there is an unavoidable conflict between the Federal and a State Constitution, the Supremacy Clause of course controls.'"
336 F.Supp. at 939 n. 20 (quoting Reynolds v. Sims, 377 U.S. at 584, 84 S. Ct. 1362).
II. Procedural History
On August 9, 2001, the Rice plaintiffs filed their complaint in the Montgomery Circuit Court, seeking declaratory and injunctive relief. The Rice plaintiffs named Bill English, probate judge of Lee County, and 13 other probate judges, as well as Secretary of State James Bennett, each in his or her official capacity, as defendants (hereinafter collectively referred to as "the election officials"). The Rice plaintiffs contended that the new senate districts failed to satisfy Art. I, § 33,[1] and Art. IX, § 200, Ala. Const.1901, in that the population of the new districts was not "as nearly equal to each other ... as may be." Art. IX, § 200. The Rice plaintiffs sought a judgment declaring that the new plan violates state law and injunctive relief that would, among other things, prohibit the use of the new districts in any election.
The election officials answered the complaint and moved to stay further proceedings pending preclearance of the plan by federal officials. When the State received a letter from the United States Department of Justice stating that the Attorney General of the United States interposed no objection to the plan, the State advised the trial court that the plan had been precleared by filing a copy of the letter with the court.
While preclearance of the redistricting plan was pending, Governor Siegelman moved to intervene as a defendant; the trial court granted his motion. After the State obtained preclearance, Senators Lowell Barron and Henry Sanders also moved to intervene as defendants. The trial court granted that motion on January 10, 2002.
On November 19, 2001, the trial court entered a scheduling order, pursuant to which the parties were to file any dispositive motions by December 19, 2001, and were to argue those motions at a hearing to be held on January 10, 2002. On December 19, 2001, Secretary of State Bennett, for himself and the other election officials, filed a motion for a summary judgment, together with a supporting brief and a narrative summary of the undisputed material facts. Governor Siegelman joined in the election officials' motion. Even though their motion to intervene had not been ruled on, Senators Barron and Sanders, on December 19, 2001, also moved for a summary judgment in their favor. On January 10, 2002, the trial court heard oral argument on the election officials' summary-judgment motion. At the time of the hearing, the Rice plaintiffs had not filed any written response to any of the summary-judgment motions. They did not file any response until January 17, 2002, when they filed what they entitled "Rice Plaintiffs' Response and Objection to *161 Motions for Summary Judgment by Other Parties; or, Alternatively, Response and Opposition to Motion by Intervenors Barron and Sanders for Summary Judgment."
On January 28, 2002, the trial court entered two orders. In the first order, it held that the state-law claims before it were justiciable. In the second, it (1) granted the election officials' motion for a summary judgment, in which it noted that Senators Barron and Sanders had orally joined in the motion to the extent that it addressed the merits of the Rice plaintiffs' claims (as opposed to the justiciability of those claims); (2) stated that the summary-judgment motion filed by Senators Barron and Sanders was not before the court on January 9, 2002, and would not be considered; and (3) held that the Rice plaintiffs' response was not timely filed and would not be considered. On February 11, 2002, the Rice plaintiffs filed a notice of appeal.
The trial court's findings in its summary-judgment order can be summarized as follows:
(1) In adopting Art. IX, § 200, the drafters of the Alabama Constitution of 1901 did not require senate districts to be absolutely equal in population and, in fact, endorsed overall population deviations in excess of 202% for senate districts;
(2) Apportionment is primarily a legislative function; courts should act only if the Legislature fails to act constitutionally after having had a reasonable opportunity to do so. Brooks v. Bobbie, 631 So. 2d 883, 890 (Ala.1993);
(3) The Legislature has itself adopted a 10% variance rule in its guidelines for reapportionment;
(4) Other states also apply a 10% variance rule;
(5) A federal district court in Alabama has already ruled that § 200 does not require greater equality in population in legislative districts than does federal law, and federal law generally permits deviations not exceeding 10%. Sims v. Amos, supra; and
(6) The plain meaning of § 200 itself does not require absolute population equality; instead, it requires the districts to be "as nearly equal as ... may be."
III. Jurisdiction
The election officials argue that the separation-of-powers doctrine enshrined in § 43, Ala. Const.1901, requires that this Court decline jurisdiction over this case. The election officials remind us that in earlier cases this Court has refused to recognize the justiciability of redistricting claims, citing Waid v. Pool, 255 Ala. 441, 51 So. 2d 869 (1951), and Ex parte Rice, 273 Ala. 712, 143 So. 2d 848 (1962). The election officials attempt to distinguish Brooks v. Hobbie, supra, in which, they argue, this Court recognized the justiciability of redistricting claims only in those cases where the Legislature has wholly failed to act. The election officials support their contention with a quote from an opinion of the Supreme Court of Tennessee, quoted in Brooks v. Hobbie, observing that "`courts should act only if the legislature fails to act constitutionally after having had a reasonable opportunity to do so.'" 631 So. 2d at 888 (quoting Lockert v. Crowell, 631 S.W.2d 702, 706 (Tenn.1982)). However, the quoted text from Lockert refers to the failure to act "constitutionally"not a failure to act at all. Id. We decline to read this Court's statement in Brooks v. Hobbie that "in the event the legislature fails to act, the responsibility shifts to the state judiciary" as limiting this Court's jurisdiction to only those instances in which the Legislature has failed to act at all. Brooks, 631 So.2d at 890.
*162 In Brooks v. Hobbie, this Court distinguished Waid and Rice, noting that the Court's disinclination to act in the earlier cases was based upon a judicially imposed prudential limitation on the Court's authority in sensitive areas involving redistricting, rather than upon any provision of the State constitution limiting the power of courts to entertain the action. Brooks, 631 So.2d at 885. The election officials dismiss this basis for distinction as unconvincing; they suggest that "there is considerable tension between Brooks and Waid v. Pool."We decline this veiled invitation to overrule Brooks v. Hobbie, mindful of the necessity for great deference to be given to legislative enactments when those enactments are challenged on constitutional grounds, as we discuss more fully below.[2]
Justice Houston's special concurrence states that Brooks v. Hobbie confused this Court's responsibility under federal law with "our responsibility under State law, where our jurisdiction is restricted by the separation-of-powers provision in the Alabama Constitution." 835 So. 2d at 168 n. 4. It then concludes that "it is for the Legislature, not the judiciary, to determine whether these senatorial districts are as `nearly equal to each other in the number of inhabitants as may be,'" citing Art. III, § 43, Ala. Const.1901 (the separation-of-powers clause). Id. Such abdication of judicial responsibility is inconsistent with the settled principle that the people have forbidden the Legislature from conducting itself in a manner inconsistent with their constitution and when it does, it is incumbent upon the judiciary to nullify a legislative enactment contrary to the constitution. See Ex parte Selma & Gulf R.R., 45 Ala. 696 (1871).
However, in Ex parte Selma & Gulf R.R., this Court, while recognizing the Court's power to exercise judicial review of acts of the Legislature, was also mindful of the need for restraint. This Court there stated:
"No power of this grave nature [i.e., judicial review of legislative acts] is expressly given. Considering its importance, it is a little strange that it has been wholly omitted. But, grant that it exists. It can not be permitted to rest upon mere inference and argument; because, if the inference is a mistake, or the argument is false, its exercise is an usurpation by one branch of the government against the authority of another. Did the people mean to grant such a power, unless some express clause of the constitution was clearly disregarded? I think not."
45 Ala. at 728 (emphasis added).
This discussion of the doctrine of judicial review is remarkably parallel to the observations of Judge Learned Hand, speaking of the United States Constitution, almost 80 years later. Judge Hand stated:
"There was nothing in the United States Constitution that gave courts any authority to review the decisions of Congress; and it was a plausibleindeed to my mind an unanswerableargument that it invaded the `Separation of Powers' which, as so many then believed, was the condition of all free government."
Learned Hand, The Bill of Rights: The Oliver Wendell Holmes Lectures, 1958, 10-11 (Harvard University Press 1958). However, Judge Hand justified the propriety of judicial review as follows:
*163 "For centuries it has been an accepted canon in interpretation of documents to interpolate into the text such provisions, though not expressed, as are essential to prevent the defeat of the venture at hand; and this applies with especial force to the interpretation of constitutions, which, since they are designed to cover a great multitude of necessarily unforeseen occasions, must be cast in general language, unless they are constantly amended. If so, it was altogether in keeping with established practice for the Supreme Court to assume an authority to keep the states, Congress, and the President within their prescribed powers. Otherwise the government could not proceed as planned; and indeed would almost certainly have foundered, as in fact it almost did over that very issue.
"However, since this power is not a logical deduction from the structure of the Constitution but only a practical condition upon its successful operation, it need not be exercised whenever a court sees, or thinks that is sees, an invasion of the Constitution."
Id. at 14-15 (emphasis added). Judge Hand later described the power of judicial review as "no doubt a dangerous liberty, not lightly to be resorted to...." Id. at 29.
When Ex parte Selma & Gulf R.R. was written, a separation-of-powers clause appeared in Article III of the Constitution of 1868. The same text had appeared in every version of the Constitution since statehood in 1819. Article III of the Constitution of 1868 was copied word-for-word into Article III of the Constitution of 1875. The text was slightly modified in Article III, § 43, of the Constitution of 1901. However, William C. Oates, a delegate to the Constitutional Convention of 1901, comparing the differences between the Constitution of 1875 and the Constitution of 1901, stated, "The distribution of powers of government is substantially the same as in the old or present [1875] Constitution." 4 Official Proceedings of the Constitutional Convention of 1901, p. 4948. We conclude that the authority of this Court to review challenges to acts of the Legislature on constitutional grounds is a bedrock principle of our State's legal heritage.
IV. Standard of Review
In Monroe v. Harco, Inc., 762 So. 2d 828, 831 (Ala.2000), this Court restated the long-standing rules governing review of acts of the Legislature under constitutional attack:
"`In reviewing [a question regarding] the constitutionality of a statute, we "approach the question with every presumption and intendment in favor of its validity, and seek to sustain rather than strike down the enactment of a coordinate branch of the government."' Moore v. Mobile Infirmary Ass'n, 592 So. 2d 156, 159 (Ala.1991) (quoting Alabama State Fed'n of Labor v. McAdory, 246 Ala. 1, 9, 18 So. 2d 810, 815 (1944)). Moreover, `[w]here the validity of a statute is assailed and there are two possible interpretations, by one of which the statute would be unconstitutional and by the other would be valid, the courts should adopt the construction [that] would uphold it.' McAdory, 246 Ala. at 10, 18 So. 2d at 815. In McAdory, this Court further stated:
"`[I]n passing upon the constitutionality of a legislative act, the courts uniformly approach the question with every presumption and intendment in favor of its validity, and seek to sustain rather than strike down the enactment of a coordinate branch of the government. All these principles are embraced in the simple statement that it is the recognized duty of the court to sustain the act unless it is clear *164 beyond reasonable doubt that it is violative of the fundamental law.'
"246 Ala. at 9, 18 So. 2d at 815 (citation omitted). We must afford the Legislature the highest degree of deference, and construe its acts as constitutional if their language so permits. Id."
V. Analysis
By the redistricting plan, the Legislature established 35 senate districts for the State. The Senate, according to the redistricting plan, is to be composed of 35 members, each representing a district whose total population is within plus or minus five percent of the ideal population of a senate district. In creating those districts, the Legislature split 30 of the State's 67 counties. While the Rice plaintiffs rely on § 200, they concede, as they must, that, notwithstanding the clear prohibition of § 200, disregard of county lines is necessary to accommodate enforcement of the United States Constitution.
The Rice plaintiffs base a significant portion of their appellate argument on the contention that splitting counties must be held to the absolute minimum and that the Legislature's attempt in the redistricting plan to satisfy the requirements of population equality at the expense of preserving county lines exceeds the absolute minimum. The trial court's order conspicuously fails to address this contention; however, that omission is not an oversight.
The Rice plaintiffs contended in the trial court that the redistricting act violated § 200 in that the act disregarded the requirement of the Alabama Constitution that senate districts must have equal populations. The Rice plaintiffs' complaint stated:
"32. [I]n order to achieve required population equality among Alabama's thirty-five (35) state senate districts, as proscribed by Ala. Const. art. IX, § 200, the population of each state Senate district should be 127,060 persons with each senate district `as nearly equal to each other in the number of inhabitants as may be.' See Ala. Const. art. IX, § 200.
"33. Pursuant to Act No. 2001-727, Alabama's most populous state senate district, Senate District 8, has 133,302 persons. Accordingly, Senate District 8 exceeds the constitutionally required population by 6,242 persons, or 4.91%. Alabama's least populous state senate district, Senate District 6, has 120,942 persons. Accordingly, Senate District 6 falls short of the constitutionally required population by 6,118 persons, or 4.82%. The difference between the populations of the most populous and the least populous state senate districts in Act No. 2001-727 is 12,360 persons, which constitutes a `relative overall range' of 9.73%."
(Footnotes omitted.) Nowhere in the complaint do the Rice plaintiffs challenge the degree to which county lines were disregarded. Likewise, in the summary-judgment hearing held by the trial court on January 10, 2002, the Rice plaintiffs argued:
"MR. MONTIEL [counsel for the Rice plaintiffs]: The first argument that the State makes, which is joined apparently by intervenors Barron and Sanders, is that Section 200 does not mean what we contend it is; that is, that the districts be as nearly as equal in the inhabitants as may be.
"....
"Article 1, Section 2 [of the United States Constitution] deals with congressional districts. Federal courts are crystal clear, and the caselaw is undisputed in this country. The congressional districts, because of that language in *165 the Federal Constitution, have to be drawn as nearly as equal, and I will submit to Your Honor that most states draw on to zero deviation; i.e., equal population.
"THE COURT: But not all of them?
"MR. MONTIEL: Occasionally a very, very small, de minimis, and the courts have said that these ranges, this, plus or minus 5 percent wouldn't be de minimis. There's no caseit's going to be like .017 percent, very small. It's where they may not be splitting a precinct and leave a few hundred people in the district. Might be constitutional or permissible under Article 1, Section 2 for the Constitution in congressional districts.
"THE COURT: The drafters of this 1901 provision, if they wanted equal, all they had to say was equaldraw them equal. Why would they modify that by saying nearly equal?
"MR. MONTIEL: Well, I think at that timeand I think that's why the court has to look at the development of technology. They wrote, `shall be'it's mandatory'shall be as nearly equal to each other in number of inhabitants as may be.' And we believe that requires the court to analyze whether or not the State of Alabama
"THE COURT: If I were drafting this statute and I wantedand my intention was for the districts to be equal, I would have written, `they shall be equal.'
"MR. MONTIEL: And we submit that's what it says.... It says `shall be as nearly as equal.' And as nearly as equal in inhabitants as may be in 2001 is zero deviation. And for purposes of the record, every district should have an equal number of inhabitants.
"....
"THE COURT: Doesn't [the phrase `as may be'] allow for some movement there, someI mean, doesn't it conjure up the notion that somebody realized that these things couldn't be mathematically certain?
"MR. MONTIEL: Judge, ... the answer to that is, if you are not splitting counties
"THE COURT: Uh-huh.
"MR. MONTIEL: And that's another part of Section 200 you're going to read.... You cannot use splitting counties as an excuse to violate equal population requirements under federal law. That's what the federal courts have determined in Reynolds v. Sims [377 U.S. 533, 84 S. Ct. 1362, 12 L. Ed. 2d 506 (1964) ]. And what the federal court did in Reynolds v. Sims is [it] determined that certain provisions of Section 200 are unconstitutional, butand there's caselaw, plenty of caselaw at this point, Judge.... [The federal court] specifies that all provisions of Section 200 ... that don't violate federal law, should continue in existence, and certainly as-nearly-as-equal-in-inhabitants language doesn't violate federal law. I mean, that's saying if it's zero deviation, that violates no one."
The only reference to splitting counties in the argument before the trial court during the hearing on the summary-judgment motion occurs in the context of recognizing the ineffectiveness of that portion of § 200 condemning the splitting of counties when it stands in the way of the requirement of population equality in the legislative districts.
The Rice plaintiffs did not submit any written opposition to the summary-judgment motion, either before or at the hearing. At the conclusion of the hearing, the trial court gave the Rice plaintiffs permission to file additional materials *166 in response to the motion for a summary judgment filed by intervenors Senators Sanders and Barron, which was not before the court at the time of the hearing on the election officials' summary-judgment motion. One week after the hearing, the Rice plaintiffs submitted materials, including affidavits, which they styled as a response to the motion for summary judgment filed by the election officials or, alternatively, a response to the motion for summary judgment filed by intervenors Senators Sanders and Barron. In its order entered 11 days later, the trial court stated that it did not "reach the Motion for Summary Judgment filed by Defendant Intervenors Barron and Sanders." With respect to the Rice plaintiffs' response filed after the hearing, the trial court stated that it did not consider that response because it was untimely. Absent an abuse of discretion, a trial court does not err in striking as untimely affidavits in opposition to a motion for summary judgment. Murray v. Timberlake, 564 So. 2d 885, 889 (Ala.1990); Nolen v. Peterson, 544 So. 2d 863 (Ala.1989); Johnson v. Allstate Ins. Co., 505 So. 2d 362 (Ala.1987). To the extent that this contention is raised in the response filed after the hearing on the election officials' motion for summary judgment, we hold that the trial court did not abuse its discretion in rejecting it as untimely. Indeed, the Rice plaintiffs do not contend otherwise, stating in their reply brief, "County splitting was not considered at all by the trial court, as admitted by each of the Appellees in their respective briefs." Reply Brief at pp. 2-3.
The Rice plaintiffs, therefore, contend for the first time on appeal that the redistricting act unnecessarily and excessively splits county lines in creating the State senate districts. Recently, in Porter v. Colonial Life & Accident Insurance Co., 828 So. 2d 907, 908 (Ala.2002), we restated the long-standing general rule that "[t]he appellate courts will not consider a challenge to an order or a judgment of a trial court asserted for the first time on appeal." This Court has often applied that general rule in the specific context of attempts to overturn a trial court's summary judgment. See Ex parte Ryals, 773 So. 2d 1011 (Ala.2000), where this Court stated, "[T]he appellate court can consider an argument against the validity of a summary judgment only to the extent that the record on appeal contains material from the trial court record presenting that argument to the trial court before or at the time of submission of the motion for summary judgment." 773 So. 2d at 1013 (citing Andrews v. Mertitt Oil Co., 612 So. 2d 409 (Ala.1992)) (second emphasis added). See also Ex parte Elba Gen. Hosp. & Nursing Home, Inc., 828 So. 2d 308, 312 (Ala.2001), where this Court, after stating the general rule, observed:
"Put another way, on an appeal from a summary judgment, this Court cannot hold the trial court in error on the basis of arguments made for the first time on appeal. See Barnett v. Funding Plus of America, Inc., 740 So. 2d 1069 (Ala.1999); West Town Plaza Assocs., Ltd. v. Wal-Mart Stores, Inc., 619 So. 2d 1290 (Ala. 1993)."
The Rice plaintiffs seek to avoid this result by contending that § 200 requires, in addition to an evaluation of the population-equality requirement, an analysis of split counties. The Rice plaintiffs, however, cite no authority for setting aside the general rule requiring presentation of issues in the trial court as a predicate for appellate review in civil cases. The "plain-error" rule, which dispenses with the necessity for error preservation, is confined to death-penalty cases. The Rice plaintiffs' efforts to urge for the first time on appeal excessive disregard of county lines *167 in creating the senate districts as a basis upon which to reverse the trial court is therefore not before us.
The Rice plaintiffs also contend that the trial court erroneously applied the standard for equal protection under the Fourteenth Amendment to the United States Constitution, rather than the standard under § 200. We disagree. The trial court's references to standards derived in adherence to the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution are presented as illustrations or analogies and are not given the force of precedent. The trial court recognized the adoption of guidelines by the Legislature[3] that embrace an overall percentage deviation of 10 percent, with which the redistricting plan complies. The trial court also took account of relevant historical context when it cited facts indicating that the framers of the Alabama Constitution of 1901 had a remarkably high tolerance for deviations in population between senate districts. While it is true that the legislative districts created at the time of ratification of the Constitution of 1901 were not governed by § 200, which did not come into operation until the next decennial census, we construe constitutional and statutory provisions in light of the circumstances and conditions prevalent at the time of enactment.
"It is a familiar canon of statutory construction that `where there is doubt as to the meaning and intent of a statute by reason of the language employed, or arising from the context, courts may look to the history, conditions which lead to that enactment, the material surrounding circumstances, the ends to be accomplished, and evils to be avoided or corrected, in order that the legislative intent be ascertained and given effect, if possible.'"
Eagerton v. Graves, 252 Ala. 326, 331-32, 40 So. 2d 417, 422 (1949) (quoting Henry v. McCormack Bros. Motor Car Co., 232 Ala. 196, 198, 167 So. 256, 257 (1936)). See also State Farm Fire & Cas. Co. v. Lambert, 291 Ala. 645, 648, 285 So. 2d 917, 918 (1973) ("This question [of statutory construction] cannot be answered apart from the historical context within which the statute was passed."). The trial court did not inappropriately adhere to principles applicable only to proceedings governed by the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution to the exclusion of principles of Alabama law applicable to the construction of § 200.
The Rice plaintiffs also contend that the trial court failed to consider "the obviously racially discriminatory pattern of population assignments" in the redistricting plan. Yet the Rice plaintiffs stated in the trial court, "[W]e don't make any allegations of race in this case."
VI. Conclusion
The trial court afforded the Legislature appropriate deference in its solution to the difficult question of dividing the State into 35 senate districts with approximately equal population. The districts created by the Legislature are within plus or minus five percent of the ideal population of a senate district. While various members of this Court, had we been privileged to participate in the legislative deliberations and then to cast votes according to our respective consciences, might have opted for different district boundaries, less disregard of county lines, or greater concern for more uniformity of *168 population within districts, we recognize that the people elected us to cast our votes as judges and not as legislators. As judges, we cannot overturn the redistricting plan on the grounds asserted by the Rice plaintiffs in the appeal before us. The Rice plaintiffs have failed to overcome the presumption of constitutionality that precedent requires us to attach to the redistricting plan. In so holding, we adhere to the admonition of this Court in Ex parte Selma & Gulf R.R. that we should refrain from exercising the power of judicial review, described as one of "grave nature," "unless some express clause of the constitution was clearly disregarded." 45 Ala. at 728 (emphasis added). We therefore decline to invoke what Judge Hand described as "no doubt a dangerous liberty, not lightly to be resorted to" (L. Hand, id. at 29) so as to require further proceedings on whether a deviation in population of plus or minus five percent violates the constitutional mandate of § 200 that "districts shall be as nearly equal to each other in the number of inhabitants as may be."
The trial court properly entered a summary judgment in favor of the election officials, as joined in by the intervenors; we affirm that judgment.
AFFIRMED.
BROWN, JOHNSTONE, HARWOOD, WOODALL, and STUART, JJ., concur.
HOUSTON, J., concurs specially.
MOORE, C.J., and SEE, J., dissent.
HOUSTON, Justice (concurring specially).
The Legislature did its duty. ("It shall be the duty of the legislature ... after each ... decennial census, to fix by law the number of senators, and to divide the state into as many senatorial districts as there are senators...." Art. IX, § 200, Constitution of Alabama of 1901.) The Constitutional Convention of 1901 unequivocally defined what it meant when it provided in the Constitution that the Legislature shall do something. The Legislature is required to do the act the Constitution provides it shall do. "They [the Legislature] would violate their oaths if they did not do so." Official Proceedings of the Constitutional Convention of 1901, p. 1800.
The Legislature has done its constitutional duty; in doing so, it has in no way violated an express constitutional prohibition, such as encroaching on the rights retained in the Declaration of Rights of the Alabama Constitution (Art. I, §§ 1 through 36). There is no Equal Protection Clause in the Alabama Constitution. See Ex parte Melof, 553 So. 2d 554 (Ala.1989). Under State law, which is all that is involved here,[4] it is for the Legislature, not the judiciary, to determine whether these senatorial districts are as "nearly equal to each other in the number of inhabitants as may be," because § 43 of the 1901 Constitution provides: "the judicial [department of government] shall never exercise the legislative or executive powers, or either of them; to the end that it may be a government of laws and not of men."
MOORE, Chief Justice (dissenting).
I strongly disagree with this Court's affirmance of the summary judgment in this important case.
The standard of review for a summary judgment is well-settled.
*169 "We review a summary judgment de novo.... A summary judgment is proper where `the pleadings, depositions, answers to interrogatories, and admissions on file, together with 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.' Rule 56(c)(3), Ala. R. Civ. P.... [A] party moving for a summary judgment always bears the initial burden of informing the trial court of the basis for its motion and identifying those portions of the record that it argues demonstrate the absence of a genuine issue of material fact."
Northwest Florida Truss, Inc. v. Baldwin County Commission, 782 So. 2d 274, 276 (Ala.2000).
The defendants presented only three pieces of evidence to support their argument for a summary judgment: (1) the October 15, 2001, letter from the United States Department of Justice indicating that Act No. 2001-727, Ala. Acts 2001, had received preclearance under § 5 of the Voting Rights Act; (2) 1903 records of the State of Alabama Department of Archives and History, showing the population of Alabama counties from 1800 to 1900; and (3) an affidavit of Ms. Bonnie P. Shanholtzer, authenticating the reapportionment committee guidelines for the legislative, state board of education, and Congressional redistricting for the State of Alabama.
These submissions lack any relevance to the question before us in this case, which is whether Act No. 2001-727 violates Art. IX, § 200, Ala. Const. of 1901. Preclearance from the United States Justice Department demonstrates that the plan is probably constitutional under the Voting Rights Act of 1964 prohibiting racial discrimination, but here, where no racial discrimination is alleged, preclearance does not help us in evaluating the state constitutional claims under Art. IX, § 200.
The population records from 1903 were submitted ostensibly to demonstrate that the State permitted wide deviations in the populations of districts at the time of the adoption of Art. IX, § 200. However, population deviations before the effective date of the 1901 Constitution are simply irrelevant. First, the language of Art. IX, § 200 stipulates that that section is to be applied after each decennial census; thus, it first applied to redistricting in 1910. Second, in Reynolds v. Sims, 377 U.S. 533, 569, 84 S. Ct. 1362, 12 L. Ed. 2d 506 (1964), the United States Supreme Court later confirmed the finding of a lower court that the Alabama Legislature had not adhered to federal or state constitutional guidelines regarding apportionment for over 60 years and ordered reapportionment according to its "one-man, one-vote" analysis. At the time Reynolds v. Sims was decided, the State had not reapportioned its districts since 1901; therefore, in 1903 the districts had never been apportioned "as nearly equal to each other in the number of inhabitants as may be," Art. IX, § 200. See Sims v. Frink, 208 F. Supp. 431, 435 (M.D.Ala.1962) (three-judge panel). Indeed, existing population deviations from 1903 until 1964 were the very reason the United States Supreme Court found Alabama's legislative scheme to be in violation of the "one-man, one-vote" rule propounded in Reynolds.
Nevertheless, the trial court cited the population deviation of districts at the time of the adoption of Art. IX, § 200, as its main evidence in support of its holding that Art. IX, § 200, does not require strict population equality among senate districts. Stated alternatively, the trial court used a population-deviation scheme that violated the federal constitution to demonstrate that the present scheme does not violate *170 the State constitution. This conclusion is clearly contrary to the rules of constitutional interpretation: A state "`may, in fact, provide more protection for private rights than the United States Constitution requires,'" but it cannot provide less. Brooks v. Hobbie, 631 So. 2d 883, 889 (Ala. 1993), quoting Moore v. Mobile Infirmary Ass'n, 592 So. 2d 156, 170 (Ala.1991).
Finally, the reapportionment committee guidelines merely show what the Legislature feels to be the criteria that must be met to satisfy federal and state constitutional standards in executing a redistricting plan. The guidelines stipulate that "the relative population deviation for any legislative ... district should not exceed plus or minus five percent (+ 5%)," but this rule exists expressly to ensure "that the overall deviation in the plan" meets the "permissible overall deviation" according to "federal judicial decisions." Reapportionment Committee Guidelines for Legislative, State Board of Education, and Congressional Redistricting, Il.l.b. (emphasis added). This rule does not address whether the requirements of Art. IX, § 200, have been met. Moreover, whether a legislative scheme has met federal or state constitutional requirements is not up to the Legislature if the scheme is challenged in court, because the court, not the legislature, must interpret constitutional requirements.
Furthermore, a review of the guidelines shows that its stipulations were not followed in structuring this redistricting plan. The guidelines specifically state that "proponents of Legislative and State Board of Education reapportionment plans should establish as a high priority minimizing population deviations among districts." Guidelines, Il.l.b. The plus-or-minus-five-percent range is intended as a last resort, not a goal, when designing a redistricting plan. The guidelines require that any deviations in population contained in a proposed plan must be justified in a written "detailed explanation" that shows how the deviations "further[ ] rational state policies." II.l.c. Maintaining county boundaries is not only listed as one of those "rational state policies," but is also a state constitutional requirement under Art. IX, § 200. See Guidelines, IV.7.b. In other words, according to the guidelines, the Legislature must strive to achieve maximum equality in district populations while maintaining county boundaries. If there are deviations, a detailed written explanation should be submitted of how those deviations further state policies, yet no explanation was given to the trial court here, even though the deviations under the redistricting plan clearly disregarded the goal of maintaining county boundaries.
None of the evidence submitted by the defendants addresses the state constitutional question at issue and some of the evidence even shows a clear violation of the legislature's own reapportionment guidelines. Nevertheless, the trial court cited all of these submissions as undisputed facts in support for granting the defendants' motions for a summary judgment. This misapplication, alone, of the evidence to the issue of state constitutionality merits reversing the summary judgment in this case.
But even if the defendants had met their initial burden, the arguments and evidence presented by the Rice plaintiffs constitute substantial evidence creating a genuine issue of material fact. Once the moving party makes an initial showing in favor of a summary judgment, the burden shifts to the nonmoving party to present substantial evidence creating a genuine issue of material fact in order to avoid a summary judgment. Substantial evidence is "evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment *171 can reasonably infer the existence of a fact sought to be proved." West v. Founders Life Assurance Co. of Florida, 547 So. 2d 870, 871 (Ala.1989); see also Ex parte Trinity Indus., Inc., 680 So. 2d 262, 269 (Ala.1996).
Initially, the Rice plaintiffs pointed out, and the defendants conceded, that this is an issue of first impression in Alabama. Only three cases have been decided construing the meaning of the requirements of Art. IX, § 200; all of those cases are federal district court cases. See Sims v. Amos, 336 F. Supp. 924 (M.D.Ala.1972); Burton v. Hobbie, 543 F. Supp. 235 (M.D.Ala.1982); and Burton v. Hobbie, 561 F. Supp. 1029 (M.D.Ala.1983). These cases provide conflicting conclusions as to how much population deviation is permitted by the language "as nearly equal to each other in the number of inhabitants as may be." Art. IX, § 200. Because there are no controlling cases on what standard of deviation the Alabama Constitution permits, a plus-or-minus-five-percent deviation under the legislative reapportionment scheme simply has no legal support.
Additionally, the Rice plaintiffs' written response to the motion for a summary judgment submitted by Senators Barron and Sanders raises several genuine issues regarding the reapportionment plan. The trial court curiously considered neither Senators Barron and Sanders's motion for a summary judgment nor the Rice plaintiffs' responseruling that both were untimely. The Barron and Sanders motion was filed on January 9, 2002; the trial court did not rule on their motion to intervene in the case until the January 10 hearing. The summary-judgment motion of those defendants could not even have been officially filed with the court until January 10; therefore, holding that their motion for a summary judgment was untimely makes no sense, particularly when the trial court heard arguments on the motion from their counsel at the January 10 hearing.
The motion for a summary judgment filed by Senators Barron and Sanders was filed on January 10; the Rice plaintiffs filed their response to that motion on January 17, certainly a timely response. In fact, the trial judge told the Rice plaintiffs at the January 10 hearing that they could file their response by January 24. Despite this statement by the trial court, the court subsequently ruled on January 28 that the response was untimely, and the court did not consider in its decision the arguments made in the motion or response or the affidavits submitted therewith.
Those affidavits clearly show that the redistricting plan at issue had not been submitted to the permanent legislative committee on reapportionment, the committee charged with considering those issues and that the plan did not conform fully with the legislative committee guidelines. As explained above, those guidelines clearly provide that deviations in population require a detailed written explanation justifying the deviations as furthering rational state goals. The guidelines also state that redistricting plans should strive to maintain county boundaries.[5] Although this redistricting plan failed in all of these respects, the trial court still found no genuine issues of material fact.
However, even if we ignore the Rice plaintiffs' response to the summary-judgment motion of Senators Barron and Sanders, their remaining arguments demonstrate *172 the constitutional problem with the redistricting plan in this case, i.e., the plan contains substantial deviations in population and disregards county boundaries. This Court finds that the integrity of county boundaries is not in issue because the Rice plaintiffs did not make the argument at trial; however, I believe their arguments relative to Art. IX, § 200, were sufficient to place the issue before us, because the integrity of county boundaries is an integral part of § 200. The Rice plaintiffs state in their complaint that Act No. 2001-727 violates Art. IX, § 200, of the Alabama Constitution of 1901. Although the Rice plaintiffs stress the requirement that senatorial districts "shall be as nearly equal to each other in the number of inhabitants as may be," the complaint itselfcombined with the defendants' submission of the redistricting mapmandates that this Court consider, and the trial court should have considered, the fact that the redistricting plan splits nearly half of the State's 67 counties, when Art. IX, § 200, explicitly states that "[n]o county shall be divided between districts...."
The federal district court for the Middle District of Alabama ordered a relaxation of the "no-division" provision of Art. IX, § 200, regarding county boundaries, in Sims v. Amos, 336 F. Supp. 924, 939 (M.D.Ala.1972), because the "one-person, one-vote" rule instituted by the United States Supreme Court has priority over the State requirement of maintaining political boundaries. However, in relaxing the standard, the court made it clear that "the requirements of equal protection necessitate, in some instances, that county lines give way in drawing legislative districts." 336 F. Supp. at 939 n. 20 (emphasis added). Indeed, "[b]oundary lines are sacrificed only where absolutely necessary to satisfy the constitutional requirement of one man one vote." 336 F. Supp. at 939 (emphasis added). Consequently, the "no-division" provision of Art. IX, § 200, cannot be arbitrarily disregarded by the legislature.
The district court in Sims explained that "the justification most often advanced by the states for permitting deviation from the ideal of one man one vote is the necessity for maintaining the integrity of political subdivisions such as counties." 336 F. Supp. at 933. Indeed, the United States Supreme Court observed in Reynolds:
"It may be feasible to use political subdivision lines to a greater extent in establishing state legislative districts than in congressional districting while still affording adequate representation to all parts of the State.... Somewhat more flexibility may therefore be constitutionally permissible with respect to state legislative apportionment than in congressional districting....
"A State may legitimately desire to maintain the integrity of various political subdivisions, insofar as possible, and provide for compact districts of contiguous territory in designing a legislative apportionment scheme."
377 U.S. at 578, 84 S. Ct. 1362.
Thus, the United States Supreme Court's rationale for allowing a five-percent deviation in population for state legislative apportionment is to enable states to maintain political subdivisions, such as counties, yet the redistricting plan at issue here deviates substantially from the "nearly as equal ... as may be" population requirement of Art. IX, § 200, for each senate district, while it carves up nearly half of the counties in the State. For the defendants to justify the plan's substantial deviations in population by pointing to the percentage deviations permitted by federal courts and then to ignore the very reason those courts permit those deviations defies logic.
The few federal district court cases referenced earlier that have examined the *173 constitutionality of legislative apportionment schemes under Art. IX, § 200, bear out the importance of the interplay between the percentage deviation in population provided under the scheme and the number of counties split by the scheme. Sims v. Amos, 336 F. Supp. 924 (M.D.Ala. 1972), Burton v. Hobbie, 543 F. Supp. 235 (M.D.Ala.1982), and Burton v. Hobbie, 561 F. Supp. 1029 (M.D.Ala.1983), all examine both the percentage of deviations in population between districts and the number of split counties created by the redistricting when evaluating the constitutionality of a State legislative apportionment scheme under the Alabama Constitution. There is no reason why we should not do the same, given the mandate of Art. IX, § 200.
When all of the facts and arguments are considered, it would appear that Act No. 2001-727 probably violates Art. IX, § 200, but that conclusion is not even necessary for a reversal here. All that is required is that the Rice plaintiffs have created a genuine issue of material fact. Given the lack of evidence presented by the defendants to carry their initial burden, the lack of precedent on this issue, the substantial deviations in population permitted by the plan, the number of counties split by the plan in direct contravention to both Art. IX, § 200, and the reapportionment committee guidelines, the trial court's failure to consider arguments and affidavits I believe it should have considered, and the logical contradiction in the defendants' argument, a genuine issue of material fact clearly exists in this case.
The majority of this Court discusses the propriety of judicial review and the Court's need to practice restraint in exercising that power. However, our power and scope of judicial review is not in issue here, where, as the majority recognizes, we would abdicate our responsibility if we allow the Legislature to conduct "itself in a manner inconsistent with [our] constitution and when it does, it is incumbent upon the judiciary to nullify a legislative enactment contrary to the constitution." 835 So. 2d at 162.
The Court is necessarily exercising judicial review in this case, because it reviews the constitutionality of Act No. 2001-727; the outcome of that review does not determine whether we are exercising that power. If the Court believes that it does not have the power to review this issue because it presents a purely legislative matter, then it should so state and refrain. But a determination that the Rice plaintiffs have not overcome the presumption of constitutionality is, in essence, an exercise of judicial review. An argument that judicial review precludes a review of a summary judgment on such an important constitutional issue is, in actuality, an avoidance of our constitutional responsibility.
Representation is the bedrock tool of our democratic republican government. "[R]epresentative government is in essence self-government through the medium of elected representatives of the people, and each and every citizen has an inalienable right to full and effective participation in the political processes of his State's legislative bodies." Reynolds v. Sims, 377 U.S. 533, 565, 84 S. Ct. 1362, 12 L. Ed. 2d 506 (1964). It means just as much, if not more, where state legislative bodies are concerned as it does for Congress, because "[s]tate legislatures are, historically, the fountainhead of representative government in this country." Reynolds, 377 U.S. at 564, 84 S. Ct. 1362. Pretermitting argument on the legislative reapportionment scheme when possible constitutional violations are at stake is unconscionable. Further consideration of the issues is warranted; thus, summary judgment should not have been granted. Accordingly, I dissent.
*174 SEE, Justice (dissenting).
I do not disagree with the well-reasoned main opinion; I dissent only because, given the importance of this case, I would grant oral argument solely on the question of the effect of Reynolds v. Sims, 377 U.S. 533, 84 S. Ct. 1362, 12 L. Ed. 2d 506 (1964), on the obligation the Alabama Constitution, Art. IX, § 200, places on the Legislature to create districts "as nearly equal to each other in the number of inhabitants as may be." The question whether the Legislature fulfilled its obligation to preserve county linesindeed, whether in light of Reynolds v. Sims it any longer has such an obligationis expressly not before us on appeal; yet, it is not clear to me how this Court can construe the "as nearly equal" obligation except in light of the county-preservation obligation. It may be that the Legislature should have tried harder not to divide counties and that a 10% deviation in the population of the districts would have been permissible had few counties been divided; however, 30 of the 67 counties in the State were, in fact, divided. What effect should this fact have on our evaluation of the Legislature's performance of its constitutional obligation to create districts "as nearly equal ... as may be"?
I agree with the main opinion that this Court is not without the power to review whether the Legislature has carried out its constitutional duty to redistrict. See Rice v. English, 835 So. 2d 157 (Ala.2002). However, for prudential reasons, that power should rarely be exercised.[6] Legislators take the same oath of office that we do:
"I solemnly swear that I will support the Constitution of the United States, and Constitution of the State of Alabama, so long as I continue a citizen thereof; and that I will faithfully and honestly discharge the duties of the office upon which I am about to enter, to the best of my ability. So help me God."
Thus, it well may be that whatever the answer to my question, I ultimately would defer to the judgment of the Legislature, but I cannot know that without first resolving the Reynolds v. Sims question.
NOTES
[1] Although the Rice plaintiffs stated in their complaint that the redistricting plan failed to satisfy Art. I, § 33, Ala. Const.1901, they do not make any argument in this appeal concerning § 33.
[2] Judicial review of the constitutionality of the redistricting plan cannot be said to have been beyond the contemplation of the Legislature. The redistricting plan established the Montgomery Circuit Court as the proper venue for challenges to the redistricting plan. See § 4 of Act No. 2001-727.
[3] Reapportionment Committee Guidelines for Legislative, State Board of Education, and Congressional Redistricting.
[4] The effect of Brooks v. Hobbie, 631 So. 2d 883 (Ala.1993), is to confuse our responsibility under federal law, where our jurisdiction is expanded by the Supremacy Clause in the United States Constitution, with our responsibility under State law, where our jurisdiction is restricted by the separation-of-powers provision in the Alabama Constitution.
[5] I recognize that the practicality of meeting federal requirements, keeping district population "as nearly equal ... as may be," and the political process of the Legislature may impinge on the integrity of county boundaries. But the Legislature must strive for as little deviation as possible when dealing with a constitutional requirement.
[6] See Jensen v. Wisconsin Elections Board, 249 Wis. 2d 706, 713, 639 N.W.2d 537, 540 (2002) ("Despite the reality that redistricting is now almost always resolved through litigation rather than legislation, we are moved to emphasize the obvious: redistricting remains an inherently political and legislative-not judicial-task.") and In re reapportionment of towns of Hartland, Windsor, and West Windsor, 160 Vt. 9, 14-15, 624 A.2d 323, 326 (1993) ("Redistricting is primarily a matter for legislative consideration and determination.' In re Senate Bill 177, 130 Vt. 365, 371, 294 a.2d 657, 660 (1997). Accordingly, the redistricting plans approved by the General Assembly are presumed to be valid, In re Senate Bill 177, 130 Vt. 358, 361, 294 A.2d 653, 654 (1972), and there is a heavy burden of proof on those who allege that a redistricting plan violates the Constitution.' Davis v. Bandemer, 478 U.S. 109, 185, 106 S. Ct. 2797, 2838, 92 L. Ed. 2d 85 (1998) (Powell. J., concurring in part and dissenting in part.) Further, it is primarily the Legislature, not this Court, that must make the necessary compromises to effectuate state constitutional goals and statutory policies within the limitations imposed by federal law.") | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2460228/ | 253 P.3d 392 (2011)
171 Wash. 2d 1018
PHIBBS
v.
DE VRIES MOVING PACKING STORAGE.
No. 85567-6.
Supreme Court of Washington, Department I.
April 26, 2011.
Disposition of Petition for Review Denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/497499/ | 833 F.2d 1006Unpublished Disposition
NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit.UNITED STATES of America, Plaintiff-Appellee,v.Dwayne V. BIRD, Defendant-Appellant.
No. 86-7722.
United States Court of Appeals, Fourth Circuit.
Submitted: Aug. 26, 1987.Decided: Nov. 12, 1987.
Dwayne V. Bird, appellant pro se.
Jerry Wayne Miller, Office of the United States Attorney.
Before JAMES DICKSON PHILLIPS, ERVIN, and WILKINS, Circuit Judges.
PER CURIAM:
1
Dwayne V. Bird appeals the district court's denial of his 28 U.S.C. Sec. 2255 motion for postconviction relief. We affirm in part, vacate in part, and remand for further proceedings on the claim of ineffective assistance of counsel due to failure to file a direct appeal.
In his motion Bird alleged:
2
(1) he was denied effective assistance of counsel because counsel
3
(a) failed to confer with him more than three times;
4
(b) failed to meet with seven witnesses who would have supported his self-defense alibi;
5
(c) failed to discover and present photographs taken of him;
6
(d) failed to develop the self-defense alibi;
7
(e) failed to allow him a reasonable time to read and review the presentence report prior to being sentenced; and
8
(f) failed to file a notice of appeal upon his request; and
9
(2) he was denied due process and equal protection because he did not have timely access to the presentece report.
10
We affirm the dismissal of claims (1)(a) through (e) and (2) based on the reasoning of the district court. United States v. Bird, C/A No. 86-71-B; C/R No. 85-69-B (W.D.N.C. Sept. 30, 1986).
11
We vacate the dismissal of claim (1)(f) and remand the case to the district court for an evidentiary hearing to determine whether Bird requested his attorney to file an appeal. Due process guarantees the effective assistance of counsel on a first appeal as of right from a criminal conviction. See Evitts v. Lucey, 469 U.S. 387 (1985). An attorney's failure to file an appeal, after a request to do so, amounts to ineffective assistance of counsel. See Walters v. Harris, 460 F.2d 988, 990 (4th Cir.1972), cert. denied, 409 U.S. 1129 (1973), overruled on other grounds, United States v. Whitley, 759 F.2d 327 (4th Cir.) (en banc), cert. denied, 54 U.S.L.W. 3227 (U.S. Oct. 7, 1985) (No. 84-6980); Turner v. North Carolina, 412 F.2d 486, 489 (4th Cir.1969). The defendant need not specify the issues he would raise on appeal, nor argue the likelihood of success on the merits in support of a claim of ineffective assistance based on the failure to file a direct appeal. See Rodriquez v. United States, 395 U.S. 327, 330 (1969). If the district court finds that the attorney failed to appeal after having been requested to do so, it must vacate the defendant's sentence and resentence him so that he can perfect an appeal. Id. at 332.
12
We dispense with oral argument because the dispositive issues recently have been decided authoritatively.
AFFIRMED IN PART, VACATED IN PART AND REMANDED | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/2341105/ | 293 A.2d 311 (1972)
STATE
v.
Robert K. BRUYERE.
No. 1336-Ex. &c.
Supreme Court of Rhode Island.
July 26, 1972.
*312 Richard J. Israel, Atty. Gen., Donald P. Ryan, Asst. Atty. Gen., Henry Gemma, Jr., Special Asst. Atty. Gen., for plaintiff.
William F. Reilly, Public Defender, John P. Toscano, Jr., Asst. Public Defender, Providence, for defendant.
OPINION
ROBERTS, Chief Justice.
This is an indictment charging the defendant, Robert K. Bruyere, with rape. The defendant was tried on this indictment before a justice of the Superior Court sitting with a jury and was found guilty as charged. His motion for a new trial was subsequently denied and sentence imposed. The defendant is now prosecuting a bill of exceptions in this court.
According to evidence adduced through the prosecutrix, she had attended a party in the city of Warwick on September 5, 1969, and later in the evening was walking along a beach with a male escort. She testified that she was approached by a large group of young men, who seized her, threw her to the ground, and several of them held her while other members of the group sexually assaulted her. She testified that defendant was one of those who did so.
The defendant in this court argues that the trial justice was prejudiced against him to such a degree as to make it impossible for him to have a fair and impartial trial. However, defendant's contention, as we understand it, is directed to certain language which the trial justice used in charging the jury. This, then, in our opinion, confronts us with the issue of whether the language of the charge to which defendant directs our attention constituted an invasion of the jury's exclusive right to pass upon the credibility of the witnesses and the weight of the evidence.
It is settled that when a trial justice, in charging a jury, expresses an opinion in which he singles out and derogates from the credibility of a witness or witnesses or when his language conveys to a jury his impression of the weight that should be given to the testimony of any witness, he invades the province of the jury and is guilty of reversible error. State v. Hull, 106 R.I. 285, 258 A.2d 791 (1969); State v. Goff, 107 R.I. 331, 267 A.2d 686 (1970).
The test of whether an instruction invaded the province of the jury is well established. We examine the challenged instruction given by the trial justice for the purpose of determining how it would have been understood by an ordinarily intelligent lay person and not as we, as a reviewing court, read the challenged instruction from the printed page. The test is how the ordinarily intelligent lay person sitting in the jury box would have understood *313 it as he listened to it within the context of the charge as a whole given at the close of the trial. State v. Sliney, 101 R.I. 423, 224 A.2d 603 (1966); State v. Goff, supra.
We turn, then, to the portion of the charge challenged by defendant as constituting prejudicial error. In our opinion, the pertinent portion of the charge begins with the trial justice's statement that ordinarily testimony given under oath in a court is accepted by intelligent people as true "* * * because ordinarily witnesses testifying under oath, don't perjure themselves, don't testify untruthfully." He went on to note that some people have a "strict sense of justice" and would not tell a lie under any circumstances. Others don't have such a keen sense of justice, but the penalties of perjury compel them to adhere to the truth. "Sometimes, however, unfortunately, testimony given this Court and lots of other courts, is not true. People just come in here and willfully perjure themselves; stretch the truth, or maximize testimony they believed that would help the side they favor, or minimize testimony that they believe will help the other side. Sometimes people don't tell the truth because they have an interest in the outcome of the case."
The trial justice then, immediately following this reference to people perjuring themselves, went on to say: "Now, the defendant here has an obvious interest in the outcome of the case, if he's convicted, he faces a jail sentence. All the others who took part in that rape, if they did take part, know that they likewise face a jail sentence."
Given ordinary circumstances, it could be reasonably assumed that the charge relating to credibility given by the court would not mislead a juror into accepting it as reflecting the opinion of the court as to the credibility of defendant and others and the weight to be given to their testimony. However, it must be remembered that in even ordinary criminal cases a judge instructing a jury, particularly in the areas of credibility and weight, is walking a "tightrope" and is required to use extreme care to avoid depriving a defendant, either consciously or unconsciously, of a fair trial by leading it to believe that he either discredits a witness or belittles the weight of his testimony.
However, we cannot overlook the fact that the offense for which defendant was being tried is obviously not an ordinary run-of-the-mill crime. To most normal people, and we assume that jurors are normal people, the crime with which he was charged is abhorrent and detestable. Ordinary, reasonable people will assume a crime of such a brutal character can be committed only by a person of depraved mind, utterly lacking in moral integrity.
In other words, it is our opinion that in all the circumstances of this case, the repulsive nature of the attack upon the prosecutrix and the circumstances under which it occurred must reasonably be held to tend to predispose people of ordinary intelligence to have serious doubts concerning the hesitancy of such a defendant to perjure himself despite the taking of an oath. In the face of such a predisposition to question the moral integrity of defendant and some of his witnesses, we cannot escape concluding that the instruction of the trial justice could be reasonably presumed to persuade the jury that in the court's opinion these persons were not telling the truth and that their testimony was entitled to little or no weight. State v. Sliney, supra.
In all the circumstances, conceding the difficult position that the trial justice was in, along with the entirely reasonable assumption of a predisposition of the jurors to respond to any suggestion questioning the credibility of the defendant, it is our opinion that the interests of justice will be best served if a new trial is ordered.
The defendant's exception to the charge of the court to the jury is sustained, and the case is remitted to the Superior Court for a new trial. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/232920/ | 208 F.2d 682
NATIONAL LABOR RELATIONS BOARDv.D. GOTTLIEB & CO.
No. 10930.
United States Court of Appeals, Seventh Circuit.
December 1, 1953.
A. Norman Somers, Asst. Gen. Counsel, Ivan McLeod, Atty., National Labor Relations Board, George J. Bott, Gen. Counsel, David P. Findling, Associate Gen. Counsel, and Louis Schwartz, Attys., National Labor Relations Board, Washington, D. C., and Dean E. Denlinger, Attys., National Labor Relations Board, Dayton, Ohio, for petitioner.
George L. Siegel, Herman Smith, Chicago, Ill., Allen H. Dropkin, Chicago, Ill., for respondent.
Before DUFFY, FINNEGAN and SWAIM, Circuit Judges.
DUFFY, Circuit Judge.
1
The Labor Board petitions for enforcement of its order dated February 27, 1953. The Board found that the company violated Sec. 8(a)(1) of the National Labor Relations Act, 61 Stat. 136, 29 U.S.C.A., Supp. V, Sec. 151 et seq., by interrogating its tool room employees concerning their union affiliations and by threatening to close the tool room. The Board found further that since this coercion caused the union to lose its majority status, the company remained under an obligation to bargain with the union, and by refusing to do so violated Sec. 8(a)(5) of the Act.
2
The company manufactures amusement devices and employs a total of approximately 200 persons. However, we are here concerned with only the tool room where six men were employed. These tool room employees were under the direct supervision of Foreman Kondor, who in turn was responsible to the plant superintendent, A. J. Jerard. The latter was not an officer or director of the company, but was responsible to and subject to orders issued by David Gottlieb, the president of the company.
3
The tool room was not a necessary adjunct to the company's operations, but was maintained as a matter of convenience. There were occasions in 1948 and 1949 when the space devoted to tool room work could have been utilized more profitably for production purposes. Prior to any union activity, and about April 1, 1951, Superintendent Jerard called together the four toolmakers and the foreman, explaining that business was slow, that in order to keep the tool room operating and in the hope of getting future orders, the company was going to take on a tooling job for the Kellogg Switchboard Company even though he knew that the company would lose money on the contract. He told the men that the company had been utilizing all of the space of the tool room just to keep a few fellows employed, and that it would have been more advantageous if the company had sold the equipment and had used the tool room space for production purposes. The superintendent then asked the tool room employees to put forth their best efforts so that the company would lose as little as possible on the contract. The company started work on the Kellogg contract about April 15, 1951.
4
About April 30, 1951, the company hired one Melohn to work in the tool room. Superintendent Jerard knew at the time Melohn was hired that he was a union man. Melohn immediately began to promote and solicit union membership among the tool room workers. By May 10 all of the nonsupervisory employees, except one, had signed cards designating the union as their bargaining agent.
5
On May 15, 1951, the company received a letter from the union stating that it represented a majority of the tool room employees and requesting a meeting for the purpose of negotiating a contract. This was the first intimation the company officials had of any union activity among the tool room employees. On receiving the letter Superintendent Jerard took it to President Gottlieb who read it and instructed Jerard to verify the claim of the union.
6
The superintendent went to the tool room, called the toolmakers together, and stated that he had received the letter which he held in his hand, and that he would like to know if the union represented them. Giannini, Arthur Jerard, Romano and Schmidt each answered in the affirmative. Kapustka knew nothing about the matter. The superintendent knew that Melohn was already a member of the union. He then sent Melohn and Kapustka back to their work benches at the other end of the tool room, and, addressing himself to the four employees, said that he was rather surprised upon receiving the letter to learn that there was any dissatisfaction or any unrest in the tool room, that the men had been with him for quite a while and he was surprised that they did not come to him if they had any problem. He mentioned that he had trained them from their beginning days in apprenticeship, and that they were coming along very fine, and that if they had any problem they should come in and tell him about it, that the door was always open, and they could talk to him at any time they had a problem. He reminded the employees they were already receiving paid vacations, paid holidays, life and hospitalization insurance, free coffee at lunchtime, and salaries commensurate with their ability. He also reminded them of his previous conversation of about a month and a half or two months previously when he had told them that business was slow and that the company was going to take on an outside job, even though it might cause a loss, and that it was being done to keep the fellows in the tool room busy.
7
On the afternoon of May 15, while Superintendent Jerard was in the tool room, Romano told him that "the fellows had all talked it over and they decided they didn't want to have any part of the union," to which the superintendent replied, "That is up to you to decide." That evening Romano, Schmidt, and Arthur Jerard, at their respective homes, prepared letters of withdrawal which were sent to the union. On May 16 Giannini sent a similar letter to the union which he had prepared at his home. These letters were written without aid, dictation, or assistance from the company. These men testified that no-one helped them write the letters, and that no official of the company had requested that such letters be written. Arthur Jerard testified, in answer to a question as to why he withdrew from the union, "Like it states in the letter I stated I didn't believe it could benefit me by joining the union. I had everything I could have gotten — hospitalization, paid vacations, paid holidays, bonus at Christmastime, and I had a nice job." About May 17 Romano advised the superintendent that the fellows had all withdrawn their applications for union membership.
8
The trial examiner found that under the circumstances the company's refusal to bargain was not a violation of Sec. 8(a)(5) of the Act. The Board reached a contrary conclusion and held there was a violation of both Sec. 8(a)(5) and Sec. 8(a)(1).
9
The entire case against the company is based upon the few remarks of the superintendent at the meeting in the tool room on the morning of May 15. We must consider these remarks in the light of the company's background and attitude toward union activities by their employees. We also keep in mind that the burden is on the Board to prove affirmatively and by substantial evidence the facts which it asserts. National Labor Relations Board v. Reynolds Intern. Pen Co., 7 Cir., 162 F.2d 680, 690.
10
The superintendent did not threaten to close the tool room. The Board seems to have relied, in part at least, on the statement he made to the tool room employees about six weeks prior to any union activity in the shop, about the advantage to the company if it had not chosen to keep the tool room operating even at a loss. Considering the time and circumstances under which that statement was made, there is no substantial evidence in the record before us that the company threatened to close its tool room because of union activities of the tool room employees.
11
The company had no anti-union background. There was no pattern of conduct hostile to unionism. In hiring employees the company had never discriminated against union members and it had never discharged any employee for union activity. No promise of favor or benefit was made to any of the tool room employees as an inducement for them to withdraw from the union.
12
We quote from Sax v. National Labor Relations Board, 7 Cir., 171 F.2d 769, 772: "* * * Stone asked Patton whether she was `for the union,' and upon Patton's response that she was Stone further questioned Patton as to her reasons therefor. * * * when Lucy Arnold and Dorothy Blanks sought to return to their jobs, Stone asked them why they had signed union cards. * * * Stone also asked Dorothy Blanks, `Why didn't you come to us if you wanted to have a union?' Forelady Lynn admittedly addressed a similar question to Goldie Russell * * *." Stone was the production supervisor and on such facts this court said, 171 F.2d at pages 772, 773: "Such perfunctory, innocuous remarks and queries, standing alone as they do in this case, are insufficient to support a finding of a violation of Section 8(1). They come instead within the protection of free speech protected by the First Amendment to the Federal Constitution. * * * Mere words of interrogation or perfunctory remarks not threatening or intimidating in themselves made by an employer with no anti-union background and not associated as a part of a pattern or course of conduct hostile to unionism or as part of espionage upon employees cannot, standing naked and alone, support a finding of a violation of Section 8(1)."
13
In John S. Barnes Corp. v. National Labor Relations Board, 7 Cir., 190 F.2d 127, at page 130, where the company had no anti-union background or pattern of conduct hostile to unionism, this court said: "However, the courts have not considered isolated remarks or questions, which did not in themselves contain threats or promises, and where there was no pattern or background of union hostility, as coercion of the employees and as a violation of § 8(a)(1)."
14
In National Labor Relations Board v. Arthur Winer, Inc., 7 Cir., 194 F.2d 370, 371, the company president had called employees into his office. He used such terms as "how the girls felt about the union" and "what the union had to offer," and asked, "what was going on"? In addition, one employee who received an invitation to a union meeting asked the employer whether she should attend, and was told to do so and see what the union was offering and report. In that case there were no statements derogatory of the union and no threats against employees for union activities. This court, relying on such decisions as the Sax and Barnes cases, supra, refused to enforce the order of the Board.
15
Considering the record as a whole, it fails to reveal substantial evidence to show that the company committed unfair labor practices in violation of Sec. 8(a)(1). The Board's finding that the company refused to bargain in violation of Sec. 8(a)(5) was based in turn on its finding that the company had violated Sec. 8(a)(1). They fall together. As there is no basis in the record before us for the order of the Board, the enforcement of said order is denied. | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/1542049/ | 115 F.2d 1017 (1940)
COOPERATIVE PUB. CO. et al.
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 9438.
Circuit Court of Appeals, Ninth Circuit.
December 3, 1940.
*1018 Geo. H. van de Steeg, of Nampa, Idaho, for petitioners.
Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, F. E. Youngman and Howard D. Pack, Sp. Assts. to the Atty. Gen., for respondent.
Before WILBUR, HANEY, and HEALY, Circuit Judges.
WILBUR, Circuit Judge.
Petitioners seek to review a decision of the Board of Tax Appeals, 40 B.T.A. 466, upon its appeal from the determination of the petitioner's tax by the Commissioner. The question involved arises out of a foreclosure sale of all the assets of the petitioner, tangible and intangible, for $36,600. The Commissioner claims that this sale resulted in a taxable capital gain of $20,944.94. In estimating the gain he allowed no deduction whatever from the sale price for the cost of the intangible assets. The Board held that the presumption in favor of the action of the Commissioner was not overcome by the evidence adduced before it and approved his estimate of gain.
In order to consider the questions involved it will be necessary to state the facts disclosed by the record somewhat at length. There is no dispute in the evidence.
In 1918 the Cooperative Publishing Company, petitioner herein, was organized for the purpose of printing and circulating a daily newspaper at Nampa, Idaho, known as the "Idaho Free Press". The common stockholders invested in the enterprise some $23,645 and the preferred stockholders invested $1,895. These stockholders have never received a penny dividend. In order to conduct the business of the corporation money was borrowed which was secured by a mortgage upon the property of the corporation. This mortgage was foreclosed and the property sold by the sheriff on August 7, 1937, for the sum of $36,600.
The Board of Tax Appeals, in its findings of facts, declared that the purchase price was distributed by the sheriff as follows:
"Sheriff's fees ........................ $ 1,291.15
Principal and interest on second
mortgage ............................. 776.71
Bondholders' principal and interest ... 27,512.39
Publication notices ................... 22.12
Clerks' fees .......................... 7.63
To the petitioner ..................... 6,990.00
__________
Total ............................. $36,600.00"
It found that the number of subscribers to the newspaper on the date of sale was 2,500; that the purchasers continued the publication without omitting an issue and that almost all the subscribers continued their subscriptions after the sale; that the petitioners had always operated at a loss, never declaring dividends; the deficit on December 31, 1936 was $36,383.52; that on December 31, 1937, after applying the proceeds of sale this deficit was $18,738.86; that there were then assets of $11,368.49 and liabilities of $30,107.35, as follows:
"Accounts payable .............. $ 2,618.52
Accrued wages ................. 400.00
Notes payable ................. 1,548.83
Preferred stock ............... 1,895.00
Common stock .................. 23,645.00
__________
Total ....................... $30,107.35"
These figures indicate that when the debts were paid and the preferred stock satisfied from the $6,990 paid to the petitioners by the sheriff, nothing would be left for the common stockholders who had invested $23,645 and received no interest or dividends for a period of about twenty years. The tax fixed by the Board of Tax Appeals for the year 1937 amounted to $4,080.44. The method by which this result was reached was stated by the Board as follows:
"The respondent determined that the petitioner had realized a gain of $22,265.84 by deducting from the sale price of $36,600 an adjusted cost basis of $14,334.16 for tangible assets. He deducted no amounts as the cost of subscription lists or good will. The petitioner's books contain no entries or accounts showing the cost of good will, of acquiring circulation or of *1019 obtaining subscription lists.[1] All expenditures were charged to operating expenses and deducted on the petitioner's income tax returns. The petitioner's ledger account showed the adjusted cost basis of its tangible assets as $14,334.16 and the sale price of its assets as $36,600, producing a net realized gain therefrom amounting to $22,265.84. Expenses of sale, aggregating $1,320.90, reduced the net gain to $21,944.94. The petitioner's income tax return for 1937 showed a deficit of $5,801.39."
It appears from the record that by "adjusted cost basis" is meant the cost of the machinery and equipment, $32,307.83 less the depreciation of $19,850.64 thereon claimed and allowed on previous tax returns of the petitioner, leaving a balance of $12,448.19, and $1,507.06, the cost of the furniture and fixtures, less depreciation claimed and allowed thereon of $869.07, leaving their adjusted cost of $637.99 which, together with news print ink and metal appraised July 31, 1937, at $1,247.98, without depreciation, makes a total adjusted cost of $14,334.16. In the opinion of the Board it is said:
"The basic question relating to the year 1937 is whether or not a taxable gain was realized by the petitioner upon the forced sale of its assets on August 7 of that year. The respondent determined that the petitioner had realized such a gain, amounting to $22,265.84, by subtracting from the purchase price the adjusted cost basis of the tangible assets. In his computation, he ignored such intangible assets as good will, the cost of securing subscriptions, and of increasing circulation, the value of publishing legal notices, etc. He also failed to allow the expense of the sale, amounting to $1,320.90, which he now concedes to be a correct deduction. The net gain in question, therefore, is reduced to $20,944.94.
"The petitioner contends that the cost of the good will and other intangibles was greater than the difference between the adjusted cost basis of the tangible assets and their sale price. The petitioner's books do not support this theory. They contain no account showing any cost of securing subscriptions or increasing circulation or of any other intangible item generally classified as `good will.' The petitioner argues, however, that the stockholders' and bondholders' investments, loans and accounts payable, less depreciation taken, amount to over $38,000 and that, since no dividends were ever paid to the stockholders, its invested capital was used and absorbed to produce and preserve its assets and, consequently, such capital represents the cost of the intangibles, after the adjusted cost of the tangible assets is deducted.
"The fallacy of this argument is manifest from the fact that it gives no consideration to losses incurred in almost 20 years of operation, to mismanagement, and to many other such factors which might retard instead of develop good will. Cost must be proved with reasonable accuracy. In the absence, therefore, of any positive and satisfactory proof of the cost of the intangibles, we must sustain the respondent's action."
The petitioners admit that the books of the corporation do not contain any account showing or attempting to show the cost of the good will. They say:
"The items properly constituting the cost of producing the goodwill do not appear in the record of this case, and whether or not the same could at this date be dug out of the books and records of the corporation with any degree of certainty, the record of this case does not show."
Evidence of Cost of Intangible Assets.
The undisputed evidence relied upon by the petitioners to show the cost and value of good will, subscription lists, etc., is substantially as follows:
Bernard Mainwaring, one of the purchasers at the sheriff's sale, testified that in his opinion at the time of the purchase the physical assets which he purchased were worth no more than $15,000 and that he paid the balance of sale price of *1020 $21,600 for the subscription list, the name, the good will, and the opportunity to get into the newspaper business in Nampa; that he would estimate the value of the good will at the time of the sale as $20,000. He was asked to give an estimate of the cost of obtaining a circulation figure of 2,500 and replied it would cost at least $25,000 and probably more.
J. T. La Fond, a newspaper man of Nampa, Idaho, who had been in the business thirty years, and for 2½ years had managed the petitioning corporation and had for twelve years been connected with it, bid $36,500 at the sheriff's sale. His competitor raised that bid $100 and got the property. He estimated the value of the good will at the time of the sale at between $25,000 and $30,000 and the tangible assets sold at $15,000. He also testified that all the money which the corporation received from all sources went back into the business and was used to produce the assets which were sold by the sheriff; that the company had operated with a deficit from the beginning.
Rufus D. Moore, a public accountant residing in Nampa, Idaho, testified that at various times he had done accounting work for the company. In 1930 he examined the records of the company from its origin to date; that in 1932 he made an audit extending to January 1, 1933, and that he had since examined the records in connection with bonds. He testified he was considered the standing consultant for the bookkeeping and management of the company. He testified there were no specific items showing on the books the cost of good will and no specific entries that would show what the cost was to the company of the production of good will; that no dividends were ever paid, no stockholder ever received back any part of his investment. This witness also testified as follows:
"In view of the fact taken from this report itself [Costello's report] nothing ever having been distributed to the stockholders, shows that the adjusted cost of tangible assets together with the operating cost of building and maintaining intangible assets to be approximately $54,000.00. All assets being sold, both tangible and intangible, for $36,600.00 shows that there was an actual loss from the sale amounting to $18,738.86."
The witness stated that the money received from the sale of assets was merely a partial return of invested capital; that the cost of the intangible assets sold was $41,004.70. In explanation of this latter figure the witness stated:
"The fact that no capital had ever been returned to investors, it is a simple accounting fact that the difference between an opening balance sheet and the closing balance sheet reflects a profit or loss, and in this case it is a loss. * * * the $41,004.70 was not based on records of cash disbursements." He stated the company had never made any money, always been in the red, always had a deficit.
Harry Cochrane, secretary and treasurer of the Caldwell News Tribune at Nampa, Idaho, had been connected with petitioner for two years, and had assisted in the preparation of the tax return wherein the cost of the good will of petitioner had been fixed at $22,265.84, being the difference between the selling price and the value of the fixed assets depreciated. He testified the cost of the good will would be more than that amount and that he used the figure $22,265.84 as the cost of the good will in order to show that there was no gain upon the sale of the capital assets. He stated the company always operated with a deficit and that as early as 1922 they had a deficit of $14,000 which had increased from that time forward.
It will be observed that the foregoing evidence is to the effect that the good will was worth between $20,000 and $25,000, and that it would cost that much to procure a single item of good will, namely the 2,500 subscribers. This testimony was given by a competent newspaper man familiar with the affairs of the paper he purchased and was backed up by a bid in which $21,600 was apportioned to the good will of the business. While the accountants agreed that there was no specific account set up for good will or for the cost thereof, all the moneys received by the company had been invested in the newspaper business, resulting in the paper established for nearly twenty years with a circulation which had grown to 2,500, with an established advertising business, including legal notices, for which about $300 per month was received by the publisher. The stockholders had acquired the good will by the investment which they had made in the corporation. It appears from the record that they have nothing else. It is difficult to escape the conclusion that the cost of the good will, *1021 subscription lists, etc., exceeded the price paid for it. It, however, is not our function to determine the cost of the intangibles. That is a matter for the Board of Tax Appeals. But that a substantial amount should be deducted as a cost thereof is beyond question and the refusal to make some appraisal thereof is arbitrary and unreasonable. Cf. Nachod & United States Sign Co. v. Helvering, 6 Cir., 74 F.2d 164, 167 par. 7, 169 par. 13.
We cannot subscribe to the statement of the Board above quoted that the claim of petitioners to deduction is manifestly fallacious because "it gives no consideration to losses incurred in almost 20 years of operation, to mismanagement, and to many other such factors which might retard instead of develop good will." There is no showing that the corporation suffered any loss in its business other than that resulting from the normal task of establishing a newspaper with a fairly large circulation; there is no evidence of any mismanagement of the corporation, nor of other factors which might retard instead of develop good will. The testimony of the experts who examined the books implies that there was no such mismanagement. Moreover, if expenditures were made for the purpose of creating good will, the fact that they were ill advised and unproductive and may have retarded rather than promoted the desired end, would not alter the fact that such expenditures were a part of the cost of the good will. The views we have expressed are in accord with the decision of Schuh Trading Co. v. Com'r, 7 Cir., 95 F.2d 404, 410, par. 12, 13.
Also, petitioners claim exemption under the provisions of § 14(d) (2) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev. Acts, page 824, which exempts from surtax on undistributed profits "domestic corporations which for any portion of the taxable year are in bankruptcy under the laws of the United States, or are insolvent and in receivership in any court of the United States," etc. It is conceded that the petitioner does not come within the terms of this statute but it is contended that it was insolvent and was virtually in receivership because it might have been placed therein in a foreclosure case, and it is being liquidated by its directors. This position cannot be maintained. In order to claim an exemption the corporation must come within the language of the statute creating exemption.
Petitioners next claim that under § 26(c) (1) of the Internal Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts, page 836, no surtax could be charged because the law of the state prohibited the payment of dividends by the corporations having a deficit (Idaho C.A. §§ 29-129, 29-130). The case of Crane-Johnson Company v. Helvering, 8 Cir., 105 F.2d 740, affirmed by the Supreme Court on November 12, 1940, 61 S. Ct. 114, 85 L.Ed. ___, settles the question adversely to the petitioner. The decision of this court in Northwest Steel Rolling Mills v. Com'r, 9 Cir., 110 F.2d 286, was reversed by the Supreme Court on the same day, 61 S. Ct. 109, 85 L.Ed. ___. We also hold that the execution of a mortgage contract did not constitute a contract not to pay dividends by its implied adoption of the statutory law.
Petitioners contend that inasmuch as the only amount received by it from the sheriff's sale was $6,990, the maximum amount for which it could be taxed upon income is $6,990 under the provisions of 26 U.S.C.A. Int.Rev.Code, § 112(f). We cannot see that this statute has any application to a foreclosure sale. That section deals with the destruction of the property in whole or in part, its theft or seizure, or the exercise of the power of condemnation, or the threat or imminence thereof. The government's contention is that because a portion of the fruits of the sheriff's sale are devoted to the payment of the mortgage indebtedness it does not alter the fact that the purchase price represents a profit to the corporation which is taxable. We concur in this view if such a profit is shown. Income may be realized although not actually received. United States v. Hendler, 303 U.S. 564, 58 S. Ct. 655, 82 L. Ed. 1018; Helvering v. Horst, 61 S. Ct. 144, 85 L.Ed. ___, decided November 25, 1940.
The order of the Board of Tax Appeals is reversed with direction to redetermine the taxable gain resulting from the sale, by allowing as a deduction, the cost of acquiring the subscription list, good will and other intangibles sold by the sheriff, as well as the cost depreciated of the tangible assets, in accordance with its judgment under the evidence, without relying upon the presumption in favor of the Commissioner's finding that such assets had no cost, as that presumption was fully overcome by the evidence. See, Wiget v. Becker, 8 Cir., 84 F.2d 706, 707 § 3; Seaside *1022 Improvement Co. v. Comm'r., 2 Cir., 105 F.2d 990, 993 § 8; New York Life Ins. Co. v. Gamer, 303 U.S. 161, 58 S. Ct. 500, 82 L. Ed. 726, 114 A.L.R. 1218.
Reversed.
NOTES
[1] "Art. 22 (a)-10. Sale of good will. Gain or loss from a sale of good will results only when the business, or a part of it, to which the good will attaches is sold, in which case the gain or loss will be determined by comparing the sale price with the cost or other basis of the assets, including good will. (See articles 111-1, 113 (a)(14)-1, 113 (b)-1, and 113 (b)-2. If specific payment was not made for good will there can be no deductible loss with respect thereto, but gain may be realized from the sale of good will built up through expenditures which have been currently deducted. It is immaterial that good will may never have been carried on the books as an asset, but the burden of proof is on the taxpayer to establish the cost or other basis of the good will sold." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2318985/ | 34 A.3d 826 (2011)
COM.
v.
HAIRSTON[8].
No. 407 WAL (2011).
Supreme Court of Pennsylvania.
November 30, 2011.
Disposition of Petition for Allowance of Appeal Denied.
NOTES
[8] Justice ORIE MELVIN did not participate In the consideration or decision of this matter. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1646240/ | 9 So.3d 576 (2007)
KARYS DONTRICIA MURRAY
v.
STATE.
No. CR-05-1048.
Court of Criminal Appeals of Alabama.
June 28, 2007.
Decision of the Alabama Court of Criminal Appeal Without Opinion. Dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3034455/ | FILED
NOT FOR PUBLICATION MAR 04 2010
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 07-10576
Plaintiff - Appellee, D.C. No. CR-06-00013-RLH
v.
MEMORANDUM *
PATRICK JOHNSON,
Defendant - Appellant.
Appeal from the United States District Court
for the District of Nevada
Roger L. Hunt, Chief District Judge, Presiding
Submitted February 16, 2010 **
Before: FERNANDEZ, GOULD, and M. SMITH, Circuit Judges.
Patrick Johnson appeals from his guilty-plea conviction and 188-month
sentence for possession of a controlled substance with intent to distribute --
cocaine base, in violation of 21 U.S.C. § 841(a)(1), (b)(1)(B)(iii). Pursuant to
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
SR/Research
Anders v. California, 386 U.S. 738 (1967), Johnson’s counsel has filed a brief
stating there are no grounds for relief, along with a motion to withdraw as counsel
of record. We have provided the appellant with the opportunity to file a pro se
supplemental brief. He has filed a supplemental brief, but no answering brief has
been filed.
Our independent review of the record pursuant to Penson v. Ohio, 488 U.S.
75, 80-81 (1988), discloses no arguable grounds for relief on direct appeal.
Accordingly, counsel’s motion to withdraw is GRANTED. Johnson’s
request to strike the Anders brief and appoint new counsel is DENIED. The
district court’s judgment is AFFIRMED.
SR/Research 2 07-10576 | 01-03-2023 | 10-13-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1570478/ | 298 S.W.2d 581 (1957)
Howard FLETCHER, Appellant,
v.
The STATE of Texas, Appellee.
No. 28628.
Court of Criminal Appeals of Texas.
January 9, 1957.
*582 Kelley, Looney, McLean & Littleton, Charles F. Weaver, Edinburg, for appellant.
James S. Bates, Criminal Dist. Atty., Edinburg, Leon B. Douglas, State's Atty., Austin, for the State.
MORRISON, Presiding Judge.
The offense is driving while intoxicated; the punishment, 90 days in jail and a fine of $50.
Highway Patrolman Solomon testified that at approximately 2:14 P.M. on the day in question, in response to a call, he went to a filling station located approximately a mile from the international bridge in the city of Hidalgo and there observed the appellant seated in the driver's seat of an automobile. He stated that he could smell a strong odor of alcohol about the appellant, noticed that his eyes were bloodshot, his hair "rumpled up" and his clothes disarranged, that he staggered when he walked, and concluded that he was intoxicated. The appellant and his companion were arrested, the companion placed in the city jail, and the appellant carried to the hospital, where a specimen of his blood was taken with his consent and, when analyzed, showed that it contained .255 per cent of alcohol.
Expert opinion testimony was introduced to show that such percentage of alcohol in the blood would indicate intoxication. In this connection, attention is directed to the findings of the American Medical Association as set forth in our opinion in Jones v. State, 159 Tex. Crim. 29, 261 S.W.2d 161.
Plant Quarantine Inspector Dunn and U. S. Customs Collector Moreno testified that the appellant drove his automobile across the international bridge at approximately 2:00 P.M. on the day in question and his automobile was inspected by them. Dunn stated, "* * * I think I can tell when a man is drunk, just from my experience, and in my opinion the man was intoxicated." Dunn called the McAllen police as the appellant drove away.
The appellant, testifying in his own behalf, stated that he had driven a friend to Mexico to buy a bottle of Tequila, that he had two tequila sours while in Mexico, and then drove back to the filling station where he was arrested. He stated that he and his friend sat in his automobile at the filling station "something like twenty-five minutes" and partook of the contents of the bottle of tequila. Appellant admitted that his companion was intoxicated but denied that he was as he crossed the international bridge.
The appellant has filed a lengthy brief in which he advances a great many contentions, some of which he admits he has been unable to find authority to support.
His first contention is that the arrest of the appellant was illegal because the arresting officer did not see the appellant drive his automobile. The officer had the authority, and it was his duty, to arrest the appellant for being drunk in a public place. Article 212, Vernon's Ann.C.C.P.; Cook v. State, 155 Tex. Crim. 580, 238 S.W.2d 200; Morgan v. State, 159 Tex. Crim. 231, 262 S.W.2d 713; Rent v. State, 160 Tex. Crim. 326, 268 S.W.2d 674. The fact that the officer thought that he was then in possession of sufficient information to authorize him to arrest the appellant for driving while intoxicated could not affect his authority or his duty to arrest for being drunk in a public place.
The conclusion thus reached obviates the necessity of discussing the appellant's next contention that the evidence concerning the blood test was inadmissible because of the illegality of the arrest.
Appellant next contends that the court erred in not declaring a mistrial when officer Solomon told the jury that the appellant at first refused to take a blood test. Had there been no further evidence on the matter, a serious question would have been presented, but, in view of Solomon's *583 later testimony that the appellant did some time later give his consent in writing to the making of the test, no error is presented. Error is often cured by subsequent testimony.
Appellant's complaint concerning the court's charge cannot be appraised in the absence of any type of bill of exception raising the same.
Appellant next contends that the court erred in permitting the witness Dunn to give an opinion as to the appellant's state of intoxication. The witness had given his opinion before the objection was made, and no motion was made requesting the jury to be instructed to disregard the evidence which had already been introduced. In the absence of such a motion, no error is reflected by this bill.
Appellant complains because of the failure of the court to charge the jury on the law of circumstantial evidence.
The witness Dunn stated that in his opinion the appellant was intoxicated as he drove off the international bridge. The appellant admitted driving from the bridge to the filling station. These facts take this case out of the circumstantial evidence rule.
The appellant contends that the failure of the State to make inquiry of their witness Moreno as to the appellant's intoxication would authorize this Court to treat this case as one evidencing a reasonable doubt as to the sufficiency of the evidence to support the conviction under the rule of the majority opinion in Ramirez v. State, Tex.Cr.App., 289 S.W.2d 251.
Recently, in Parker v. State, Tex.Cr.App., 294 S.W.2d 120, 121, we said:
"In the Ramirez case it was shown that at the time the blood test was made the appellant had .13 percent of alcohol in his blood, and by a process of deduction that the appellant had .18 percent of alcohol at the time of the collision. The standard accepted by the American Medical Society to indicate intoxication is .15 percent.
"In the case at bar it was shown that at some time after the collision the appellant had .26 percent of alcohol in his blood."
We have concluded that the Parker case is here applicable and controlling.
Finding no reversible error, the judgment of the trial court is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570484/ | 298 S.W.2d 883 (1957)
W. G. TALBOTT, Appellant,
v.
Florence HOGG et al., Appellees.
No. 6642.
Court of Civil Appeals of Texas, Amarillo.
February 11, 1957.
*884 Culton, Morgan, Britain & White, Amarillo, for appellant.
Wilson & Wilson, Wichita Falls, Earl E. Miller, Dallas, for appellees.
PITTS, Chief Justice.
In the language of plaintiffs themselves, who have appealed, "This is a suit to establish an interest under a parol trust and for partition of land situated in Armstrong County, Texas." A partition of the land depends wholly upon the establishment of plaintiffs' claimed interest by parol trust.
"Perhaps there is no fact which, in the trial of civil causes, is required to be so satisfactorily proved as that which engrafts a parol trust upon the legal title. 1 Perry on Trusts, sec. 136, and authorities just cited.
"Whilst it is not necessary that it should be established beyond a reasonable doubt, nothing must be left to conjecture, nor must presumptions be indulged which are not the usual and almost necessary deductions from the facts proved." King v. Gilleland, 60 Tex. 271, 274.
In such cases the burden of proof is upon claimants to establish the asserted trust "by evidence that is clear, satisfactory and convincing and nothing left to conjecture." Little v. Williams, Tex.Civ.App., 272 S.W.2d 409, 413, and other authorities there cited. To impress a parol trust "the evidence must be "clear, satisfactory and convincing.'" Collins v. Collins, Tex.Civ. *885 App., 154 S.W.2d 210, 214, and other authorities there cited.
Plaintiffs, Walter Hogg and wife, Florence Hogg, Deola Henson and wife, Ester Henson, and Thelma Landrum and husband, Graddie Otis Landrum, filed suit against defendants, Hattie Waugh and husband, Al Waugh, Georgia Anderson, a widow, Willie Janzig, a widow, Bertha Talbott, a widow, and William Garland Talbott, a son of Bertha Talbott, seeking to establish that a parol trust had been engrafted upon a certain deed conveying Section 12, Block 4, B.S. & F. Survey in Armstong County, Texas. Plaintiffs alleged in effect that the said section of land came into possession and ownership of Mrs. Amy Hogg Barnett, formerly Mrs. Amy Henson, by virtue of a title certificate No. 1806, issued by the State of Texas; that on May 21, 1936, Mrs. Amy Hogg Barnett deeded the said section of land by a warranty deed to her four daughters, namely Mrs. Bertha Talbott, Mrs. Hattie Waugh, Mrs. Georgia Anderson and Mrs. Willie Janzig, to share equally therein for a consideration of $10, of love and affection she had for her said daughters, and upon a further consideration that her said daughters as grantees would assume payment of the purchase money indebtedness to the State of Texas and that the grantor retain all rents, revenues and benefits accruing from the said land during her lifetime; that thereafter on April 29, 1943, Bertha Talbott conveyed all of her one-fourth interest in the said land to her son, William Garland Talbott, for a consideration of $10 and her love and affection for him; that thereafter on June 22, 1954, Amy Hogg (Henson) Barnett died. Plaintiffs further alleged in effect that at the time Amy Hogg Barnett executed the deed of date May 21, 1936, as grantor conveying the said land to her said four named daughters as grantees, it was agreed by and between the said grantor and grantees that the record title to the said land would be held by the said grantees in trust until the death of grantor, Amy Hogg Barnett, for the benefit of all of grantor's children to share equally thereafter, and that William Garland Talbott had knowledge of such agreed trust at the time his said mother conveyed her interest in the said land to him; that Amy Hogg (Henson) Barnett had seven children, namely Walter C. Hogg, Deola Henson, Hattie Waugh, Bertha Talbott, Georgia Anderson, Willie Janzig and Jessie Miller; that Jessie Miller had previously died intestate leaving as her heir Thelma Landrum, who is one of the plaintiffs in the suit. Although the plaintiffs pleaded that Thelma Landrum was the daughter and heir of Jessie Miller who was a daughter of Amy Hogg (Henson) Barnett, there was no proof whatever offered of such heirship or that Thelma Landrum was a descendant of Jessie Miller or that either one of them was a descendant of Amy Hogg (Henson) Barnett. Consequently, Thelma Landrum and husband, Graddie Otis Landrum, are precluded from recovery of any kind in any event in this action for that reason alone.
Defendant Bertha Talbott filed a disclaimer of date October 27, 1955, denying that she owned, held or claimed any interest in the land in question and asserted that she had previously conveyed all of her interest in the said land by warranty deed to her son, William Garland Talbott, on April 29, 1943. By pleadings duly filed, the other defendants joined issues with plaintiffs. Defendants Georgia Anderson and William Garland Talbott further pleaded a cross action for recovery of title to the land in question but it seems they abandoned it during the trial and have relied solely on their general denial and prayer asking that plaintiffs be allowed no recovery because no evidence of a parol trust had been presented. In its judgment the trial court made no reference to such cross action and no complaint has been made here about its failure to mention such.
The case was tried to a jury but after the evidence was heard, all parties except defendant Bertha Talbott, asked for an instructed verdict, each party against the other. The trial court sustained the motion *886 of defendants Georgia Anderson, Willie Janzig and Hattie Waugh and husband, Al Waugh, as against all of the plaintiffs and accordingly denied all of the plaintiffs any recovery as against these said defendants. The trial court likewise sustained the motion of plaintiffs as against defendants Bertha Talbott and William Garland Talbott and awarded judgment against the said two named defendants and on behalf of the plaintiffs for an undivided 3/28 of the section of land in question, awarding 1/28 undivided interest in the said land to Thelma Landrum and 1/28 undivided interest in the same to Florience Hogg and 1/28 to Ester Henson, such awards being made to the latter two because their husbands had previously deeded their respective interests in the said land to their respective wives. The trial court rendered and entered its judgment accordingly and soon thereafter rendered and entered a second judgment in lieu of its first judgment in order to make some minor changes, about which no complaints are here made and the second judgment was made final and is therefore the basis for our consideration here. William Garland Talbott perfected an appeal because of that part of the judgment rendered against him and all of the plaintiffs prefected an appeal because of that part of the judgment rendered against them.
In our opinion the controlling question to be here determined is whether or not there was sufficient evidence of probative force to raise an issue of whether or not there had been an agreement made between grantor and the grantees of the warranty deed at the time it was executed on May 21, 1936, to engraft a parol trust upon the said deed, by which parol trust the grantees were required to hold the said land in trust until the death of grantor, after which the same was to be divided equally between all of the children of grantor. Plaintiffs had so asserted and the burden was therefore upon them to establish their claims by "clear, satisfactory and convincing evidence with nothing left for conjecture."
Plaintiffs offered in evidence the warranty deed last herein mentioned of date May 21, 1936, by which Mrs. Amy Hogg Barnett, formerly Mrs. Amy Henson, conveyed the land outright for a valuable consideration to her four named daughters and there was no mention made directly or indirectly of a trust of any kind by the use of any language found in the deed. The said deed was filed for record on May 28, 1936, and duly recorded in Volume 40, page 378, Deed Records of Armstrong County, Texas. Plaintiffs also offered in evidence the warranty deed of date April 29, 1943, by which Bertha Talbott, one of the grantees in the other deed mentioned, conveyed her one-fourth undivided interest in the land in question for a valuable consideration to her son, William Garland Talbott, and there was no language therein used indicating the existence of a trust of and kind. That deed was filed for record on April 30, 1943, and recorded in Volume 46, page 385 of the Deed Records of Armstrong County, Texas. They likewise established by proof the death of Amy Hogg Barnett on June 22, 1954. Plaintiffs then called their adversaries, defendants herein, Hattie Waugh, Georgia Anderson and Willie Janzig, each to the witness stand and proved by each of them in effect that the deed executed by their mother conveying to them the section of land in question was drawn by Judge W. F. Moore in his office at Paris, Texas, with only himself, their mother as grantor and the four daughters as grantees present and that nothing was there said at that time or at any other time by anybody about a trust of any kind being engrafted upon the deed and that there was no agreement at any time made between the grantor and the grantees about a trust of any kind. They further testified that the grantees at no time promised their mother that the land would be held in trust for all of her children and that the grantees each paid to the State of Texas her part of the balance due on the purchase price of the land in question as *887 provided for as a part of the consideration in the deed. The said defendants were each called as witnesses again later to testify in their own behalf and then and there confirmed their testimony previously herein referred to. Mrs. Hattie Waugh further testified that on the occasion when the deed was drawn her mother, the grantor, told Judge Moore and all of the grantees that she wanted the four girls to have the section of land in question because "the boys had already gotten their part," and she further said that "the girls had never had a dime of it." Of course, the plaintiffs were not bound by the adverse testimony given by the said defendants when such was elicited by plaintiffs who called them to the stand for cross examination but the material testimony there given by the said three defendants to the effect that no trust agreement had ever been made was never controverted according to the record before us by any evidence of probative force offered.
Plaintiffs sought to establish their claims by offering in evidence a copy of a certain request for admissions as allegedly provided for under Rule 169, Texas Rules of Civil Procedure, and mailed to Bertha Talbott's attorney on March 22, 1956, after she had disclaimed in the suit on October 27, 1955, and claiming that such request for admissions was admissible against all defendants because Bertha Talbott did not answer and return or file any answers to any of the questions propounded to her. No such requests for admissions or any other kind were presented by plaintiffs to any of the other named defendants in the case. Nevertheless, plaintiffs insisted and still insist that the request for admissions sent to defendant Bertha Talbott, who had previously disclaimed, was admissible against all defendants and the same was offered for such purpose several times. Such was excluded by the trial court as against all defendants except Bertha Talbott, to whom it was sent through her attorney. Finally, when plaintiffs sought to read to the jury the said request for admissions made to Bertha Talbott during the trial, objection was again made by adverse counsel when the court said (S. F. 35):
"I sustain the objection. Bertha Talbott is not a party to this suit at this date; she has disclaimed."
Plaintiffs complain in this court because the trial court refused to admit the said request for admissions made only to Bertha Talbott as against all defendants, contending that such would have had a tendency to prove their claims of the existence of a parol trust and that the trial court erred in not admitting the same as against all defendants. In an effort to support their contentions, plaintiffs cite authorities which we do not believe support their contentions here made. One such authority so cited by plaintiffs refutes their contentions here made. We refer to the case of Sanchez v. Caroland, Tex.Civ.App., 274 S.W.2d 114, 116. In that case there were two defendants and a request for admissions was served upon defendant Vallin who answered them but no such request was made of defendant Sanchez. The court there said in part:
"Though Vallin admitted that he drove the truck to the point in question and stopped it there, we cannot, merely because of Vallin's admission, consider that as evidence against Sanchez. Should we do so we would be holding that Vallin was Sanchez' agent for the purpose of making admissions against Sanchez' interest. Vallin had no such authority. Only Sanchez, or someone having such authority from him, could make an admission against his interest."
In the case at bar no showing was made that Bertha Talbott was an agent of the other defendants or had any authority to represent any of them. Such being true, the rule announced in that case by the court applies to the facts in the case at bar.
In the case of Krasa v. Derrico Tex. Civ.App., 193 S.W.2d 891, 893, a request *888 for admissions was made to defendant Mrs. Mable M. Krasa, and no answer was made to such a request. The court there held that such a request for admissions was admissible only as against Mrs. Krasa individually but not against her as community survivor or executrix of an estate there involved because such a request was made of her only individually and not in her capacity otherwise. Such is the rule generally for which reason we think the trial court in the case at bar properly limited the introduction of the request for admissions made by Bertha Talbott as against her only and, as observed by the trial court, such was of no value as against her since she had long previously disclaimed.
There is another reason why the request for admissions made by Bertha Talbott was not admissible in the case at bar. Plaintiffs contend that the admissions were admissible because they showed Bertha Talbott admitted by an affidavit attached thereto of date July 6, 1954, that an oral parol trust was agreed to by the grantor of the deed of date May 21, 1936, and the grantees thereof as claimed by plaintiffs. The record conclusively reveals that if Bertha Talbott made any such statement such was made on July 6, 1954, long after she had by a warranty deed of date April 29, 1943, conveyed all of her interest in the land in question to her son William Garland Talbott, a co-defendant herein, as a result of which she had no interest in the land as reflected by her disclaimer filed in the case. Consequently, any statement then made by her was not admissible She could not then as a grantor "impeach the title" to the land she had previously conveyed to her said son. Luter v. Rose, 20 Tex. 639, 649. "That the declaration of a grantor made after the execution of his deed should be received in evidence to destroy the deed he had made is against reason and against law, and it is especially so in the case of a husband denouncing the title of his wife." DeGarca v. Galvan, 55 Tex. 53, 57. If such is "especially so" as between a husband and wife such should be especially so as between a mother and son as is shown to be true in the case at bar. Such a rule is observed in the following cases of Grooms v. Rust, 27 Tex. 231, 232, 239; Hinson v. Walker & Co., 65 Tex. 103, 106; Smith v. McElyea, 68 Tex. 70, 3 S.W. 258, 260; Bullock v. Smith, 72 Tex. 545, 10 S.W. 687, 688; Hooks v. Neill, Tex.Civ.App., 21 S.W.2d 532, 539 (writ refused); Simonds v. Standolind Oil & Gas Co., 134 Tex. 332, 114 S.W.2d 226, 235; Condra v. Grogan Mfg. Co., Tex.Civ. App., 228 S.W.2d 588, 599, affirmed 149 Tex. 380, 233 S.W.2d 565. The last case cited says in part:
"A grantor is not permitted by declaration or statements made by him after he has conveyed land to defeat or disparage the title that he has conveyed. Simonds v. Stanolind Oil & Gas Co., 134 Tex. 332, 114 S.W.2d 226; Hooks v. Neill, Tex.Civ.App., 21 S.W.2d 532; Barnard v. Blum, 69 Tex. 608, 7 S.W. 98."
Plaintiffs further complain here because they sought to no avail to establish their claims by offering in evidence separately and alone the ex parte affidavit executed by Bertha Talbott on July 6, 1954, and attached to the request for admissions mailed to her on March 22, 1956, heretofore referred to and it alone was properly excluded as evidence by the trial court under the record and all of the authorities previously cited in the last paragraph immediately preceding this one.
Plaintiffs next complain because the trial court excluded from evidence a letter written purportedly by Mrs. Amy Hogg (Henson) Barnett to plaintiffs Walter Hogg and Wife, Florence Hogg, on July 14, 1936, some 54 days after she had executed the warranty deed of date May 21, 1936, conveying the section of land in question to her four daughters who are defendants herein. Plaintiffs contend that at least a part of the language used in the said letter would held to establish the alleged *889 parol trust they claim existed. In our opinion the trial court properly excluded the said letter as evidence for the same reason and under the same authorities by which Bertha Talbott's ex parte affidavit was excluded. Mrs. Amy Hogg (Henson) Barnett must not be permitted to impeach, defeat or disparage the land title she had previously conveyed or the terms of the warranty deed she had previously executed. Under the authorities cited the rights of the parties were fixed when the deed was executed by Mrs. Amy Hogg (Henson) Barnett for a valuable consideration on May 21, 1936, and some letter she may have written several weeks thereafter could not have changed the express terms of the deed. Plaintiffs claim that the letter was admissible as res gestae but under the record before us and the law governing such we do not think the letter written 54 days after she executed the deed was admissible as res gestae. Emerson v. Mills, 83 Tex. 385, 18 S.W. 805; Dallas Hotel v. McCue, Tex.Civ.App., 25 S.W.2d 902, 906; Ray v. Gage, Tex. Civ.App., 269 S.W.2d 411, 419; 17 Tex. Jur. 623, Sec. 262. A res gestae statement must have been made under such circumstances as will raise a reasonable presumption that the same was a spontaneous utterance of thoughts created by or springing out of the transaction itself. Plaintiffs complain particularly because the trial court would not admit an isolated statement found in the letter to the effect that "Walter will get his part with the girls." In our opinion no part of the letter was admissible as evidence, particularly not admissible for the purpose offered. In any event the letter was not well written and contained little continuity. It could, therefore, give little information without its terms having to be orally explained. If it had been admitted in its entirety as evidence it would have little if any probative force concerning any matter and certainly its contents would not have had any tendency to prove any material fact in this case.
Plaintiffs presented and relied upon the testimony of Mrs. Henry (Belle) White who testified that Mrs. Hattie Waugh and husband, Al Waugh, and her mother, Mrs. Amy Hogg (Henson) Barnett, stayed at her home for some time during the year 1940, during which time she repeatedly heard Mrs. Waugh and her mother talking about a deed, the farm, a promise that had been made, Mrs. Barnett's Children, and that all of the heirs should be taken care of, but she did not know how many heirs there were and that she did not know what was said by Mrs. Barnett and her four daughters at the time the deed of date May 21, 1936, was signed by Mrs. Barnett, which deed had been executed some four years prior to the related conversations the witness said she heard. Some of the testimony of the witness relied upon by plaintiffs was excluded by the trial court as a result of objections made by counsel for their adversaries and no point or assignment of error has been presented here complaining about such testimony having been excluded by the trial court. Therefore plaintiffs have waived any right to complain about the exclusion of such testimony and in any event the testimony excluded is not available to them. After reading and re-reading all of the testimony given by the witness, Mrs. White, we do not find any testimony of probative force that would raise an issue of the making of any kind of an agreement between Mrs. Amy Hogg (Henson) Barnett as grantor and her four named daughters as grantees of the deed in question at the time it was executed, or raising an issue about a parol trust or any other kind of a trust being agreed to between the said parties at the said time. We find no testimony given by this witness by which a jury could even conjecture that the said parties had agreed to engraft a parol trust upon the said deed in question at the time it was executed. In fact, we find no evidence of probative force anywhere in the record sufficient to raise an issue in support of plaintiffs' claims to the effect that *890 by agreement of the parties a parol trust was engrafted upon the deed in question. Certainly there is no evidence in the record clear, convincing and satisfactory enough to raise such an issue. Under the record presented there could have been nothing for a jury to consider except by conjecture or speculation. The testimony given by the witness, Mrs. White, concerning conversations she had heard between Mrs. Hattie Waugh and Mrs. Amy Hogg (Henson) Barnett was hearsay as to defendants William Garland Talbott and Mrs. Georgia Anderson who were not present at the time and was therefore not admissible in any event as against these said defendants.
There is no evidence in the record showing that plaintiffs Walter Hogg or Deola Henson had ever acquired any interest whatever in the section of land here involved, although they did execute quitclaim deeds to their mother for the said section of land before their mother executed the warranty deed of date May 21, 1936, conveying the same to her daughters, and the said plaintiffs each later conveyed by a deed all of the said section of land to their wives respectively after their mother had conveyed the said section of land to her four daughters. None of these said deeds executed by the said plaintiffs have any force of effect on the issues presented in the case. Consequently it appears from the record that plaintiffs failed to discharge the burden of presenting competent evidence to even raise an issue in support of their claims of a parol trust. There being no parol trust in existence, plaintiffs have failed to show any interest in the land or any grounds for a partition of the land.
For the reasons stated that part of the trial court's judgment denying plaintiffs any recovery against defendants Georgia Anderson, Willie Janzig and Hattie Waugh and husband, Al Waugh, is affirmed but that part of the trial court's judgment awarding plaintiffs recovery against defendant William Garland Talbott is reversed and judgment is here rendered denying plaintiffs any recovery against the said defendant, William Garland Talbott. In fact, plaintiffs have failed to raise an issue for recovery against any of the defendants but defendant Bertha Talbott failed to perfect an appeal and is not before this court. However, she disclaimed and we think because of such the trial court properly stated during the trial that "Bertha Talbott is not a party to this suit" although under the record she was not dismissed from the suit and judgment was rendered against her and for plaintiffs. Nevertheless it will be difficult to satisfy a judgment rendered for recovery of land as against a party defendant who, under the record, owns no interest in the said land. Affirmed in part and reversed and rendered in part. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917508/ | 993 A.2d 39 (2010)
413 Md. 384
Norman C. USIAK
v.
STATE of Maryland.
No. 75, September Term, 2009.
Court of Appeals of Maryland.
April 15, 2010.
*40 Paul Victor Jorgensen of Middletown, MD (Norman C. Usiak of Frederick, MD) on brief for Petitioner.
Kendra Y. Ausby, Assistant Attorney General (Douglas F. Gansler, Attorney General of Maryland, of Baltimore, MD) on brief for Respondent.
Argued before BELL, C.J., and HARRELL, BATTAGLIA, GREENE, MURPHY, ADKINS and BARBERA, JJ.
HARRELL, J.
A judge of the District Court of Maryland, sitting in Frederick County, entered an order finding Norman C. Usiak, Esquire, in direct contempt. Usiak appealed to the Circuit Court for Frederick County, which vacated the order and remanded the matter to the District Court on the basis that the initial order failed to comply with the mandates of Maryland Rule 15-203. The District Court, almost three months after its initial defective order, entered a corrected order and Usiak again appealed to the Circuit Court. The Circuit Court, finding that Usiak's conduct constituted contempt, affirmed the order. For the reasons that follow, we reverse the judgment of the Circuit Court and remand with directions to vacate the corrected order of contempt and dismiss the contempt action. The Circuit Court erred in affirming the second contempt order.
FACTS[1]
On 15 May 2008, Usiak appeared in the District Court of Maryland, sitting in Frederick County, as defense counsel for Ruben Paz-Rubio, who was scheduled to go to trial that day on a criminal charge of driving without a license.[2] When the case *41 was called for trial, Usiak, with the acquiescence of the prosecutor, requested a continuance. The court denied the continuance request, but agreed to "pass" the case until later in the day. When the case was called again, the Assistant State's Attorney moved to place the case on the stet docket[3] "based on some evidentiary problems in th[e] case...." The court inquired why the State wished to stet the case. Usiak, apparently believing that the court had no authority or discretion other than to grant the State's motion, interrupted the colloquy between the court and the prosecutor. The following ensued between the court, the prosecutor, and Usiak:
MR. USIAK: We have no objections to [a stet] being entered, Your Honor. If we may be excused?
COURT: No, you may not. This case is being heard Mr. Usiak. I'm asking the Prosecutor a question.
MR. USIAK: I object to the question, Your Honor.
COURT: Well you can object if you want
MR. USIAK: According to the Rule [4-248], I believe it's, I believe it's a decision by the Prosecutor
COURT: I think it's a decision by the Court
MR. USIAK: To enter a stet
COURT: To grant the stet, it's a motion.[4]
MR. USIAK: Not when it's not objected to by the defense, Your Honor.[5]
COURT: No, Mr. Usiak, you are wrong.
MR. USIAK: No.
COURT: Mr. State?
[PROSECUTOR]: Your Honor it would be based on the stop in this case. It's an interesting set of facts
MR. USIAK: If we may be excused, Your Honor?
COURT: No, Mr. Usiak, this case is being heard.
MR. USIAK: I mean no disrespect to you.
COURT: Well, you're being disrespectful.
MR. USIAK: Well, I don't mean to be.
COURT: We are not concluded yet, Mr. Usiak.
MR. USIAK: I am Your Honor and I believe that the State
COURT: Mr. Usiak, the
MR. USIAK: By making the motion
COURT: And the Court is not
MR. USIAK: Has concluded the case.
*42 COURT: Has not ruled, Mr. Usiak. You're being rude and disrespectful.
MR. USIAK: I don't mean to be disrespectful, but I don't believe it's the Court's providence
COURT: Well then just wait until we are concluded.
MR. USIAK: I don't believe it's the Court's providence to make an objection to the State's placing the matter on the stet docket.
COURT: I'm not objecting. I don't have to grant the stet. Without the Court's granting, there is no stet.
MR. USIAK: Let me just add again, Your Honor, we have no objection to that.
COURT: [Assistant State's Attorney], if you don't want to prosecute this case, nol-pros[6] it, I'm not putting it on the stet docket.
MR. USIAK: If we may be excused, Your Honor?
COURT: No, you may not be excused.
MR. USIAK: I believe the case is concluded.
COURT: The case is not concluded, Mr. Usiak. It's not postponed, it's not stetted. Does the State wish to nol-pros the case [Assistant State's Attorney]?
[PROSECUTOR]: No Your Honor.
COURT: All right. Well, Mr. Usiak, what's your client's plea. [sic]
MR. USIAK: Your Honor, we believe that the case has been stetted. We have no objection. I believe
COURT: The case has not been stetted, Mr. Usiak, unless you are rewriting the rules
MR. USIAK: There are appropriate mechanisms
COURT: Unless you are rewriting the rules, the Court's not granted the stet. So the Statethe case is open
MR. USIAK: It's not within the providence of the Court.
COURT: It is the Court's providence, Mr. Usiak. I think you better sit down and read the rules.
MR. USIAK: No, Your Honor I, I, we're leaving, Your Honor. Excuse me.
COURT: We are going to pass this case until you decide what to do. The case is passed. It is not off the docket, Mr. Usiak. Sir have a seat in the courtroom. Mr. Usiak, your client is staying; the case is not concluded. You can hear me. You're in contempt.
For the record, Counsel for the Defendant has walked out of the courtroom while the case was not concluded and simply passed for a decision; that's under Rule 15-203. This case is not over [Assistant State's Attorney].[7]
STATE: Thank you Your Honor.
After hearing other matters, the court resumed the Paz-Rubio case:
*43 COURT: Is Mr. Ruben Paz-Rubio in the courtroom? Mr. Interpreter you want to call for him please [sic].
INTERPRETER: Senor Ruben Paz-Rubio [are you present (in Spanish)]? (Pause) No response, Your Honor.
COURT: All right, thank you. For the record, this case was called earlier. Mr. Usiak, who represents the Defendant was rude and disrespectful, arguing with the Court over an issue regarding the Court's refusal to stet this case. The Court has found Mr. Usiak in contempt of court, direct contempt of court, for interrupting with the flow of the Court's judicial proceedings. Mr. Usiak has elected not to come back to court. The Court is sanctioning him in the amount of a two hundred and fifty dollar fine.
With regard to his client, who was told to stay in the courtroom because this case was not completedMr. Interpreter, did you tell Mr. Paz-Rubio that he was to stay?
INTERPRETER: I did tell him to stay Your Honor.
COURT: The Court is issuing a bench warrant for his arrest for not staying in the courtroom after being ordered to stay here until his case was finished. Bond is set in the amount of five hundred dollars. All right, thank you.
[PROSECUTOR]: Thank you Your Honor.
On 22 May 2008, the District Court judge entered a written order of contempt against Usiak. The Order stated merely that the court found him in direct contempt and referred to findings made on the transcript record of the 15 May 2008 proceedings.
Usiak appealed to the Circuit Court for Frederick County. After a hearing, the Circuit Court vacated the 22 May 2008 order of contempt on the ground that the order did not comply with Maryland Rule 15-203[8] in that the order did not specify
*44 (1) whether the contempt is civil or criminal in nature and (2) the evidentiary facts known to the Court from the judge's own personal knowledge as to the conduct constituting the contempt and as to any relevant evidentiary facts not so known, the basis of the court's findings.
The Circuit Court remanded the matter to the District Court.
On 11 August 2008, almost three months after the original contempt order was entered, the District Court judge entered a second, corrected order of contempt against Usiak. The order stated that the judge found Usiak to be in direct criminal contempt of court and summarized the facts giving rise to the contempt charge:
On May 15, 2008, [I] attempted to conduct a trial in the underlying case. Upon the case being called for trial, the State's attorney moved to have the matter placed on the STET docket. Mr. Usiak noted that his client did not object; however, the Court denied the State's motion and attempted to proceed with the trial. Mr. Usiak refused to proceed with the trial, incorrectly advising the Court that it did not have the authority deny [sic] the motion for STET. Despite the Court's advice to the contrary, Mr. Usiak persistently asserted that the Court could not deny the motion and requested to be excused. Twice, during the hearing, the Court admonished Mr. Usiak that he was being disrespectful. Six times, the Court advised Mr. Usiak that he could not be excused and that the hearing had not concluded. Notwithstanding, Mr. Usiak stated "No Your Honor I, I, we're leaving, Your Honor. Excuse Me." and [sic] proceeded to walk out of the courtroom. The Court called out to him as he was leaving, but he did not respond.
(Internal citations to the transcript omitted). The order imposed a sanction of $250, but stated that the sanction could be "suspended, modified or revoked" if Usiak were to make a written apology to the court.
Rather than pay the sanction or apologize, Usiak appealed once more to the Circuit Court. He also filed a motion to dismiss the contempt charges on the ground that the second order constituted a denial of due process and thus was against the notions of fundamental fairness. Further, he argued that a second, corrected order of contempt constituted impermissible double jeopardy. The Circuit Court denied the motion and affirmed the contempt order finding that "[t]he record, without a doubt, demonstrates a blatant disrespect of the trial court on the part of Norman Usiak. His words and actions occurred in the courtroom in the trial judge's presence and constituted a direct criminal contempt and amply support the trial judge's decision to impose summary sanctions."
Usiak next appealed to the Court of Special Appeals, which, on its motion, transferred the appeal to this Court pursuant to Rule 8-132.[9] We granted Usiak's *45 subsequent petition for a writ of certiorari, 409 Md. 413, 975 A.2d 875 (2009), to consider the following questions:
I. Did the Circuit Court for Frederick County err by refusing to consider the Petitioner's affidavit of defense when Maryland [Rule] 15-203 explicitly authorizes such a filing and Petitioner was otherwise denied the opportunity of presenting a defense (calling witnesses, etc.)?
II. Whether a judge has the authority to refuse to allow the State to stet a driving without a license charge, on personal policy grounds, when the State and the accused consent to the entry and the conditions upon the entry are non-objectionable and laudable?
III. Should [the District Court judge] have, personally, summarily declared Petitioner in contempt, after the matter was remanded and several months had transpired, and what should be the appropriate standard of review on appeal, if not de novo?[10]
For the reasons we shall explain, we shall reverse the judgment of the Circuit Court and hold that a defective, but intended, order of direct and summary criminal contempt, with summary sanctions, that fails to comply with Rule 15-203 may not be re-issued as corrected on remand. Accordingly, we do not reach the other questions.
ANALYSIS
While the existing jurisprudence and rules governing the exercise of the contempt power are fulsome, they often seem not well understood or followed in application. Consequently, we shall reiterate here, as a sort of primer, many of those core principles. "The contempt power has stood as a sentry at the citadel of justice for a very long time...." State v. Roll and Scholl, 267 Md. 714, 717, 298 A.2d 867, 870 (1973). The authority of a court to punish for contempt is "[o]ne weapon in the court's arsenal useful in defending its dignity." Id. "Without this power, the courts would be subject to the whim of any person who seeks to disrupt their proceedings. Consequently, it is beyond cavil that the power to hold a person in contempt is inherent in all courts as a principal tool to protect the orderly administration of justice and the dignity of that branch of government that adjudicates the rights and interests of the people." Smith v. State, 382 Md. 329, 337, 855 A.2d 339, 343 (2004) (citing Ex Parte Maulsby, 13 Md. 625, 635 (1859)).
The Courts and Judicial Proceedings Article of the Maryland Code, the Maryland Rules, and the common law of this State govern the procedures and power of contempt. See Md.Code, Cts. & Jud. Proc. § 1-202(a) ("A court may exercise its power to punish for contempt of court or to compel compliance with its commands in the manner prescribed by Title 15, Chapter 200 of the Maryland Rules."); King v. *46 State, 400 Md. 419, 431, 929 A.2d 169, 176 (2007); Smith, 382 Md. at 338, 855 A.2d at 344. "We recognize two forms of contemptdirect and constructiveand two types of each formcriminal and civil." Id. "Criminal contempt serves a punitive function, while civil contempt is remedial or compulsory and must provide for purging." Id. A court may charge someone with direct contempt if the "contempt [was] committed in the presence of the judge presiding in court or so near to the judge as to interrupt the court's proceedings." Md. Rule 15-202(b). A constructive contempt "means any contempt other than a direct contempt." Md. Rule 15-202(a).
The Rules permit the summary imposition of sanctions for direct contempt if
(1) the presiding judge has personally seen, heard, or otherwise directly perceived the conduct constituting the contempt and has personal knowledge of the identity of the person committing it, and (2) the contempt has interrupted the order of the court and interfered with the dignified conduct of the court's business.
Md. Rule 15-203(a). Although permitted by the Rules, a summary proceeding should be an exceptional case. King, 400 Md. at 433, 929 A.2d at 177. Summary procedures are appropriate where "the conduct of the alleged contemnor poses an open, serious threat to orderly procedures that instant...." Id. Such procedures are necessary in such a circumstance because of "the need for immediate vindication of the dignity of the court." Roll and Scholl, 267 Md. at 733, 298 A.2d at 878 (emphasis supplied); see also King, 400 Md. at 433, 929 A.2d at 177; Smith, 382 Md. at 338, 855 A.2d at 344.
If a court chooses not to issue sanctions summarily, it shall, "reasonably promptly after [the contemptuous] conduct, ... issue a written order specifying the evidentiary facts within the personal knowledge of the judge as to the conduct constituting the contempt and the identity of the contemnor." Md. Rule 15-204. In that event, Rule 15-204 provides further that "the proceeding shall be conducted pursuant to Rule 15-205[11] or Rule 15-206,[12]*47 whichever is applicable, and Rule 15-207[13] in the same manner as a constructive *48 contempt."
Petitioner makes several arguments regarding the second order of contempt by the District Court. We shall address first (and ultimately only) Petitioner's argument that it was improper for the District Court to enter a second, corrected order of direct criminal contempt with summary sanctions approximately three months after the alleged contemptuous conduct occurred. Rule 15-203(b) provides that "[e]ither before sanctions are imposed or promptly thereafter, the court shall issue a written order stating that a direct contempt has been committed...." In King v. State, the contemnor, an attorney, failed to appear in court for her client's scheduled trial date in a criminal case. The trial judge chose not to impose *49 summary sanctions and issued a contempt show cause order to the attorney, thus treating the conduct as constructive criminal contempt. Subsequently, at a hearing on the contempt charge, the court vacated the previous order and indicated that it found the attorney in direct criminal contempt. On appeal, we held that because the trial judge "did not summarily impose sanctions for King's direct criminal contempt, Maryland Rule 15-204 governed the procedure for adjudication of the direct contempt and the imposition of sanctions." 400 Md. at 441-42, 929 A.2d at 182. We opined that
following a direct contempt, the court may defer the imposition of sanctions until the conclusion of the proceeding during which the contempt was committed, only if the court "summarily finds and announces on the record that direct contempt was committed." The plain language of the rule contemplates that summary imposition of sanctions should occur contemporaneously with the proceeding in which the direct contempt occurred.
Id. at 441, 929 A.2d at 182 (emphasis in original) (quoting Md. Rule 15-203). We explained further that, in the absence of summary proceedings, "Rule 15-204 requires that the direct contempt shall be treated like a constructive contempt for purposes of adjudication and disposition." Id. Although under Rule 15-203 deferral of a summary sanction until a later time in the underlying proceeding does not affect the summary nature of the sanction, we explained that the time frame contemplated by the Rule is a de minimis amount of time. Id. at 442, 929 A.2d at 182-83. The reason that the Rules treat a direct contempt as a constructive contempt when the court does not proceed summarily is grounded in the purpose behind the allowance of summary proceedings. "The imposition of sanctions weeks after the contumacious conduct ignores the purpose for which sanctions are imposed summarily, i.e., to vindicate the court so that `a court [will] not be at the mercy of the obstreperous and uncouth.'" Id. at 442, 929 A.2d at 183 (alteration in original) (quoting R. Goldfarb, The Contempt Power 306 (1963)).
In Smith v. State, 394 Md. 184, 905 A.2d 315 (2006), the trial judge held Smith in direct criminal contempt for refusing to testify in a criminal case. Two days after the conclusion of the case, the trial judge conducted a separately docketed hearing and imposed upon Smith sanctions for direct criminal contempt. On a writ of certiorari to this Court, Smith argued that "the trial judge did not summarily impose sanctions following her determination that he was guilty of direct criminal contempt and that, therefore, his contempt conviction must be vacated because the trial court failed to comply with the applicable Maryland Rules governing contempt proceedings." Id. at 198, 905 A.2d at 323. We noted that the Committee Note to Rule 15-203 states:
Sanctions may be imposed immediately upon the finding of the contempt, or, in the court's discretion, may be deferred to a later time in the proceeding. Deferral of a sanction does not affect its summary nature. The sanction remains summary in nature in that no hearing is required; the court simply announces and imposes the sanction.
We observed that the "term `summary' generally connotes an immediate action undertaken without following the usual formal procedures." Id. at 215, 905 A.2d at 333 (citing Black's Law Dictionary 1476 (8th ed.2004)). We concluded that "the fact that the court held an independently docketed proceeding in which to dispense sanctions is entirely inconsistent with the concept of summary proceedings. Moreover, the trial judge engaged in an involved *50 colloquy with Smith, permitted his attorney to present a mitigating argument, and solicited sentencing recommendations from the State and Smith's counsel." Smith, 394 Md. at 215, 905 A.2d at 323. Accordingly, we held that "the trial judge erred in characterizing the imposition of sanctions in the present case as summary in nature and should have followed the procedures delineated in Maryland Rules 15-204, 15-205, 15-206, and 15-207." Id. at 216, 905 A.2d at 333.
Here, the asserted contemptuous conduct occurred on 15 May 2008. The District Court judge issued the initial order of contempt on 22 May 2008. The Circuit Court vacated the defective order and, on remand, the District Court judge issued a revised, new order on 11 August 2008. Similar to the delayed imposition of sanctions in King and the independent docketing of the contempt proceeding in Smith, the almost three-month delay between the original order of contempt and the revised order is inconsistent with the nature of a summary contempt proceeding. As noted supra, Rule 15-203 permits the court "to defer imposition of sanctions until the conclusion of the proceeding during which the contempt was committed." The length of time the court may defer sanctions, however, is de minimis and typically should be no later than the end of the proceeding during which the triggering conduct occurred. Three months, in these circumstances, is not de minimis. Direct criminal contempt with summary imposition of sanctions is a relatively rare criminal offense where the judge finds a contemnor guilty upon witnessing the conduct and impose a sanction immediately. The imperative to vindicate the dignity or the efficient operations of the court almost three months after the misconduct occurs diminishes greatly the immediacy of the justification for summary sanctions. An order of contempt entered almost three months after the fact "lack[s] the hallmarks of summary imposition of sanctions under Maryland Rule 15-203(a)." Smith, 394 Md. at 215, 905 A.2d at 333. As we explained in King, "proceeding summarily at a later date, in effect, circumvents compliance with Maryland Rules 15-204 and 15-205 and, therefore, is improper." 400 Md. at 445, 929 A.2d at 184. Accordingly, we hold that the Circuit Court erred when it affirmed the second contempt order.
The unique facet of contempt law that permits summary imposition of sanctions also militates against a judge having two bites at the contempt apple. In effect, in circumstances such as occurred here, where the trial judge believes summary action is required, he or she must get it right the first time. The first order was deficient because it failed to specify whether the contempt was criminal or civil or to marshal the facts that formed the basis of the finding of contempt. By the time the District Court entered the second order, the justification for the summary nature of the contempt order had dissipated greatly. There was no longer an immediate need to vindicate the dignity or efficient operation of the court.[14] As a result, there should *51 not have been a remand of this case for further proceedings. "Further proceedings in the present case ... would be inconsistent with the purpose of empowering the trial court to sanction direct contempt, which is to `assur[e] the efficiency and dignity of the judiciary.'" Smith, 394 Md. at 216, 905 A.2d at 334 (alteration in original) (quoting Roll and Scholl, 267 Md. at 726, 298 A.2d at 875).[15] Therefore, we shall reverse the judgment of the Circuit Court and remand with directions to vacate the contempt order and dismiss the contempt action.
JUDGMENT OF THE CIRCUIT COURT FOR FREDERICK COUNTY REVERSED AND CASE REMANDED WITH DIRECTIONS TO VACATE THE CONTEMPT ORDER OF 11 AUGUST 2008 AND DISMISS THE ACTION. COSTS TO BE PAID BY FREDERICK COUNTY.
BATTAGLIA, MURPHY, and BARBERA, JJ., Dissent.
Dissenting Opinion by MURPHY, J., which BATTAGLIA and BARBERA, JJ., Join.
Although I agree that, "where the trial judge believes summary action is required [to punish a direct criminal contempt], he or she must get it right the first time," I disagree with the majority's conclusion that "it" is the written order required by Md. Rule 15-203(b). What the trial judge must "get right" is the summary action permitted by Md. Rule 15-203(a), and the record in the case at bar proves beyond any doubt thatas Appellant contumaciously walked out of the courtroom after *52 being told to remainthe District Court got it right. Nothing whatsoever in the history of Md. Rules 15-203 or 7-116 supports the majority's holding that a timelybut technically incorrectorder of direct criminal contempt cannot be corrected on remand. Because the issuance of a corrected order simply does not violate the prohibition "against a judge having two bites at the contempt apple," this case should either be affirmed on its merits or remanded to the Circuit Court with directions that the appeal be dismissed.
This Court should hold that Appellant was not entitled to a trial de novo in the Circuit Court. In Harper v. State, 312 Md. 396, 540 A.2d 124 (1988), while holding that a Circuit Court jury trial de novo is available to defendants who have noted an appeal from District Court orders finding them in direct criminal contempt, this Court stated:
This Court could, under its constitutional rule-making authority over matters of practice and procedure, expand the category of cases where appeals from the District Court would be on the record, as long as the rights to jury trial were preserved.
Id. at 408, 540 A.2d at 130. In a Rules Order that was entered on March 30, 1993, and took effect on July 1, 1993, this Court adopted Rule 7-102, which, in pertinent part, provided:
(a) On the Record. An appeal shall be heard on the record made in the District Court in the following cases:
* * *
(4) an appeal from an order or judgment of direct criminal contempt if the sentence imposed by the District Court was less than 90 days' imprisonment.
Based upon the presumption that the General Assembly became aware of this rule, and the fact that the General Assembly has not amended CJ § 12-401, Appellant was not entitled to a trial de novo. He was, however, required to comply with Md. Rule 7-113, which provides as follows:
Rule 7-113. Appeals heard on the record.
(a) Scope. This Rule applies only to appeals heard on the record of the District Court.
(b) Filing of transcript. (1) Unless a copy of the transcript is already on file, the appellant, within 10 days after the date the first notice of appeal is filed, shall order in writing from the clerk of the District Court a transcript containing:
(A) a transcription of (i) all the testimony or (ii) that part of the testimony that the parties agree, by written stipulation filed with the clerk of the District Court, is necessary for the appeal; and
(B) a transcription of any other proceeding relevant to the appeal that was recorded pursuant to Rule 16-504.
(2) The clerk of the District Court shall cause the original transcript to be filed promptly for inclusion in the record, and shall advise the appellant when the transcript has been filed. The appellant shall promptly serve a copy on the appellee.
(c) Notice by clerk. Upon the filing of the record, the clerk of the circuit court shall enter the appeal on the docket and shall send to the parties a notice stating the date the appeal was entered on the docket and the assigned docket reference. The notice shall also advise the appellant that a memorandum complying with Rule 7-113 must be filed within 30 days after the date the appeal was entered on the docket.
(d) Memorandum and response. (1) The appellant shall file a memorandum in opposition to the decision of the District Court within 30 days after the date *53 the appeal was entered on the docket or as otherwise ordered by the court. The appellee may file a response within 15 days after service of the appellant's memorandum, but in no event later than five days before the date of argument, if argument has been scheduled.
(2) In addition to otherwise complying with Rule 1-301, a memorandum or response shall be typewritten or printed, shall be double spaced, and shall not exceed ten pages in length. The appellant's memorandum shall contain (A) a statement of the questions presented for review, (B) a concise statement of the facts material to a determination of the questions presented, and (C) argument in support of the appellant's position, stating the grounds for the relief sought and the authorities in support of each ground. The appellee's response shall contain argument in support of the decision of the District Court, stating the grounds for affirmance and the authorities in support of each ground.
(3) If an appellant fails to file a memorandum within the time prescribed by this Rule, the circuit court may dismiss the appeal if it finds that the failure to file or the late filing caused prejudice to the moving party. An appellee who fails to file a memorandum within the time prescribed by this Rule may not present argument except with the permission of the court.
(e) Oral argument. A party desiring oral argument shall request it in the memorandum or response under the heading "Request for Oral Argument". Unless oral argument is requested by a party or ordered by the circuit court, the appeal shall be decided without oral argument.
(f) Scope of review. The circuit court will review the case on both the law and the evidence. It will not set aside the judgment of the District Court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the District Court to judge the credibility of the witnesses.
(g) Disposition. (1) As to each party to an appeal, the circuit court shall by order dispose of an appeal in one of the following ways:
(A) dismiss the appeal pursuant to Rule 7-114;
(B) affirm the judgment;
(C) vacate or reverse the judgment;
(D) modify the judgment;
(E) remand the action in accordance with subsection (2) of this section; or
(F) an appropriate combination of the above.
(2) If the circuit court concludes that the substantial merits of a case will not be determined by affirming, reversing, or modifying the judgment, or that justice will be served by permitting further proceedings, the court may remand the case to the District Court. In the order remanding a case, the circuit court shall state the purpose for the remand. The order of remand and the opinion upon which the order is based are conclusive as to the points decided. Upon remand, the District Court shall conduct any further proceedings necessary to determine the action in accordance with the opinion and order of the circuit court.
(h) Opinion. In every appeal, the circuit court shall render a concise opinion, which shall be reduced to writing and filed with the clerk.
From my review of the record, Appellant did not comply with requirements of sections (b) and (d) of Md. Rule 7-113. I would therefore direct that the Circuit Court dismiss this appeal.
Assuming that the Circuit Court was required to reach the merits, however, it is *54 clear to me that the Circuit Court was expressly authorized by Md. Rule 7-113(g) to do precisely what it did: remand to the District Court for entry of an order that complied with the requirements of Md. Rule 15-203(b). Nothing in the history of Md. Rule 7-113(g) supports the conclusion that a District Court's judgment of direct criminal contempt cannot be vacated and remanded for further proceedings. Moreover, such a conclusion is directly contrary to federal precedent.
In Buffington v. Baltimore County, 913 F.2d 113 (4th Cir.1990), while vacating "civil" contempt judgments entered in the United States District Court for the District of Maryland against two lawyers who violated their obligation to comply with discovery orders, the United States Court of Appeals for the Fourth Circuit stated:
There was no clear error in the district court's subsidiary fact-findings that [the lawyers] had possession of [certain] witness statements ... and that the refusal to apprise the Buffingtons of those critical statements permitted drawing the "weighty inference of knowing concealment."
* * *
Any monetary sanction the court might impose on remand without reinstituting criminal proceedings must be civil in character[.] ... Any reinstituted criminal contempt proceedings must of course comply with the requisites of the Federal Rules of Criminal Procedure and the constitutional protections afforded defendants in such proceedings.
For the foregoing reasons, we ... vacate and remand the contempt sanctions against [the attorneys].
Id. at 135-36. Buffington was cited with approval in Cromer v. Kraft Foods N. Am., Inc., 390 F.3d 812 (4th Cir.2004), in which the Fourth Circuit vacated a judgment of contempt and remanded for further proceedings at which the United States District Court for the Western District of North Carolina would be required to apply "the procedural safeguards necessary prior to the imposition of criminal penalties." Id. at 822-23.
I also disagree with the majority's conclusion that there should not have been a remand because "[t]here was no longer an immediate need to vindicate the dignity or efficient operation of the [District Court]." The conclusion that the second order was entered "too late" to vindicate the dignity of the court cannot be reconciled with this Court's holding in Kandel v. State, 252 Md. 668, 250 A.2d 853 (1969). In that case, on March 12, 1969, this Court affirmed "an order of ... the Circuit Court for Baltimore County finding [the appellant] in contempt for failing punctually to appear at the trial of an accused whom he represented, and imposing a fine of $150.00," even though the Circuit Court (1) announced its finding and punishment in open court on May 27, 1968 (the day of trial), but (2) did not sign the order of contempt, then required by Md. Rule P3(b), until November 5, 1968, and (3) did not file that order until November 18, 1968. Id. at 669-70, 250 A.2d at 853-854.
While it is true that former Md. Rule P3(b) did not expressly require that the trial court issue a written order "either before sanctions are imposed or promptly thereafter," the absence of that express requirement was of no consequence to the holding in Kandel. Even though the order required by Md. Rule P3(b) was not filed until after Mr. Kandel noted his appeal, this Court affirmed the conviction (over nine months after the contempt occurred) on the ground "that Mr. Kandel was not prejudiced by the delayed compliance with Rule P3 b." Id. at 670, 250 A.2d at 854.
Moreover, Md. Rule 1-201(a), in pertinent part, provides:
*55 When a rule, by the word "shall" or otherwise, mandates or prohibits conduct, the consequences of noncompliance are those prescribed by these rules or by statute. If no consequences are prescribed, the court may compel compliance with the rule or may determine the consequences of the noncompliance in light of the totality of the circumstances and the purpose of the rule.
No consequences of noncompliance with the "prompt issuance" requirement in Md. Rule 15-203(b) are prescribed by any rule other than Md. Rule 7-113(g), or by statute. It is clear that the purpose of Md. Rule 15-203(b) is not to place busy trial judges "at the mercy of the obstreperous," but rather to enable the appellate court to determine whether a contempt has been committed. Kandel, supra, 252 Md. at 670, 250 A.2d at 854. The "totality of the circumstances" analysis should obviously include a determination of (1) why the order was not issued "promptly," and (2) whether the appellant was prejudiced in any way by the delayed compliance with the rule. In the case at bar, the first order was entered one week after the contempt occurred. As was the situation in Kandel, Appellant is unable to show that he was prejudiced by the delayed compliance.
The "totality of the circumstances" analysis should also focus upon the impact of the contumacious conduct. If Appellant had contumaciously walked out of a courtroom while representing a party in a civil case, the trial court would not have been prohibited from continuing the trial. In the case at bar, however, Appellant contumaciously walked out of the courtroom while representing a criminal defendant who had a constitutional right to be represented by counsel. Under these circumstances, if we do not direct that the Circuit Court dismiss this appeal, we should certainly affirm the judgment of the Circuit Court on the ground that the record shows beyond any doubt that (in the words of the Circuit Court) "[Appellant's] words and actions occurred in the courtroom in the trial judge's presence and constituted a direct criminal contempt[.]"
Judges BATTAGLIA and BARBERA have authorized me to state that they join this dissenting opinion.
NOTES
[1] Because our resolution of this case generates a narrow holding regarding procedural aspects of the matter, we shall set out only a truncated version of the facts that are germane to the holding.
[2] Section 16-101(a) of the Transportation Article provides that a person may not operate a motor vehicle on any highway of this State unless they hold a driver's license or are exempt under Title 16 of the Transportation Article. Md.Code, Transp. § 16-101(a) (1977, 2009 Repl.Vol.). Section 16-102(c) provides that any individual who drives in this State without a Maryland driver's license or an exemption is guilty of a misdemeanor. Section 27-101(a)-(b) provides that a violation of the Maryland Vehicle Law is a misdemeanor and any person convicted of a misdemeanor violation of the Maryland Vehicle Law is subject to a fine of not more than $500.
[3] Rule 4-248 governs the disposition of a criminal charge by stet. The Rule provides:
(a) Disposition by stet. On motion of the State's Attorney, the court may indefinitely postpone trial of a charge by marking the charge "stet" on the docket. The defendant need not be present when a charge is stetted but in that event the clerk shall send notice of the stet to the defendant, if the defendant's whereabouts are known, and to the defendant's attorney of record. A charge may not be stetted over the objection of the defendant. A stetted charge may be rescheduled for trial at the request of either party within one year and thereafter only by order of court for good cause shown.
(b) Effect of stet. When a charge is stetted, the clerk shall take the action necessary to recall or revoke any outstanding warrant or detainer that could lead to the arrest or detention of the defendant because of the charge, unless the court orders that any warrant or detainer shall remain outstanding.
(Emphasis supplied).
[4] The judge's recollection of what the Rule provides was correct. See supra note 3.
[5] Usiak's view of what Rule 4-248 contemplates was wrong.
[6] "A nolle prosequi, or nol pros, is an action taken by the State to dismiss pending charges when it determines that it does not intend to prosecute the defendant under a particular indictment." State v. Huntley, 411 Md. 288, 291 n. 4, 983 A.2d 160, 162 n. 4 (2009) (citing Ward v. State, 290 Md. 76, 83, 427 A.2d 1008, 1012 (1981)). Unlike a motion to stet a case, no motion requiring approval by the court of the State's decision to nol pros a matter is required.
[7] Usiak explained to us that his decision to assert his view of why the case was terminated and his departure from the courtroom was calculated to protect his client's ability to remain in the U.S. because a conviction on the charge might have resulted in collateral consequences impacting Paz-Rubio's immigration status. We express no view here on this explanation.
[8] Rule 15-203 provides the proper procedure for a direct contempt charge as follows:
(a) Summary imposition of sanctions. The court against which a direct civil or criminal contempt has been committed may impose sanctions on the person who committed it summarily if (1) the presiding judge has personally seen, heard, or otherwise directly perceived the conduct constituting the contempt and has personal knowledge of the identity of the person committing it, and (2) the contempt interrupted the order of the court and interfered with the dignified conduct of the court's business. The court shall afford the alleged contemnor an opportunity, consistent with the circumstances then existing, to present exculpatory or mitigating information. If the court summarily finds and announces on the record that direct contempt has been committed, the court may defer imposition of sanctions until the conclusion of the proceeding during which the contempt was committed.
(b) Order of contempt. Either before sanctions are imposed or promptly thereafter, the court shall issue a written order stating that a direct contempt has been committed and specifying:
(1) whether the contempt is civil or criminal,
(2) the evidentiary facts known to the court from the judge's own personal knowledge as to the conduct constituting the contempt, and as to any relevant evidentiary facts not so known, the basis of the court's findings,
(3) the sanction imposed for the contempt,
(4) in the case of civil contempt, how the contempt may be purged, and
(5) in the case of criminal contempt, (A) if the sanction is incarceration, a determinate term, and (B) any condition under which the sanction may be suspended, modified, revoked, or terminated.
(c) Affidavits. In a summary proceeding, affidavits may be offered for the record by the contemnor before or after sanctions have been imposed.
(d) Records. The record in cases of direct contempt in which sanctions have been summarily imposed shall consist of (1) the order of contempt; (2) if the proceeding during which the contempt occurred was recorded, a transcript of that part of the proceeding; and (3) any affidavits offered or evidence admitted in the proceeding.
[9] Rule 8-132 provides:
If the Court of Appeals or the Court of Special Appeals determines that an appellant has improperly noted an appeal to it but may be entitled to appeal to another court exercising appellate jurisdiction, the Court shall not dismiss the appeal but shall instead transfer the action to the court apparently having jurisdiction, upon the payment of costs provided in the order transferring the action.
The Court of Special Appeals did not have appellate jurisdiction to consider the present case because it was an appeal from a judgement of the Circuit Court made in the exercise of appellate jurisdiction in reviewing the district court's judgment. A right of "appeal [does not exist] from a final judgment of a court entered or made in the exercise of appellate jurisdiction in reviewing the decision of the District Court...." Md.Code, Cts. & Jud. Proc. § 12-302(a) (1974 & 2006 Repl. Vol.).
[10] Actually, Usiak filed two petitions in this Court in this case. After filing his original petition, he filed an "Amended/Corrected Petition for Writ of Certiorari." The "Amended/Corrected" Petition did not contain the third question presented for review which was contained only in his original petition. Ironically, we find that question to be the dispositive one and shall answer it alone.
[11] Rule 15-205 governs the procedures for constructive criminal contempt. It provides:
(a) Separate action. A proceeding for constructive criminal contempt shall be docketed as a separate criminal action. It shall not be included in any action in which the alleged contempt occurred.
(b) Who may institute. (1) The court may initiate a proceeding for constructive criminal contempt by filing an order directing the issuance of a summons or warrant pursuant to Rule 4-212.
(2) The State's Attorney may initiate a proceeding for constructive criminal contempt committed against a trial court sitting within the county in which the State's Attorney holds office by filing a petition with that court.
(3) The Attorney General may initiate a proceeding for constructive criminal contempt committed (A) against the Court of Appeals or the Court of Special Appeals, or (B) against a trial court when the Attorney General is exercising the authority vested in the Attorney General by Maryland Constitution, Art. V, § 3, by filing a petition with the court against which the contempt was allegedly committed.
(4) The State Prosecutor may initiate a proceeding for constructive criminal contempt committed against a court when the State Prosecutor is exercising the authority vested in the State Prosecutor by Code, State Government Article, § 9-1201 et seq., by filing a petition with the court against which the contempt was allegedly committed.
(5) The court or any person with actual knowledge of the facts constituting a constructive criminal contempt may request the State's Attorney, the Attorney General, or the State Prosecutor, as appropriate, to file a petition.
(c) Appointment of prosecutor. If the proceeding is commenced by a court on its own initiative, the court may appoint the State's Attorney of the county in which the court sits, the Attorney General, or the State Prosecutor to prosecute the charge.
(d) Contents; service. An order filed by the court pursuant to section (b)(1) of this Rule and a petition filed by the State's Attorney, the Attorney General, or the State Prosecutor shall contain the information required by Rule 4-202(a). The order or petition shall be served, along with a summons or warrant, in the manner specified in Rule 4-212 or, if the proceeding is in the Court of Appeals or Court of Special Appeals, in the manner directed by that court.
(e) Waiver of counsel. The provisions of Rule 4-215 apply to constructive criminal contempt proceedings.
(f) Jury trial. The provisions of Rule 4-246 apply to constructive criminal contempt proceedings.
[12] Rule 15-206 governs the procedures for constructive civil contempt. It provides:
(a) Separate action. A proceeding for constructive criminal contempt shall be docketed as a separate criminal action. It shall not be included in any action in which the alleged contempt occurred.
(b) Who may institute. (1) The court may initiate a proceeding for constructive criminal contempt by filing an order directing the issuance of a summons or warrant pursuant to Rule 4-212.
(2) The State's Attorney may initiate a proceeding for constructive criminal contempt committed against a trial court sitting within the county in which the State's Attorney holds office by filing a petition with that court.
(3) The Attorney General may initiate a proceeding for constructive criminal contempt committed (A) against the Court of Appeals or the Court of Special Appeals, or (B) against a trial court when the Attorney General is exercising the authority vested in the Attorney General by Maryland Constitution, Art. V, § 3, by filing a petition with the court against which the contempt was allegedly committed.
(4) The State Prosecutor may initiate a proceeding for constructive criminal contempt committed against a court when the State Prosecutor is exercising the authority vested in the State Prosecutor by Code, State Government Article, § 9-1201 et seq., by filing a petition with the court against which the contempt was allegedly committed.
(5) The court or any person with actual knowledge of the facts constituting a constructive criminal contempt may request the State's Attorney, the Attorney General, or the State Prosecutor, as appropriate, to file a petition.
(c) Appointment of prosecutor. If the proceeding is commenced by a court on its own initiative, the court may appoint the State's Attorney of the county in which the court sits, the Attorney General, or the State Prosecutor to prosecute the charge.
(d) Contents; service. An order filed by the court pursuant to section (b)(1) of this Rule and a petition filed by the State's Attorney, the Attorney General, or the State Prosecutor shall contain the information required by Rule 4-202(a). The order or petition shall be served, along with a summons or warrant, in the manner specified in Rule 4-212 or, if the proceeding is in the Court of Appeals or Court of Special Appeals, in the manner directed by that court.
(e) Waiver of counsel. The provisions of Rule 4-215 apply to constructive criminal contempt proceedings.
(f) Jury trial. The provisions of Rule 4-246 apply to constructive criminal contempt proceedings.
[13] Rule 15-207 provides for further proceedings for constructive contempt:
(a) Consolidation of criminal and civil contempts. If a person has been charged with both constructive criminal contempt pursuant to Rule 15-205 and constructive civil contempt pursuant to Rule 15-206, the court may consolidate the proceedings for hearing and disposition.
(b) When judge disqualified. A judge who enters an order pursuant to Rule 15-204 or who institutes a constructive contempt proceeding on the court's own initiative pursuant to Rule 15-205(b)(1) or Rule 15-206(b)(1) and who reasonably expects to be called as a witness at any hearing on the matter is disqualified from sitting at the hearing unless (1) the alleged contemnor consents, or (2) the alleged contempt consists of a failure to obey a prior order or judgment in a civil action or a "judgment of restitution" as defined in Code, Criminal Procedure Article, § 11-601(g).
(c) Hearing. (1) Contempt of appellate court. Where the alleged contemnor is charged with contempt of an appellate court, that court, in lieu of conducting the hearing itself, may designate a trial judge as a special master to take evidence and make recommended findings of fact and conclusions of law, subject to exception by any party and approval of the appellate court. (2) Failure of alleged contemnor to appear. If the alleged contemnor fails to appear personally at the time and place set by the court, the court may enter an order directing a sheriff or other peace officer to take custody of and bring the alleged contemnor before the court or judge designated in the order. If the alleged contemnor in a civil contempt proceeding fails to appear in person or by counsel at the time and place set by the court, the court may proceed ex parte.
(d) DispositionGenerally. (1) Applicability. This section applies to all proceedings for contempt other than proceedings for constructive civil contempt based on an alleged failure to pay spousal or child support.
(2) Order. When a court or jury makes a finding of contempt, the court shall issue a written order that specifies the sanction imposed for the contempt. In the case of a civil contempt, the order shall specify how the contempt may be purged. In the case of a criminal contempt, if the sanction is incarceration, the order shall specify a determinate term and any condition under which the sanction may be suspended, modified, revoked, or terminated.
(e) Constructive civil contemptSupport enforcement action.
(1) Applicability. This section applies to proceedings for constructive civil contempt based on an alleged failure to pay spousal or child support, including an award of emergency family maintenance under Code, Family Law Article, Title 4, Subtitle 5.
(2) Petitioner's burden of proof. Subject to subsection (3) of this section, the court may make a finding of contempt if the petitioner proves by clear and convincing evidence that the alleged contemnor has not paid the amount owed, accounting from the effective date of the support order through the date of the contempt hearing.
(3) When a finding of contempt may not be made. The court may not make a finding of contempt if the alleged contemnor proves by a preponderance of the evidence that (A) from the date of the support order through the date of the contempt hearing the alleged contemnor (i) never had the ability to pay more than the amount actually paid and (ii) made reasonable efforts to become or remain employed or otherwise lawfully obtain the funds necessary to make payment, or (B) enforcement by contempt is barred by limitations as to each unpaid spousal or child support payment for which the alleged contemnor does not make the proof set forth in subsection (3)(A) of this section.
(4) Order. Upon a finding of constructive civil contempt for failure to pay spousal or child support, the court shall issue a written order that specifies (A) the amount of the arrearage for which enforcement by contempt is not barred by limitations, (B) any sanction imposed for the contempt, and (C) how the contempt may be purged. If the contemnor does not have the present ability to purge the contempt, the order may include directions that the contemnor make specified payments on the arrearage at future times and perform specified acts to enable the contemnor to comply with the direction to make payments.
[14] The Dissent takes exception to the Majority's holding in this regard. The Dissent opines that it is "unrealistic" for a trial judge to enter immediately the contempt order, as he or she is required to do by Maryland Rule 15-203. Furthermore, the Dissent concludes that it is "unfair" to prohibit the judge from entering a corrected contempt order after he or she failed to enter a corrected order the first time. Although the Dissent states that it disagrees with the Majority's holding, it actually takes issue with the plain language of Rule 15-203 itself, which provides that "[e]ither before sanctions or promptly thereafter are imposed, the court shall issue a written order stating that a direct contempt has been committed and specifying" the facts giving rise to the contempt finding. (Emphasis supplied). The Rule plainly contemplates that the imposition of sanctions shall be imposed in rapid succession to the contumacious conduct. As discussed supra, the Rule states that the court "may defer imposition of sanctions," but shall do so before the conclusion of the proceedings. A short deferral of sanctions, exercised within the court's sound discretion, does not affect the summary nature of the proceedings. In contrast, imposing a corrected order almost three months after the proceeding had concluded vitiates the summary nature of the sanctions.
Moreover, the dissenting opinion's reliance on Kandel v. State, 252 Md. 668, 250 A.2d 853 (1969), is injected inaptly into any analysis of the iteration of the Rule as it existed at the relevant times of the present case. We decided Kandel under the predecessor to the current rule governing the summary imposition of sanctions for direct criminal contempt, Maryland Rule P3 b (1967) and is, thus, inapplicable to the disposition of the present case. Rule P3 b provided that
[w]here a direct contempt is committed, the court shall sign a written order to that effect. The order shall recite the facts, be signed by the judge and entered of record. The order shall state which of the facts were known to the court of its own knowledge and as to any facts not so known, the basis for the court's finding with respect thereto.
In contrast to Rule 15-203, Rule P3 b did not contain a requirement stating a timing consideration by which sanctions must be imposed. Thus, we held that the delay in Kandel from May to November 1968 did not prejudice the contemnor. 252 Md. at 670, 250 A.2d at 854. When we adopted Rule 15-203, however, we found it appropriate to include a timing requirement. Accordingly, it is clear from the plain language of the Rule that a delay such as occurred in Kandel no longer would be acceptable.
[15] The Court of Special Appeals reached a different conclusion in Thomas v. State, 99 Md.App. 47, 635 A.2d 71 (1994). In Thomas, the trial court failed to comply with Maryland Rule P3, a predecessor to the current rules of contempt procedure, by failing to enter a written order reciting the facts and the basis of the court's judgment of contempt. The intermediate appellate court held that was error, but determined that it was proper to vacate and remand the judgment of contempt with instructions for further proceedings consistent with its opinion. 99 Md.App. at 58-59, 635 A.2d at 77. We here express our disfavor with Thomas to the extent it is inconsistent with the holding here. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570578/ | 298 S.W.2d 841 (1957)
Griffie CASEBOLT, Appellant,
v.
Irene OLIVIER et vir, appellee.
No. 6092.
Court of Civil Appeals of Texas, Beaumont.
January 24, 1957.
Rehearing Denied February 13, 1957.
Andrew Campbell, Pt. Arthur, for appellant.
Baker & Vaughan, Pt. Arthur, for appellee.
R. L. MURRAY, Chief Justice.
This is an appeal by appellant Griffie Casebolt, a feme sole, from a judgment in the County Court of Jefferson County, at Law, dismissing her suit against appellees, Irene Olivier and husband. The court sustained appellees' exceptions to appellant's petition, holding that such petition stated no cause of action against the appellees. She has perfected her appeal to this court for review of the judgment.
The appeal comes before this court on the pleadings alone.
The material portions of appellant's petition alleged as follows:
"Plaintiff was at all times material hereto and is at the present time a real estate salesman duly licensed as such by the State of Texas and the defendant, Irene Olivier, was at all times material hereto and is now a real estate dealer duly licensed by the State of Texas and operating and conducting said business in Jefferson County, Texas.
*842 "Plaintiff alleges and would show that heretofore in January, 1955, plaintiff entered into an employment agreement with the said Irene Olivier whereby the plaintiff was to work for and under the said Irene Olivier in the conduct of the latter's real estate business; and, the plaintiff was so engaged and employed to sell certain real estate in Jefferson County, Texas, through the real estate agency of Irene Olivier.
"Plaintiff would show that at the time plaintiff commenced her said employment, it was orally agreed and understood by and between plaintiff and said defendant that the plaintiff would obtain listings for real estate offered for sale and would attempt to sell for prospective vendors to prospective vendees any such real estate for which she obtained listings or other real estate listed by others for sale with or through the agency of the said Irene Olivier. And it was further orally agreed and understood by and between Griffie Casebolt and the said Irene Olivier that said plaintiff would receive a commission on all sales consummated by her in the amount of two and one-half per cent (2½) of the total sales price of said real estate and that any additional sales commission obtained or any such transaction would be retained by the said Irene Olivier.
"Plaintiff alleges that the only understanding of said parties as to any lesser commission at any time throughout the association of plaintiff and defendant was that plaintiff would receive a commission in the sum of two per cent (2%) of the total sales price of all transactions consummated by her in the event that the property in question sold by plaintiff had been listed with such agency by some dealer or salesman other than plaintiff, and in such event only, one-half per cent (½%) of the total sales price of such real estate would go to the person listing said real estate. Such amount being deducted from the plaintiff's two and one-half per cent (2½%), which was agreed she would receive under all other circumstances.
"Plaintiff alleges and would show that at some date prior to September or October 1955, the exact date thereof being unknown to plaintiff, the defendant, Irene Olivier, advised the plaintiff as well as other salesmen working under her that she was offering the residence defendants were occupying at such time for sale and requested plaintiff to attempt to sell the same if plaintiff could find a purchaser therefor and plaintiff would show that the location and address of said real estate was and is 4701 Lakeshore Drive, Port Arthur, Texas.
"Plaintiff would show that complying with defendant's requested to find a purchaser and sell said real estate, she did expend her time and energy contacting prospective customers for such property and subsequently did offer the same for sale to a Mr. and Mrs. Laster, and plaintiff did take Mrs. Laster upon said premises and show the same to her and entered into a contract and agreement with Mr. and Mrs. Laster whereby such persons did obligate themselves and agree to purchase said property from the defendants and subsequently on or about October 20, 1955, the said Mr. and Mrs. Laster did purchase such real estate from the defendants for the total sum of Twenty-six Thousand, Seven Hundred Fifty Dollars ($26,750.00). Such sale being initiated and consummated by the plaintiff, Griffie Casebolt.
"Plaintiff would show that subsequent to said sale, plaintiff and the said Irene Olivier discussed the commission to which plaintiff was entitled for her services in said sale, and said defendant refused to pay to the plaintiff the sum of Six Hundred Sixty-eight and 75/100 Dollars ($668.75), but tendered to plaintiff a lesser sum, which was refused by plaintiff and plaintiff would show that the said sum of Six Hundred Sixty-eight and 75/100 Dollars ($668.75) was due and owing to plaintiff by defendants for the sale of said property, the same being two and one-half per cent (2½%) of the total sales price of said real estate, which sum had been previously *843 paid to plaintiff by said defendant on all real estate transactions except those as aforesaid in Paragraph No. V according to the original, oral agreement by and between plaintiff and the said Irene Olivier.
"In the alternative, plaintiff alleges and would show that if it be found that plaintiff and defendant, Irene Olivier, did not have a specific, oral agreement for the payment of the commission upon the sale of the above real estate as above alleged, then plaintiff alleges and would show that at the specific request of the defendant, Irene Olivier, plaintiff did expend her time and efforts for the purpose of finding a purchaser for the real estate of defendants, and as a sole result of the efforts and time so used by the plaintiff, one, Mr. and Mrs. Laster did purchase said real estate from the defendants, and plaintiff would show that the reasonable value of such services as rendered to the defendants at the specific request of the defendant, Irene Olivier, are in the sum of Six Hundred Sixty-eight and 75/100 Dollars ($668.75)."
Appellant sued for $668.75, and for attorney's fees and interest.
Appellees' special exceptions to the above pleading were as follows:
"Defendants except to each and every paragraph of plaintiff's petition, and state that each and every paragraph should be stricken because there is an attempt on the part of the plaintiff to predicate her suit on an oral contract which is forbidden under Article 6573-A of the Revised Civil Statutes of Texas [Vernon's Ann.Civ.St. art. 6573a].
"Defendants specially except to paragraph 4 of plaintiff's petition which reads as follows:
"`Plaintiff would show that at the time plaintiff commenced her said employment, it was orally agreed and understood by and between plaintiff and said defendant that the plaintiff would obtain listings for real estate offered for sale and would attempt to sell for prospective vendees any such real estate for which she obtained listings or other real estate listed by others for sale with or through the agency of the said Irene Olivier. And it was further orally agreed and understood by and between Griffie Casebolt and the said Irene Olivier that said plaintiff would receive a commission on all sales consummated by her in the amount of two and one-half per cent (2½%) of the total sales price of said real estate and that any additional sales commission obtained or any such transaction would be retained by the said Irene Olivier.'
The foregoing paragraph could not and does not state any cause of action against the defendants and such was predicated on an oral contract in violation of Article 6573-A.
"Defendants except to paragraph 5 and state that same should be stricken because the allegations contained therein are irrevelant, immaterial and could not form any basis for this suit.
"Defendants except to paragraph 6 and state that same should be stricken because plaintiff is undertaking to predicate her suit on an oral contract, which is forbidden under Article 6573-A, particularly Section 22 thereof and that said paragraph should be stricken because there are no allegations set forth in said paragraph that a written contract had existed between plaintiff and defendant, Irene Olivier.
"Defendants except to paragraph 7 of plaintiff's petition and states that same should be stricken because the allegations contained in said paragraph set forth only an attempt to prove that plaintiff is entitled to recover a commission on an oral contract, if any existed, would necessarily have to be in writing so as to bind the defendant, Irene Olivier.
"Defendants except to paragraph 8 of plaintiff's petition and state that same should be stricken because the allegations *844 in said paragraph are to the effect that an oral contract existed between plaintiff, Griffie Casebolt and defendant, Irene Olivier, and same should be stricken because the allegations of the contract as stated if any, were oral and plaintiff could not maintain a suit on an oral contract to recover a commission for the same of real estate and that plaintiff failed to comply with Article 6375-A of the Revised Civil Statutes of Texas.
"Defendants except to paragraph 9 and state that same should be stricken for the reasons set forth in the two preceding paragraphs and further that said paragraph 9 should be stricken because it does not allege that a written contract existed between plaintiff and defendant, Irene Olivier, and that a suit cannot be predicated upon an oral contract, and for such reason, paragraph 9 should be stricken."
We note that both parties in their briefs refer to "Section 22" of Article 6573a. By amendment effective June 1, 1955, Article 6573a, known as "`The Real Estate License Act'", was amended, and section 22 of the original statute was written into the amended statute as section 28. It contains the original provisions of section 22, with a paragraph added which precludes recovery of commissions for the sale of real estate by a real estate salesman, broker, agent or realtor, unless he advises the purchaser, in writing, that he should have the abstract examined by an attorney of his own selection, or should have a policy of title insurance.
Appellee's exceptions, sustained by the trial court, are based upon the first paragraph of the present section 28, which contains the same provision as section 22 of the Act before it was amended.
We believe the court was correct in sustaining the exceptions to appellants' petition.
It is now well settled that under the provisions of said Article 6573a, Vernon's Ann.Civil Statutes, an oral contract by the owner for the payment of a commission for the sale of real estate is not enforceable. Jackson v. Key, Tex.Civ.App., 223 S.W.2d 717, and cases cited therein; Wolf v. Faubion, Tex.Civ.App., 278 S.W.2d 951. It appears also to be settled that one cannot recover upon an executed oral contract for such a commission, in a suit upon quantum meruit. Landis v. W.H. Fuqua, Inc., Tex. Civ.App., 159 S.W.2d 228 (Error Refused).
The appellant contends, however, that her suit is not a suit on an oral contract by an owner, but is one brought by her as a real estate salesman against her employer, a real estate dealer, on an oral contract of employment as such salesman. As we view the matter, the agreement pleaded by her as a basis for her cause of action contains elements of both situations but is basically a suit on an owner's agreement to pay a commission.
Our Courts have held that the Real Estate License Act does not prohibit the enforcement of an oral agreement between realtors concerning the division of commission. Hohenburger v. Schnitzer, Tex.Civ. App., 235 S.W.2d 466; Warren v. White, 143 Tex. 407, 185 S.W.2d 718. The agreement pleaded here can not be regarded as an agreement to divide a commission, since it is apparent that no written agreement on the part of the owner to pay a commission was ever made. There was no commission to be divided. The reasoning in Warren v. White, supra, holding that agreements between brokers are enforceable, is that of the California and Wisconsin holdings, that such an agreement to divide commissions was in the nature of a joint adventure rather than an agreement to pay a commission in a certain instance.
In the present case, the request by appellee that appellant try to sell appellees' own home did not come within the scope of the original contract of employment. It was not a joint adventure, in the completion of which both parties, the dealer and the salesman, would make a profit. It was to be a sale by an owner, and under the statute any *845 agreement to pay a commission for the sale was required to be in writing and signed by the owner, the appellee here, in order to become enforceable against such owner. Such an agreement not in writing is within the statute, and is unenforceable.
The judgment is affirmed.
HIGHTOWER, J., took no part in the decision of this case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570557/ | 895 F. Supp. 571 (1995)
Charles OKONKWO, Petitioner,
v.
Peter LACY, Respondent.
No. 94 Civ. 4962 (SAS).
United States District Court, S.D. New York.
June 2, 1995.
As Amended on Denial of Motion for Reargument August 22, 1995.
*572 *573 Laura Rossi-Ortiz, Karl E. Pflanz, Office of Appellate Defender, New York City, for petitioner Charles Okonkwo.
Vida M. Alvy, Asst. Atty. Gen., Office of Atty. Gen., New York City, for respondent Peter Lacy, Superintendent of Bare Hill Correctional Facility.
MEMORANDUM OPINION AND ORDER
SCHEINDLIN, District Judge.
Petitioner Charles Okonkwo, a New York State prisoner, filed this petition for a writ of habeas corpus ("Pet.") pursuant to 28 U.S.C. § 2254. Petitioner challenges his 1990 state court conviction, asserting that his Fourteenth Amendment rights and his Sixth Amendment right to a public trial were violated. He argues that the trial court's order to close the courtroom during the testimony of an undercover police officer called by the prosecution failed to meet any of the four requirements for closure set forth in Waller v. Georgia, 467 U.S. 39, 48, 104 S. Ct. 2210, 2216, 81 L. Ed. 2d 31 (1984).
Petitioner appealed his conviction, and the New York State Supreme Court, Appellate Division, affirmed. People v. Okonkwo, 176 A.D.2d 163, 574 N.Y.S.2d 186 (1st Dept.1991). The Court of Appeals of New York denied petitioner's application for leave to appeal. People v. Okonkwo, 79 N.Y.2d 862, 580 N.Y.S.2d 733, 588 N.E.2d 768 (1992). This action followed.[1]
I. FACTS
Petitioner Okonkwo was arrested on October 22, 1989, for the sale of fifteen dollars of crack cocaine to undercover officer John Swift of the New York City Police Department, Manhattan South Tactical Narcotics Team. Pet. at ¶¶ 2, 13; Trial Transcript, February 5-6, 1990 ("Tr.") at 3, 28. During this police operation, known as a "buy and bust," Officer Swift acted as a purchaser of the narcotics while a different officer made the arrest. Tr. at 28, 84-86.
Petitioner was tried by a jury in New York State Supreme Court, New York County, and convicted of one count of criminal sale of a controlled substance in the third degree, N.Y. Penal Law § 220.39(1) (McKinney 1989). Pet. at ¶¶ 1, 5, 6. The judgement was entered on March 14, 1990. Pet. at ¶ 2.
Prior to trial, New York Supreme Court Justice Jay Gold conducted what is known in this state as a Hinton hearing, an in camera proceeding to determine the appropriateness of excluding the public during trial testimony. Tr. at 2-11. See People v. Hinton, 31 N.Y.2d 71, 334 N.Y.S.2d 885, 286 N.E.2d 265 (1972), cert. denied, 410 U.S. 911, 93 S. Ct. 970, 35 L. Ed. 2d 273 (1973). At the hearing, Officer Swift testified under oath that: he would continue to act as an undercover agent in the same area in which he made the buy from petitioner (Cooper Square); he believed his life would be endangered in a working area where his undercover identity was known; he had testified as an undercover before several grand juries; there may be other cases in which he would *574 be called to testify; there was no continuing investigation with respect to Okonkwo. Tr. at 3-8.
The court found that Officer Swift would continue to operate undercover in the general area of Cooper Square and that his life might be jeopardized if his identity were exposed. Tr. at 8-11. The trial judge ordered the courtroom closed to the public during the testimony of Officer Swift. Tr. at 11.
II. DISCUSSION
A. Closure of Criminal Proceedings to the Public
Eleven years ago, the United States Supreme Court established a four-part test to determine when a suppression hearing may be closed to the public. The Court held that:
[1] the party seeking to close the hearing must advance an overriding interest that is likely to be prejudiced, [2] the closure must be no broader than necessary to protect that interest, [3] the trial court must consider reasonable alternatives to closing the proceeding, and [4] it must make findings adequate to support the closure.
Waller, 467 U.S. at 48, 104 S.Ct. at 2216 (citing Press-Enterprise Co. v. Superior Court of California, 464 U.S. 501, 104 S. Ct. 819, 78 L. Ed. 2d 629 (1984)). Failure to satisfy all four prongs of the test prior to an order of closure is a violation of the Sixth Amendment,[2] and a showing of prejudice need not be made to obtain relief where such violations occur. See Waller, 467 U.S. at 49, n. 9, 104 S.Ct. at 2217, n. 9. Federal courts presiding over criminal prosecutions and appeals have consistently applied the Waller test to the closure of trial testimony. See e.g. Vidal v. Williams, 31 F.3d 67 (2d Cir.1994) (exclusion of all observers), cert. denied, ___ U.S. ___, 115 S. Ct. 778, 130 L. Ed. 2d 672 (1995); Woods v. Kuhlmann, 977 F.2d 74 (2d Cir.1992) (exclusion of defendant's family members); Ip v. Henderson, 710 F. Supp. 915 (S.D.N.Y.), aff'd without opinion, 888 F.2d 1376 (2d Cir.1989). Therefore, the Waller framework controls this action.
B. Procedural Default in Habeas Actions
The Court must first consider whether procedural default blocks consideration of the merits. On a petition for a writ of habeas corpus, district courts must respect state procedural rules and consider whether petitioner's claims are procedurally barred.[3]See Coleman v. Thompson, 501 U.S. 722, 729-732, 111 S. Ct. 2546, 2553-2555, 115 L. Ed. 2d 640 (1991). In deference to principles of federalism and comity,
[the independent and adequate state ground] doctrine applies to bar federal habeas when a state court declined to address a prisoner's federal claims because the prisoner had failed to meet a state procedural requirement.
Id. at 729-730, 111 S.Ct. at 2554. Together with its companion case, Ylst v. Nunnemaker, 501 U.S. 797, 111 S. Ct. 2590, 115 L. Ed. 2d 706 (1991), Coleman limited the scope of the presumption established in Harris v. Reed, 489 U.S. 255, 109 S. Ct. 1038, 103 L. Ed. 2d 308 (1989), that federal review is barred only when the state court clearly and expressly notes its reliance on procedural default. Id. at 263, 109 S.Ct. at 1043. Today, "the Harris presumption is to be applied only after it has been determined that `the relevant state court decision ... fairly appear[s] to rest primarily on federal law or [is] interwoven with [federal] law." Ylst, 501 U.S. at 802, 111 S.Ct. at 2594 (quoting Coleman, 501 U.S. at 740, 111 S.Ct. at 2559).[4] Nevertheless, the *575 Supreme Court has established that, under certain circumstances, federal courts may reach the merits of a particular claim, even in the face of clear procedural default.[5] "State procedural bars are not immortal ... they may expire ... [if] the last state court to be presented with a particular federal claim reaches the merits." Ylst, 501 U.S. at 801, 111 S.Ct. at 2593.
Therefore, this Court must determine the extent to which the merits of petitioner's claims are reviewable.
C. Whether Closure of the Courtroom during the Testimony of Undercover Officer Swift Was Warranted Under the Circumstances[6]
1. Adequate Findings to Support Closure
a. Procedural Default
On direct appeal to the Appellate Division, the State argued that the "adequate findings" claim failed both on the merits and due to procedural default. The latter argument was premised on petitioner's alleged failure to interpose a timely objection to the trial court's treatment of specific Waller requirements, pursuant to N.Y. Criminal Procedure Law (CPL) § 470.05(2) (McKinney 1994).[7]
i. The Ruling by the Appellate Division
The Appellate Division did not explicitly address procedural default with respect to the fourth prong of the Waller test. That court did, however, find:
... we perceive no abuse of discretion by the trial court in granting the [closure] request after hearing.... Inquiry by the People, the defense, and the court, indicated that the officer was then active as an undercover officer in the area of defendant's arrest herein, involved in ongoing narcotics investigations conducted in that area, and likely to be assigned to future undercover narcotics operations in the same area. Thus, jeopardy to the undercover officer's effectiveness and, indeed, to his life by exposure of his identity was properly determined [by the trial court] to be an overriding interest ... *576 People v. Okonkwo, 574 N.Y.S.2d at 187. In this passage, it appears that the Appellate Division directly addressed the merits of the findings prong of the Waller test. In order to determine whether the lower court abused its discretion in making its findings substantiating closure, the Appellate Division relied on the record and the trial court's findings.[8] Finding no such error by the trial court, the Appellate Division reached the merits rather than embracing the State's contention of a procedural default.[9]
ii. The Hearing before the Trial Court
Following a brief inquiry into the nature and future of Officer Swift's duties,[10] the trial judge asked defense counsel, Mr. Melvin Reiss, whether he had any argument for the record. This colloquy followed:
MR. REISS: Just briefly, your Honor. I don't think there has been special circumstances in this case.
THE COURT: I think that what needs to be shown to justify excluding the public is the basically, putting the or jeopardizing the continuing undercover activity of the officer, that he says.
And I find this fact: that he continues to function as an undercover officer in the general area in which this crime occurred; that the and it's clear to enough then that if anybody were to come into this courtroom and see him, that his knowledge of his identity might well jeopardize his life. It seems to be as simple as he is not out of business.
Counsel objected[11] to the trial judge's finding:
MR. REISS: .... Why would this case be different from any other case in which an undercover officer testifies that [he] is still operating on the streets. And I don't think there is any difference ... [And in view of various New York state court decisions] this case is no different from every other case. And I don't think there was really anything elicited as far as special circumstances.
Naturally if there were any danger, I would understand, and I would agree with your Honor. I don't think that this is really special.
....
Just in the sense that we would have to exclude every we would have to close the courtroom for every undercover cop. And I don't think that's what this case ought to do.... I think if that were the case, to close the courtroom for every undercover cop, I think that might *577 be more damaging then [sic] occasionally closing the courtroom.
The trial judge responded with a final statement, reiterating his prior reasoning. Immediately following this, the court ordered closure.
THE COURT: It seems to me that if this officer continues to function in the area in which he described, the knowledge of who he is would result in jeopardizing his life. Isn't that so? That if he continues to function in Manhattan South, knowledge of what he looks like, of who he is, is going to jeopardize his life? Can anybody seriously quarrel with that proposition? [To this question, Mr. Reiss responded in the negative].
Given that, it would seem to me that we ought to make sure that nobody sees him.
My sense is that, from reading the cases, is that it is a matter in which I have some discretion, although the people have a heavy burden, but I think they have met their burden and they have showed he is a functioning undercover officer; that has continuing investigations, as he put it, "maintenance". He keeps going back into the same areas; one of them being the very area involved in this case.
Tr. at 8-11.
b. The Merits
The record reflects that the trial court made a conclusory determination rather than well-reasoned findings.[12] This does not necessarily mean that the government interest was insufficient to merit closure in this case. Rather, the record simply does not support the closure order.[13] The Supreme Court established,
the right to an open trial may give way in certain cases to other rights or interests, such as ... the government's interest in inhibiting disclosure of sensitive information .... "The presumption of openness may be overcome only by an overriding interest based on findings that closure is essential to preserve higher values and is narrowly tailored to serve that interest. The interest is to be articulated along with findings specific enough that a reviewing court can determine whether the closure order was properly entered."
Waller, 467 U.S. at 45, 104 S.Ct. at 2215 (quoting Press-Enterprise, 464 U.S. at 510, 104 S.Ct. at 824) (emphasis added).
Inquiries and findings supporting closure must be made on a case-by-case basis; they must be tailored to factual and circumstantial particulars. See e.g., Jones v. Henderson, 683 F. Supp. 917, 923 (S.D.N.Y. 1989) (citing Globe Newspaper Co. v. Superior Court, 457 U.S. 596, 609, 102 S. Ct. 2613, 2621, 73 L. Ed. 2d 248 (1982)). The record is devoid of information as to certain facts that might assist in its review. For example, an inquiry into specific threats against the witness is of considerable importance to any determination affecting closure.[14] A substantiated representation that a threat has been made against an officer strongly supports the government's concern. On the other hand, the absence of a specific threat is not, in and of itself, sufficient to preclude closure. Other important facts include the nature of the threat and the degree to which it is realistic.
Similarly, the trial court failed to inquire into the number of buy and bust operations in which Officer Swift had participated.[15] The answer to this question may reveal, inter alia, indications of law enforcement's efforts to protect their undercover officers and the number of people who pose a threat of exposing the officer. The Court did discover that Officer Swift had testified before many grand juries. While this fact would appear to undermine *578 the need for closure, further inquiry into this topic is warranted. The degree to which exposure to a large number of local citizens affects undercover status relates to the central issue of the value or effectiveness of closure. Cf. In re Application of the Herald Co., 734 F.2d 93, 101 (2d Cir.1984) (inquiring into exposure of information prior to courtroom closure). There was no inquiry as to how Officer Swift arrived at the courthouse (by police car?), how he entered the courtroom (public or private entrance?). Additionally, the record is silent as to what the officer wore to court (police uniform?). Important factors also include possible actions that law enforcement can take to safeguard their officers. For example, an inquiry into the feasibility of disguise in the field (and, perhaps, in court) is merited by the constitutional importance of this issue. It is critical, too, that findings adequately supporting closure clearly demonstrate the factual basis for the other three Waller requirements.
Accordingly, this Court holds that the bare finding that an undercover officer will continue to operate in a given area and believes personal safety may be jeopardized from exposure of his or her identity does not, in and of itself, satisfy the Supreme Court's guidelines for the application of the Sixth Amendment. To hold otherwise would be to sanction an impermissible per se rule and to open the door for over-utilized, under-scrutinized courtroom closure. Cf. Ip, 710 F.Supp. at 918; Jones v. Henderson, 683 F.Supp. at 923.
Waller dictates that closure is to be "rare," permissible only when "the balance of interests [are] struck with special care." Id., 467 U.S. at 45, 104 S.Ct. at 2215; see also Vidal, 31 F.3d at 69 ("a courtroom can [not] be closed to a defendant's relatives [simply because] the relatives live (or, presumably, work) in the county where the undercover officer operates. Such a holding would violate the rule that closure is reserved for rare circumstances in which `the balance of interests [are] struck with special care'") (citations omitted); Cojab, 996 F.2d at 1405 ("power to close a courtroom where proceedings are being conducted during the course of a criminal prosecution ... is one to be very seldom exercised, and even then only with the greatest caution, under urgent circumstances, and for very clear and apparent reasons").
These circumstances involve highly important, but frequently competing, concerns. Consequently, courts must continuously strive to protect both the constitutional right and the governmental interest. Such a delicate balance demands nothing short of close judicial scrutiny and carefully tailored treatment.
2. Consideration of Reasonable Alternatives to Closure
Petitioner argues that the trial court failed to consider alternatives to full closure of the courtroom during Officer Swift's testimony. Brief of Petitioner In Support of Petition, ("Pet.Br.") at 13-14. It is manifest from review of the short record that the trial court failed to satisfy this prong of the Waller test. Nevertheless, this claim is unmistakably procedurally barred by virtue of the Appellate Division's determination that this "argument, first raised on appeal ... is [] unpreserved for appellate review by appropriate and timely objection (CPL § 470.05)." People v. Okonkwo, 574 N.Y.S.2d at 187. See Coleman, 501 U.S. 722, 111 S. Ct. 2546; Ylst, 501 U.S. 797, 111 S. Ct. 2590.
Therefore, pursuant to Fed.R.Civ.P. 72(b) and 28 U.S.C. 636(b)(1)(C), the Court accepts and adopts the Magistrate's recommendation to the extent it referred to the second and third Waller requirements.
[This] argument was raised for the first time on petitioner's direct appeal, and the [A]ppellate [D]ivision held that it was not preserved for review in that court. It is accordingly not open for consideration on federal habeas review under Coleman ...
Mag.Tr. at 38.[16]
*579 3. Breadth of the Closure
In respondent's brief to the Appellate Division, this Waller prong was inextricably linked to the alternatives prong.[17] Arguments presented by the parties to a state appellate court assist a reviewing court in its determination of what issues were presented where the state court's precise ruling is unknown. See Martinez, 675 F.2d at 54-55. While the Appellate Division did not specifically refer to the breadth of the closure,[18] this Court must, nonetheless, construe that opinion as creating a procedural bar to review of this claim. Id.; see also Epps v. Commissioner of Correctional Services, 13 F.3d at 618; Quirama, 983 F.2d at 13-14.
4. Existence of an Overriding Interest Likely to be Prejudiced
Respondent does not contend that the argument based on the first Waller requirement is procedurally defaulted. Indeed, the merits of this question predominated in the proceedings below. See People v. Okonkwo, 574 N.Y.S.2d at 187.
Protecting the life of an undercover officer has been deemed to constitute sufficient justification for closing a courtroom to the public. See e.g. Woods, 977 F.2d at 76-77 (quoting Ip v. Henderson, 710 F.Supp. at 918); see also Cojab, 996 F.2d at 1408; In re Application of the Herald Co., 734 F.2d at 100-101.[19] Moreover, there is precedent for the proposition that, partial closure that is, where at least some of the proceeding is open to the public only requires a substantial reason. See Woods, 977 F.2d at 77; see also Herring v. Meachum, 11 F.3d 374, 380 (2d Cir.1993), cert. denied, ___ U.S. ___, 114 S. Ct. 1629, 128 L. Ed. 2d 353 (1994).
The problem in this case, however, is that the trial court failed to make sufficient findings, as required by Waller. It did not substantiate its assumptions about the officer's and the government's interests. Accordingly, this Court is unable to determine or to approve the trial court's determination that closure was supported by a substantial reason or an overriding interest that was likely to be prejudiced.[20]
III. CONCLUSION
For the foregoing reasons, the petition for a writ of habeas corpus is conditionally granted. The case is remanded to the New York Supreme Court for an evidentiary hearing as to the propriety of the closure of the proceedings to the public during the testimony of the undercover officer. Such a remedy has been approved by the Court of Appeals of this Circuit. See e.g. Senna v. Patrissi, 5 F.3d 18, 20 n. 1 (2d Cir.1993) (per curiam); Howard v. Senkowski, 986 F.2d 24 (2d Cir. 1993); cf. Waller, 467 U.S. at 49-50, 104 S.Ct. at 2217; Jackson v. Denno, 378 U.S. 368, 391-396, 84 S. Ct. 1774, 1788-1791, 12 L. Ed. 2d 908 (1964).
Based on the evidence presented, the trial judge shall, consistent with this opinion and the legal principles enumerated herein, issue explicit findings. If those findings adequately support the order of closure, the conditional grant of the petition shall be vacated, and the writ shall not issue. Alternatively, if the findings compel the conclusion that closure was improper, or if sufficient evidence cannot be adduced at the hearing, then the petition shall be granted.
*580 The State may defer release of the prisoner pending final disposition of the writ. If a permanent writ is issued, the State may move the indictment for retrial within sixty days. Absent retrial or appeal, the prisoner shall be released from all custody arising from the conviction in question.
SO ORDERED.
By Opinion and Order dated June 2, 1995 ("the Opinion"), this Court issued a conditional writ of habeas corpus in the above-captioned matter. The case was remanded to the state trial court for an evidentiary hearing and findings with respect to closure of the courtroom to the public during a portion of Petitioner Okonkwo's trial. Petitioner now moves, pursuant to Fed.R.Civ.P. 52(b) and 59(e) for an order amending the Court's findings, issuing additional findings, or altering or amending the judgment. Because the procedural history and facts of this case are set out in the Opinion, they are only briefly discussed below.
BACKGROUND
Charles Okonkwo, a New York State prisoner, filed this petition for a writ of habeas corpus pursuant to 28 U.S.C. § 2254. Petitioner challenged his 1990 state court conviction, asserting that his Fourteenth Amendment rights and his Sixth Amendment right to a public trial were violated when the state trial court ordered closure of the courtroom during the testimony of an undercover police officer. Petitioner claims that order failed to satisfy the four requirements for closure set forth in Waller v. Georgia, 467 U.S. 39, 48, 104 S. Ct. 2210, 2216, 81 L. Ed. 2d 31 (1984).
This Court held that, by virtue of the decision of the New York State Supreme Court, Appellate Division, two of the four prongs of the Waller test were procedurally defaulted.[1] This Court also found that, in violation of the fourth prong of Waller, the trial court failed to make findings adequately supporting closure.[2] Due to the inadequate findings, review of the Waller prong requiring an overriding state interest likely to be prejudiced was impossible.[3] The case was remanded to the state trial court "for an evidentiary hearing as to the propriety of the closure of the proceedings to the public during the testimony of the undercover officer."[4] The trial court was directed to issue explicit findings to satisfy Waller. This motion followed.
DISCUSSION
A. The Legal Standard
Whether petitioner moved pursuant to the appropriate Federal Rules is questionable. Rules 52 and 59 pertain to trials and judgments. Nevertheless, petitioner's intent is clear, and this Court deems that his request constitutes a motion to reargue pursuant to Local Rule 3(j).
Courts in this District have clearly established the standard for moving to reargue.
The only proper ground on which a party may move to reargue an unambiguous order is that the court has overlooked [important facts or controlling law] which, had they been considered, might reasonably have altered the result reached by the court.
Adams v. U.S., 686 F. Supp. 417, 418 (S.D.N.Y.1988) (citations omitted); see also, Fulani v. Brady, 149 F.R.D. 501 (S.D.N.Y. 1993) ("[l]ocal Rule 3(j) is to be narrowly construed and strictly applied so as to avoid repetitive arguments on issues that have been considered fully by the court"), aff'd, 35 F.3d 49 (2d Cir.1994).
B. The Merits
1. Remand to State Court
The Opinion of this Court fully considered the law and facts of this case. Neither party argues that facts were overlooked or misinterpreted. Rather, the gravamen of *581 the motion regards the nature of the remedy designed by the Court in its June 2 Opinion. Specifically, this Court exercised its discretion in remanding the case to the trial court for explicit findings in compliance with the guidelines set by the Supreme Court and the Court of Appeals for the Second Circuit. See Opinion at pp. 576-578, 579.
Conditional writs or remands to state courts for findings is a practice supported by considerable authority. See e.g. Senna v. Patrissi, 5 F.3d 18, 20 n. 1 (2d Cir.1993) (per curiam); Howard v. Senkowski, 986 F.2d 24 (2d Cir.1993); Suggs v. LaVallee, 570 F.2d 1092, 1114 (2d Cir.1978); cf. Waller, 467 U.S. at 49-50, 104 S.Ct. at 2217; Jackson v. Denno, 378 U.S. 368, 391-396, 84 S. Ct. 1774, 1788-1791, 12 L. Ed. 2d 908 (1964).[5] Petitioner attempts to distinguish the cases the Opinion relies upon. See Brief of Petitioner at pp. 5-7; Opinion at p. 579. However, although those cases obviously have certain legal and factual distinctions from this case, the principle remains the same District Courts have wide discretion in addressing errors brought before them and fashioning judgments on petitions for habeas corpus. See e.g. Hilton v. Braunskill, 481 U.S. 770, 775, 107 S. Ct. 2113, 2118, 95 L. Ed. 2d 724 (1987). Such discretion unquestionably includes the power to hold hearings in the District Court, itself, Pagan v. Keane, 984 F.2d 61, 64 (2d Cir.1993), but the issue in this case is more appropriately addressed by the state court.
General notions of comity counsel that where, as here, an error was committed by a state court, it should be given an opportunity to correct its own error. Cf. Coleman v. Thompson, 501 U.S. 722, 731, 111 S. Ct. 2546, 2554, 115 L. Ed. 2d 640 (1991) (in a federal system, the States should have the first opportunity to address and correct alleged violations of state prisoner's federal rights); Darr v. Burford, 339 U.S. 200, 204, 70 S. Ct. 587, 590, 94 L. Ed. 761 (1950) ("it would be unseemly in our dual system of government for a federal district court to upset a state court conviction without an opportunity to the state courts to correct a constitutional violation"). The state court in this case should be given an opportunity to correct its own error, and the state court's findings are critical to the creation of a record for review.[6]
In sum, the Supreme Court's articulation of the importance of remands to state courts strongly supports this Court's Order. In a case that controls and parallels this case in more ways than one, the Court remanded:
[i]f, after a new [state court] hearing, essentially the same [result is reached], a new trial presumably would be a windfall for the defendant, and not in the public interest.
Waller, 467 U.S. at 50, 104 S.Ct. at 2217 (citations omitted). In Okonkwo's case, the trial court may well have determined that closure of the courtroom was appropriate after the proper analysis and fact finding. To order a new trial and deny that court the opportunity to correct its error would be an affront to comity and a potential windfall for the petitioner.
2. Procedural Default
Petitioner argues that trial counsel's objection to closure of the courtroom constitutes a single claim. Therefore, Okonkwo argues that his objection preserved all elements of the Waller test. Okonkwo contends that his general objection to closure, despite no reference to the Supreme Court's test, preserves a single claim. This argument, raised in his prior briefs to this Court, raises no new grounds and cites no controlling law overlooked by this Court. Further, this Court followed the procedural ruling of the *582 Appellate Division. That court interpreted its own state's statute and found that the contemporaneous objection requirement barred consideration of certain elements of the Waller test. The parties have not presented, and the Court is not aware of, authority rendering the Appellate Division's prong-by-prong analysis improper. The Court declines to rule that the Appellate Division erred in implicitly ruling that each prong of the Waller test constitutes an individual claim requiring preservation by specific objection under the New York statute.[7]
CONCLUSION
Because petitioner has not demonstrated that the Court overlooked any controlling law or material facts, the Motion to Reargue is denied. Barring appeal, the Order of this Court dated June 2, 1995 currently remains in effect in all respects consistent with this Opinion. This Court retains jurisdiction to review the trial court's findings. The Court specifically directs that such findings provide a sufficient record for substantiating all prongs of the test laid out in Waller.[8]
If this Court subsequently determines that the findings do not support closure, the petition will be fully granted and the writ shall issue. If the new findings support closure, the Court will deny the writ. As stated in the June 2 Order, the State may defer release of the prisoner pending final disposition of the writ.[9] The time for filing a notice of appeal or for commencing a new trial runs from the date this Opinion and Order issues.
SO ORDERED.
NOTES
[1] The petition was referred to U.S. Magistrate Judge Lee for report and recommendation by Order of Reference dated July 19, 1994. The report, issued on January 20, 1995, recommended denial of the petition. The reasons supporting the recommendation were read into the record by Magistrate Lee following oral argument on the petition. Transcript of Oral Argument, December 14, 1994, ("Mag.Tr.") at 31-40. Petitioner filed Objections to the Magistrate's Report and Recommendation with this Court on March 16, 1995.
[2] The history and fundamental importance of the Sixth Amendment and the right to a public trial are well settled and documented in both pre and post-Waller decisions. See e.g. Richmond Newspapers, Inc. v. Virginia, 448 U.S. 555, 563-575, 100 S. Ct. 2814, 2820-2826, 65 L. Ed. 2d 973 (1979); U.S. v. Cojab, 996 F.2d 1404, 1406-1407 (2d Cir.1993); United States ex rel. v. Vincent, 520 F.2d 1272, 1274-1275 (2d Cir.), cert. denied, 423 U.S. 937, 96 S. Ct. 296, 46 L. Ed. 2d 269 (1975).
[3] In respondent's brief to the Appellate Division, ("Resp.App.Br.") at 23, 25, the state argued that review was barred with respect to the second, third and fourth prongs of the Waller test, due to petitioner's failure to specifically object on those grounds at the Hinton hearing. The nature of the objections that petitioner raised at trial are discussed at § II.C.1.a., infra.
[4] Upon the issuance of Harris and Ylst, the Second Circuit reaffirmed its once-disfavored rule derived from Martinez v. Harris, 675 F.2d 51 (2d Cir.), cert. denied, 459 U.S. 849, 103 S. Ct. 109, 74 L. Ed. 2d 97 (1982). See Quirama v. Michele, 983 F.2d 12 (2d Cir.1993); see also Epps v. Commissioner of Correctional Services, 13 F.3d 615, 618 (2d Cir.) ("the Appellate Division's silent affirmance in the face of the State's argument that the claim was both procedurally barred and meritless should be presumed to rest on state procedural grounds"), cert. denied, ___ U.S. ___, 114 S. Ct. 1409, 128 L. Ed. 2d 81 (1994).
[5] It is noteworthy that New York courts also have permitted review of claims not preserved by objection where cases involve deprivations of fundamental constitutional rights, People v. Thomas, 50 N.Y.2d 467, 471, 429 N.Y.S.2d 584, 407 N.E.2d 430 (1980) or questions going "to the essential validity of the proceedings," People v. Patterson, 39 N.Y.2d 288, 296, 383 N.Y.S.2d 573, 347 N.E.2d 898 (1976), aff'd sub nom. Patterson v. New York, 432 U.S. 197, 97 S. Ct. 2319, 53 L. Ed. 2d 281 (1977). See also Rice v. Hoke, 846 F.2d 160, 163 (2d Cir.1988); Rodriguez v. Scully, 788 F.2d 62, 65 (2d Cir.1986).
[6] Due to the particular circumstances of this case, though without consequence to the analysis, the Waller requirements are most appropriately considered out of order.
[7] This provision states, in relevant part:
[f]or purposes of appeal, a question of law with respect to a ruling or instruction of a criminal court during a trial or proceeding is presented when a protest thereto was registered, by the party claiming error, at the time ... or at any subsequent time when the court had an opportunity of effectively changing the same. Such protest need not be in the form of an "exception" but is sufficient if the party made his position with respect to the ruling or instruction known to the court.... In addition, a party who without success has either expressly or impliedly sought or requested a particular ruling or instruction, is deemed to have thereby protested the court's ultimate disposition of the matter or failure to rule or instruct accordingly sufficiently to raise a question of law with respect to such disposition or failure regardless of whether any actual protest thereto was registered.
Respondent does not contend that petitioner's trial counsel failed to object in some form to the closure as a whole. See Mag.Tr. at 28. Nor has respondent contended that counsel failed to object to the finding that the government demonstrated a sufficient interest. In fact, the extent to which counsel's objection relates to each individual prong of the Waller test is unclear. It is clear, however, that the objection incorporated opposition to the closure order as a whole and the reasons stated in support. See Tr. at 8-9. No authority controls analysis of this type of objection in the context of the individual Waller prongs.
[8] Although not expressly stated, there is strong support for the argument that the Appellate Division based its ruling primarily on legal, rather than factual, issues arising from the Hinton hearing. Indeed, petitioner has consistently asserted that he principally sought review of legal findings. See Mag.Tr. at 7-11; Reply Brief in Support of Petition at 4-5.
In addition to the standard of review employed by the Appellate Division, CPL § 470.15(4) lends further support to this position:
[t]he kinds of determinations of reversal or modification deemed to be upon the law include, but are not limited to, the following:
(a) That a ruling or instruction of the court, duly protested by the defendant, as prescribed in subdivision two of section 470.05, at a trial resulting in a judgment, deprived the defendant of a fair trial ...
[9] This is one of the critical elements distinguishing Okonkwo's petition from the petitions considered in the cases following Martinez. Unlike those cases, the Appellate Division's affirmance of Okonkwo's conviction was not without opinion or a merits determination.
Even if the Appellate Division were deemed to have remained silent on certain procedural issues, the record reflects that it affirmed a bare trial court ruling one apparently neglecting to consider the controlling precedent of Waller. The Appellate Division did not affirm a "reasoned state judgment" needed to lend the foundation for an implicit procedural bar. See Ylst, 501 U.S. at 803, 111 S.Ct. at 2594; Epps, 13 F.3d at 618-619.
In any case, in the absence of a specific Appellate Division ruling on each Waller prong, no bar exists with respect to the prongs on which it was silent. This, simply, is due to the fact that petitioner objected to closure of the courtroom in essence, to the failure to properly apply the Waller test as a whole. Finally, this Court's consideration of the merits of the "findings" claim is further justified, given the indication in the record that counsel did, in fact, register a timely protest with respect to this prong of Waller. See supra, note 7.
[10] See Tr. at 3-8.
[11] The objection, not made formally, may be considered a general protest or implied exception. See supra, note 4; CPL § 470.05(2).
[12] In fact it appears that the trial court could not have performed its duties based on the sparse facts elicited at the hearing.
[13] Indeed, this Court does not reject the factual findings made by the trial court, per se. Nevertheless, respondent's argument, that the factual findings of the trial court are entitled to a presumption of correctness, pursuant to 28 U.S.C. § 2254(d) is inapposite at this time. See Resp. Br. at 5.
[14] See e.g. Woods, 977 F.2d at 76-77.
[15] This information was, however, revealed at trial. Officer Swift stated that he had participated in "[w]ell over 125" buy and busts in hardly more than one year. Tr. at 26.
[16] Additionally, petitioner has not raised either standard argument for circumventing the bar: (a) demonstration of cause for the default and actual prejudice or (b) the fact that failure to reach the merits will result in a fundamental miscarriage of justice. See Coleman, 501 U.S. at 750, 111 S.Ct. at 2565.
A finding of cause would be tenuous in any case, given the absence of claims such as ineffective assistance of counsel. Similarly, a finding of prejudice would be suspect, given the absence in the record of any proof that any particular person was excluded from the courtroom. Tr. at 2, 24.
[17] "Defendant further argues that the order to close the courtroom was overly broad because, in his view, the trial court did not consider reasonable alternatives to closure." Resp.App.Br. at 22.
Petitioner's brief did not address the distinctions between these two prongs. See Brief for Defendant-Appellant ("Def.App.Br.") at 9-10.
[18] See People v. Okonkwo, 574 N.Y.S.2d at 187.
[19] It should be noted that In re Herald was decided one month prior to Waller, and the Cojab decision did not employ the language, "overriding interest that is likely to be prejudiced." Waller, 467 U.S. at 48, 104 S.Ct. at 2216.
[20] Petitioner submitted to the Appellate Division that an entire line of New York cases had ignored the requirements in Waller and were, therefore, suspect. Def.App.Br. at 6-7. While this Court need not address this issue, it is beyond cavil that New York state courts, indeed the courts of all states, must comport with the minimal requirements demanded by the Constitution as explicitly enunciated in Waller.
[1] See Opinion at pp. 578-579; People v. Okonkwo, 176 A.D.2d 163, 574 N.Y.S.2d 186 (1st Dept. 1991) (pursuant to N.Y.Criminal Procedure Law § 470.05(2), failure to interpose timely objection rendered claim unpreserved for appellate review), lv. denied, 79 N.Y.2d 862, 580 N.Y.S.2d 733, 588 N.E.2d 768 (1992).
[2] See Opinion at pp. 575-578.
[3] Id. at p. 579.
[4] Id. at p. 579.
[5] The Tenth Circuit has decided a case particularly on point. See Smith v. Atkins, 678 F.2d 883, 885 (10th Cir.1982) ("[w]here such state court factual determinations are lacking, and are necessary to address the issue presented in the federal habeas proceeding, the district court in its discretion may order an evidentiary hearing in the federal court or, alternatively, may determine that further exhaustion through state collateral proceedings is necessary").
[6] Interestingly, respondent finds himself in a somewhat curious position. He concedes that where a federal court determines that material facts were inadequately developed in a state court hearing, 28 U.S.C. § 2254(d)(3) removes the presumption of correctness attached to those findings. Indeed, respondent opposed the petition for habeas corpus in its original briefs, but chose to defend the conditional writ to the extent it calls for a remand and an evidentiary hearing. See Brief of Respondent at pp. 4-7.
[7] It is noteworthy that last week the Second Circuit decided a case governed by Waller. See United States v. John Doe, 63 F.3d 121 (2d Cir. 1995). That decision does not cast the reasoning or holding of this Court in a questionable light. Among other things, the Court of Appeals noted that the same approach to the Waller test applies regardless of whether the prosecution or the defense requests (or objects to) closure. Id. at 128. The panel also noted that concerns for an individual's personal safety can justify closure. Id. at 127. Of further import to the case before this Court, the Court of Appeals remanded to the District Court for factual findings consistent with the Waller test. Id. at 131.
[8] See Opinion at p. 578. The Court also takes this opportunity to reaffirm its substantive holding regarding the findings requirement of the Waller test. While the Court declines to enumerate a list of requisite inquiries that future closure orders are compelled to address, any such orders must adhere to a minimal formula. Simply, closure must be grounded upon a reasonable basis in fact, and well-supported findings must document that reasonable basis on the record.
[9] See Opinion at p. 579; see also Hilton v. Braunskill, 481 U.S. at 775, 107 S.Ct. at 2118; Dowd v. United States ex rel. Cook, 340 U.S. 206, 210, 71 S. Ct. 262, 264, 95 L. Ed. 215 (1951). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1571723/ | 546 S.W.2d 99 (1977)
Darlene Ruth BOWMAN, Appellant,
v.
Phyllis Bowman SIMPSON, Appellee.
No. 7900.
Court of Civil Appeals of Texas, Beaumont.
January 6, 1977.
Rehearing Denied February 3, 1977.
*100 Andrew C. Brown, Houston, for appellant.
Stephen Wayne Hanks, Houston, for appellee.
KEITH, Justice.
The appeal is by the widow of the decedent from a judgment of the probate court finding that two particular items of property constituted assets of the estate.
Fred E. Bowman died intestate leaving as his survivors our appellant, Darlene Ruth Bowman his widow; and Phyllis Bowman Simpson, his daughter by a prior marriage and sole descendant. During the existence of the marriage of the decedent and appellant, they had accumulated a fund approximating $20,000 which was on deposit in an account in Contintental Emsco Federal Credit Union, and a number of valuable coins worth in excess of $12,400 were in a safe deposit box in a bank.
The cause was submitted upon an agreed stipulation of facts which included the following:
As to the Credit Union balance: (1) on November 4, 1963, decedent and his wife executed a "Joint Share Account Agreement" applicable to such deposits, wherein they agreed with each other and with the credit union that "[a]ll sums now paid in on shares, or heretofore or hereafter paid in on shares by [either] of said joint owners to their credit as such joint owners with all accumulations thereon, are and shall be owned by them jointly, with right of survivorship"; (2) the parties intended to create joint interests with right of survivorship in and to all deposits made pursuant to such agreement; and (3) the credit union was and is one organized under the pursuant to Title 12, United States Code Annotated § 1751 (1969), et seq.
The safe deposit rental agreement applicable to the box wherein the coins were kept was executed by the decedent and wife on May 29, 1967, contained a Co-Tenancy Agreement providing, in substance:
"[I]t is agreed that each (or either) of the undersigned is the owner of the present and future contents of the box and that in the event of death of any (or either) of the undersigned, the survivors or survivor shall have the right to withdraw said contents."
The stipulation recites that the parties intended to create joint interests with right of survivorship in the property in such box, and that all sums of money deposited in said box were placed therein pursuant to the agreement.
The stipulation is silent as to any other steps which the decedent and his wife may have taken in their efforts to create a joint tenancy in and to the funds and coins with a right of survivorship.[1] Under the rule governing review of agreed cases, we are not permitted to draw any inference or find any fact not embraced in the agreement unless as a matter of law such further inference or fact is necessarily compelled by the evidentiary facts agreed upon. Brown v. International Service Insurance Company, 449 S.W.2d 491, 492 (Tex.Civ. App.Beaumont 1969, writ ref'd n. r. e.), and cases therein cited.
Appellant's first point of error is based upon an amalgam of three diverse elements: She argues that the Supremacy Clause of the federal constitution (Art. VI, Cl. 2) makes a federal statute [12 U.S.C.A. *101 § 1759 (1969)][2] operative in Texas under the rationale of Free v. Bland, 369 U.S. 663, 82 S. Ct. 1089, 8 L. Ed. 2d 180 (1962). Thus, appellant contends that since the federal statute permits the use of joint tenancy agreements with right of survivorship, it is supreme in the field and governs shares (deposits) in federal credit unions. We find no merit in the contention, and the point is overruled.
A well-written opinion by the Supreme Judicial Court of Maine faced the precise question now urged by appellant and rejected the contention after reviewing the legislative history of the federal statute. We follow DiPierro v. Dudley, 317 A.2d 824, 827-828 (Maine Sup.Ct.1974), where it was held:
"We thus conclude that the amendment to Section 1759 in 1946 was not intended to create a type of joint tenancy which would contravene state law but only to place the various federal credit unions in a position of competitive equality with other banking institutions serving the same geographical areas."[3]
Free v. Bland, supra, is readily distinguishable from the facts in the case at bar. The survivorship provision relating to savings bonds issued by the United States Government prevails over State law because it is an integral part of the exercise of federal power, and directly involves the interests of the Federal government as a borrower. This is made abundantly clear by two short excerpts which we take from Free v. Bland, supra:
"Article I, § 8, Clause 2, of the Constitution delegates to the Federal Government the power `[t]o borrow money on the credit of the United States.' Pursuant to this grant of power, the Congress authorized the Secretary of the Treasury, with the approval of the President, to issue savings bonds in such form and under such conditions as he may from time to time prescribe . . .." (369 U.S. at 666, 82 S.Ct. at 1092).
* * * * * *
"The success of the management of the national debt depends to a significant measure upon the success of the sales of the savings bonds. The Treasury is authorized to make the bonds attractive to savers and investors. One of the inducements selected by the Treasury is the survivorship provision, a convenient method of avoiding complicated probate proceedings." (369 U.S. at 669, 82 S.Ct. at 1093).
In this instance, the dispute is wholly between two individuals, and the rights of the federal government are in no manner involved. See Bank of America National Trust and Savings Association v. Parnell, 352 U.S. 29, 33, 77 S. Ct. 119, 1 L. Ed. 2d 93 (1956). The Supreme Court, in Free, supra, recognized that state law will control in cases where the litigation is between two private parties (as in Parnell, supra) and does not "intrude upon the rights and duties of the United States." (369 U.S. at 669, 82 S.Ct. at 1094). Point of error number one is overruled.
We quote appellant's second point of error:
"The trial court committed reversible error by refusing to recognize the survivor's ownership of property located in a safe deposit box the contents of which were controlled by a joint tenancy with right of survivorship agreement."
The appellant-widow argues that the decision in Hilley v. Hilley, 161 Tex. 569, 342 S.W.2d 565 (1961), as explained in Williams v. McKnight, 402 S.W.2d 505 (Tex.1966), along with the adoption of Tex. Family *102 Code Ann. § 5.42 (1975), authorized the creation of a joint tenancy with right of survivorship by the single simple act of signing the bank form governing the safe deposit box. We disagree and overrule such point of error.
The Supreme Court, in Hilley, supra, held that as to separate property, the spouses could create a joint tenancy between them with right of survivorship. But, as pointed out in Williams v. McKnight, supra:
"When the property is initially community, it must be rendered separate by statutory partition before survivorship rights arise from a joint tenancy agreement between husband and wife." (402 S.W.2d at 507) (Emphasis added)
This is, necessarily, a two-step procedure: First, the partition of the community property must be effected in accordance with the provisions of Tex. Family Code Ann. § 5.42 (1975); then, after such partition has been effected, the joint tenancy agreement with right of survivorship may be entered into. We have no indication that the first step was ever taken in this case.
Appellant seemingly recognizes that a two-step proceeding is required but argues that the agreement (safe deposit signature card) effected a partition while simultaneously creating a right of survivorship. This argument was rejected in Williams v. McKnight, supra (402 S.W.2d at 508), and is rejected here.
The judgment of the probate court finding that the money on deposit with the federal credit union and the safe deposit box was properly included in the estate of the decedent was correct and is affirmed.
AFFIRMED.
STEPHENSON, J., not participating.
NOTES
[1] See Williams v. McKnight, 402 S.W.2d 505, 508 (Tex.1966). See also, Texas Family Law (Speer's 5th Ed., Simpkins, 1976) § 22.17, pp. 448-450.
[2] The federal statute noted, insofar as material to this case, reads: "Shares [connoting membership in a Federal credit union] may be issued in joint tenancy with right of survivorship with any persons designated by the credit union member, but no joint tenant shall be permitted to vote, obtain loans, or hold office, unless he is within the field of membership and is a qualified member."
[3] It was the 1946 amendment to the basic statute which permitted such unions to issue shares in joint tenancy with a right of survivorship. Historical note following 12 U.S.C.A. § 1759 (West 1969, p. 17). Later amendments to § 1759 did not affect this language added in 1946. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1571742/ | 546 S.W.2d 329 (1976)
ESTATE of Jackie White EBERLING et al., Appellants,
v.
J. Roll FAIR et al., Appellees.
No. 19037.
Court of Civil Appeals of Texas, Dallas.
December 13, 1976.
Rehearing Denied January 27, 1977.
*330 John R. Feather, Feather & Kessler, Dallas, for appellant.
Gordon H. Rowe, Jr., Gardere, Porter & DeHay, Dallas, for appellee.
*331 GUITTARD, Justice.
This suit began as an action to establish an undivided interest in 177 acres of land and for partition. Before trial, counsel for all parties attempted to settle the controversy and to that end exchanged four letters. Defendants, however, refused to recognize the letters as a binding settlement. Plaintiffs then amended their petition, alleged that the four letters constituted a binding agreement, and prayed for a declaration of rights. Plaintiffs also filed a motion for partial summary judgment, which the trial court granted, reserving for jury trial issues concerning the effect of one aspect of the agreement. After trial and verdict on these issues, the court rendered judgment for plaintiffs enforcing the agreement as interpreted by the verdict. Defendants appeal. We hold that the four letters do not constitute a binding contract because essential terms are not agreed on, and for like reasons, we hold that they are unenforceable as a memorandum in writing to satisfy the Statute of Frauds, Tex.Bus. & Comm.Code Ann. § 26.01(b)(4) (Vernon 1968).
The four letters are as follows, with our captions and emphasis added:
(1) Defendants to Plaintiffs, April 22, 1974
In order to settle the captioned litigation, I am authorized to commit to the ownership of a total of an undivided 2/9th interest by your clients, J. Roll Fair and Roy R. Fair, Jr., in the real estate which is the subject of the captioned litigation, if they will exercise one of the following options in writing within the period of fifteen (15) days following the date of this letter:
1. J. Roll Fair and Roy R. Fair, Jr., together, may specify a dollar value per acre for the subject land and my client will have the option to either buy the 2/9 th interest from or sell the 7/9th interest to your clients at the dollar value specified, OR
2. Your clients may elect to buy the 7/9th interest or sell the 2/9th interest and my client will specify the dollar value at which they will buy or sell.
In either instance the party setting the value per acre will be firmly obligated to buy from or sell to the other party depending upon the election of the other party at the elected value.
Please let me have your clients' election or a response declining this offer at your earliest convenience.
(2) Plaintiffs to Defendants, May 6, 1974
I am writing on behalf of my clients, the two plaintiffs in the above styled matter pending in the 95th District Court, Roy R. Fair, Jr., and J. Roll Fair, to accept on their behalf the second option proposed by you in your letter dated April 22, 1974.
Your letter of that date listed two options for settling the above styled litigation in full. The second option in your letter is as follows:
2. Your clients may elect to buy the 7/9th interest or sell the 2/9th interest and my client will specify the dollar value at which they will buy or sell.
It is this option which my clients are accepting as to the land in litigation, that being 177 acres in Dallas County, Texas, near Seagoville, which property is described in full in Plaintiffs' First Amended Petition on file and which is also described in Exhibit A attached to this letter of acceptance.
With the acceptance by my clients, your client will now specify the dollar value of the 177 acre tract and my clients will then have the option* of either buying out your client's interest for an amount of money equal to 7/9th of the total value of the property as set by your client, or to sell their interest to your client for an amount of money equal to 2/9 th of the total value of the property as set by your client.
* Please advise me as to the length of time my clients will have to make their decision. If you think it reasonable, I would suggest 30 days.
EXHIBIT A
(Description by metes and bounds.)
*332 (3) Defendant to Plaintiffs, July 17, 1974
On behalf of my client in the captioned matter, pursuant to the procedures instituted by my letter to you of April 22, 1974, I will place a value on the subject tract of $750.00 per acre.
Your letter to me of May 6, 1974, described the land as 177 acres. This area should be reduced by a sufficient area to accommodate the house which is situated partially on the subject tract.
In order to complete the contemplated transaction, please have your clients make their election to buy or sell within twenty (20) days from the date of this letter and advise me in writing of their election.
Within fifteen (15) days from the date of your advice to me mentioned in the preceding paragraph, we will close this transaction by the seller executing a special warranty deed conveying to the purchaser the appropriate interest under our arrangement and the purchaser shall pay to the seller, in cash or certified funds, the appropriate purchase price calculated by using $750.00 per acre times the total area (less the portion agreed upon to accommodate the house) times the appropriate fraction (2/9ths or 7/9ths as the case may be).
When the conveyance and payment of the purchase price described in the preceding paragraph are completed, the pending litigation should be dismissed with prejudice as to all parties.
(4) Plaintiffs to Defendants, August 1, 1974
Reference is made to your letter of July 17, 1974, wherein a value on the tract of land involved in the above styled and numbered suit was set by your client at $750 per acre.
Within the time provided by the terms of that letter this is to advise that my clients, the plaintiffs, elect to buy the property at the $750 per acre price.
In your letter of July 17, 1974, you refer for the first time to a reduction of the 177 acres `* * * by a sufficient area to accommodate the house which is situated partially on the subject tract.'
In order to give recognition to the 2/9ths interest owned by the plaintiffs in the full 177 acres and at the same time `accommodate the house' owned by the defendants, the plaintiff's should receive 2/9 ths of $750 times the numbers of acres agreed upon to `accommodate the house.' Thereafter, that number of acres shall be subtracted from the 177 total acres and the resulting figure multiplied by $750 per acre times 7/9ths. I am sure this is what you meant in your letter when you said `accommodate' since it would be the only reasonable and fair way in which to set aside part of the total acreage for the house.
I have tried to reach you by telephone in order to discuss with you the amount of land necessary `to accommodate the house' but have not been successful in reaching you as of the time of the writing of this letter. Upon receipt of the letter please call me so that we can discuss this and a survey of the appropriate strip in order for a title policy to be given the purchasers in conjunction with the special warranty deed.
Please provide me with the name of the grantor so that I can begin preparation of the deed.
I would also like to discuss with you the closing of the transaction as referred to in your letter of July 17, 1974, both as to time and to place.
Immediately upon the closing I will cause the above styled and numbered suit to be dismissed with prejudice.
The problem arises from the second paragraph of the third letter, in which, for the first time, defendants propose that the land specified in the previous letter should be "reduced by a sufficient area to accommodate the house." The evidence shows that the house in question was located partly on the 177-acre tract and partly on other land owned by defendants and not involved in the suit. Although plaintiffs agreed in the fourth letter that an exception should be made for this purpose, the parties have *333 never come to an agreement concerning the exact area or location of the land to be excepted.
The trial court attempted to resolve this matter by granting a partial summary judgment declaring the contract binding and submitting to the jury special issues to determine the size and location of "a sufficient area to accommodate the house." These issues and the jury's answers are as follows:
Special Issue No. 1: Find from a preponderance of the evidence the size or dimensions of that portion of the 177 acre tract sufficient to reasonably accommodate that portion of the house in question which is situated on said tract:
You are instructed that your answer shall be any one of the following:
(1) The area shaded in pencil on plaintiff's Exhibit No. 37;
(2) The area outlined in red on defendants' Exhibit No. 3;
(3) The fenced area now situated around said house;
(4) The number of feet projected at right angles from the foundation of the house on the front, back and side.
Let the form of your answer be either (1), (2), (3), or (4).
Answer: (4)
If you have answered (4), then state the distance in feet from the foundation of the house on the following sides:
Front: 1,391 feet
Back: 200 feet
Side: 200 feet.
Based on this verdict, judgment was rendered declaring the contract to be binding and further declaring:
[T]hat the portion of the 177 acre tract sufficient to reasonably accommodate that portion of the house in question which is partially situated on said tract of 177 acres is so much of said tract of 177 acres that is included in a rectangle described as and being of the following dimensions: 200 feet projected at a right angle from the foundation of the house on the back, 200 feet projected at a right angle from the foundation of the house on the side, and 1391 feet projected at a right angle from the foundation of the house on the front.
Defendants contend on this appeal that the judgment is erroneous because the contract was not complete in its essential terms and that the omission was not cured by leaving to the jury the definition of "a sufficient area to accommodate the house." We agree.
Plaintiffs argue that to be enforceable the contract need only be reasonably certain and that a fair reading of the letters shows that the parties agreed to a reduction from the original 177-acre tract within meaningful and legally enforceable limits, which the jury merely interpreted and applied. We cannot accept this theory. In our view, the contract does not have the requisite certainty, either as a matter of contract law or as a matter of the sufficiency of the writing to satisfy the Statute of Frauds. Under contract law, a contract, whether written or oral, must define its essential terms with sufficient precision to enable the court to determine the obligations of the parties. Bryant v. Clark, 163 Tex. 596, 358 S.W.2d 614, 616 (1962); Moore v. Dilworth, 142 Tex. 538, 179 S.W.2d 940, 941 (1944).
This principle was applied to a land identification problem in National Resort Communities, Inc. v. Cain, 526 S.W.2d 510, 514 (Tex.1975) in which a contract concerning the sale of lake lots was held not subject to equitable reformation because the lots were not sufficiently identified by the oral agreement. Likewise, in Smith v. Griffin, 131 Tex. 509, 116 S.W.2d 1064 (1938), an oral agreement alleged to be outside the Statute of Frauds because of part performance was held to be insufficient to identify the land because, although the agreement described the land as two acres in rectangular form and specified the beginning corner and two of the boundaries, an indefinite number of rectangular tracts containing two acres could have been constructed in accordance with the agreement. In the present case, *334 the description of the excepted tract is even more indefinite, since not even the area is specified. Determination of "a sufficient area to accommodate the house" may vary indefinitely according to the subjective judgment of the person making the determination, as may also the boundaries of the excepted tract. These possible variations are exemplified by the differing positions of the parties at the trial, as well as by the alternatives submitted to the jury, all of which were consistent with the language of the agreement.
Moreover, the language of the letters suggests that the parties did not regard the expression "a sufficient area to accommodate the house" as adequately identifying the excepted tract. In the fourth letter plaintiffs' counsel requests that defendants' counsel contact him to discuss the amount of land to be excepted and also a survey of the excepted tract. Thus it is clear that further negotiations were contemplated but that these negotiations were not successful in producing an agreement concerning the identity of the land to be excepted. It is well settled that courts cannot make contracts for the parties and that an agreement to enter into negotiations in the future cannot be enforced because the court has no means to determine what sort of contract the negotiations would have produced. Radford v. McNeny, 129 Tex. 568, 104 S.W.2d 472, 474 (1937); Miller v. Vaughn & Taylor Construction Co., 345 S.W.2d 852 (Tex.Civ.App.Fort Worth 1961, writ ref'd n. r. e.). Likewise, although courts are reluctant to hold a contract void for uncertainty, they have no authority to interpolate terms of material consequence in order to uphold it. Dahlberg v. Holden, 150 Tex. 179, 238 S.W.2d 699, 701 (1951). Consequently, in this case, the trial court had no authority to ask the jury to supply an essential term in the contract, which the parties were unable to complete by mutual agreement.
The same result follows if the letters are considered from the standpoint of a written agreement or memorandum under the Statute of Frauds, Tex.Bus. & Comm. Code Ann. § 26.01(b)(4) (Vernon 1968). The test of sufficiency under the statute is whether the writing furnishes within itself or by reference to some other existing writing the means or data by which the particular land to be conveyed may be identified with reasonable certainty. Resort cannot be had to extrinsic evidence for the purpose of supplying the location or description of the land, but may be had only for the purpose of identifying it with reasonable certainty from the data in the memorandum. Wilson v. Fisher, 144 Tex. 53, 188 S.W.2d 150, 152 (1945). By this standard, extrinsic evidence would not have been proper to show an oral agreement identifying the excepted tract, and certainly no such evidence was proper for the purpose of enabling the jury to determine for the parties what they failed to determine for themselves by agreement. Our analysis of the uncertainty of the contract with respect to the size and location of the "area sufficient to accommodate the house" is applicable also to the matter of sufficiency of the written description under the Statute of Frauds.
Plaintiffs contend further that the agreement should be enforced as an oral partition, which may be considered as not within the Statute of Frauds on the theory that a partition is not a conveyance of land but merely a division of previously undivided interests. See Aycock v. Kimbrough, 71 Tex. 330, 12 S.W. 71, 72 (1887).[1] This argument is untenable because, as we have already held, even apart from the Statute of Frauds, the four letters do not contain the essential elements of a binding contract, and plaintiffs do not allege an oral agreement sufficiently identifying the land. Moreover, the agreement contained in the letters, as interpreted by the trial court, constitutes more than a partition. It does *335 not purport merely to divide the 177-acre tract between the parties in accordance with their previously undivided interests. It purports to be an executory contract whereby plaintiffs agree to "buy" and defendants agree to "sell," for a stated consideration in money, all of defendants' interest in the entire 177-acre tract, except an insufficiently defined area around the house. Clearly, this is a "contract for the sale of real estate" within the Statute of Frauds, Tex.Bus. & Comm.Code Ann. § 26.01(b)(4) (Vernon 1968), and in the absence of a proper written description of the excepted tract or written data which, if applied to the land, would identify the excepted tract with reasonable certainty, the agreement cannot be judicially enforced.
We recognize that in the cases cited by plaintiffs, the theory of oral partition has been applied to situations in which the cotenants owned both land and personal property and, by agreement, all of the land was allotted to one or more of the cotenants. See Houston Oil Co. v. Kirkindall, 136 Tex. 103, 145 S.W.2d 1074, 1077 (1941); Murrell v. Mandlebaum, 85 Tex. 22, 19 S.W. 880, 882 (1892).[2] These cases, and the theory of oral partition as well, have been criticized on the ground that the cotenant actually receives additional title to the segregated tract and also the exclusive right of possession, which he did not have before. Comment, Misconceptions of Parol Partitions in Texas in Light of Statute of Frauds Requirements, 23 Baylor L.Rev. 75, 78, 95 (1971). The supreme court has not gone so far, however, as to apply the theory of oral partition to a situation in which one cotenant has simply bought the interest of the other by paying his own individual funds.[3] Thus, in Zanderson v. Sullivan, 91 Tex. 499, 502, 44 S.W. 484, 485 (1898), where two adjoining lots were owned in common but one was more valuable because of its corner location, an oral agreement for one cotenant to take the corner lot and pay $1,000 for the difference in value was held to be a contract of sale within the Statute of Frauds.
Plaintiffs concede that the transaction contemplated by the letters was a sale of land insofar as it involved the conveyance, for a monetary consideration, of an undivided seven-ninths interest, but they assert that since the entire 177-acre tract is sufficiently described in the letters, segregation of the excepted area from the land to be conveyed was a "partition," which is not required to be in writing. This argument is untenable because the uncertainty in the size and location of the area to be excepted leaves uncertain the area to be conveyed. The letters do not provide for conveyance of the entire 177 acres less a defined undivided interest that may subsequently be located and partitioned. Since the interest to be excepted is insufficiently described, so also is the interest to be conveyed. Consequently, under general principles of contract law, as well as the Statute of Frauds, the agreement cannot be enforced.
Our holding on this point is supported by Stekoll Petroleum Co. v. Hamilton, 152 Tex. 182, 255 S.W.2d 187, 192 (1953), which concerned an option to acquire mineral leases on 4,000 acres out of a certain 5,000-acre block. The contract provided that the buyer might select the 4,000 acres, "leaving Seller 1,000 acres equitably checker-boarded in a fashion similar to the checker-boarding in the first block above identified." The supreme court held that this language left *336 indefinite and uncertain the land to be reserved to the seller, and also, consequently, the land to be acquired by the buyer. Likewise, in Perry v. Connelly, 462 S.W.2d 383 (Tex.Civ.App.Beaumont 1971, writ ref'd n. r. e.), a lease of a building and an adjoining parking area was held too indefinite for enforcement because of reservation by lessor of the right "to cut off a portion of the northwest corner of the building for ingress and egress to the north side of the building." The reservation in the present case of "a sufficient area to accommodate the house" is no more definite than the reservations in these two cases.
On oral argument plaintiffs raised the contention, which we do not find in their brief, that the first two letters establish a binding contract because the second letter was an unqualified acceptance of the first, and that if the subsequent modification with respect to the land around the house fails because of lack of identification of the excepted tract, the original contract is evidenced by the first two letters is still enforceable. According to this theory, plaintiffs argue that only the exception fails for lack of a definite description and that the contract is otherwise enforceable. Thus, plaintiffs urge that defendants have no standing to complain of the court's action in giving them the benefit of an exception, which, though poorly described, they would not be entitled to insist upon under their own original proposal accepted by plaintiffs.
We cannot accept this theory because plaintiffs did not attempt in their amended petition or in their motion for summary judgment to enforce the contract embodied in the first two letters alone. Whether plaintiffs would have been entitled to relief on this theory is a question we need not decide since it is not before us. The partial summary judgment rendered by the trial court was based on the ground, which we hold to be erroneous, that the four letters constituted a binding contract and that the uncertainty in defining the area excepted was a matter to be resolved by the jury. Since we conclude that the judgment based on that theory cannot stand, we reverse and remand for a new trial.
Reversed and remanded.
CLAUDE WILLIAMS, C. J., not sitting.
NOTES
[1] But see Wardlow v. Miller, 69 Tex. 395, 399, 6 S.W. 292, 294 (1887), in which an oral partition was sustained on the ground that the Statute of Frauds does not prohibit a parol conveyance of an interest in real estate. This holding apparently ignores the statute of conveyances, the predecessor of Tex.Rev.Civ.Stat.Ann. art. 1288 (Vernon 1962).
[2] In Murrell the land was a partnership asset, and the division between the partners may be sustained on the theory of equitable conversion. Comment, Misconceptions of Parol Partitions in Texas in Light of Statute of Frauds, Requirements, 23 Baylor L.Rev. 75, 77 (1971). The opinion indicates, however, that the supreme court was not content to rest its decision on that theory since it expressly invoked the doctrine of oral partition.
[3] Plaintiffs cite Loston v. Loston, 424 S.W.2d 316 (Tex.Civ.App.Houston [14th District] 1968, writ dism'd), in which the court enforced an oral agreement providing that a husband should pay to his wife on their divorce one-half of the appraised value of the homestead in settlement of her property rights. This case may be understood as a division of community assets rather than a sale, and thus as not extending the holdings in Kirkindall and Murrell, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2438670/ | 547 S.W.2d 559 (1977)
Judy KANE (Higgason), Appellant,
v.
Samuel Thomas KANE, Appellee.
Supreme Court of Tennessee.
March 7, 1977.
Charles L. Hendrix, Nashville, for appellant.
W.B. Hogan, Nashville, for appellee.
OPINION
BROCK, Justice.
This is a proceeding in the Circuit Court for Davidson County in which appellant seeks to acquire custody of her daughter from her former husband, the appellee.
The parties were divorced in 1964 by decree of the General Sessions Court of Robertson County which also awarded custody of their child to the mother, appellant. Although the parties were residents of Davidson County and their separation occurred in that county, the divorce action was filed in *560 Robertson County. Thereafter, in 1971, application was made to the General Sessions Court of Robertson County for a modification of its decree and the father, appellee, was awarded custody of the child. We conclude from the record that still other proceedings involving the same issues between these parties have been brought before the same court. Now, however, appellant, being dissatisfied with the latest decree of that court, seeks to overturn it by resort to the Circuit Court for Davidson County. The trial judge has repelled her attempt, holding that the parties are bound by the proceedings and decrees of the General Sessions Court of Robertson County which has continuing jurisdiction over the issues asserted by appellant in this action. We are in complete agreement with that conclusion.
A court in which an action for divorce is brought and which renders a decree respecting the care, custody and support of minor children continues to have jurisdiction of such matters until the children reach majority. T.C.A. § 36-828; Morrissey v. Morrissey, 214 Tenn. 112, 377 S.W.2d 944 (1964). Furthermore, this jurisdiction is exclusive. Sutton v. Sutton, 220 Tenn. 410, 417 S.W.2d 786 (1967).
However, appellant seeks to avoid the effect of this rule by asserting that the General Sessions Court of Robertson County never acquired "jurisdiction." She bases her argument upon T.C.A. § 36-804 which provides:
"Venue of Action. The bill or petition may be filed ... in the county where the parties reside at the time of their separation, or in which the defendant resides, if a resident of the state; but if a nonresident or a convict, then in the county where the applicant resides.
"Any divorce granted prior to May 4, 1967 will not be deemed void solely on the ground that the parties to the divorce action were residents of a county or counties other than the county in which said divorce decree was entered."
Since the parties did not reside in Robertson County when their separation occurred and the defendant in the divorce action did not reside in that county, she argues that the first paragraph of the statute, abovequoted, precluded the court in Robertson County from acquiring jurisdiction. Even if she were correct in this insistence, it would appear that the second paragraph of the statute has cured the defect.
But, she is not correct. She confuses venue with jurisdiction. Venue is the personal privilege of a defendant to be sued in particular counties; it may be waived and is waived by a defendant who defends upon the merits without first interposing an objection to improper venue. Jurisdiction is lawful authority of a court to adjudicate a controversy brought before it; jurisdiction of the subject matter is conferred by the constitution and statutes, jurisdiction of the parties is acquired by service of process. See Corby v. Matthews, Tenn., 541 S.W.2d 789 (1976).
Clearly, T.C.A. § 36-804 merely deals with venue of divorce actions; it is so designated in the code, "Venue of Action " (underscoring added); and it has been so interpreted many times by this Court, Williams v. Williams, 193 Tenn. 133, 244 S.W.2d 995 (1951); Ivey v. Ivey, 212 Tenn. 650, 371 S.W.2d 448 (1963).
There is nothing in this record to indicate that the defendant in the original divorce suit objected to the bringing of the action in Robertson County; thus, the right of venue was waived. Nor is there any suggestion that the defendant was not served with process, hence no lack of jurisdiction of the person is shown. Finally, there is no question raised of the statutory authority of the General Sessions Court of Robertson County to entertain suits for divorce and to award custody of children of the marriage; therefore, no lack of jurisdiction of the subject matter is shown. Accordingly, the attempt of the appellant to attack the validity of the jurisdiction and decrees of the General Sessions Court of Robertson County has totally failed. This being true, the jurisdiction of that court over the custody of the child of these parties continues to be exclusive, under the circumstances shown in this case.
*561 The decree of the trial court is affirmed. Appellant and surety will pay the costs incident to this appeal.
COOPER, C.J., and FONES and HARBISON, JJ., concur.
HENRY, J., not participating. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917499/ | 993 A.2d 1163 (2010)
192 Md. App. 172
CHESAPEAKE BAY FOUNDATION, INC., et al.
v.
David CLICKNER, et ux.
No. 01525 September Term, 2008.
Court of Special Appeals of Maryland.
April 30, 2010.
*1165 Jon A. Mueller, Annapolis, MD and Ann M. Fligsten, Arnold, MD (Amy E. McDonnell, Annapolis, MD, on the brief), for Appellants.
Harry C. Blumenthal and Eileen E. Powers (Blumenthal, Delavan & Williams, PA, on the brief), Annapolis, MD, for Appellees.
Panel: JAMES R. EYLER, ZARNOCH and KEHOE, JJ.
KEHOE, Judge.
The Chesapeake Bay Foundation, Inc. ("CBF") and the Magothy River Association, Inc. ("MRA"), appellants, opposed two zoning variance applications filed by David and Diana Clickner, appellees, for property located in Anne Arundel County (the "County"). The variance applications were initially considered by a County administrative hearing officer (the "AHO"), who granted them. Appellants appealed that decision to the Anne Arundel County Board of Appeals (the "Board"). The Board dismissed appellants' appeal on the ground that appellants lacked standing to appeal. On July 14, 2008, the Circuit Court for Anne Arundel County affirmed the Board's decision. Appellants now appeal the judgment of the circuit court.
Appellants present the three issues, which we have reworded for purposes of this opinion:
1. Did the Board apply the wrong standard for administrative standing?
2. Was the Chesapeake Bay Foundation or the Magothy River Association aggrieved by the decision of the administrative hearing officer?
3. Did the Board of Appeals err in denying intervention to an MRA member who resided in close proximity to the subject property?
We will answer "yes" to the first question. In light of our disposition of that issue, it is necessary for us to remand this case to the Board so that it can address the second question. The third issue is not preserved for appellate review.
Factual and Procedural Background
Appellees own Big Dobbins Island ("the Island"), which is located in the Magothy River in Anne Arundel County. The Island is located within the Chesapeake Bay Critical Area and is subject to those provisions of the Anne Arundel County Zoning Ordinance that restrict development activities in the Critical Area. Appellees applied for variances from provisions of the County's zoning regulations to permit them to construct a driveway, a storm water management structure, septic tanks and a well, all to be located within the Island's shoreline *1166 buffer area[1] and to build a pier on the Island even though there was no residence on the Island. Following a hearing before the Office of Administrative Hearings, the presiding AHO conditionally granted the variances on December 18, 2006. Appellants appealed that decision to the Board.
Prior to a hearing on the merits, appellees filed a motion to dismiss the appeal on the ground that appellants were not "aggrieved," as that term has been defined in Maryland cases, most prominently, Bryniarski v. Montgomery Co., 247 Md. 137, 230 A.2d 289 (1967). Appellees contended that the Anne Arundel Code provided that only persons aggrieved by a decision of an administrative hearing officer had the right to appeal such a decision to the Board. Therefore, reasoned appellees, CBF and MRA lacked standing. The Board held an evidentiary hearing on the motion to dismiss that extended over two evenings. At the hearing, appellants advanced two arguments. First, they contended that the "aggrievement" standard did not apply to appeals to the Board. Second, they presented evidence and argument to demonstrate that they were, in fact, aggrieved. The following pertinent evidence was adduced at the hearing.
Appellees presented the testimony of Wayne A. Newton, a professional civil engineer, in support of their motion to dismiss. Newton identified twenty-two properties located within one-half mile of the Island, located those properties on an aerial photograph and prepared a list of those properties. He testified that neither CBF nor MRA owned property located within one-half mile of the Island. His testimony was unrefuted.
Appellants called Mark McInnes, a member of both CBF and MRA, who testified that he owned property located approximately 50 feet from the mainland portion of appellees' property. Mr. McInnes stated that the grant of the variances would aggrieve him because:
[He and his wife] bought this custom home and paid a lot of money for it because of its view, looking out on Dobbins Island.
[He] believe[s] that with [the] pier and [the] pontoon boat and all the other things that [appellees are] proposing doing there, [his] house could drop $200,000 in value.
[He and his kids] fish in the pond there where [appellees] want[ ] to put a pier.... [T]he wildlife is there that [he and his family] bought [their] house to enjoy. [They're] concerned about what [appellees are] going to do with the septic system.
The Board sustained appellees' objection to further testimony regarding how Mr. McInnes would be personally aggrieved since he was not a party to the AHO proceeding or the appeal to the Board.
MRA also presented the testimony of David Radford, another member of both MRA and CBF. Mr. Radford stated that he owned property located about 10 feet from the mainland portion of appellees' property, within sight of the Island. Although Mr. Radford was a party to the AHO proceeding, he was not allowed to testify as to his special harm because he did not appeal the AHO's decision, and *1167 was thus not a party to the proceeding in front of the Board.
The dive coordinator of MRA's diving team, Richard Carey, testified that, since 2000, MRA's diving teams have planted oysters purchased by the MRA on eight oyster reefs located in the Magothy River. Carey testified that, during the summer, MRA's divers are on the river "at least two to three times a week." An aerial photograph was introduced, identifying specific reefs and their locations. Carey testified that significant erosion and runoff into the river would damage the oysters on the reefs. He stated that MRA has a license from the State to sample the oyster reefs, which are otherwise closed to the harvest of oysters. On cross-examination, he admitted that MRA did not own the oyster reefs. In response to a question from a Board member, Carey stated that MRA's oyster projects, if conducted by a commercial enterprise, would cost over one million dollars.
Paul Spedero, the president of MRA, testified that MRA, working in conjunction with, among other organizations, Maryland Department of Natural Resources, is a party to a five-year plan to restore oysters in the Magothy River. As part of this effort, the MRA negotiated an agreement with watermen to close the Magothy River to oyster harvesting. He testified that the MRA provided technical and volunteer assistance to the DNR and County agencies in order to improve water quality in the Magothy River. He testified that MRA had spent $126,990 and expended 31,212 volunteer hours in improving water quality in the Magothy River between 1992 and the date of the hearing.
CBF presented testimony from three staff members and one volunteer to support its allegations of special damage to the corporation and as a representative of its members' interests. Amelia Koch, director of membership, testified that six CBF members live within one-half mile of the Island. The director of CBF's oyster restoration program, Stephanie Reynolds, testified that, while CBF does not own or lease any land from the State, it has worked on four reef sites in the River. The director of education operations, Matthew Mullen, testified that CBF takes students and teachers on field trips to the River. Volunteer Karl Treff testified that CBF planted submerged grasses at two sites located approximately three fourths of a mile from the Island.
At the beginning of the second day of the hearing, August 1, 2007, Mr. McInnes moved to intervene in the appeal. His counsel[2] argued:
[H]e relied on the Magothy River Association to represent his interest in this appeal and he entered into an agreement for this with Magothy River in the spring. However, if the challenge to the standing of the Magothy River and Chesapeake Bay Foundation is successful, that will leave his interest in the matter unprotected....
Appellees opposed the motion, arguing that it was premature because the Board had not yet determined whether MRA or CBF had standing. The Board denied Mr. McInnes' motion to intervene without explanation.
At the close of the hearing and after discussion on the record, the Board voted four to three to dismiss the appeal for lack of standing. On November 29, 2007, the Board issued a written Memorandum Opinion setting forth its findings of fact and conclusions of law. The following *1168 findings and conclusions of the majority[3] of the Board are pertinent:
The Anne Arundel County Code (the "Code") provides that a "person aggrieved" by a decision of the Office of Planning and Zoning may appeal to this Board. See, Code, Section 3-1-14(c) and see also Section 18-16-402. The status of aggrievement has been the subject of numerous judicial rulings, which have sought to define the term. See e.g., Bryniarski v. Montgomery Co., 247 Md. 137, 230 A.2d 289 (1967). For an appellant to be deemed "aggrieved", the appealed decision must affect the appellant in a personal and special way that is different from that suffered by the public generally. DuBay v. Crane, 240 Md. 180, 213 A.2d 487 (1965). However, an adjoining, confronting or nearby property owner is deemed, prima facie, to be specially damaged. Bryniarski. ...
* * * *
To challenge the fact of aggrievement of a nearby property owner, the party challenging such fact has the burden to show that the appellant is not specially aggrieved. Id. Here, the Petitioners have convinced us that the Protestants are not prima facie aggrieved or specially aggrieved. The Protestants presented witnesses and evidence to show that they are each specially aggrieved; but we are not persuaded.
* * * *
The subject property is an island.... We believe ... that owners of parcels within sight, sound or smell of this island would have sufficient standing to maintain an appeal....
* * * *
While acknowledging that they do not own or lease real property within sight or sound of the subject island, both the CBF and the MRA urged the Board to consider them specially aggrieveddifferent from the public at large. There is no question that both the CBF and the MRA have been and are engaged in oyster bed and [aquatic] grass planting activities on the Magothy.... We have assumed that the oyster and vegetation planting efforts ... occur within sight, sound[,] taste and smell of Dobbins Island. However, we do not believe that the conduct of these activities result in the Protestants['] being aggrieved, specially, from the public at large.
Any citizen can access the waters of the Magothy. The waters surrounding this island are State owned and regulated.... So long as an individual obeys all laws and regulations, any individual has as much right to be on the Magothy, and next to this island, as the CBF or the MRA.
The CBF and the MRA provide opportunities to raise and release oysters and grasses into the Magothy River. However, we fail to see how the release of items of personalty into the public waters results in the CBF and MRA being specially aggrieved by development activities on this island. Once a grass or oyster is released into the wild *1169 (or at least State owned waters), there cannot be a continuing property interest in it.
* * * *
The Protestants' argument that they have sufficient standing to maintain an appeal before this Board pursuant to the principles of Sugarloaf Citizens' Association v. Dept. of Environment, 344 Md. 271, 686 A.2d 605 (1996) is off point. The Sugarloaf case provides that the requirements for administrative standing are relatively lenient and not very strict, but only in the absence of a statute or regulation specifying criteria for administrative standing. The Anne Arundel County Code has a clear statute that requires parties to an appeal to be aggrieved. See, Code, Section 3-1-104(c) and see also Section 18-16-402.
The Board then dismissed the appeal for lack of standing. Appellants filed a timely petition for judicial review in the Circuit Court for Anne Arundel County. At the conclusion of a hearing on July 14, 2008, the circuit court affirmed the Board's dismissal for lack of standing.
Appellants now appeal the decision of the circuit court affirming the Board's dismissal. We will discuss additional facts as necessary.
Discussion
When this Court reviews the decision of an administrative agency, such as the Board, we look through the circuit court's decision and evaluates the decision of the agency. People's Counsel for Balt. County v. Surina, 400 Md. 662, 681, 929 A.2d 899 (2007) (citing Mastandrea v. North, 361 Md. 107, 133, 760 A.2d 677 (2000)). In doing so, an appellate court "may not substitute its judgment for the administrative agency's in matters where purely discretionary decisions are involved, particularly when the matter in dispute involves areas within that agency's particular realm of expertise, so long as the agency's determination is based on `substantial evidence.'" Surina, 400 Md. at 681, 929 A.2d 899 (citing, among other cases, Bd. of Physician Quality Assurance v. Banks, 354 Md. 59, 68-69, 729 A.2d 376 (1999); and Mayor of Annapolis v. Annapolis Waterfront Co., 284 Md. 383, 398, 396 A.2d 1080 (1979)).
We will uphold the agency's findings of fact if they are "fairly debatable" upon the evidence before the agency. Surina, 400 Md. at 682, 929 A.2d 899; Bd. of County Comm'rs for Cecil County v. Holbrook, 314 Md. 210, 216-17, 550 A.2d 664 (1988). However, "`[g]enerally, a decision of an administrative agency, including a local zoning board, is owed no deference when its conclusions are based upon an error of law.'" People's Counsel for Balt. County v. Loyola College in Md., 406 Md. 54, 68, 956 A.2d 166 (2008) (quoting Belvoir Farms Homeowners Ass'n, Inc. v. North, 355 Md. 259, 267-68, 734 A.2d 227 (1999)).
With these principles in mind, we turn to the specific contentions raised by the parties.
Before this Court, appellants argue that the Board of Appeals applied the incorrect standard for determining standing in an administrative proceeding. They contend that State law is clear that the requirements for standing for participation in administrative proceedings are relaxed and informal. They point to the Court of Appeals opinion in Sugarloaf v. Dept. of Environment, 344 Md. 271, 286-87, 686 A.2d 605 (1996), as authority for that proposition. They contend:
To require a different standard will not only be contrary to law but also discourage citizen involvement in the administrative process. A citizen or *1170 organization needs to be able to adequately protect its personal and property rights or those of its members.
* * * *
Despite being advised by CBF and MRA of the ruling in Sugarloaf and the lessened standard of standing review in administrative proceedings, the Board ignored the ruling of the Court of Appeals and misapplied the law of standing. The Board held that because the Anne Arundel County Code has a statute that requires parties to an appeal to be aggrieved, Sugarloaf does not apply. The Board's decision is incorrect.
For their part, appellees do not quarrel with appellants' position that Sugarloaf accurately summarizes the current Maryland law on administrative standing. However, they correctly point out that the Sugarloaf opinion recognizes that a specific statute or regulation may impose a more restrictive test. See Sugarloaf, 344 Md. at 286, 686 A.2d 605. Appellees contend that §§ 3-1-104(a) and 18-16-402 of the County Code provide that a would-be appellant must be both "aggrieved" by the AHO's decision as well as a party to the proceeding before the AHO. Appellees then analyze the evidence adduced at the Board hearing to support their contention that the Board's decision that CBF and MRA were not aggrieved by the AHO's decision to grant the variance was based on substantial evidence. Appellees state that the analysis employed by the Court of Appeals in Bryniarski, 247 Md. at 144-5, 230 A.2d 289, is controlling and that the Board correctly applied it to the facts of the instant case.
I.
As the parties note in their briefs, Maryland land use cases draw a distinction between an "interested party" and an "aggrieved party" for purposes of standing in administrative proceedings. The Court of Appeals has explained:
The requirements for administrative standing under Maryland law are not very strict. Absent a statute or a reasonable regulation specifying criteria for administrative standing, one may become a party to an administrative proceeding rather easily. In holding that a particular individual was properly a party at an administrative hearing, Judge J. Dudley Digges for the Court in Morris v. Howard Res. & Dev. Corp., 278 Md. 417, 423, 365 A.2d 34 (1976), explained as follows:
He was present at the hearing before the Board, testified as a witness and made statements or arguments as to why the amendments to the zoning regulations should not be approved. This is far greater participation than that previously determined sufficient to establish one as a party before an administrative agency. See, e.g., Baxter v. Montgomery County, 248 Md. 111, 113, 235 A.2d 536 (1967) (per curiam) (submitting name in writing as a protestant); Bryniarski v. Montgomery Co., 247 Md. 137, 143, 230 A.2d 289, (1967) (testifying before agency); Hertelendy v. Montgomery Cty., 245 Md. 554, 567, 226 A.2d 672 (1967) (submitting into evidence letter of protest); DuBay v. Crane, 240 Md. 180, 184, 213 A.2d 487 (1965) (identifying self on agency record as a party to proceedings); Brashears v. Lindenbaum, 189 Md. 619, 628, 56 A.2d 844 (1948) (same). Bearing in mind that the format for proceedings before administrative agencies is intentionally designed to be informal so as to encourage citizen participation, we think that absent a reasonable agency or other regulation providing for a more formal method of becoming a party, *1171 anyone clearly identifying himself to the agency for the record as having an interest in the outcome of the matter being considered by that agency, thereby becomes a party to the proceedings.
More recently, Judge McAuliffe for the Court in Maryland-Nat'l v. Smith, supra, 333 Md. at 10, 633 A.2d 855, summarized Maryland law relating to status as a party in administrative proceedings:
Morris and other cases of this Court indicate that the threshold for establishing oneself as a party before an administrative agency is indeed low. [W]e have said that one's presence at the hearing and testimony in favor of an asserted position is sufficient....
Sugarloaf, 344 Md. at 286-87, 686 A.2d 605.
The concept of "aggrievement" is considerably less expansive. In order to be "aggrieved" by an administrative decision, a person must have
[a]n interest "`such that he is personally and specifically affected in a way different from ... the public generally.'" Medical Waste v. Maryland Waste, 327 Md. 596, 611 n. 9, 612 A.2d 241 (1992) (quoting Bryniarski v. Montgomery Co., 247 Md. at 144, 230 A.2d 289). See DuBay v. Crane, 240 Md. 180, 185, 213 A.2d 487 (1965) ("the [administrative] decision must not only affect a matter in which the protestant has a specific interest or property right but his interest therein must be such that he is personally and specially affected in a way different from ... the public generally").
Sugarloaf, 344 Md. at 288, 686 A.2d 605.
Bryniarski is the landmark case in Maryland on "aggrievement" as a requirement for standing in land use appeals. The Bryniarski Court explained:
Generally speaking, the decisions indicate that a person aggrieved by the decision of a board of zoning appeals is one whose personal or property rights are adversely affected by the decision of the board. The decision must not only affect a matter in which the protestant has a specific interest or property right but his interest therein must be such that he is personally and specially affected in a way different from that suffered by the public generally.... The circumstances under which this occurs have been determined by the courts on a case by case basis, and the decision in each case rests upon the facts and circumstances of the particular case under review. Certain principles, however, have evolved. They are as follows:
* * * *
2. In cases involving appeals under the provisions of a zoning ordinance:
* * * *
(b) An adjoining, confronting or nearby property owner is deemed, prima facie, to be specially damaged and, therefore, a person aggrieved. The person challenging the fact of aggrievement has the burden of denying such damage in his answer to the petition for appeal and of coming forward with evidence to establish that the petitioner is not, in fact, aggrieved....
(c) A person whose property is far removed from the subject property ordinarily will not be considered a person aggrieved But he will be considered a person aggrieved if he meets the burden of alleging and proving by competent evidenceeither before the board or in the court on appeal if his standing is challengedthe fact that his personal or property rights are specially and adversely affected by the board's action.
* * * *
*1172 4. If any appellant is a person aggrieved, the court will entertain the appeal even if other appellants are not persons aggrieved.
247 Md. at 144-45, 230 A.2d 289 (citations omitted).
As we have indicated, a majority of the Board applied the "aggrievement" standard in deciding that neither CBF nor MRA had standing to appeal the AHO's decision. This portion of the Board majority's analysis was based upon two provisions of the Anne Arundel County Code. Section 18-16-402 provides:
A person aggrieved by a decision of the Administrative Hearing Officer who was a party to the proceedings may appeal to the Board of Appeals within 30 days after the date upon which the memorandum [of the AHO's decision] was filed....
Similarly, County Code § 3-1-104(a) provides that a "person aggrieved by a decision of the [AHO] who was a party to the proceedings may appeal the decision to the Board." For the purpose of our analysis, we will assume, without deciding, that, in order to have standing to appeal the AHO's decision to the Board, either the MRA or the CBF must have been aggrieved by the AHO's decision.[4] Our review *1173 of the record in this case leads us to the conclusion that the Board misinterpreted the "aggrievement" test. In its decision, the majority of the Board focused upon the fact that neither CBF nor MRA asserted a property interest in the vicinity of Big Dobbins Island. First, the Board majority correctly noted that, since neither appellant owned real property in close proximity to the Island, neither was prima facie aggrieved:
[B]y MRA and CBF's own admission, they neither own nor lease any real property in or near the Magothy River. They do not own or lease any oyster beds or beds for aquatic grasses. The Protestants are not prima facie aggrieved.
The Board majority proceeded to evaluate the evidence to determine if the appellants were nonetheless aggrieved. The Board noted that:
There is no question that both the CBF and the MRA have been and are engaged in oyster bed and [aquatic] grass planting activities on the Magothy.... We have assumed that the oyster and vegetation planting efforts ... occur within sight, sound taste and smell of Dobbins Island. However, we do not believe that the conduct of these activities results in the Protestants being aggrieved, specially, from the public at large.
The Board concluded that the appellants were not aggrieved because
we fail to see how the release of items of personalty into the public waters results in the CBF and MRA being specially aggrieved by development activities on this island. Once a grass or oyster is released into the wild (or at least State owned waters), there cannot be a continuing property interest in it.... [T]hese animals are owned by the citizens of the State of Maryland, once released.
* * * *
The CBF and MRA are noble organizations whose goals include the best interest of the citizenry through their work on environmental health for the Magothy and the Chesapeake. However, any member of the public, with sufficient assets, could do the same. These activities do not represent an ownership interest in property that render the Protestants more aggrieved than the public at large.
(Emphasis added.)
In focusing exclusively upon property rights, the Board erred.
In Bryniarski, the Court of Appeals explained:
[A] person aggrieved by the decision of a board of zoning appeals is one whose personal or property rights are adversely affected by the decision of the board. The decision must not only affect a matter in which the protestant has a specific interest or property right but his interest therein must be such that he is personally and specially affected in a way different from that suffered by the public generally.
Bryniarski, 247 Md. at 144, 230 A.2d 289 (citing DuBay v. Crane, 240 Md. 180, 185, 213 A.2d 487 (1965)) (emphasis added). Thus, contrary to the Board's analysis, property ownership is not a prerequisite to aggrievement.
Jordan v. Hebbville, 369 Md. 439, 442, 800 A.2d 768 (2002), is instructive in that it is an aggrievement case that did not involve an assertion of property ownership. In that case, the Court of Appeals considered whether a holder of a Baltimore *1174 County towing license had standing to appeal the issuance of a towing license to another entity. Id. The Court stated:
At the administrative level appellees were "aggrieved" under the relevant Baltimore County Code section because their businesses are directly affected by the issuance of an additional towing license in the geographical area where they alone hold licenses. A party is aggrieved and there is standing if the party suffers some "special damage ... differing in character and kind from that suffered by the general public." In Sugarloaf, 344 Md. at 295, 686 A.2d 605, this Court discussed aggrievement and emphasized that standing does not depend on the type of issue raised or its likelihood of success and stated:
"Therefore, standing to challenge governmental action, and the merits of the challenge, are separate and distinct issues.... `The fundamental aspect of standing is that it focuses on the party seeking to get his complaint before a ... court and not on the issues he wishes to have adjudicated'." [Citations omitted [[by Jordan]].]
369 Md. at 442-43, 800 A.2d 768. (Footnote and some citations omitted.)
Therefore, in order to demonstrate standing to the Board, appellants must demonstrate that they have "a specific interest..." that will be affected "personally and specially ... in a way different from... the public generally" by the proposed development. Because the Board majority focused exclusively on the question of property ownership, the Board, analyzing the facts of the case under an incorrect definition of aggrievement, did not make findings sufficient for us to determine whether or not appellants have a personal interest that will be affected personally and specially in a way distinct from the general public.
There is a great deal of evidence in the record that is not contested. Appellants presented evidence to the Board that they have invested substantial amounts of volunteer time, as well as money, on various submerged aquatic vegetation and oyster reef restoration projects in the Magothy River. The appellants also obtained permits from the State of Maryland in order to further their objectives. CBF has a scientific collection permit from the State of Maryland Department of Natural Resources ("DNR"). That permit allows CBF the right to go back, inspect and retrieve some oysters and reefs in the Magothy River. MRA has a scientific license from the State of Maryland, which permits MRA to take oyster samples, seed the reefs and dive off the reefs in the Magothy River as part of a monitoring program. The testimony from the appellants was that there are few, if any, other such licenses for the River. This evidence was unchallenged by appellees. On remand, the Board must determine whether these investments of time and money and the permits the appellants hold[5] are sufficient to satisfy the first prong of the test for aggrievement.
As to the second part of the test, i.e. whether appellants' interests would be affected in a way different than those of the general public, the Board majority concluded that, since the State owns the submerged aquatic vegetation and the oysters planted by appellants, appellants had no ownership interest in them and thus could not be aggrieved. The majority's logic is faultyownership is not required to establish *1175 aggrievement. The proper question for the Board is whether the appellants would be affected differently than the general public by the grant of the variances. That the public generally has an interest in minimizing or avoiding sediment or other run-off in the State's waters is not, by itself, dispositive. See Sugarloaf, 344 Md. at 295, 686 A.2d 605 (The concept of standing "`concerns ... the question whether the interest sought to be protected by the complainant is arguably within the zone of interests to be protected or regulated by the statute ... in question.'") (quoting Assn. of Data Processing Service Org. v. Camp, 397 U.S. 150, 153, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970)). We will, therefore, reverse the decision of the Board and remand the matter to it to determine whether either party[6] meets the correct definition of "aggrieved."[7] In addition, the parties may present argument and evidence regarding the matters discussed in footnote 4 of this opinion in order to establish an adequate record for an eventual judicial resolution of those issues.
II.
Whether the Board erred in refusing to permit Mr. McInnes to intervene in the proceedings before it is not before us as he did not appeal the Board's ruling. See Maryland Rule 8-131(a).
THE JUDGMENT OF THE CIRCUIT COURT FOR ANNE ARUNDEL COUNTY IS REVERSED AND THIS CASE IS REMANDED TO IT WITH INSTRUCTIONS TO REMAND THE SAME TO THE ANNE ARUNDEL COUNTY BOARD OF APPEALS FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS OPINION. COSTS TO BE PAID BY APPELLEES.
NOTES
[1] The "buffer" is a naturally vegetated strip of land running along a shoreline, generally at least 100 feet in width, to be "managed to protect aquatic, wetlands, shoreline, and terrestrial environments from man-made disturbances." MD.CODE ANN., NAT. RES. § 8-1802(a)(4) (2000, 2007 Repl.Vol., 2009 Supp.). Section § 17-8-301(b) of the County Code does not permit the construction of driveways, septic tanks, storm water management structures, or wells within the buffer.
[2] Mr. McInnes was represented by the lawyer representing MRA.
[3] The opinion is somewhat unusual because only two members (Chairman McKnight and Member Rzepkowski) signed it. Two other members (McKechnie and Boring) filed separate concurring opinions. Both concurring members expressed the view that the aggrievement standard set out in Bryniarski v. Montgomery Co., 247 Md. 137, 144-45, 230 A.2d 289 (1967), applied to the case and that neither the CBF nor the MRA was "aggrieved" under that standard. Both concurring opinions also made it clear that their authors believed that the provisions of the County Code mandated application of that test. Thus, for the purposes of resolving the issues in this appeal, the three opinions are conceptually identical.
[4] The assumption is at least questionable. Anne Arundel County is a charter county, exercising local government powers through the Express Powers Act, Article 25A of the Annotated Code. The Board was established, and functions under, the grant of authority to the County contained in Art. 25A § 5(U). See Halle v. Crofton Civic Ass'n., 339 Md. 131, 140, 661 A.2d 682 (1995). Art. 25A § 5(U) authorizes the councils of charter counties to enact legislation establishing boards of appeal and authorizing those boards to decide appeals "on [the] petition of any interested person...." (Emphasis added.)
With regard to charter counties, Article XI-A § 3 of the Maryland Constitution provides in pertinent part:
All such local laws enacted by the Mayor of Baltimore and City Council of the City of Baltimore or the Council of the Counties... shall be subject to the same rules of interpretation as those now applicable to the Public Local Laws of this State, except that in case of any conflict between said local law and any Public General Law now or hereafter enacted the Public General Law shall control.
(Emphasis added.)
Article XI-A § 3 makes it clear that, with regard to charter counties:
The General Assembly maintains the right to trump local legislation. Local legislatures are limited, even when legislating a subject within their express powers, in that they may not pass laws that conflict with public general laws....
D. Friedman, THE MARYLAND STATE CONSTITUTION A REFERENCE GUIDE 222 (2006).
Thus, to the extent that the County Code conflicts with Art. 25A § 5(U), § 5(U) may control. See Boulden v. Mayor & Comm'rs of Elkton, 311 Md. 411, 415, 535 A.2d 477 (1988) ("[i]t is, of course, axiomatic that a municipality may be given power to legislate concurrently with the General Assembly. In cases of conflict, however, the public general law must prevail ...." (citations omitted)); and Committee for Responsible Development on 25th Street v. Baltimore, 137 Md.App. 60, 75, 767 A.2d 906 (2001) ("where there is a conflict between a Baltimore City ordinance and a public general law of the State, the public general law controls"). See also Hope v. Baltimore County, 288 Md. 656, 664, 421 A.2d 576 (1980) (A Baltimore County ordinance permitting direct appeals from the planning commission to the circuit court was inconsistent not only with the county charter but also with Art. 25A § 5(U) and was therefore invalid. "There would have been no need to insert in Constitution Art. XI-A, § 1 the provision that public local laws were to be thereby repealed unless it had been contemplated that the people of a county adopting a charter might thereby enact charter provisions inconsistent with prior acts of the General Assembly.")
We decline to decide this case on the basis of the issues adumbrated in this footnote. These matters were not briefed by the parties nor argued to us. In addition, we typically afford the affected local government an opportunity to address the issue before deciding a question of the validity of a local law. Anne Arundel County is not a party to this case.
[5] MRA sought to introduce a copy of its license into the record; the Board refused to admit it. The specific terms of the licenses may be helpful in determining the nature of the appellants' interests.
[6] "It `is a settled principle of Maryland law that, "where there exists a party having standing to bring an action ... we shall not ordinarily inquire as to whether another party on the same side also has standing."'" Garner v. Archers Glen, 405 Md. 43, 54, 949 A.2d 639 (2008) (quoting Sugarloaf, 344 Md. at 297, 686 A.2d 605, quoting in turn People's Counsel v. Crown Dev. Corp., 328 Md. 303, 317, 614 A.2d 553 (1992)).
[7] We note that Chapters 650 and 651 of the Acts of 2009, effective January 1, 2010, directly address standing requirements for both administrative and judicial appeals of applications for variances to the application of local critical area land use ordinances. Section 3 of each act provides that it is not applicable "to any variance application filed with a local Critical Area program before January 1, 2010." Chapters 650 and 651 are inapplicable to the instant appeal. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/236997/ | 223 F.2d 609
53 A.L.R.2d 548, 96 U.S.App.D.C. 144
Joseph W. BUCHANAN, Appellant,v.MASSACHUSETTS PROTECTIVE ASSOCIATION, Inc., a bodycorporate, Appellee.
No. 12086.
United States Court of Appeals, District of Columbia Circuit.
Argued Dec. 13, 1954.Decided March 3, 1955.Petition for Rehearing In Banc D$enied March 18, 1955.
Mr. Jo V. Morgan, Jr., Washington, D.C., with whom Mr. Duane G. Derrick, Washington, D.C., was on the brief, for appellant.
Mr. Louis M. Denit, Washington, D.C., with whom Messrs. Thomas S. Jackson and Richard A. Bishop, Washington, D.C., were on the brief, for appellee.
Before BAZELON and WASHINGTON and BASTIAN, Circuit Judges.
BAZELON, Circuit Judge.
1
Appellant, the insured under two health and accident policies issued by the appellee, brought suit on the policies in the Municipal Court for the District of Columbia. That suit resulted in a judgment for appellee, which was affirmed by the Municipal Court of Appeals for the District of Columbia,1 and subsequently we allowed this appeal.
2
About three months before his sixtieth birthday, appellant became totally disabled by disease and the appellee duly made payments to him under the policies. But when appellant reached his sixtieth birthday, appellee reduced the payments by fifty per cent. The question is whether such reduction is authorized under the policies. Since the pertinent provisions of the two policies are substantially identical (the chief difference being that one is set upon a weekly basis and the other on a daily basis), it will be sufficient if we confine our discussion to the policy designated as 'The Perfection Policy.'
3
The claim is founded upon Clauses 'A' and 'C' of the policy. Clause 'A' provides:
4
'Total Disability from Accident or Disease. If such injuries or disease result in continuous total disability requiring the regular and personal attendance of a licensed physician, the Association will pay during the continuance of such disability Fifty Dollars per week, as hereinafter limited.'
5
Clause C provides for certain additional payments if the insured is hospitalized or under the care of a registered nurse. The appellee does not question that the disability here comes within the coverage of these clauses of the policy, but it asserts that Clause 'N' of the policy effects a fifty per cent reduction in the benefit payments due under Clauses 'A' and 'C' from the date of the insured's sixtieth birthday. Clause 'N' reads:
6
'The term of this policy commences upon the date hereof and runs until the insured's seventieth birthday. After the insured passes his sixtieth birthday all indemnities payable under this policy will automatically be reduced Fifty Per Cent.'
7
But the appellant replies that the reduction is intended to apply only to disabilities arising after age sixty and has no effect upon those arising earlier and continuing thereafter.
8
The appellee argues, and the court below held, that the language of Clause 'N' is unambiguous and leaves no room for construction. To us, however, a provision reducing 'all indemnities payable' after age sixty does not-- when read in the context here presented-- clearly and unambiguously convey that disability benefits already in course of payment are to be affected. The motive for purchasing health and accident insurance is to provide a modest but steady income during periods of disability. It is seriously to be doubted that such insurance could as successfully be sold if the insurance company were to announce to its prospects that at the age of sixty their sustenance was to be cut in half and, we observe, no such suggestion appears in the application form which is part of the policy under Clause 'O'. The form flatly speaks of a weekly indemnity of $50. To accomplish the fifty per cent vitiation of the contract of insurance which the company seeks, we would insist upon language which unambiguously conveys such an intent to the mind of an ordinary layman. Failing such unambiguous language, doubt should be resolved in favor of the insured.2
9
To be sure, the bare language of Clause 'N' can be read as reducing payments on pre-age sixty disabilities. But that clause should not, of course, be 'considered alone', as was done by the court below.3 Clause 'A' of the policy undertakes to pay the insured $50 per week during the continuance of certain total disabilities. A rider to the policy, amending Clause 'I', undertakes to continue the payments for the life of the insured if the disability occurred before age sixty. Clause 'O' provides for an increase in the annual premium from $175 to $205 upon the insured reaching age fifty. Reading Clause 'A', the rider, and Clause 'O' together, the purport of the policy is that the insured is to be protected for life in case of continuing total disability arising before age sixty and the Company is to be safeguarded against the undeniably greater incidence of disability at advanced ages by the increase in premium rates. A layman, reading Clause 'N' against that background, can fairly and reasonably understand it as another provision to safeguard the Company against the increasing incidence of disability. Thus, for the decade between ages fifty and sixty, the Company protects itself by a seventeen per cent increase in premium rate and, for the remainder of the term of the policy between ages sixty and seventy, instead of another increase in premium rate, there is a fifty per cent decrease in coverage, which in effect is a one hundred per cent increase in premium cost. The layman, reading the entire policy, could fairly and reasonably conclude that Clause 'N' applies the reduction in coverage only to those disabilities arising after age sixty and that total disability occurring before age sixty enjoys full coverage even though it continues beyond that age.
10
This construction was placed upon similar provisions involved in the only two decisional authorities referred to by either of the parties. In Hobson v. Mutual Benefit Health & Accident Ass'n,4 the insurance clause provided for a monthly indemnity of $100, and the subsequent reduction clause called for progressive reduction of benefits at the rate of ten per cent per year beginning at age fifty-six so that by age sixty monthly benefits would be fifty dollars. In Boillot v. Income Guaranty Co.,5 the insurance clause called for monthly payments of $100 and the reduction clause provided for a one-third reduction of indemnities accruing after age fifty-five. In both cases, the reduction clause was held to affect only disabilities arising after the specified age, leaving unaffected payments due on account of disabilities commencing earlier. The court below concluded that Clause 'N' refers not to disabilities occurring after age sixty, but to payments then occurring. The word used in Clause 'N' is 'indemnities.' The same word was used in the reduction clause in the Boillot case6 and in the Hobson case the word was 'benefits.'7 Yet both cases held the provisions to refer only to after-arising disabilities and not to payments for pre-existing disabilities.
11
We think both the Hobson and Boillot cases are correct. The court below distinguished them from the instant case because
12
'* * * in those cases the policies contained unequivocal agreements to pay fixed monthly sums, and it was held that subsequent clauses, limiting or reducing liability, must fail for repugnancy.'8
13
In our view this distinction is without substance, since the agreement to pay in the instant case is not less 'unequivocal' than the agreements in the cases cited. The court below found the phrase 'as hereinafter limited' in the insurance clause (Clause 'A') and the phrase 'provided by said policy' in the rider prevented the policy in the present case from being an 'unequivocal agreement' to pay fixed sums and thus avoided any conflict between those clauses and Clause 'N'. We note, however, that the insurance clause in the Hobson case (99 Cal.App.2d 330, 221 P.2d 763) included the phrase "subject, however, to all the provisions and limitations hereinafter contained" and the insurance company argued that the phrase should serve to 'tie in' the reduction clause with the insurance clause, thereby avoiding the conflict, but the court specifically rejected the argument.9 In the Boillot case, similar language in the insurance clause was held ineffective to subject to reduction payments for pre-existing disabilities.10
14
Nor can the Hobson case be distinguished as did the court below on the ground that the first page of the policy stated in large type that the monthly benefits were to be $100. In the instant case there is no such statement in large type, but the application states that the weekly indemnity is $50, without any qualifying or limiting language to suggest that there may be a reduction, and the policy as a whole, as we have said, conveys no contrary impression to the layman reading it. The public policy which dictates resolution of ambiguities in favor of the insured rests upon the need to protect against the opportunity which insurance companies have to engage in the sort of obscurantism which conveys one meaning of their contracts to lawyers and another meaning to laymen.11
15
Reversed.
16
BASTIAN, Circuit Judge (dissenting).
17
I think the judgment appealed from should be affirmed on the opinion of the Municipal Court of Appeals. Buchanan v. Massachusetts Protective Association, Inc., 102 A.2d 757.
1
Buchanan v. Massachusetts Protective Ass'n, 1954, 102 A.2d 757
2
Stroehmann v. Mutual Life Ins. Co., 1937, 300 U.S. 435, 57 S.Ct. 607, 81 L.Ed. 732; Phoenix Mutual Life Ins. Co. of Hartford, Conn. v. Flynn, 1948, 83 U.S.App.D.C. 381, 171 F.2d 982. As we said in Hayes v. Home Life Ins. Co., 1948, 83 U.S.App.D.C. 110, 112, 168 F.2d 152, 154, the customers of insurance companies
'* * * are, in vast majority, not informed in the obscurities of insurance expertise and not equipped to understand other than plain language. If the companies were permitted to write clear clauses of liability at one point and obscure negations of liability at another, and to maintain successfully the prevalence of the latter over the former, the temptation to sell on one clause and defend on the other would be dangerous.'
3
102 A.2d at page 758
4
1950, 99 Cal.App.2d 330, 221 P.2d 761
5
1937, 231 Mo.App. 531, 102 S.W.2d 132
6
102 S.W.2d 132, 143
7
221 P.2d 761, 763
8
102 A.2d 757, 758
9
221 P.2d 761, 764
10
102 S.W.2d 132, 144
11
Hayes v. Home Life Ins. Co., supra, note 2 | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/457640/ | 771 F.2d 269
56 A.F.T.R.2d 85-5683, 54 USLW 2136, 85-2USTC P 9622
Robert P. GROETZINGER, Petitioner-Appellee,v.COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.
No. 84-2507.
United States Court of Appeals,Seventh Circuit.
Argued April 11, 1985.Decided Aug. 21, 1985.
Bruce R. Ellisen, Asst. Atty. Gen., Tax Div., Washington, D.C., for respondent-appellant.
Carroll Baymiller, Baymiller, Christison & Radley, Peoria, Ill., for petitioner-appellee.
Before CUMMINGS, Chief Judge, FLAUM, Circuit Judge, and PECK, Senior Circuit Judge.*
CUMMINGS, Chief Judge.
1
The sole issue presented in this appeal is whether the Tax Court erred in holding that the taxpayer's gambling activities constituted a "trade or business" for purposes of Section 62(1) of the Internal Revenue Code, 26 U.S.C. Sec. 62(1). The Commissioner asserts that the taxpayer's failure to hold himself out to others as offering goods or services precludes characterization of his activities as a trade or business. We disagree and affirm the Tax Court decision.
2
* The significance of the Tax Court's holding that the activities of the taxpayer, Robert P. Groetzinger, constituted a trade or business is that it allows Groetzinger to deduct gambling losses from gross income in arriving at adjusted gross income,1 and prevents the losses from constituting "items of tax preference" for the purposes of the minimum tax as it existed in 1978. See 26 U.S.C. Secs. 56, 57 (1976).2 The taxpayer brought this action seeking a redetermination of a deficiency asserted by the Commissioner of Internal Revenue in his federal income taxes for the taxable year 1978 in the amount of $2,521.89. On May 24, 1984, the Tax Court determined that there was no deficiency and entered judgment for the taxpayer. The opinion of the Tax Court is reported at 82 T.C. 793 (1984). Fifteen members of the Tax Court agreed with Judge Drennen's majority opinion, one concurred and two dissented.
3
We briefly summarize the relevant facts. Since the January 1978 termination of his employment with a private company, the taxpayer has devoted virtually all of his working time to pari-mutuel wagering on dog races. He has no other profession or employment and his only sources of income apart from his gambling winnings are interest, dividends and sales of investments (amounting to $6,498 in 1978). During the 1978 tax year in question Groetzinger went to the track six days a week, normally from 1:00 p.m. to 11:30 p.m., and spent substantial amounts of time preparing to make wagers for his own account. The Tax Court found that he devoted sixty to eighty hours per week to these activities; the taxpayer never placed bets for others or sold tips.
4
In 1978 Groetzinger bet $72,032, and won back $70,000, resulting in a net loss from gambling of $2,032. On his Federal income tax form, the taxpayer did not deduct the $2,032 loss from gambling in arriving at "adjusted gross income" nor did he claim any itemized deductions, but instead listed that amount as a net loss from gambling on his Supplemental Income Schedule (Schedule E) of his Form 1040. In the notice of deficiency, the Commissioner determined that Groetzinger's $70,000 of gambling winnings constituted income and that his $70,000 of deductible gambling losses constituted itemized deductions,3 thus subjecting the taxpayer to a $2,141.89 minimum tax (App. 9a). See supra note 2.
II
5
The determination of what constitutes a "trade or business" under the various provisions of the Internal Revenue Code has proven to be most difficult and troublesome over the years. Although the term appears frequently in numerous provisions of the Code4 it has not been defined by either the Code or the Treasury regulations, nor has any authoritative judicial definition of the terms evolved. B. BITTKER, 1 TAXATION OF INCOME ESTATES AND GIFTS p 20.1.2 (1981). We limit our inquiry to determining whether Groetzinger's activities constituted a trade or business under Sections 62 and 162 of the Code, since the precise meaning or connotation of the term appears to vary depending upon the provision in which it is used. See Steffens v. Commissioner, 707 F.2d 478, 482 (11th Cir.1983); 4A MERTENS LAW OF FEDERAL INCOME TAXATION Sec. 25.08 (1979). Although the specific issue in this case is the application of Sec. 62(1) (supra note 1), the Commissioner concedes that the meaning of the term "trade or business" is the same under Secs. 62(1) and 162(a)5 and that the cases considering Sec. 162 are relevant here since both Sections involve the deductibility of expenses incurred in carrying on a trade or business (Br. 10).
6
The Tax Court in Gentile v. Commissioner, 65 T.C. 1, 2 (1975), held, in circumstances similar to this case, that a full-time gambler wagering for his own account was not engaged in a "trade or business" (under 26 U.S.C. Secs. 162, 1402(c)), because he "neither provided nor held himself out as a provider of any goods or services to any other person." The Tax Court subsequently reversed itself, again in a case involving nearly identical facts, and rejected the proposition that the offering of goods or services to others was an absolute prerequisite to characterization of activities as a "trade or business" under Sec. 62(1). Ditunno v. Commissioner, 80 T.C. 362, 371 (1983); to the same effect see Meredith v. Commissioner, 49 T.C.M. 318 (1984). The Eleventh Circuit has adopted the Tax Court's position in Ditunno by affirming the Tax Court on the basis of its Memorandum of Findings of Fact and Opinion in Nipper v. Commissioner, 47 T.C.M. 136 (1983). Nipper v. Commissioner, 746 F.2d 813 (11th Cir.1984) (per curiam ) (unpublished order). The Tax Court's position has been overruled, however, in two circuits by opinion in appeals from the Tax Court. See Estate of Cull v. Commissioner, 746 F.2d 1148 (6th Cir.1984), certiorari denied, --- U.S. ----, 105 S.Ct. 2701, 86 L.Ed.2d 717; Gajewski v. Commissioner, 723 F.2d 1062 (2d Cir.1983), certiorari denied, --- U.S. ----, 105 S.Ct. 88, 83 L.Ed.2d 35. The Third Circuit has affirmed a district court case also rejecting Ditunno. See Noto v. United States, 598 F.Supp. 440 (D.N.J.1984), affirmed without explanation by unreported judgment order, 770 F.2d 1073, (3d Cir.1985).
III
7
In the present case the full Tax Court reconsidered its ruling in Ditunno in light of the Gajewski decision and reasserted the correctness of its position with only four dissenters. Thus the real issue before us is whether the "goods and services" test should be an absolute prerequisite to a finding that a taxpayer engaged in a "trade or business" under Sec. 62(1).
8
Unfortunately neither judicial precedent nor the relevant statutory language of Secs. 62(1) and 162(a) provides a clear basis for resolving this issue. The "goods and services" requirement first appeared in a solo concurrence of Justice Frankfurter in Deputy v. DuPont, where the Justice stated that the carrying on of a trade or business "involves holding oneself out to others as engaged in the selling of goods or services." 308 U.S. 488, 499, 60 S.Ct. 363, 369, 84 L.Ed. 416. One year later when the Court squarely faced the "trade or business" issue and had an opportunity to employ the test to dispose of the taxpayer's claim, it failed to adopt the Frankfurter definition. Higgins v. Commissioner, 312 U.S. 212, 61 S.Ct. 475, 85 L.Ed. 783. In Higgins the Court rejected the argument that a trade or business "embraces everything about which a person can be employed" and simply ruled that the determination of whether the activities of a taxpayer are "carrying on a business" requires an examination of the facts of each case and that the definition excludes management of one's own securities. 312 U.S. at 217-218, 61 S.Ct. at 477-478. Subsequent Supreme Court cases dealing with the "trade or business" issue also failed to mention the Frankfurter test. See City Bank Farmers Trust Co. v. Helvering, 313 U.S. 121, 61 S.Ct. 896, 85 L.Ed. 1227; United States v. Pyne, 313 U.S. 127, 61 S.Ct. 893, 85 L.Ed. 1231. Although numerous courts have recanted the Frankfurter language in attempting to summarize considerations relevant to the "trade or business" determination (see cases cited in Gajewski, 723 F.2d at 1066), only one case expressly applied the test to hold that a taxpayer was not engaged in a trade or business (apart from the gambling cases beginning with Gentile in 1975). The Supreme Court reversed that case, see Snow v. Commissioner, 416 U.S. 500, 94 S.Ct. 1876, 40 L.Ed.2d 336, reversing 482 F.2d 1029 (6th Cir.1973), ruling that the "goods and services" test was not relevant to the meaning of "trade or business" as used in 26 U.S.C. Sec. 174 since that section was "enacted in 1954 to dilute some of the [more restrictive] conception of ordinary and necessary business expenses under Sec. 162(a) * * * adumbrated by Mr. Justice Frankfurter in a concurring opinion in Deputy v. DuPont." We agree with the Tax Court that this reference by the Supreme Court does not constitute an implicit approval of the goods and services test. 82 T.C. at 798 n. 17.
9
Nor do the 1982 Amendments to the minimum tax provisions, which, inter alia, exempt wagering losses from the alternative minimum tax by allowing the deduction of wagering losses from the minimum tax base, provide any guidance. See 26 U.S.C. Sec. 55(e)(1)(A). The exclusion of wagering losses was added in conference without explanation in the legislative history. See the Tax and Fiscal Responsibility Act of 1982, Pub.L. 97-248, Title II, sec. 201(a), 96 Stat. 411, 414; H.R.REP.NO. 760, 97th Cong., 2d Sess. 473-477 (1982), U.S.Code Cong. & Admin.News 1982, pp. 781, 1190. Since the statutory change preceded the Ditunno case, it is probably best interpreted as a reaction to the perceived inequalities caused by prior caselaw's refusal to recognize full-time gamblers as conducting a trade or business, see, e.g., Gentile, supra, and cannot fairly be read as Congressional approval or disapproval of the reasoning of those cases.
10
It is important initially to set forth our understanding of the purpose of Sec. 62(1) before moving on to consider the correctness of applying the "goods and services" test to this case. Section 62 of the Internal Revenue Code of 1954 was taken without substantive change from the 1939 Code. H.R.REP. NO. 1337, 83rd Cong., 2d Sess. (1954), 1954 U.S.CODE CONG. & AD.NEWS 4025, 4155. The provision itself does not create any deductions; it merely provides for special treatment of deductions allowed elsewhere in the Code "which are attributable to a trade or business carried on by the taxpayer." See supra note 1. It embodies the fundamental distinction which appears throughout the Code between business and non-business items. See United States v. Generes, 405 U.S. 93, 103, 92 S.Ct. 827, 833, 31 L.Ed.2d 62 (1972). As a general matter, items associated with the carrying on of a trade or business are deductible while non-business items are not, even though "the latter are just as adverse in financial consequence to the taxpayer as the former." Id. Although no specific definition of "trade or business" deductions is supplied in Sec. 62(1), the term must be juxtaposed and interpreted with reference to the mandate of Sec. 262 of the Code that "no deduction shall be allowed for personal, living, or family expenses."
11
The special treatment allowed by Sec. 62(1) is to permit trade or business deductions to be subtracted directly from gross income to arrive at adjusted gross income, see supra note 1,6 whereas non-business deductions (unless otherwise specified) may only reduce adjusted gross income to the extent they exceed the zero bracket amount (formerly referred to as the "standard deduction," 4A MERTENS, supra, at Sec. 31A.10). See 26 U.S.C. Sec. 63(c), (f). This special treatment of trade or business deductions is allowed, however, only where the "trade or business does not consist of the performance of services by the taxpayer as an employee." 26 U.S.C. Sec. 62(1). It is this second distinction embodied in Sec. 62 between employees and nonemployees engaged in a trade or business that sheds light on the meaning of "trade or business." The language of Section 62 strongly implies that employees are engaged in a "trade or business" (Sec. 62(2) is entitled "Trade and business deductions of employees") and courts have uniformly held that employees should receive such trade or business treatment. See Trent v. Commissioner, 291 F.2d 669 (2d Cir.1961); Patterson v. Thomas, 289 F.2d 108 (5th Cir.1961), certiorari denied, 368 U.S. 837, 82 S.Ct. 35, 7 L.Ed.2d 38; Noland v. Commissioner, 269 F.2d 108 (4th Cir.1959), certiorari denied, 361 U.S. 885, 80 S.Ct. 156, 4 L.Ed.2d 121; 4A MERTENS, supra, at Sec. 25.08.
12
The most obvious distinction between employees and non-employees earning income is that the latter incur many expenses in earning a living or in their occupation or livelihood that the former do not. The distinction between employees and non-employees engaged in a trade or business indicates that the term "trade or business" refers to the "business of" a person's occupation, livelihood or means of earning a living. It would seem necessary to allow self-employed individuals the full amount of deductions for costs associated with their earning a living in order to obtain an accurate picture of their annual income. Employees, on the other hand, do not normally pay for such occupationally associated costs such as heating, lighting, office equipment, bookkeeping, etc. in the course of earning wages or salaries, and the standard deduction would appear to adjust their income sufficiently for any occupationally related expenses incurred by an employee. Thus Congress appears to have concluded that it is fair to allow the deduction of trade or business expenses by employees only to the extent these deductions exceed the zero bracket amount. This explanation of the differing treatment of employees and non-employees in Sec. 62(1) is supported by the fact that Congress provided for adjustments to this rough framework where employees incur certain substantial expenses associated with their employment. Employees are allowed to deduct, for example, travel, moving and transportation expenses incurred in connection with the performance of services as an employee. 26 U.S.C. Sec. 62(2), (8). Thus the underlying assumption of Sec. 62(1) evidently is that in most cases a taxpayer's income derives from his or her occupation or livelihood and that a fair tax system requires differing treatment of employees and self-employed individuals. Consequently, defining "trade or business" as any person's occupation or livelihood implements Congress' intent with respect to Sec. 62(1).
13
This broad definition of the term "trade or business" is precisely the one suggested by Judge Friendly over two decades ago. In Trent v. Commissioner, he set forth a general discussion of the meaning of the term "trade or business" and, after quoting Justice Frankfurter's definition in passing, stated: "The courts have properly assumed that the term means all means of gaining a livelihood by work, even those which would scarcely be so characterized in common speech * * *." 291 F.2d 669, 671 (2d Cir.1961). The court then provided citations to four cases holding that a teacher, an actor, a judge and a research worker are engaged in a trade or business. Id.
14
Persuasive support for this interpretation of the "trade or business" term also comes from the fact, noted in Trent, 291 F.2d at 671 n. 1, that Congress at one time "thought it necessary to provide specifically that 'professions and occupations ' come within the phrase 'trade or business.' " See Revenue Act of 1917, Sec. 200, 40 Stat. 302, 303 (emphasis supplied). The Second Circuit in Gajewski cites Trent as "implicitly adopting [the] 'goods or services' requirement," but Gajewski does not consider Judge Friendly's broader formulation nor the above-cited legislative history. 723 F.2d at 1066.
15
The consequence of our understanding of the focus of Sec. 62(1) is that the term "trade or business" as used in that Section should be construed broadly. The purpose of Sec. 62(1) also would indicate that there is no basis for distinguishing among different types of livelihoods or occupations in determining whether a person is engaged in a trade or business. Accordingly, the term "trade or business" has not been limited to the "carrying on of ordinary industrial or commercial activities," but includes the professions, the arts, athletic activities and the holding of public office. 4A MERTENS, supra, at Sec. 25.08. Rather, the inquiry should concentrate on whether certain activities of a taxpayer can fairly be characterized as a livelihood, occupation or means of earning a living. The traditional parameters utilized by courts to determine whether activities constitute a trade or business have concentrated on such an inquiry. The two primary considerations have been 1) the continuity, repetition and extensiveness of activities and 2) the good faith intent of the taxpayer to make a profit or produce income. Id. The Supreme Court also has ruled that the term does not encompass purely "personal" activities no matter how "continuous" or "extended" the activity may be nor how profitable, Higgins v. Commissioner, 312 U.S. at 216, 218, 61 S.Ct. at 477, 478, and this holding certainly comports with the Code's prohibition of the deduction of "personal, living and family expenses." 26 U.S.C. Sec. 262. All of these considerations address the question of whether an activity can be termed a livelihood or occupation within the ordinary meanings of those terms.7
16
In view of the foregoing understanding of the term "trade or business," this becomes an easy case. The Tax Court found that Groetzinger devoted a continuous and extraordinary amount of time to his gambling efforts, with the intent to earn a living from the activity. 82 T.C. at 794-795. These findings are amply supported by the evidence and show that the taxpayer's gambling activities constituted his occupation or livelihood and therefore a "trade or business" under Sec. 62(1).
17
Application of this broad definition of trade or business undoubtedly requires courts to make some close calls and fine distinctions. For example, the distinction courts have made between long-term "investors" and short-term "traders" trading solely for their own account in securities is an extremely fine one. Only persons whose activities are directed at short-term trading in securities and whose income is "principally derived from the sale of securities rather than from dividends and interest paid on those securities," Moller v. United States, 721 F.2d 810, 813 (Fed.Cir.1983), certiorari denied, --- U.S. ----, 104 S.Ct. 3534, 82 L.Ed.2d 839 (1984), as opposed to long-term holding of investments, are considered "traders" engaged in a trade or business. See Purvis v. Commissioner, 530 F.2d 1332, 1334 (9th Cir.1976). Higgins rejected the notion that an "investor" ever could be engaged in a trade or business because of what it termed the "personal" nature of investment activities. 312 U.S. at 216, 218, 61 S.Ct. at 477, 478.8 The exclusion of investors from the definition of trade or business is consistent with a definition of the term that emphasizes whether the taxpayer's activities constitute a livelihood or occupation. The Tax Court has persuasively determined that the basis for the distinction between traders and investors supports Groetzinger's argument that his full-time gambling activities do constitute a trade or business. 82 T.C. at 802.
18
There are two grounds for distinguishing long-term investment from short-term trading: 1) investment is more fairly characterized as a "personal" activity than is trading and 2) an equitable basis exists for distinguishing high-volume traders from casual traders, while the same distinction cannot be made between high-volume investors and low-volume investors. Passive or long-term investment is an activity engaged in to some degree by virtually every taxpayer. In most cases, it is clear that personal investment to preserve or protect the fruits of one's labor is not the investor's livelihood or occupation, but rather an activity dealing with the surplus wealth arising out of one's occupation. In that sense the activity is "personal" in that so many undertake the activity out of necessity as an adjunct to the task of earning a living. The fact that one person has accumulated more wealth than another, by means of toil or simply good fortune, so that passive investment may command substantially more of the wealthier person's time and attention than that of a poorer counterpart, would not justify allowing the wealthier taxpayer the benefit of trade or business treatment of the larger-scale investment activity. Similarly a person who has an eating problem or who has a fetish for cleanliness could not be said to be engaged in the trade or business of dining or bathing. Instead it would be more accurate to say that a person living off of passive investment income has no trade or business or occupation within the meaning of Sec. 62(1).
19
High-volume short-term trading, on the other hand, is not an activity engaged in by most people and it is hardly viewable as an activity that is adjunct or secondary to a person's occupation or livelihood. Also, whereas the nature of long-term investment activity does not change with increased volume, the nature of short-term trading alters substantially with greater volume. In one sense the activity becomes riskier (the trader is likelier to become bankrupt in one day) and in another sense less hazardous in that a large number of speculative transactions can be effectuated to hedge risk. Although it is not possible to distinguish high-volume investors from low-volume investors, high-volume traders are distinguishable from low-volume traders and are engaged in very different activities. Consequently there is an equitable basis for according a high-volume short-term trader different tax treatment than the taxpayer who occasionally engages in a short-term trade. This equitable basis for distinction is lacking in the context of long-term investors.
20
Although the analogy is not a perfect one, as the Commissioner points out, a full-time gambler is much more like a high-volume short-term trader than a high-volume long-term investor. Gambling is not engaged in by the vast majority of taxpayers as an activity adjunct to their livelihoods or occupations, and it is therefore less easy to view as a personal activity than is long-term investment in securities. Full-time gambling would also appear to be quite different from occasional wagering in terms of the risk encountered and the techniques utilized in hedging risk, so that there is a basis for distinguishing the occasional from the full-time gambler. Thus there is a substantial basis for viewing full-time gambling for one's own account as a person's occupation or livelihood, and therefore as a trade or business.
21
The fact that a trader arguably offers "goods" to the public, see infra p. 277, does not appeal to this Court as a valid ground for distinguishing traders from gamblers. There is a difference, as the Commissioner argues, in that a trader does exchange an "economic unit" with another person (a futures contract or a stock option or certificate, Br. 23-24), in his activity while a gambler does not. But this technical distinction adds nothing to the ultimate inquiry of whether a taxpayer's activities amount to an occupation or livelihood. Instead, in view of the broad definition of trade or business endorsed by this Court today, we agree with the Tax Court that both traders and gamblers are engaged in a trade or business since both earn a living by taking repeated calculated risks and without specifically dealing with other individuals. 82 T.C. at 801-802. Consequently, application of the goods and services test here to bar trade or business status for the taxpayer would improperly shift the Court's focus from what should be the primary consideration in this context--whether the taxpayer's activities are the means by which the taxpayer earns a living.
22
The district court in Noto v. United States, which rejected the Tax Court's position in Ditunno, was unable to reconcile the "active trader" cases with its own denial of trade or business status to a full-time gambler, 598 F.Supp. at 444 n. 9, noting that it "fail[ed] to see how the purchase of a security is materially different from the purchase of a betting slip." The court strongly implied that the active trader cases are irreconcilable with the goods and services requirement and simply are incorrectly decided. In contrast, in our view both the "active trader" and recent full-time gambler cases of the Tax Court are correct.
23
Apart from the misdirected focus of the goods and services test, there are other reasons for concluding that it would be both unnecessary and unwise to apply Justice Frankfurter's goods and services test as a bar to holding that a taxpayer's activities constitute a trade or business in this case. If the goods and services test added a great deal of clarity or simplicity to the difficult and imprecise inquiry at issue, we would be extremely hesitant to reject the standard.9 Unfortunately, that test offers no panacea in terms of illuminating the meaning of "trade or business," nor in terms of resolving this case. To the contrary, as a general proposition the test is flawed in that it is difficult to apply and leads to the wrong result in certain respects. As Professor Bittker points out, the Frankfurter definition strongly, but erroneously, implies that taxpayers working for a single employer are not engaged in a trade or business because they "do not hold themselves out to serve all comers in the manner of a merchant, independent contractor or professional person." 1 BITTKER, supra, at p 20.1.2. But it is well settled that an employee's activities constitute a trade or business, even if the services are not offered to the public. See cases cited supra p. 273.
24
Reconciling the goods and services test with the cases treating short-term trading as a trade or business is confusing at best. See discussion of Noto v. United States, supra p. 276. An active trader or speculator who seeks profit from short-term securities market swings by trading for his or her own account, see supra p. 274, would not appear to satisfy the "goods or services" test. Securities simply are not "goods" within the ordinary meaning of the term nor under a legal definition. See Uniform Commercial Code Secs. 9-105, 9-109. Nor would such a trader appear to hold himself out to the public in the manner contemplated by Justice Frankfurter. See 1 BITTKER, supra, at p 20.1.2.
25
In view of the improper focus of the "goods and services" test and its dubious value as an analytical tool in this context, we cannot take seriously Judge Tannenwald's admonition in his dissent in Ditunno that rejection of the "goods and services" requirement will "wreak havoc on the concept of trade or business." 80 T.C. at 372. Furthermore, when asked at oral argument what parade of horribles or bad consequences would result from affirmance of the Tax Court's position, counsel for the Commissioner could offer none. This is perhaps not surprising in view of the fact that the Commissioner argued in favor of trade or business status for full-time gamblers before the Tax Court in Gentile. 65 T.C. 1 (1975).
26
There can be no disagreement that the traditional approach to determining whether activities constitute a trade or business is in need of refinement, but to assert that the "facts and circumstances" test "does not describe a standard at all," Gajewski, 723 F.2d at 1066, goes too far. The current standard simply reflects the broad meaning Congress intended by the term trade or business. The types of parameters courts have previously utilized to define the scope of the term trade or business have involved degree, regularity and intent but have not distinguished among certain types of livelihoods. This facts and circumstances test is precisely the type of approach that the Supreme Court intended to sanction in Higgins whereas the "goods and services" test marks an unnecessary and unwarranted departure from that course. The fact that Groetzinger has chosen to earn a living in a manner somewhat out of the ordinary is not dispositive.
27
The decision of the Tax Court is AFFIRMED.
*
The Honorable John W. Peck, Senior Circuit Judge of the United States Court of Appeals for the Sixth Circuit, is sitting by designation
1
Adjusted gross income is defined in 26 U.S.C. Sec. 62. That Section provides in pertinent part:
Sec. 62. Adjusted gross income defined
For purposes of this subtitle, the term "adjusted gross income" means, in the case of an individual, gross income minus the following deductions:
(1) Trade and business deductions.--The deductions allowed by this chapter (other than by part VII of this subchapter) which are attributable to a trade or business carried on by the taxpayer, if such trade or business does not consist of the performance of services by the taxpayer as an employee.
(2) Trade and business deductions of employees.--
(A) Reimbursed expenses.--The deductions allowed by part VI (sec. 161 and following) which consist of expenses paid or incurred by the taxpayer, in connection with the performance by him of services as an employee under a reimbursement or other expense allowance arrangement with his employer.
(B) Expenses for travel away from home.--The deductions allowed by part VI (sec. 161 and following) which consist of expenses of travel, meals, and lodging while away from home, paid or incurred by the taxpayer in connection with the performance by him of services as an employee.
(C) Transportation expenses.--The deductions allowed by part VI (sec. 161 and following) which consist of expenses of transportation paid or incurred by the taxpayer in connection with the performance by him of services as an employee.
(D) Outside salesmen.--The deductions allowed by part VI (sec. 161 and following) which are attributable to a trade or business carried on by the taxpayer, if such trade or business consists of the performance of services by the taxpayer as an employee and if such trade or business is to solicit, away from the employer's place of business, business for the employer.
* * *
2
Under the Commissioner's theory the taxpayer's losses would constitute excess itemized deductions. See infra p. 271. The provisions imposing the minimum tax provide as follows in pertinent part:
Sec. 56. Imposition of tax
(a) General rule
In addition to the other taxes imposed by this chapter, there is hereby imposed for each taxable year, with respect to the income of every person, a tax equal to 15 percent of the amount by which the sum of the items of tax preference exceeds the greater of--
(1) $10,000, or
(2) the regular tax deduction for the taxable year (as determined under subsection (c)).
* * *
Sec. 57. Items of tax preference
(a) In general
For purposes of this part, the items of tax preference are--
(1) Excess itemized deductions
An amount equal to the excess itemized deductions for the taxable year (as determined under subsection (b)).
* * *
3
26 U.S.C. Sec. 165 governs the deductibility of losses and specifically allows wagering losses to be deducted only to the extent of wagering winnings. The Section states in pertinent part:
Sec. 165. Losses
(a) General Rule.--There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.
* * *
(c) Limitation on losses of individuals.--In the case of an individual, the deduction under subsection (a) shall be limited to
(1) losses incurred in a trade or business;
(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and
* * *
(d) Wagering losses.--Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.
4
One count revealed that the term "trade or business" was used more than 170 times in at least sixty different sections of the Internal Revenue Code. See Saunders, "Trade or Business," Its Meaning Under the Internal Revenue Code, 1960 SO.CAL.TAX INST. 693. See also Steffens v. Commissioner, 707 F.2d 478, 482 (11th Cir.1983)
5
26 U.S.C. Sec. 162 provides in pertinent part:
Sec. 162. Trade or business expenses
(a) In general.--There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business * * *.
* * *
6
Thus one court has described adjusted gross income as "an intermediate figure somewhere between gross income and taxable income which may be defined generally as gross income minus business deductions." Gardiner v. United States, 391 F.Supp. 1202, 1207 (C.D.Utah 1975)
7
This interpretation of the term trade or business does not conflict in any way with the settled rule that a taxpayer may have more than one trade or business. See 4A MERTENS, supra, at Sec. 25.08
8
Therefore Higgins goes beyond merely pointing out that the trade or business inquiry is primarily factually oriented. Contrast Estate of Cull v. Commissioner, 746 F.2d at 1151
9
It is important to recognize that requiring "the holding out to others by offering goods and services" would only resolve the trade or business issue in a very limited number of cases. Most often the "holding out" to third persons is not at issue, but instead the determination revolves around difficult factual questions such as the continuity and regularity of activities or the existence of a reasonable expectation of profit. See 4A MERTENS, supra, at Sec. 25.08 | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/1570533/ | 722 N.W.2d 399 (2006)
2006 WI App 194
STATE v. MURPHY.
No. 2004AP2844.
Wisconsin Court of Appeals.
August 8, 2006.
Unpublished opinion. Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3039758/ | Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
2-8-2008
In Re: Lizardo
Precedential or Non-Precedential: Non-Precedential
Docket No. 07-4496
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2008
Recommended Citation
"In Re: Lizardo " (2008). 2008 Decisions. Paper 1629.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/1629
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2008 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
HLD-33 NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 07-4496
___________
IN RE: JUAN FRANCISCO LIZARDO,
Petitioner
____________________________________
On Petition for Writ of Mandamus from the
District Court of the Virgin Islands
(Related to D.V.I. Civ. No. 02-cv-0155)
____________________________________
Submitted Pursuant to Rule 21, Fed. R. App. P.
December 21, 2007
Before: SCIRICA, Chief Judge, WEIS and GARTH, Circuit Judges
(Opinion filed February 8, 2008 )
_________________
OPINION
________________
PER CURIAM.
Juan Francisco Lizardo petitions for a writ of mandamus directing the
District Court to rule on his pending motion to vacate under 28 U.S.C. § 2255. For the
reasons that follow, we will deny the petition.
Lizardo is incarcerated at the Federal Correctional Institution in Edgefield,
South Carolina. In his mandamus petition, Lizardo alleges that he filed a § 2255 motion
1
in the District Court on August 16, 2002, to which the District Court has not responded.
Lizardo asks us to order the District Court to act on his motion.
By order entered January 25, 2008, the District Court denied Lizardo’s
motion pursuant to 28 U.S.C. § 2255. Because the District Court has ruled on Lizardo’s
motion, we will deny his mandamus petition as moot. In light of our disposition,
Lizardo’s motion for appointment of counsel is also denied.
2 | 01-03-2023 | 10-13-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2460235/ | 250 P.3d 464 (2011)
241 Or. App. 573
STATE
v.
TORRES.
A143196
Court of Appeals of Oregon.
March 16, 2011.
Affirmed without opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2584706/ | 233 P.3d 888 (2010)
168 Wash.2d 1036-43
STATE
v.
JENSEN.
No. 84147-1.
Supreme Court of Washington, Department I.
June 1, 2010.
Disposition of Petition for Review Denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3045575/ | United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 07-3489
___________
Kenny Halfacre, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the Eastern
* District of Arkansas.
David Cruseturner, Assistant *
Director, Arkansas Department of * [UNPUBLISHED]
Correction; Larry May, Assistant *
Director, Arkansas Department of *
Correction, *
*
Appellees. *
___________
Submitted: November 7, 2008
Filed: November 17, 2008
___________
Before WOLLMAN, SMITH, and GRUENDER, Circuit Judges.
___________
PER CURIAM.
Arkansas inmate Kenny Halfacre appeals the district court’s1 dismissal of his
42 U.S.C. § 1983 action following two pretrial evidentiary hearings. Upon careful
1
The Honorable J. Leon Holmes, Chief Judge, United States District Court for
the Eastern District of Arkansas, adopting the report and recommendations of the
Honorable H. David Young, United States Magistrate Judge for the Eastern District
of Arkansas.
review, see Choate v. Lockhart, 7 F.3d 1370, 1373 & n.1 (8th Cir. 1993) (standard of
review for pretrial evidentiary hearing without jury demand), we agree with the
district court that Halfacre failed to show that defendants took adverse action against
him in retaliation for engaging in constitutionally protected activities. See Sisneros
v. Nix, 95 F.3d 749, 752 (8th Cir. 1996) (inmate claiming retaliation is required to
meet substantial burden of proving actual motivating factor for adverse action was as
alleged); Atkinson v. Bohn, 91 F.3d 1127, 1129 (8th Cir. 1996) (per curiam)
(allegations of retaliation must be more than speculative and conclusory); Martin v.
Sargent, 780 F.2d 1334, 1338 (8th Cir. 1985) (to be liable, defendant in § 1983 action
must have been personally involved in or directly responsible for conduct that caused
injury). We reject Halfacre’s remaining arguments. See Estate of Davis v. Delo, 115
F.3d 1388, 1393-94 (8th Cir. 1997) (credibility determinations are within province of trier
of fact); Williams v. Carter, 10 F.3d 563, 566 (8th Cir. 1993) (decision whether to
issue subpoena is discretionary).
Accordingly, we affirm. See 8th Cir. R. 47B.
______________________________
-2- | 01-03-2023 | 10-13-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/667957/ | 21 F.3d 1117
NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.UNITED STATES of America, Plaintiff-Appellee,v.Steven MAROS, Defendant-Appellant.UNITED STATES of America, Plaintiff-Appellee,v.Paul J. HUNTOON, Defendant-Appellant.
Nos. 93-50117, 93-50166.
United States Court of Appeals, Ninth Circuit.
Submitted March 8, 1994.*Decided April 4, 1994.
Before: PREGERSON, O'SCANNLAIN, and FERNANDEZ, Circuit Judges.
1
MEMORANDUM**
2
Paul Huntoon pled guilty to, and Steven Maros was convicted by a jury on, one count of possession with intent to distribute a controlled substance on board a vessel in violation of 46 App.U.S.C. Sec. 1903(a). Both men appeal the district court's ruling not to suppress evidence seized during the Coast Guard's document and safety inspection. Maros also appeals his sentence. We affirm.
3
* The Coast Guard's search was reasonable and did not violate the Fourth Amendment. Applying the test from United States v. Watson, 678 F.2d 765 (9th Cir.1982), we conclude that any intrusion in the case at hand was similarly minimal. On the subjective level, the Coast Guard observed the DRIVEN and radioed the captain, identified itself and provided advanced notice of its intent to board the ship and to conduct an inspection, and conducted a pre-boarding interview with the captain. An administrative plan is not required for stopping and inspecting a vessel, United States v. Troise, 796 F.2d 310, 312 (9th Cir.1986), and, in any case there appears to have been an administrative plan. Finally, there is no evidence that the Coast Guard used any force, let alone unnecessary force, to effect the stop and inspection.
4
On the objective level, while conducting a legitimate document and safety inspection, the Coast Guard noticed the nonmatching fiber glass, the differences in trim and screws despite an obviously false denial of recent work, the unaccounted-for space under the seats on the deck of the vessel, and the fact that the vessel appeared to be riding low in the water. The officers also received a warning that Maros had a prior narcotics conviction and that both men should be considered armed and dangerous. Therefore, the Coast Guard had probable cause to remove the trim to determine whether contraband was being stored there. "Any subsequent intrusion caused by the Coast Guard was supported by probable cause and is not relevant to our analysis." Watson, 678 F.2d at 773. Even if the document and safety inspection were merely a pretext to board the DRIVEN because the Coast Guard believed that the DRIVEN was engaging in criminal activity, the search did not violate the Fourth Amendment. Id. at 769-71, 774.
5
Therefore, the district court did not err in declining to suppress the evidence obtained during the search.
II
6
The district court did not err by sentencing Maros to the statutory mandatory minimum sentence of 120 months incarceration. A "plea bargain standing alone is without constitutional significance." Mabry v. Johnson, 467 U.S. 504, 507 (1984). Due process is implicated only when an offer of a plea agreement impairs the voluntariness or intelligent entry of a subsequent guilty plea. Id. Maros never pled guilty--he was convicted by a jury--and therefore, his rights were not violated. The offered plea agreement was conditional; even if Maros had effectively accepted it, a prosecutor can withdraw a plea agreement after acceptance but prior to entry of a guilty plea without violating due process. Id.
7
Finally, appellant presents no case law for the proposition that a district court has the authority to depart downward from the mandatory minimum sentence based on an offer of a conditional plea agreement that was never consummated.
8
AFFIRMED.
*
The panel unanimously finds this case suitable for submission on the record and briefs and without oral argument. Fed.R.App.P. 34(a), Ninth Circuit R. 34-4
**
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Circuit R. 36-3 | 01-03-2023 | 04-16-2012 |
https://www.courtlistener.com/api/rest/v3/opinions/1917523/ | 178 B.R. 537 (1995)
In re Harvey F. CRAM and Faith Cram, Debtors.
Patricia MENDEZ, Plaintiff,
v.
Harvey F. CRAM and Faith Cram, Defendants.
Bankruptcy No. 93-478-BKC-3P7. Adv. No. 93-238.
United States Bankruptcy Court, M.D. Florida, Jacksonville Division.
February 28, 1995.
*538 *539 John Stanton, Deland, FL, for plaintiff.
Richard Rosenberg, Deland, FL, for defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This adversary proceeding came before the Court upon the complaint of plaintiff, Patricia Mendez, which seeks to except a debt from defendants' discharge pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4) and (a)(6). A trial was held on November 16, 1994, and upon the evidence presented the Court enters these findings of fact and conclusions of law:
Findings of Fact
Plaintiff entered into a contract with C & C Homes, Inc. which provided that Wassau Homes would deliver a prefabricated home to plaintiff's property and C & C Homes, Inc., would do site work and assemble the home. Defendants, Harvey and Faith Cram, were the principal officers and shareholders of C & C Homes, Inc., which was an authorized dealer for Wassau homes.
Plaintiff paid C & C Homes, Inc., $36,551.14 for the site work and assembly of her home. All the payments made by plaintiff were deposited into the C & C Homes, Inc., bank account and were used to pay corporate expenses. Defendants had one business checking account in which they deposited all income from the business and out of which they paid all business expenses. Defendant, Faith Cram, was responsible for accounts payable and receivable. Testimony presented at trial indicated that maintaining one account for all business dealings is common practice for builders of this size.
Defendants did not have a contractor's license, thus they employed Warren Harding as contractor for C & C Homes, Inc.'s, jobs. Warren Harding had defendants execute a document dated December 18, 1992, which states:
Dear Mr. Harding,
The following statement is to hold you free from all incumberances [sic], liabilities, and warranties in regards to the residence at 2410 Dahlia Street, Deland Florida. (Daytona Park Estates). This residence was built by contract with a customer named Patricia L. Mendez, myself, Harvey Cram, and my wife Faith Cram DBA C & C Homes, Inc.
Also, by this statement we declare all bills have been paid and acknowledge your part in this venture with us and Wassau Homes, was of supervisory nature only, and pull required building permits.
Gayle Harding testified that defendants did not sign this document until two to three weeks after its date. Plaintiff received a copy of this document in mid-January, 1993, from Warren Harding.
Prior to receiving a copy of the December 18, statement, on December 19, 1992, plaintiff made a final payment of $10,111.14 to C & C Homes, Inc., for her home. Plaintiff testified that she asked defendants at that time whether all bills for the work on her home had been paid and that defendants assured her that all bills had been paid. Plaintiff testified further that had she known the facts were otherwise she would not have made the final payment.
Contrary to what defendants told plaintiff on December 19, all the bills for the work on her home had not been paid, and on January *540 19, 1993, two claims of lien were filed against the property. A claim of lien was filed by Dunn Corporation in the amount of $3,103.69 for materials or services supplied between November 11, 1992, and December 7, 1992, and by Tyler Concrete in the amount of $8,333.00 for labor and materials supplied from October 28, 1992, until December 15, 1992. Dunn Corporation filed suit against plaintiff in state court to collect the lien amount.
Defendants testified that they were counting on a $12,000.00 payment from another contract to pay these two suppliers and when that contract fell through in late December defendants were unable to pay the amounts due. Four contracts for site work to be performed by C & C Homes, Inc., were canceled by the purchasers between September, 1992, and March, 1993.
Conclusions of Law
Plaintiff's complaint states that it is brought pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4) and (a)(6), however, the complaint does not contain any allegation regarding willful and malicious injury under § 523(a)(6), thus the Court will consider only § 523(a)(2)(A) and (a)(4) in this proceeding.
The fundamental goal of the bankruptcy code is to provide an honest debtor with a fresh start. In re Pollitt, 145 B.R. 353 (Bankr.M.D.Fla.1992). However, there are circumstances under which some debts may be excepted from a debtor's discharge. Id. These exceptions are contained in § 523.
11 U.S.C. § 523(a)(2)(A)
Section 523(a)(2)(A) states in relevant part:
(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition;
To establish that a debt should be excepted from discharge under § 523(a)(2)(A) plaintiff must establish the following four items:
(1) the debtor made a false representation with the purpose and intention of deceiving the creditor;
(2) the creditor relied on such representation;
(3) the reliance was reasonably founded; and
(4) the creditor sustained a loss as a result of the representation.
In re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986); In re Pollitt, 145 B.R. 353. Plaintiff has the burden to show each of these elements by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991).
Plaintiff argues that defendants induced plaintiff to make the $10,111.14 payment by stating that all bills had been paid when in fact there were amounts owed to Tyler Concrete and Dunn Corporation. Defendants argue, to the contrary, that at the time the statement was made it was true because no liens had been filed against the property and all bills were paid. Thus the Court must determine whether defendants' knowledge that the bills would be due, if they were not due at the time of the final payment, constitutes a misrepresentation pursuant to § 523(a)(2)(A).
Failure to disclose information may be characterized as a misrepresentation within the meaning of § 523(a)(2)(A). In re Pollitt, 145 B.R. 353. In addition, making statements with reckless disregard for the truth or falsity of the statement amounts to a misrepresentation under § 523. Birmingham Trust National Bank v. Case, 755 F.2d 1474 (11th Cir.1985); In re Black, 113 B.R. 79 (Bankr.M.D.Fla.1990). Direct evidence of intent is rarely available, thus the Court may infer intent to deceive from all the circumstances in a case. In re Pollitt, 145 B.R. 353.
Defendants testified that they intended to pay the lienors with funds from another contract which subsequently canceled. Although defendants may not have had invoices from the two lienors who finished working on plaintiff's home 12 days and 4 days prior to *541 plaintiff's inquiry about the bills, defendants' testimony indicates that defendants knew the amounts owed these two suppliers were outstanding on December 19. The Court finds that defendants' statement that the bills related to plaintiff's house were paid was made without regard to its truth or falsity, in reckless disregard for the truth and constitutes a misrepresentation under § 523(a)(2)(A).
Defendants also testified that they were desperately trying to keep their business going and that they needed funds at the time they received the final payment from plaintiff. The Court finds that defendants told plaintiff that the bills had been paid so plaintiff would continue to believe that C & C Homes, Inc., was financially sound. Thus plaintiff has established that defendants' statement concerning the payment of bills was made with the intent to deceive.
Plaintiff testified that she would not have made the final $10,111.14 payment if she had known that there were bills outstanding on the work. This is supported by plaintiff's questioning defendants about the status of the bills and liens prior to making the payment. The fact that plaintiff then made the final payment indicates that she relied upon defendants answer.
Plaintiff's reliance was reasonable. Plaintiff and defendants had a cordial business relationship and the work on her home was satisfactorily completed, thus plaintiff had no reason to doubt defendants and her reliance was reasonable.
The final element plaintiff must establish is damage caused by defendants' misrepresentation. The two liens which were filed against the property total $11,436.69. Plaintiff has suffered damage to the extent of the lien amounts which must be paid to release the liens.
Defendants argue that plaintiff failed to pierce the corporate veil and that plaintiff's relationship with defendants was solely through the corporation, C & C Homes, Inc. This does not alter the outcome under § 523(a)(2)(A). Money or property need not be obtained for the debtor personally, if an officer of a corporation has obtained money or property for the corporation through fraud the corporate form will not shield him. In re Langworthy, 121 B.R. 903 (Bankr. M.D.Fla.1990); In re Jones, 176 B.R. 629 (Bankr.M.D.Fla.1995).
Finally, defendants rely upon Blackwell v. Dabney, 702 F.2d 490 (4th Cir.1983) to support their argument that an oral statement concerning the financial condition of the corporation does not state a cause of action pursuant to § 523(a)(2)(A). The Eleventh Circuit has not adopted this rule nor does this Court. Plaintiff does not present allegations pursuant to § 523(a)(2)(B), thus the Court need not address defendants' arguments concerning the written statement from Mr. Harding.
11 U.S.C. § 523(a)(4)
In her complaint, plaintiff alleges that defendants embezzled funds, but in her brief plaintiff argues that defendants' actions amount to defalcation. The Court will address each of these points. Section § 523(a)(4) states in relevant part:
(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;
To establish defalcation under § 523(a)(4) plaintiff must establish that an express or technical trust exists between the parties which predates the wrongful conduct. Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S. Ct. 151, 79 L. Ed. 393 (1934); In re Quaif, 4 F.3d 950 (11th Cir.1993); In re Wiles, 166 B.R. 975 (Bankr.M.D.Fla.1994). The relationship between a corporate officer and the corporation's creditors is not sufficient to establish the fiduciary relationship required by § 523(a)(4). In re Nayee, 99 B.R. 90 (Bankr.M.D.Fla.1989); In re Wing, 96 B.R. 369 (Bankr.M.D.Fla.1989).
Plaintiff has failed to establish any relationship between plaintiff and defendants other than the relationship of corporate officer to corporate creditor. This is not sufficient to establish a fiduciary relationship within the meaning of § 523(a)(4).
*542 Embezzlement is defined for purposes of § 523(a)(4) as "the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come." In re Wiles, 166 B.R. 975, 980 (Bankr.M.D.Fla. 1994); In re Kelley, 84 B.R. 225, 231 (Bankr. M.D.Fla.1988). To establish that funds have been embezzled plaintiff need not establish a fiduciary relationship but must show fraud or fraudulent intent. Id.; In re Pickett, 150 B.R. 812 (Bankr.M.D.Fla.1992).
The Court has previously held that defendants' statement that all bills had been paid at the time plaintiff made the final payment on her home was made with the intent to deceive plaintiff. Thus, plaintiff has established the necessary fraudulent intent under § 523(a)(4), and that the $11,436.69 debt owed by defendants to plaintiff is excepted from defendants' discharge pursuant to § 523(a)(4).
The Court will enter a separate order consistent with these findings of fact and conclusions of law. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917541/ | 178 B.R. 908 (1994)
In re Alva W. EASON, a/k/a Alva Winston Eason d/b/a Eason Logging, SSN: XXX-XX-XXXX, Debtor.
Bankruptcy No. 91-70109-VAL.
United States Bankruptcy Court, M.D. Georgia, Valdosta Division.
August 2, 1994.
*909 David P. Ward, Albany, GA, for debtor.
Lillian H. Lockary, Asst. U.S. Atty., Macon, GA, for I.R.S.
Kristin Smith, Chapter 13 Trustee, Columbus, GA.
MEMORANDUM OPINION
JOHN T. LANEY, III, Bankruptcy Judge.
On April 27, 1994, the court held a continued hearing on the motion of Debtor to modify his confirmed Chapter 13 plan and the objections of certain creditors thereto. This memorandum opinion concerns the objection of the Internal Revenue Service (hereinafter the "IRS"), a classified unsecured creditor of Debtor. The parties have stipulated that there are no disputed facts. The IRS asserted that the proposed postconfirmation modification is defective since it does not provide for interest on the deferred payment of the IRS's unsecured priority tax claim where such claim would have been paid in full in a hypothetical Chapter 7 liquidation (as required by the "best interest of creditors" test under § 1325(a)(4) of the Bankruptcy Code, as incorporated into § 1329 of the Code). Debtor responded that the IRS does not have standing to object to the treatment of its priority claim, since the proposed modification does not alter the treatment of the IRS's claim from that shown in the original confirmed Chapter 13 plan or the confirmed May, 1992 modified plan (the controlling plan at this time). At the conclusion of the hearing, the parties agreed to submit briefs on the issue of whether the IRS has standing to object to the proposed modification of Debtor's confirmed Chapter 13 plan. The court, having considered the briefs of counsel, finds that under § 1327 of the Bankruptcy Code and for the reasons discussed below, the IRS does not have standing to object to Debtor's proposed postconfirmation modification.
Debtor filed a petition for relief under Chapter 13 on February 15, 1991. Debtor's schedules indicated a jointly-owned parcel of real estate (co-owner/wife did not file) with a value of $165,000.00 and liens thereon totalling $99,249.31. Debtor scheduled general unsecured debts of $2,649.02 and unsecured priority state and federal tax debt in an unknown amount for two prepetition tax years.
Debtor's Chapter 13 plan was filed on March 1, 1991. It provided that all 11 U.S.C. § 507 priority claims would be paid in full over the life of the plan. Debtor's plan included the payment of a dividend of 100% to unsecured creditors, as required by the "best interests of creditors" test. The plan did not provide for the payment of interest on allowed unsecured general claims or on allowed unsecured priority claims. The IRS, an unsecured creditor, did not file an objection *910 to the plan. The plan was confirmed on May 29, 1991.
On November 18, 1991, Debtor filed a Motion for Modification of Plan After Confirmation, which both parties agree did not alter the treatment of the IRS's priority claim under the original confirmed plan.
On May 18, 1992, Debtor filed a Motion for Modification of Plan After Confirmation in order to increase his monthly payments to the trustee. The modified plan indicates that the IRS will be paid under the plan as a classified unsecured claimant in the amount of $2,709.00 ($4,868.00 (the IRS's original unsecured priority claim) less a 1991 tax refund of $2,159.00). The plan provides that the amount of $2,709.00 will be distributed through installments of $56.44 over 48 months at 0% interest. Thus, the modified plan provides for the repayment in full of the IRS's unsecured claim at 0% interest. The modified plan includes a dividend of 100% to unsecured creditors and does not provide for interest payments on allowed unsecured general claims or on allowed unsecured priority claims. The IRS did not file an objection to the modified plan. The modified plan was confirmed on August 26, 1992.
On August 10, 1992, Debtor filed an objection to the IRS's proof of claim and requested the court to reduce the original claim of $4,868.00 to $2,709.00, anticipating the offset by the IRS of the 1991 tax refund. The IRS then filed an amended proof of claim which eliminated an estimated claim for delinquent 1989 and 1990 taxes and set forth a liquidated amount for the IRS's unsecured priority claim of $4,555.75, plus an unsecured general claim of $122.80. The IRS did not offset the tax debt but refunded to Debtor his 1991 tax refund of $2,159.00 plus interest, and did not further amend its proof of claim. Debtor's objection to the IRS's proof of claim was withdrawn on November 20, 1992. Therefore, the IRS's amended proof of claim for $4,678.55 (including the $4,555.75 classified as unsecured priority), is deemed allowed.
On January 13, 1994, Debtor filed a Motion for Modification of Plan After Confirmation in order to reduce his monthly payments to the trustee. The modified plan reflects the sale (already approved by this court), of two items of collateral for which two secured creditors have now been paid (as allowed under § 1329(a)(3) of the Bankruptcy Code). The modified plan proposes to reduce the amount of the monthly payment on the classified claim of the IRS (as allowed under § 1329(a)(1) of the Code), and to lengthen the time period during which such claim will be repaid in full (as allowed under § 1329(a)(2) of the Code). The modified plan reaffirms the treatment of the IRS by providing for the repayment in full of the IRS's classified unsecured claim of $4,555.75 at 0% interest. The modified plan includes a dividend of 100% to unsecured creditors and does not provide for interest payments on allowed unsecured general claims or on allowed unsecured priority claims.
On February 7, 1994, the IRS filed an objection to the proposed postconfirmation modification and alleges that it is defective since it does not provide for interest on the deferred payment of the unsecured tax claims where such claims would have been paid in full in a hypothetical Chapter 7 liquidation as required under § 1325(a)(4) of the Bankruptcy Code.
Debtor, referencing § 1327 of the Bankruptcy Code, contends that once his Chapter 13 plan was confirmed, the confirmation order became res judicata as to all justiciable issues, including the issue of whether unsecured creditors are entitled to payment of interest on allowed unsecured claims. Debtor concedes that if an objection to confirmation had been timely filed by an unsecured claimant pursuant to § 1325(a)(4) of the Bankruptcy Code prior to confirmation of Debtor's plan on May 29, 1991, the plan would not have been confirmable absent a modification to provide for the "present value" of the unsecured claims through the payment of interest on the allowed unsecured claims. See Hardy v. Cinco Fed. Credit Union (In re Hardy), 755 F.2d 75 (6th Cir. 1985); In re Martin, 17 B.R. 924 (N.D.Ill. 1982); see also Equitable Life Assurance Society v. Sublett (In re Sublett), 895 F.2d 1381 (11th Cir.1990); Scarborough v. Orix Credit Alliance (In re Scarborough), No. 93-8572 (Bankr.M.D.Ga.1994), aff'd, 14 F.3d 59 (11th Cir.1994). But no such objection was *911 made, and the plan was confirmed without provision for the payment of interest on unsecured claims. See In re Szostek, 886 F.2d 1405 (3rd Cir.1989) (held that the objecting secured creditor had effectively waived its rights under § 1325(a) of the Bankruptcy Code by failing to timely object or appeal the order of confirmation). Debtor points out that there is no allegation that the IRS lacked notice of Debtor's bankruptcy filing or the provisions of the original Chapter 13 plan as proposed and as confirmed. Debtor contends that the IRS has no standing to object to approval of the proposed modification since the IRS has waived its rights to object to the 0% interest to be paid on its priority claim. Debtor points out that the provision for 0% interest on the IRS's claim has been confirmed as part of Debtor's plan. Furthermore, Debtor argues that the proposed modification does not alter the treatment of the unsecured priority claim or the general unsecured claim of the IRS from the previously confirmed plans. Thus, the IRS is not adversely affected by the proposed modification. See In re Stage, 79 B.R. 487 (Bankr.S.D.Cal.1987) (held that a creditor who is not affected by a proposed postconfirmation modification lacks standing to object to confirmation of a modified plan). Debtor contends that the IRS has filed an objection to collaterally attack a provision of the confirmed plan and is trying to reinstate rights which it previously waived through its inaction. Debtor urges the court to find that the IRS has no standing to raise such an objection and requests that the IRS's objection to confirmation be overruled, and Debtor's proposed modification be confirmed.
The IRS contends that it does have standing to object since the proposed modification directly impacts the treatment of the IRS's claim by proposing to alter distribution under the plan. With respect to Debtor's reliance on In re Stage, 79 B.R. 487 (Bankr. S.D.Cal.1987), the IRS contends that the court found no standing to object because the proposed modification did not adjust treatment of the objecting secured creditor's claim under the confirmed plan, and that the elements of § 1325(a) of the Bankruptcy Code could have been invoked by the objecting creditor if the debtor had proposed to alter treatment of the objecting creditor's claim. With respect to the proposed modification, the IRS argues that Debtor proposes to adjust payments of the IRS's unsecured priority claim; therefore, the elements of confirmation are still applicable, including § 1325(a)(4) of the Code. The May, 1992 modification of Debtor's plan provides that the claim will receive payment of $2,709.00 (amount Debtor previously asserted should be paid). The proposed modification proposes to pay the full amount of the IRS's allowed unsecured priority claim in the amount of $4,555.75 (the allowed amount after Debtor received his 1991 tax refund and withdrew his objection to the IRS's claim). The IRS contends that the proposed modification therefore varies treatment of the claim by conforming distribution under the plan to the IRS's amended proof of claim (the modification takes into account a 1991 tax refund received by Debtor and acknowledges that $4,555.75 is the correct amount of the claim and not $2,709.00 as approved in the May, 1992 modification).
The IRS also claims that a creditor in interest has a right to object to a plan modification whether or not the issues raised at the modification hearing arose at the original confirmation hearing. See In re DeMoss, 59 B.R. 90 (Bankr.W.D.La.1986) (whether or not a substantial change in debtor's income or expenses has occurred since confirmation is a new justiciable issue); see also In re Frost, 123 B.R. 254 (S.D. Ohio 1990); In re Koonce, 54 B.R. 643 (Bankr.D.S.C.1985).
Section 1327 of the Bankruptcy Code sets forth the effect of confirmation of a Chapter 13 plan:
(a) The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.
(b) Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.
(c) Except as otherwise provided in the plan or in the order confirming the plan, *912 the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan.
Additionally, Collier on Bankruptcy, a leading treatise on bankruptcy, states that:
The purpose of section 1327(a) is the same as the purpose served by the general doctrine of res judicata. There must be finality to a confirmation order so that all parties may rely upon it without concern that actions which they may thereafter take could be upset because of a later change or revocation of the order. . . .
The binding effect of the confirmation order establishes the rights of the debtor and creditors as those which are provided in the plan. It is therefore incumbent upon creditors with notice of the Chapter 13 plan to review the plan and object to the plan if they believe it to be improper; they may ignore the confirmation hearing only at their peril.
5 Collier on Bankruptcy ¶ 1327.01[1] (15th ed. 1994) (footnotes omitted).
A creditor that had the opportunity to object that the plan did not meet the requirements for confirmation may not later assert any interest other than that provided for it by the confirmed plan. See United States on Behalf of I.R.S. v. Norton, 717 F.2d 767, 774 (3rd Cir.1983). Section 1327 of the Bankruptcy Code prevents a creditor from asserting after confirmation and during the term of the plan, any rights other than those provided for it by the confirmed plan. See Anaheim Savings and Loan Assn. v. Evans (In re Evans), 30 B.R. 530 (9th Cir. BAP 1983); Rhode Island Central Credit Union v. Zimble (In re Zimble), 47 B.R. 639 (Bankr. D.R.I.1985); see also Lawrence Tractor Co. v. Gregory (In re Gregory), 705 F.2d 1118 (9th Cir.1983) (failure to raise objection or appeal confirmation order precluded attack on Chapter 13 plan); Matter of Battle, 164 B.R. 394 (Bankr.M.D.Ga.1994) (creditor's objection to confirmation barred; oversecured creditor's failure to object to or appeal from Chapter 13 confirmation order barred claim for interest; opinion primarily based on the binding effect of § 1327 of the Bankruptcy Code).
Furthermore, Collier on Bankruptcy states that:
[T]he binding effect of a chapter 13 plan extends to any issue actually litigated by the parties and any issue necessarily determined by the confirmation order, including whether the plan complies with sections 1322 and 1325 of the Bankruptcy Code. For example, a creditor may not after confirmation assert that the plan was not filed in good faith, as required by section 1325(a)(3); that the creditor should have been paid interest; that the debtor is ineligible for chapter 13 relief; or that the plan is otherwise inconsistent with the Code in violation of section 1322(b)(10) or section 1325(a)(1).
5 Collier on Bankruptcy ¶ 1327.01[1] (15th ed. 1994) (footnotes omitted).
In In re Hebert, 61 B.R. 44, 46-47 (Bankr. W.D.La.1986), the court held that the IRS's failure to object to the treatment of its claim as payment in full without interest constituted "agreement" to such treatment, and thus, upon completion of the Chapter 13 plan, the IRS was precluded from seeking enforcement of its lien for interest due.
In In re Szostek, 886 F.2d 1405 (3rd Cir. 1989), a creditor raised a postconfirmation challenge to the treatment afforded it in the confirmed plan. The creditor claimed that the plan failed to provide for the payment of interest on its allowed secured claim to pay the "present value" of the claim. Szostek, 886 F.2d at 1407. The issue before the Szostek court was:
[W]hether, in the absence of fraud, the failure of a creditor to . . . object timely to the plan, or appeal the order of confirmation, regardless of the reason, precludes the creditor from obtaining full recovery of the present value of its claim when such was not provided for in the confirmed plan.
Id. at 1408.
The Szostek court determined that compliance with § 1322 of the Bankruptcy Code is mandatory for a plan ("The plan shall . . ."), to be confirmed, but that compliance with the conditions of § 1325(a) of the Code is not mandatory (". . . the court shall confirm a plan if" certain things occur/not "only if" *913 those things occur). Id. at 1411. Thus, if the conditions of § 1325(a) of the Code are met, the court must confirm the plan; however, if the conditions of § 1325(a) of the Code are not met, although § 1322's requirements are met, the court has the discretion to confirm the plan. Id. The court decided that once the plan was confirmed, it became final under § 1327 of the Code and absent a showing of fraud, it could not be challenged for failure of the debtor to pay the objecting secured creditor the present value of its claim. Id. at 1413.
In In re Stage, 79 B.R. 487 (Bankr.S.D.Cal. 1987), a confirmed Chapter 13 plan did not provide for the payment of interest on a prepetition secured claim. The debtor filed a proposed modification which did not adversely affect the creditor's treatment. Stage, 79 B.R. at 487. The creditor objected since the modified plan did not provide for interest in violation of § 1325(a) of the Bankruptcy Code as incorporated into § 1329(b)(1) of the Code. Id. at 487-88. The court found that the creditor was bound by the terms of the plan as originally confirmed. Id. at 488. The court stated that: "There is nothing in the legislative history or case law to support the position that a hearing on modification of a Chapter 13 plan was intended to be a rehearing on all issues which were or could have been raised at the initial confirmation hearing." Id. The court noted that to allow such action could result in the reopening of issues considered at the original confirmation hearing, regardless of whether or not a creditor was affected by the modification, and also would be burdensome to the bankruptcy court. Id.
With respect to the doctrine of res judicata, several decisions have held that an order confirming a Chapter 13 plan is res judicata as to all justiciable issues which were or could have been decided at the confirmation hearing. See Anaheim Savings and Loan Assn. v. Evans (In re Evans), 30 B.R. 530 (9th Cir. BAP 1983); Young v. I.R.S., 132 B.R. 395 (S.D.Ind.1990); In re Duke, 153 B.R. 913 (Bankr.N.D.Ala.1993); Los Angeles Title and Trust Deed Co. v. Risser (In re Risser), 22 B.R. 868 (Bankr.S.D.Cal.1982); Matter of Abercrombie, 39 B.R. 178 (Bankr. N.D.Ga.1984); Matter of Beard, 112 B.R. 951 (Bankr.N.D.Ind.1990); In re Guilbeau, 74 B.R. 13 (Bankr.W.D.La.1987); Citicorp Homeowners, Inc. v. Willey (Matter of Willey), 24 B.R. 369 (Bankr.E.D.Mich.1982); In re Banks, 161 B.R. 375 (Bankr.S.D.Miss. 1993); In re Russell, 29 B.R. 332 (Bankr. E.D.N.Y.1983); In re Patterson, 107 B.R. 576 (Bankr.S.D. Ohio 1989); In re Bonanno, 78 B.R. 52 (Bankr.E.D.Pa.1987); In re Clark, 38 B.R. 683 (Bankr.E.D.Pa.1984); Rhode Island Cent. Credit Union v. Zimble (In re Zimble), 47 B.R. 639 (Bankr.D.R.I.1985). See generally Harry L. Deffebach, Postconfirmation Modification of Chapter 13 Plans: A Sheep in Wolf's Clothing, 9 Bankr.Dev.J. 153 (1992).
This court recognizes that some courts have rejected res judicata in regard to Bankruptcy Code § 1329 motions (see Williams v. First Nat'l Bank (In re Williams), 108 B.R. 119 (Bankr.N.D.Miss. 1989); In re Stone, 91 B.R. 423 (Bankr.N.D. Ohio 1988); In re Jock, 95 B.R. 75 (Bankr. M.D.Tenn.1989)). However, such view ignores the concept that the parties should be able to rely on the confirmed plan absent a change in the debtor's circumstances or postconfirmation default by the debtor. The doctrine of res judicata prohibits modifications based on issues that were or could have been litigated at confirmation, such as the issue of payment of interest on unsecured claims.
It appears to the court from applicable statutory law and case law that a confirmation order binds the debtor and creditor to the provisions of the confirmed Chapter 13 plan. The proposed postconfirmation modification does not alter the status or treatment of the IRS's claim from that shown in the original confirmed Chapter 13 plan or the confirmed May, 1992 modified plan (the controlling plan at this time). The proposed modification reaffirms the treatment of the IRS by providing for the repayment in full of the IRS's classified unsecured claim at 0% interest. Since the IRS made no objection to the originally confirmed plan (which provided for 0% interest on the IRS's claim), or the later May, 1992 modification which also provides for 0% interest, the binding effect of § 1327 of the Code, as well as the doctrine of *914 res judicata, preclude the IRS from objecting now. The court also notes that there has been no allegation of improper notice or fraud.
An additional reason for overruling the IRS's objection is that judicial economy demands reducing needless or repetitive litigation of issues that could have been decided at the confirmation hearing.
Finally, even if the court denies the proposed modification, the IRS will receive a 0% rate of interest on its claim as shown in the confirmed May, 1992 modified plan (the controlling plan at this time), and in the original confirmed Chapter 13 plan.
Therefore, for the reasons discussed above, the court finds that the IRS does not have standing to object to Debtor's proposed modification of his confirmed Chapter 13 plan. Accordingly, the court overrules the pending objection of the IRS. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917798/ | 272 So. 2d 176 (1973)
Dorothy Mae WILLIAMS, Appellant,
v.
FLORIDA REALTY & MANAGEMENT CO., a Florida Corporation, Appellee.
No. 72-486.
District Court of Appeal of Florida, Third District.
January 29, 1973.
Horton, Schwartz & Perse, Ralph P. Ezzo, Miami, for appellant.
*177 Wicker, Smith, Pyszka, Blomqvist & Davant, Miami, for appellee.
Before BARKDULL, C.J., and PEARSON and HENDRY, JJ.
PEARSON, Judge.
The appellant alleged in her complaint that she was negligently shot by the manager of the apartment house in which she resided. She further alleged that the defendant, the operator of the apartment house, was negligent when it knowingly allowed the manager to use a firearm in the performance of his duties when it knew or should have known that the manager did not possess the requisite skill and temperament for the proper use of a firearm. After the answer and discovery papers were filed, the trial court granted the defendant's motion for a summary final judgment. The plaintiff has appealed. We reverse upon a holding that the pleadings, depositions and affidavit before the trial court did not conclusively demonstrate the absence of a genuine issue of material fact.
On appeal from summary final judgment, the appellant is entitled to have the record reviewed so that every reasonable inference is drawn in his favor. Conversely, the moving party has the burden of conclusively showing the absence of genuine issues of material fact. If the existence of such issues, or the possibility of their existence, is reflected in the record, or the record even raises the slightest doubt in this regard, the summary final judgment must be reversed. See Visingardi v. Tirone, Fla. 1966, 193 So. 2d 601; Holl v. Talcott, Fla. 1966, 191 So. 2d 40; Lampman v. City of North Miami, Fla.App. 1968, 209 So. 2d 273.
Before entering summary judgment, the trial court considered the following discovery items: (1) the deposition of the appellant, (2) the deposition of the manager, and, (3) the affidavit of an officer of the appellee "[t]hat Florida Realty & Management Company, its officers or agents never supplied Mr. Willie McGriff with a firearm in order to enforce regulations, protect or defend the premises at 3201 Douglas Road, Miami, Dade County, Florida."[1]
The appellant and the manager gave widely divergent accounts of the incident. The appellee therefore does not urge in this court that there were no issues of fact. It does urge that the issues were not "genuine issues of material fact." In so arguing, the appellee states that it accepts, for the purpose of argument, the appellant's version of the incident and argues that this version clearly shows that the manager was not acting within the scope of his employment when the shooting occurred. In Atlantic Coast Line Railroad Company v. Burquest, Fla.App. 1958, 101 So. 2d 828, the appellate court adopted the following statement from 35 Am.Jur. Master and Servant, § 553, page 987:[2]
"`* * * If the employee, being engaged about the business of the employer, adopts methods which he deems necessary, expedient or convenient, and the methods adopted prove hurtful to others, the employer may be held liable. The purpose of the employee's act, rather than the method of performance thereof, is said to be the important consideration. * * *'"
The question thus becomes whether or not the defendant's allegation that the manager was not engaged about the business of the employer is shown conclusively *178 to be true. The mere nonexistence of evidence to prove that the agent was about his master's business is an inadequate showing at this stage of the proceedings. When a defendant moves for summary judgment, the trial court does not determine whether the plaintiff can prove her case but only whether the pleadings, depositions and affidavits conclusively show that she cannot prove her case.
The appellant stated in her deposition as follows:
1. At the time of the incident she had been living in an apartment a few doors down from the manager with her three children and brother. She has three other brothers who live elsewhere.
2. On the evening in question, two of her brothers and an aunt were visiting with her. At about 8:30 p.m. appellant and her visitors were sitting out in front of her apartment talking and playing a phonograph. At that time the manager came down from upstairs and asked a lady standing nearby to dance with him. She told him to go on because she didn't want to be bothered. The manager then asked appellant to turn off the phonograph because it was too loud. The appellant turned it off. The appellant and her brothers had no argument with the manager at that time.
3. About an hour later one of appellant's brothers left to go home. To reach the exit he had to walk past the manager's apartment. Appellant was standing in her doorway. Shortly thereafter, the manager fired five shots, three of which struck appellant and severely injured her. Appellant didn't hear any argument between the manager and her brother.
4. The manager was in a habit of carrying his gun around the premises, playing with it and showing it off to the residents of the apartment complex.
We conclude that the defendant did not carry the burden of conclusively demonstrating the absence of a genuine issue of material fact.
Reversed and remanded for further proceedings.
NOTES
[1] The fact stated in this affidavit is irrelevant to the issues made by the complaint. There is no suggestion in the complaint nor would there be any support for a statement that it was illegal or wrong for the operator of an apartment house to entrust a firearm to its employee. This is especially true when the employee, as in the present instance, handled the rental collections and was required to investigate tenant complaints.
[2] The quoted portion is repeated at 53 Am.Jur.2d Master and Servant, § 427, pages 444-445. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3346116/ | [EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.]MEMORANDUM OF DECISION
This is an action brought under General Statutes § CT Page 851713a-149 for personal injuries allegedly suffered when the plaintiff fell on a city sidewalk. To bring a claim under § 13a-149, "the plaintiff must furnish notice containing the five statutory elements as a condition precedent to bringing an action against a municipality." Martin v. Plainville, 240 Conn. 105, 111,689 A.2d 1125 (1997). Notice must include a general description of the injury. General Statutes § 13a-149. The defendant has moved to strike the complaint on the ground that the notice given to the city was defective because it did not contain a complete description of the nature of the alleged injuries.
The legislature intended the notice requirement to be liberally construed. Pratt v. Old Saybrook, 225 Conn. 177, 183,621 A.2d 1322 (1993). Notice is ordinarily defective only when it completely lacks an essential element, which, in regard to an injury's description, would mean a failure to give any description beyond the mere assertion that the injury or damage occurred. Martin v. Plainville, supra, 240 Conn. 110. The savings clause applies where the information provided in the notice is inaccurate or incomplete. Id., 113.
In the present case, the notice gave the following description: "injuries sustained: left foot, right hand, both elbows, and right shoulder." While not offering details as to the exact nature of the injuries to the plaintiff's limbs, this description does identify specific injuries, and goes beyond a mere assertion that the plaintiff was injured.
Accordingly, the defendant's motion to strike is denied.
Howard F. Zoarski Judge Trial Referee | 01-03-2023 | 07-05-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/1570622/ | 29 So. 3d 1133 (2010)
PARSONS
v.
PARSONS.
No. 4D08-5002.
District Court of Appeal of Florida, Fourth District.
March 17, 2010.
Decision Without Published Opinion Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1646849/ | 9 So.3d 622 (2009)
APOLLO RENOVATIONS & DEVELOPMENT, INC.
v.
BARNHART.
No. 2D09-1002.
District Court of Appeal of Florida, Second District.
June 3, 2009.
Decision without published opinion. Dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1001157/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v. No. 99-4374
ZACHARIAH CLIFTON,
Defendant-Appellant.
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
DELANO DUBUISSON, a/k/a Delano
Alphonso Dubuisson, a/k/a Delano
Alfonso Dubuisson, a/k/a Delano
No. 99-4546
Dubusson, a/k/a Delano Tudor,
a/k/a Duane Anthony Grimes, a/k/a
Duane Grimes, a/k/a John Guarles,
a/k/a John Curtis, a/k/a Delana
Dubuison, a/k/a Sammy David
Mclain,
Defendant-Appellant.
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v. No. 99-4547
MESHAN BELK,
Defendant-Appellant.
Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Claude M. Hilton, Chief District Judge.
(CR-99-7)
Submitted: February 29, 2000
Decided: March 20, 2000
Before WILKINS, LUTTIG, and KING, Circuit Judges.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
Anthony F. Reid, REID & REID, Alexandria, Virginia; Gregory E.
Stambaugh, Manassas, Virginia; Gregory B. English, ENGLISH &
SMITH, Alexandria, Virginia, for Appellants. Helen F. Fahey, United
States Attorney, Rebeca Hidalgo Bellows, Assistant United States
Attorney, Alexandria, Virginia, for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Zachariah Clifton, Delano Dubuisson, and Meshan Belk collec-
tively appeal their jury convictions and sentences on one count each
of conspiracy to possess with intent to distribute and to distribute fifty
grams or more of crack cocaine and five kilograms or more of
2
cocaine, in violation of 21 U.S.C.A. § 846 (West Supp. 1999), and
conspiracy to import and to bring and possess on board an aircraft
arriving in the United States five kilograms or more of cocaine, in
violation of 21 U.S.C.A. § 963 (West Supp. 1999). The district court
sentenced Dubuisson, Clifton, and Belk to 292 months, 188 months,
and 121 months of imprisonment, respectively. Each defendant also
was sentenced to five years of supervised release and ordered to pay
the mandatory special assessments.
Defendants timely appealed, claiming that: (1) they were denied a
fair trial by allegedly prejudicial comments made by the Government
during trial and in rebuttal; (2) the district court erred in admitting
into evidence business records reflecting wire transfers involving the
defendants; (3) the district court clearly erred in setting the base
offense level based on both crack and powder cocaine rather than
solely on powder cocaine, erred in determining the amount of crack
and powder cocaine attributable to Dubuisson, and erred in assessing
a four-level increase for Dubuisson's role in the conspiracy; (4) the
district court abused its discretion in denying Clifton's motion for a
new trial based on the failure of the Government to timely disclose
his post-arrest statements to authorities; and (5) the district court erred
in denying defendants' motion for a new trial based on anonymous
letters claiming extrajudicial contacts with jurors. For the reasons
stated below, we affirm defendants' convictions and sentences.
Defendants' first claim is that the district court erred in denying
their motions for mistrial, which were based upon three comments at
trial by the Government. The first comment arose during cross-
examination of witness Ishmael Sanchez, when counsel for Belk
asked where Sanchez's family lived in Panama. The Government
objected, stating, "I don't think this is -- It could be potentially dan-
gerous and also -- I mean, I don't think we normally find out in any
case where a family . . . ." J.A. 169. The district court sustained the
objection; then, after Sanchez's cross-examination was complete,
Dubuisson's counsel moved for a mistrial, asserting that the Govern-
ment had obviously referred to Dubuisson as a drug dealer with the
potential ability to inflict harm on Sanchez's family. The district court
denied the motion, explaining that it is normal procedure not to dis-
close addresses of witnesses. The court indicated that it would con-
sider giving a curative instruction to the jury, but before closing
3
argument, counsel for Dubuisson withdrew the request for a curative
instruction. The second and third comments at issue here arose during
the Government's rebuttal, when Dubuisson was described as a "pur-
veyor of poison" and was attributed with "many aliases."
This court has applied a two-level analysis in reviewing allegations
of prosecutorial misconduct during trial. In this regard, we must first
determine whether the challenged remarks were improper; if so, then
we must ascertain whether the improper remarks prejudicially
affected the defendants' substantial rights such that the defendants
were deprived of a fair trial. See United States v. Wilson, 135 F.3d
291, 297 (4th Cir. 1998); United States v. Bennett, 984 F.2d 597, 608
(4th Cir. 1993).
We find no error in the district court's denial of the defendants'
motions for a mistrial based on the prosecutor's comments. First, with
respect to the Government's comment that it could be dangerous for
the witness to provide his family's address, we note that the prosecu-
tor made no direct reference to any of the defendants. In addition, the
remark was isolated; it was not placed before the jury with the pur-
pose of diverting their attention to extraneous matters; it did not mis-
lead the jury; and the defendant now demanding a new trial rejected
a curative instruction. See United States v. Bennett, 984 F.2d at 608;
United States v. Francisco, 35 F.3d 116, 120 (4th Cir. 1994).
Similarly, we find no error in the denial of a new trial based on the
Government's comment that Dubuisson had many aliases. Among
other things, the Government presented direct testimonial evidence
showing that Dubuisson used two aliases and indirect documentary
evidence that Dubuisson used at least four different names during the
course of the conspiracy. Moreover, following the objection by
Dubuisson's counsel at the time the comment was made, the prosecu-
tor identified for the jury the two aliases that were supported by direct
testimonial evidence. Because the evidence supported the Govern-
ment's comment, and because the comment was clarified by the Gov-
ernment during rebuttal, there was no impropriety in the statement.
See Wilson, 135 F.3d at 297.
Finally, we do not believe the Government's comment that Dubuis-
son was a "purveyor of poison" deprived the defendants of a fair trial.
4
At the outset, this comment did not mislead the jury because it was
clear that the prosecutor was referring to Dubuisson as a dealer of
cocaine and crack cocaine. In addition, the comment was not exten-
sive, and there is no indication that the remark was intended to divert
the jury's attention to extraneous matters. See Bennett, 984 F.2d at
608. Further, the defendant did not even request a curative instruction
as to this comment. See Francisco, 35 F.3d at 120. Given these facts,
and given that the district court instructed the jury that the arguments
and statements of counsel are not evidence, we find that none of the
prosecution's comments at issue affected the fairness of the defen-
dants' trial. See Wilson, 135 F.3d at 297.
Defendants next contend that the district court erred in admitting
into evidence business records reflecting wire transfers involving the
defendants.1 In this regard, we generally review the district court's
admission of evidence for an abuse of discretion. See United States
v. Chin, 83 F.3d 83, 87 (4th Cir. 1996).
Defendants argue that: (1) the bulk of the wire transfers involved
transfers to or from persons unidentified at trial; (2) the probative
value of this evidence was substantially outweighed by its tendency
to be unfairly prejudicial; and (3) the evidence permitted the jury to
speculate about the association between the records and the charged
drug conspiracy. However, our review of the record reveals that the
vast majority of the wire transfers admitted into evidence (in number
and value) reflected Dubuisson or Rook2 as the sender or recipient.
Also, as the district court held in denying defendants' motion for mis-
trial, the wire transfers ultimately admitted into evidence were within
the time frame of the charged conspiracy and related to the conspir-
acy. Under these circumstances, we find no abuse of discretion in the
district court's admission of the wire transfer records.
_________________________________________________________________
1 While they did not object at trial to the admission of these records
pursuant to Fed. R. Evid. 403, the defendants now argue that the admis-
sion of this evidence is subject to the "broadly deferential standard"
accorded Rule 403 objections. See United States v. Simpson, 910 F.2d
154, 157 (4th Cir. 1990).
2 The trial evidence demonstrated that Carlos Rook was Dubuisson's
main partner in this drug conspiracy.
5
Dubuisson next challenges the district court's finding that the base
offense level attributable to him was thirty-six, and he claims that the
court erred in applying the role in the offense increase set forth in
U.S. Sentencing Guidelines Manual, § 3B1.1 (1998). Specifically, he
disputes the findings that: (1) five-hundred grams or more of crack
cocaine and five to fifteen kilograms of cocaine powder was attribut-
able to him; and (2) he was an organizer and leader in the crack
cocaine portion of the conspiracy.3
This court reviews the district court's findings regarding the quan-
tity of drugs and the propriety of an offense increase for clear error.
See United States v. Randall, 171 F.3d 195, 210 (4th Cir. 1999). The
Government is required to prove drug quantities by a preponderance
of the evidence. Id. In determining the proper drug quantity for sen-
tencing purposes, the district court may consider any relevant and
reliable evidence, including co-conspirators' hearsay statements. Id.
This court has upheld § 3B1.1 increases where the defendant exer-
cised some element of control over the commission of the offense,
see, e.g., United States v. Kincaid, 964 F.2d 325, 329 (4th Cir. 1992),
and where the defendant was a major supplier of drugs for distribu-
tion and redistribution by and to other members of the conspiracy.
See, e.g., United States v. Banks , 10 F.3d 1044, 1057 (4th Cir. 1993).
In relevant part, the evidence in this case demonstrated that when
Ishmael Sanchez obtained the half-kilogram of crack cocaine from
Rook in Washington, D.C., the drugs were initially in powder form
and that Dubuisson arranged to have the cocaine powder converted to
crack cocaine. In addition, one of Sanchez's incremental payments to
Rook for the crack cocaine was paid directly to Dubuisson, at Rook's
direction.
_________________________________________________________________
3 Essentially, while Dubuisson does not contest his leadership role in
the powder cocaine aspects of the conspiracy, he claims that the crack
cocaine related acts "largely involved the actions of Carlos Rook and Ish-
mael Sanchez" and that Dubuisson's limited involvement with crack
cocaine could not reasonably be characterized as being at an organiza-
tional or leadership level. He further claims that any increase should have
been based solely on the lower powder cocaine level provided for in the
guidelines.
6
While Dubuisson claims that there is no evidence that the half-
kilogram testified to by Sanchez was weighed and that this evidence
is insufficient to support the district court's findings, we find this evi-
dence is sufficient to establish, by a preponderance of the evidence,
the drug quantities of which Dubuisson was found to be involved. See
Randall, 171 F.3d at 210. Moreover, the defendant bears the burden
to show that the information relied upon by the district court was
unreliable or inaccurate, id. at 211, and Dubuisson's bald assertion
that Sanchez' testimony was "sketchy" does not carry this burden.
Dubuisson also takes issue with the district court's reliance on the
Presentence Report's assignment of five to fifteen kilograms of pow-
der cocaine to him. The trial evidence demonstrated that Dubuisson
gave Sanchez 2550 grams of powder cocaine to smuggle from Pan-
ama. In addition, Dubuisson gave Tracy McGee 2901 grams of
cocaine in Panama, which was seized by authorities upon her return
to the United States. Accordingly, we find that there was ample evi-
dence to support the district court's conclusion that in excess of 500
grams of powder cocaine was properly attributable to Dubuisson.4
Therefore, we find no clear error in the district court's adoption of a
base offense level of thirty-six for Dubuisson.
We further affirm the district court's four-level increase of that
base offense level, based on the finding that Dubuisson was an orga-
nizer and leader of a conspiracy involving five or more participants.
Contrary to Dubuisson's claim on appeal, the increase was properly
added to the base offense level. See United States v. Hartzog, 983
F.2d 604, 608 (4th Cir. 1993); USSG § 3B1.1.
Next, Clifton asserts that the district court abused its discretion in
denying his motion for a new trial based on the failure of the Govern-
ment to timely disclose his post-arrest statements. On the morning of
trial, Clifton's attorney was made aware that the Government pos-
sessed a written report reflecting a statement Clifton made in which
he confessed to dealing in street-level sales of illegal drugs in North
Carolina during the time period of the charged conspiracy. Clifton's
_________________________________________________________________
4 This calculation does not take into account the unknown amounts of
cocaine Dubuisson gave to Belk, Clifton, and McGee during the first
successful smuggling trip.
7
lawyer maintains that the late disclosure of the incriminating evidence
forced him to adopt a new trial strategy in the middle of trial and pre-
vented his planned strategy of calling Clifton to testify. Clifton's law-
yer also claims that the timely revelation of a prior incriminating
statement would have aided his assessment of the case against Clifton
and may have persuaded Clifton to plead guilty.
While the district court denied Clifton's motion to suppress, it held
that the Government could not use the statement or its FBI witnesses
relating to the statement in its case-in-chief. The court further ruled
that a voluntariness hearing would be held, outside the presence of the
jury, in the event that Clifton elected to take the stand. Clifton did not
take the stand in his defense, and the incriminating post-arrest state-
ment was never introduced into evidence. Then, following the ver-
dicts, Clifton included this claim in his motion for a new trial.
We agree with the district court that there was no prejudice to Clif-
ton, given that the Government was precluded from using the state-
ment in its case-in-chief. The other facts surrounding this incident
buttress our conclusion: (1) Clifton would have had another opportu-
nity to have the statement suppressed had he decided to testify; and
(2) he had the duration of the three-day trial to consider entering a
guilty plea. Given these facts, we affirm the district court's denial of
Clifton's motions to suppress and for a new trial arising from this
incident.
Defendants' final argument on appeal is that the district court erred
in denying their motions for a new trial based on two anonymous let-
ters claiming extrajudicial contacts with jurors. 5 Following the trial of
this case, the Government and the presiding district judge each
received an unsigned letter purporting to be from a juror, alleging that
the anonymous juror and another unnamed juror were approached on
the second day of trial by an unfamiliar gentleman who "subtly" sug-
gested that the defendants should be convicted.
We find no abuse of discretion in the district court's denial of the
motion for a new trial on the ground of jury tampering. See United
_________________________________________________________________
5 Counsel for Belk also requested an investigation of the claim.
8
States v. Singh, 54 F.3d 1182, 1190 (4th Cir. 1995) (citation omitted);
United States v. Hernandez, 921 F.2d 1569, 1577 (11th Cir. 1991).
Because the letters were anonymous and had not been delivered to
any of the defense attorneys, the district court properly questioned
their reliability, and in light of the unsubstantiated nature of the anon-
ymous letters, we do not believe that the district court had any duty
to further investigate the claims. See Hernandez , 921 F.2d at 1577.
Accordingly, we affirm the defendants' convictions and sentences.
We dispense with oral argument because the facts and legal conten-
tions are adequately presented in the materials before the court and
argument would not aid the decisional process.
AFFIRMED
9 | 01-03-2023 | 07-04-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570612/ | 722 N.W.2d 379 (2006)
McCLAREN v. McLAREN.
No. 23757.
Supreme Court of South Dakota.
September 12, 2006.
Affirmed in Part, Reversed in Part (JJD) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570628/ | 29 So. 3d 292 (2010)
STUMP
v.
STATE.
No. SC10-239.
Supreme Court of Florida.
February 9, 2010.
Decision Without Published Opinion Appeal dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570659/ | 298 S.W.2d 691 (1957)
Cora GUTHRIE, Appellant,
v.
BOARD OF EDUCATION OF JEFFERSON COUNTY, Kentucky, Appellee.
Court of Appeals of Kentucky.
February 8, 1957.
Erwin A. Sherman, Louisville, for appellant.
Lucian L. Johnson, Louisville, for appellee.
STEWART, Judge.
This is an appeal from a circuit court judgment which sustained an order of the Jefferson County Board of Education dismissing appellant, Cora Guthrie, as a teacher. On March 16, 1956, Miss Guthrie received a letter from Richard Van Hoose, county superintendent of schools, informing her the board was going to hold a hearing for the purpose of determining whether it would be justified in discharging her for reasons of "incompetency and inefficiency." A hearing on such grounds is provided for by KRS 161.790(1), (b). In accordance with another subsection of this statute, 161.790(2), the letter advised Miss Guthrie of the charges preferred against her.
At the hearing those who testified against her were Richard Van Hoose, the above superintendent, T. T. Knight, the principal of Southern High School, where Miss Guthrie taught from 1951 until 1955, John B. Lowe, principal of Waggener Junior High School, where Miss Guthrie last taught, and John L. Ramsey and James Farmer, assistant county superintendents of schools. A summary of the evidence is that Miss Guthrie, during much of her teaching career, was a poor disciplinarian. Not only was she unable to preserve proper order in the classrooms over which she presided, but she was deficient in controlling *692 pupils placed under her care on the playground. Her pupils were unhappy and ill at ease, her classroom was full of tension and confusion, with the result that group work and individual incentive were lacking. She was transferred from school to school, five in all, in an effort to adjust her to a general atmosphere in which she could instruct effectively, but such transfers failed to bring about any beneficial results. Wherever she taught, demands by telephone and by letter were made by parents that she be transferred out of that school, or their children be moved to another teacher.
The evidence for Miss Guthrie consisted chiefly of letters from the parents of some of her pupils who stated that their children had regarded her as a good teacher. However, even this testimony contained statements indicating that some of her pupils were "quite rough", "nasty" and "spoke terribly" to her in class, and that there was virtually organized disorder on other occasions. Miss Guthrie's own testimony indicated that she felt that most of her discipline problems were caused by the lack of support she had from the school authorities, that in her opinion she was not to blame for most of her difficulties in controlling pupils since those involved were chronic troublemakers, and that she felt she was doing a good job as a teacher.
A week after the hearing, a vote was taken on whether Miss Guthrie should be dismissed. The vote was unanimous for dismissal, four to none, one member not voting. Pursuant to KRS 161.790(5), Miss Guthrie appealed this ruling to the circuit court. The case by agreement was referred to a commissioner who upheld the board. The circuit judge likewise sustained the board. It is the latter's adjudication which we are now called upon to review.
The only error alleged by appellant is that the judgment is contrary to the weight of the evidence. A complete solution to this problem will require a discussion of not only our scope of review of the lower court's decision but also the scope of review that the lower court exercises over a board of education in a case such as this.
The teacher's right to appeal from the decision of the board of education is granted by KRS 161.790(5) which in part states: "The teacher shall have a right to make an appeal both as to law and as to fact to the circuit court. * * * Such appeal shall be an original action in said court * * *. The court shall examine the transcript and record of the hearing before the board of education and shall hold such additional hearings as it may deem advisable, at which it may consider other evidence in addition to such transcript and record. Upon final hearing, the court shall grant or deny the relief prayed for in the petition as may be proper * * * in accordance with the evidence adduced at the hearing."
The trial judge is not required to give the decision of the board of education the great weight to which administrative decisions are ordinarily entitled. Nor is the judge required to rehear all the witnesses who appeared before the board. The court is authorized to make its decision on the basis of the record alone, if it is sufficiently convinced by it. Thus it seems that the proceedings are what we may call "quasi de novo". If the judge does not rule for himself on the questions of fact involved but instead contents himself with determining that there was "substantial evidence" to sustain the board's finding or that the board did not "abuse its discretion", he has not performed his statutory duty and his judgment must be set aside. Hall v. Putthoff, 252 Ky. 570, 67 S.W.2d 948. To state the proposition otherwise, the court must do more than merely ratify the board's action. On the other hand, it would be unwise to deny to the court the right to consider the basis for the board's decision. The board has been chosen by the people of the community to run the schools, and its intimate knowledge of every phase of school affairs gives *693 its decisions a weight that should not be disregarded, and the court should certainly examine the facts that prompted the board's finding on a school question. See Harrell v. City of Middlesboro, Ky., 287 S.W.2d 614, a case involving the policeman's tenure statute.
With these principles in mind, let us consider the decree of the trial court and determine if it was proper. It is our conclusion that it was. The excellent memorandum opinion delivered by the trial judge clearly reveals the basis of his decision. The court stated:
"Since I am required by the statute to consider the facts as well as the law, since it is an original action, and since I would have had the right to have heard additional testimony had it been presented, I conclude that I am not limited to an inquiry solely into whether the board abused its discretion. * * * On the other hand, I think I am compelled to give considerable weight to the finding of fact on the part of the board of education * * *." Citing Harrell v. City of Middlesboro, supra.
To our minds, this language clearly indicates that the trial judge acted in accordance with the general principles set out above.
Our scope of review in this type of case is no different from that used in any case when the trial court has made a finding of fact. Unless the finding is "clearly erroneous", the judgment of the trial judge should be allowed to stand. See CR 52.01. We cannot say that the trial judge's decision is clearly erroneous in the case at bar. We, like the trial court, are impressed by the fact that five professional school men, all highly trained in the field of education, testified against Miss Guthrie. No person with an educational background, with the possible exception of Miss Guthrie herself, testified on her behalf. This alone would be a sufficient basis for the trial court's holding.
The case at bar bears a striking similarity to the case of Hapner v. Carlisle County Board of Education, 305 Ky. 858, 205 S.W.2d 325, which was decided under the present statute. In that case the action of the board in discharging a certain Mrs. Hapner was upheld. Many of the same complaints that were preferred against Miss Guthrie were made in the Hapner case. In addition, Miss Guthrie was charged with being unable to maintain order in her classes. Furthermore, there was no expert testimony in the Hapner case about the failure of the teacher to measure up to professional standards as was present here. It is obvious that this case is far stronger than the Hapner case. Then, too, the opinion of the trial court in the present case shows almost conclusively that the proper scope of review was employed. We conclude the judgment of the trial court must stand.
Wherefore, the judgment is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570662/ | 722 N.W.2d 653 (2006)
W. Harold ASMUS, Appellant,
v.
WATERLOO COMMUNITY SCHOOL DISTRICT and Employers Mutual Companies, Appellees.
No. 04-1538.
Supreme Court of Iowa.
October 13, 2006.
*654 Jay P. Roberts and Carter J. Stevens of Roberts, Stevens & Lekar, PLC, Waterloo, for appellant.
Valerie A. Landis of Hopkins & Huebner, P.C., Des Moines, for appellees.
CARTER, Justice.
W. Harold Asmus (claimant), a teacher in the Waterloo Community School District for twenty-six years, appeals from a decision on judicial review upholding the workers' compensation commissioner's denial of his disability claim based on an alleged mental injury. Claimant contends that he is disabled from a severe state of depression caused by the stresses that arose from an alleged tyrannical working environment at his school. The workers' compensation commissioner found that claimant had established the medical causation elements of a work-engendered mental disability claim, but had not proven the necessary elements to establish legal causation. The district court agreed.
Claimant asserts that the commissioner erred in failing to find that he had established both medical causation and legal causation sufficient to sustain a claim of work-related mental disability. In the alternative, he argues that, if legal causation does not exist, the standards for establishing that condition work a denial of equal protection of the law. After reviewing the record and considering the arguments presented, we affirm the judgment of the district court.
Claimant was a teacher in the Waterloo Community School District from 1975 until April 2000. Except for the first five years of this period, he was a sixth grade teacher at Hoover Middle School, primarily teaching science. Claimant was an active member of the teachers' union and, until shortly prior to resigning as a teacher, was the union representative for his school building. The principal at Hoover Middle School from 1992 to 1998 evaluated claimant as a satisfactory teacher, although numerous parent complaints about his teaching methods were noted and certain reviews identified poor organizational skills and inability to control his temper.
In the fall of 1998, a new principal began working at Hoover Middle School. Claimant professes to have had no problems in his dealings with that principal during her first year at the school. During the 1999-2000 school year, claimant was diagnosed as suffering from tuberculosis. He alleges that during this school year numerous conflicts with the principal arose that produced *655 great stress in carrying out his teaching responsibilities. In April of that school year, the principal and other teachers who claimant alleged were favored by the principal received anonymous emails in a critical and somewhat obscene tone. An investigation traced the source of these emails back to claimant. A criminal investigation resulted in a charge of harassment being brought against him. That charge was ultimately dismissed as part of an agreement between the prosecutors, claimant, and the school district pursuant to which claimant agreed to resign, and the school district agreed not to lodge a professional license complaint against him.
The sources of the stress that claimant identifies as the cause of his depression were the following:
1. The circulation among teachers in the building of a summary of parent input at a recent parent/teacher conference identifying claimant by name as having intimidated students. Evidence was produced at the arbitration hearing that these parent complaints against claimant were in fact lodged at the parent/teacher conference. However, the principal agreed that it was a mistake to have circulated a summary that identified the teacher against whom complaints had been made.
2. The principal's refusal to recommend that certain teachers in the building grade less leniently and more in keeping with claimant's philosophy of grading. Evidence presented indicated that, in declining to support claimant's efforts to change the grading philosophy of other teachers, the principal fully supported his right to apply his own grading philosophy to his students.
3. Claimant's science classroom, which was one of the largest classrooms in the building, was divided into two rooms. One of the rooms was devoted to the teaching of a remedial English course. Claimant asserted that he needed the larger room to properly teach his science classes. Evidence was offered that the decision to divide the room was made by the central school administration in order to accommodate a much needed remedial English program. Claimant's classroom was chosen because of its size and the fact it had two doors, thereby facilitating the division.
4. Claimant contends that the building principal altered a district-wide school improvement plan in order to eliminate a seventh grade teacher that the principal did not like. Substantial evidence was offered to show that the school improvement plan had been developed prior to the principal in question arriving at Hoover Middle School and was a decision of central school administration based upon input from the various school buildings in the district.
5. An issue arose regarding an alleged willful circumvention of claimant in the process of teacher's applications for special training. Substantial evidence was presented that, although claimant, during the time that he was union representative for the building, was required to approve such applications as to form, the applicants who were alleged to have circumvented his review did this after claimant had been replaced as union representative. The dispute arose during a transition period, and the affected teachers indicated they much preferred to go to the new union representative because claimant unduly cross-examined them concerning their effort to secure special training.
6. An alleged pervasive atmosphere of favoritism of some teachers and intimidation of others (including claimant) engendered by the dictates of the building principal.
*656 With regard to the sixth circumstance listed above, claimant presented a large volume of evidence that things were not going well at Hoover Middle School after the new principal arrived. At least nine teachers in addition to claimant testified that the new principal did in fact engender an appearance of favoring some teachers and intimidating others. Many of these teachers agreed that the principal appeared to be unreasonably antagonistic toward claimant. In response to these witnesses, the school district called the former building principal and assistant principal who testified that there had been a great deal of strife among teachers in the building during the time that they were the chief administrators there. They characterized many of the teachers as strong-minded individuals who thrived on conflict.
In 1990 claimant had sought the help of a psychiatrist and was diagnosed as acutely depressed. He was treated regularly for three years during which he was taking the drug Prozac. His psychiatrist indicated that at the end of the three-year period claimant's depression was in remission. When claimant's problems with the criminal law arose in April 2000 as a result of his insulting email to the principal and others, he resumed seeing this psychiatrist. That doctor testified at the arbitration hearing that claimant was suffering from a recurring major depression and posttraumatic stress disorder from child abuse he had suffered at the hands of his stepfather.
This witness testified that claimant equated the principal with his abusive stepfather and that the stresses thus produced were a major cause of his current depressive state. In the witness's opinion, claimant will never be able to teach again. A psychiatrist that examined claimant on behalf of the school district did not agree that the workplace conditions were a producing cause of claimant's depression and was of the opinion that, as a result of previously existing mental problems, he misperceived the situations of which he has complained as a vendetta by the building principal.
In reviewing the evidence presented, the deputy industrial commissioner concluded that, although the medical evidence presented supported a claim of medical causation for purposes of proving a mentally induced injury arising out of the employment, the evidence did not meet the standard of legal causation that a claimant must show in order to prove a compensable mental injury. After an exhaustive review of the testimony given by all of the witnesses, the deputy concluded that the stressors claimed were not sufficiently greater or unusual compared to stress experienced by other individuals in like or similar jobs, including those in the Waterloo Community School District, to satisfy the requirements for legal causation.
In reviewing the deputy's decision, the workers' compensation commissioner adopted the deputy's findings and conclusions and further noted that the claimant's allegations of stress, whether because of the specific circumstances alleged or due to the general climate within the school, would not be entirely unusual in a teaching setting. The commissioner ruled that "[t]he claimant's evidence in this case was not strong enough to cross the line" into levels of unusual stress required for proof of legal causation.
I. The Legal Causation Issue.
In Dunlavey v. Economy Fire & Casualty Co., 526 N.W.2d 845, 853-58 (Iowa 1995), this court recognized that a purely mental injury may be compensable under the workers' compensation laws in the absence of an accompanying physical *657 injury. In order for a mentally injured worker to prevail on such a claim, Dunlavey required proof of both medical causation and legal causation. Dunlavey, 526 N.W.2d at 853. Medical causation simply requires a claimant to establish that the alleged mental condition was in fact caused by employment-related activities. Legal causation, on the other hand, presents a question of whether the policy of the law will extend responsibility to those consequences that have in fact been produced by the employment. Id. Dunlavey formulated the standard for legal causation as whether the claimant's stress was "of greater magnitude than the day-to-day mental stresses experienced by other workers employed in the same or similar jobs, regardless of their employer." Id. at 858.[1]
In reaching their respective decisions in the present case, both the deputy workers' compensation commissioner and the commissioner strictly adhered to the Dunlavey standard of legal causation. They evaluated all of the specific instances that claimant asserts caused him abnormal levels of stress and concluded that events of the same or similar nature would not be abnormal in the teaching profession. With respect to the generalized claim of a pervasive atmosphere of intimidation testified to by many witnesses, the commissioner noted that this climate, which was attributed to the building principal, would not be an unusual perception in the workplace.
Although the standard of legal causation involves an issue of law, see Dunlavey, 526 N.W.2d at 853, the application of that standard to a particular setting requires the commissioner to render an outcome determinative finding of fact. A court on judicial review is bound by that fact-finding if it is supported by substantial evidence.
Evidence is substantial for purposes of reviewing the decision of an administrative agency when a reasonable person could accept it as adequate to reach the same finding. Second Injury Fund of Iowa v. Bergeson, 526 N.W.2d 543, 546 (Iowa 1995); Second Injury Fund of Iowa v. Shank, 516 N.W.2d 808, 812 (Iowa 1994). The fact that two inconsistent conclusions may be drawn from the same evidence does not prevent the agency's findings from being supported by substantial evidence. Munson v. Iowa Dep't of Transp., 513 N.W.2d 722, 723 (Iowa 1994); Reed v. Iowa Dep't of Transp., 478 N.W.2d 844, 846 (Iowa 1991). In situations in which the workers' compensation commissioner has rendered a finding that the claimant's evidence is insufficient to support the claim under applicable law, that negative finding may only be overturned if the contrary appears as a matter of law. Ward v. Iowa Dep't of Transp., 304 N.W.2d 236, 238 (Iowa 1981); Wetzel v. Wilson, 276 N.W.2d 410, 412 (Iowa 1979); Auxier v. Woodward State Hospital-School, 266 N.W.2d 139, 144 (Iowa 1978).
In applying these principles to the present case, we conclude that, while evidence presented by the claimant would permit a finding of legal causation, it does not compel such finding. The ultimate decision in such instances is entrusted to the agency. Consequently, the decision of the workers' compensation commissioner and the district court must be affirmed.[2]
*658 II. The Equal Protection Challenge.
Claimant contends that the legal requirements for establishing a mental injury serve to deny a claimant equal protection of the law under the state and federal constitutions because an additional burden is placed on mental injury claimants that does not exist in establishing compensable physical injury. This assertion is premised on the fact that ordinarily it is not required as a condition of compensability that workplace hazards must be of a specified magnitude in order to produce a compensable injury, see Floyd v. Quaker Oats, 646 N.W.2d 105, 108 (Iowa 2002), while such a requirement has been imposed with respect to mental injury claims. Claimant insists that there is no rational basis for drawing this distinction.
We have recognized that, under both federal and state embodiments of equal protection when social or economic legislation is at issue, the states have wide latitude and such legislation will be presumed to be valid if the classification drawn is rationally related to legitimate state interests. Sanchez v. State, 692 N.W.2d 812, 817 (Iowa 2005). We are satisfied that the classification at issue here does not affect a fundamental right and therefore review it under a rational-basis standard. Classifications do not deny equal protection of the law simply because they result in some inequality. Claude v. Guar. Nat'l Ins. Co., 679 N.W.2d 659, 665 (Iowa 2004). They deny equal protection only if the lines drawn do not rationally advance a legitimate government purpose. Id.
In searching for a rational governmental purpose supporting the Dunlavey standard of legal causation in mental injury cases, we need only examine the reasons set forth in that opinion for adopting the standard that was chosen. After considering several different standards of causation in mental injury cases, some more restrictive than the one chosen and some less restrictive, we opted for the standard that was approved because we feared that if only causation in fact was required this would convert the workers' compensation system into general mental health insurance because few workers with nontraumatic mental problems could not show that job stress somehow contributed to that condition. Dunlavey, 526 N.W.2d at 855-56; see also Brown v. Quik Trip Corp., 641 N.W.2d 725, 728 (Iowa 2002). The need to protect against that undesirable consequence provides a rational basis for the standard of legal causation that has been adopted. We have considered all issues presented and conclude that the judgment of the district court should be affirmed.
AFFIRMED.
All justices concur except HECHT, J., who takes no part.
NOTES
[1] In the later case of Brown v. Quik Trip Corp., 641 N.W.2d 725, 728-29 (Iowa 2002), we formulated a different standard for those situations in which the mental injury can be readily traced to a specific event.
[2] The case of Humboldt Community Schools v. Fleming, 603 N.W.2d 759 (Iowa 1999), relied on by claimant, presents an opposite example of the application of the substantial-evidence rule. In that case, the claimant prevailed because the agency found in the claimant's favor concerning the magnitude of the stress that existed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570678/ | 722 N.W.2d 412 (2006)
Trang LE, as Mother and Next Friend of Amanda Le, A Minor, and Trang Le, Appellants,
v.
Yaacov VAKNIN and American Family Mutual Insurance Company, Appellees.
No. 04-0947.
Supreme Court of Iowa.
October 6, 2006.
*413 Nathan E. Levin and Angelina M. Thomas of Newbrough, Johnston, Brewer, Maddux & Howell, L.L.P., Ames, for appellants.
Scott K. Green, West Des Moines, for appellee American Family Mutual Insurance Company.
*414 No appearance for appellee Yaacov Vaknin.
CARTER, Justice.
Plaintiffs, Amanda Le and her mother, Trang Le, appeal from an adverse judgment in their action against American Family Insurance Company (American Family), their uninsured-motorist carrier. They also appeal from the district court's reduction of the damages awarded against defendant Yaacov Vaknin based on a third-party payment of plaintiffs' medical expenses. After reviewing the record and considering the arguments presented, we affirm the judgment in favor of American Family, vacate the judgment against Vaknin, and remand for further proceedings.
Amanda Le (Amanda) was a passenger in an automobile driven by defendant Vaknin and owned by his father. Amanda's boyfriend, Hop Nguyen, and her friend, Kate Polouchkina, were also passengers in the car. Both Amanda and Kate were thirteen years of age, did not have learning permits, and had not previously driven a car. Notwithstanding this fact, Vaknin permitted first Kate and later Amanda to drive the car. When Amanda was driving, she lost control of the vehicle when negotiating a curve. At this point, Vaknin, who was seated next to her, attempted to grab the steering wheel in order to control the vehicle, but was unsuccessful in preventing the car from leaving the road and crashing into a tree. As a result of that collision, Amanda sustained severe personal injuries.
Amanda and her mother brought this action against Vaknin and his father. The suit against Vaknin's father was later dismissed without prejudice. Plaintiffs' claim against Vaknin was based on his alleged negligent entrustment of a motor vehicle to an unqualified driver. Later, plaintiffs amended their action to include American Family, which provided uninsured-motorist coverage to Amanda and Trang.
The jury returned a verdict finding that Vaknin's fault was a sixty percent contributing cause of plaintiffs' injuries and Amanda's fault was a forty percent contributing cause. The jury fixed plaintiffs' damages at $18,864.29. In addition, it answered interrogatories finding that Vaknin was not the "operator" of the motor vehicle at the time of the accident, a response that negated liability of American Family under its uninsured-motorist policy, and also finding that Trang's health insurer had paid $9891 toward the medical expenses that had been included in the damage award. The district court reduced the gross damage award to account for both third-party payment and contributory fault.
I. Whether the Jury Was Properly Instructed Concerning the Term "Operator" of a Motor Vehicle as Used in the American Family Policy.
Plaintiffs argue that in instructing the jury the district court provided an improper definition of "operator" as that term was used in determining American Family's uninsured-motorist coverage. We review the district court's rulings on jury instructions to determine if they are a correct statement of the applicable law based on the evidence presented. Collister v. City of Council Bluffs, 534 N.W.2d 453, 454 (Iowa 1995); Johnson v. Interstate Power Co., 481 N.W.2d 310, 324 (Iowa 1992).
The uninsured-motorist provisions contained in American Family's policy state:
We will pay compensatory damages for bodily injury which an insured person is legally entitled to recover from the owner or operator of an uninsured motor vehicle.
*415 In the present litigation, the action against the owner of the vehicle had been dismissed by plaintiffs. They sought to invoke uninsured-motorist benefits on their claim against Vaknin on the theory that he was the operator of the motor vehicle in which Amanda was injured.
The district court in its Instruction No. 17 defined the word "operator" in the manner in which that word is defined in Iowa Code section 321.1(48) (1999). Accordingly, the instruction defined "operator" as "every person who is in actual physical control of a motor vehicle upon a highway." Plaintiffs urge that the definition of operator contained in Iowa Code section 321.1(48) is only intended to apply in matters governing the duties of persons operating motor vehicles on the public highway and is not applicable in insurance coverage disputes. They suggest that entirely different policies come into play in determining the meaning of "operator" for purposes of uninsured-motorist coverage and suggest that in that context that term should include persons with a right to control the vehicle who have delegated physical control to another under their supervision.
We agree with plaintiffs that caution should be exercised in applying statutory definitions to situations in which the particular statutory scheme may not be involved. Notwithstanding this cautionary approach, we are satisfied that, within the context of American Family's uninsured-motorist coverage, the term "operator" has reference to a person having physical control of a motor vehicle. Uninsured-motorist coverage is statutorily mandated and exists in the milieu of automobile liability disputes. Consequently, we are satisfied that this word is used in both Iowa Code section 516A.1 (the statute mandating uninsured-motorist coverage) and American Family's policy in the same sense that it is employed in the statutory law of motor vehicle regulation.
In Twogood v. American Farmers Mutual Automobile Insurance Ass'n, 229 Iowa 1133, 296 N.W. 239 (1941), we resorted to the statutory definition contained in the motor vehicle laws to determine the meaning of the word "operator" as used in an insurance policy. In considering the meaning of that word, we stated:
With reference to the use of a motor vehicle on the highway, paragraph 39 of the 1939 Code section 5000.01 defines an operator thereof as meaning ". . . every person, other than a chauffeur, who is in actual physical control of a motor vehicle upon a highway."
Twogood, 229 Iowa at 1138, 296 N.W. at 242. We further stated in Twogood:
This does not mean that one who has general authority over a driver with respect to the destination, route, or rate of speed of the vehicle, is operating the vehicle.
Id. We adhere to this view in the present case.[1]
The Twogood decision relied in part on a decision of the New York Court of Appeals, which applied that state's motor vehicle statutes to define the word "operator" *416 as used in an insurance policy exclusion. The court in that case stated:
The word "operate" is used throughout the statute as signifying a personal act in working the mechanism of a car. The driver operates the car for the owner, but the owner does not operate the car unless he drives it himself. . . .
Obviously, the word is used in the policy in the same sense in which it is used in the Highway Law.
Witherstine v. Employers' Liab. Assurance Corp., 235 N.Y. 168, 139 N.E. 229, 230 (1923). A similar view was expressed by the Rhode Island Supreme Court in Elgar v. National Continental/Progressive Insurance Co., 849 A.2d 324 (R.I.2004), wherein the court stated:
Elgar's assailants were passengers in the car she was driving. They were not physically operating the taxi or any other vehicle, and did not become the de facto operators of her vehicle merely because they were directing her to a specific location.
Elgar, 849 A.2d at 327-28. The district court did not err in defining the term "operator" in Instruction No. 17.
II. Plaintiffs' Temporal Argument.
Plaintiffs' second argument is that it was error for the district court to phrase its interrogatory to the jury so as to only determine Vaknin's status as an operator at the time of the accident. They urge that the court should have allowed Vaknin's status as an operator of the vehicle at an earlier time to trigger uninsured-motorist coverage under the American Family policy. For this reason, plaintiffs assert that interrogatory No. 4 should not have read "was Yaacov Vaknin the operator of an uninsured motor vehicle at the time of the accident?" But rather, "was Yaacov Vaknin the operator of an uninsured motor vehicle at the time of his negligence?"
We are satisfied that the district court correctly determined that the type of uninsured liability that triggers application of American Family's coverage is operational fault causing the injury for which recovery of uninsured-motorist benefits is claimed. See Elgar, 849 A.2d at 326 (uninsured-motorist coverage requires that insured present credible evidence that his or her injury was caused by the owner or operator of an uninsured motor vehicle). That being the case, it was logical for the trial court to fix the time for the jury's determination of operator status as the time of the accident.
III. Vaknin's Degree of Physical Control.
Plaintiffs argue in the alternative that, if actual physical control is the determining factor in deciding whether Vaknin was an operator of the motor vehicle, he exercised that degree of control when he seized the wheel of the vehicle. Based on this premise, they urge that the jury's finding that he did not have control is not supported by substantial evidence. Plaintiffs rely in part on the decision of the Washington court in North Pacific Insurance Co. v. Christensen, 143 Wash.2d 43, 17 P.3d 596 (2001). There, a passenger seized control of the wheel of a motor vehicle that the driver was properly operating and through that action diverted the course of travel across the centerline causing a collision. The Washington court in the Christensen case concluded that,
[w]hen Chase suddenly grabbed the steering wheel, he became the operator of the vehicle in which he had been a passenger. Although Christensen was sitting in the driver's seat, he became powerless to control the car. Chase assumed control of the steering mechanism long enough to cause a collision and resulting injuries.
*417 Christensen, 17 P.3d at 599 (footnote omitted).
Assuming without deciding that one who seizes the steering wheel of a motor vehicle and thereby causes an injury-producing accident may be considered to be an operator for uninsured-motorist purposes, we are satisfied that this is not the case if the seizing of the wheel is an effort to prevent an accident caused by faulty operation of the vehicle by the person who has been exercising the driving function. As we concluded in the prior division of this opinion, the type of uninsured liability that triggers uninsured-motorist coverage is operational fault causing the injury for which recovery of benefits is claimed.
In the present case, Vaknin's operator status was submitted to the jury in the face of a strong argument that he was not the operator as a matter of law based on the undisputed evidence. Assuming that the evidence of wheel grabbing presented a jury question on his status, the jury's verdict resolves the issue. To overturn that verdict, plaintiffs would have to show that Vaknin was the operator as a matter of law, and that was clearly not the case.
IV. The Reduction of Damages Based on Third-Party Payment.
In response to Iowa Code section 668.14, the district court submitted interrogatories requiring the jury to find whether there had been third-party payment of medical expenses by Trang's medical and hospital insurer that was included in the damages awarded and the amount of such third-party payment. As a result of the jury's answers to these interrogatories, the district court reduced the damages awarded by the amount of the third-party payment. Plaintiffs argue that the district court lacked authority to make this reduction of the jury's award because there has been no finding that the insurance carrier making the third-party payment is not subrogated to plaintiffs' recovery. The appellees urge that plaintiffs have failed to preserve error on this issue because they failed to object to the interrogatories that were given to the jury.
In considering the matter of error preservation, we take some guidance from the situation that was presented in Six v. American Family Mutual Insurance Co., 558 N.W.2d 205 (Iowa 1997). That case involved a tortfeasor's attempt to recover from a liability insurer that was alleged to have wrongly refused to defend and indemnify the tortfeasor against a personal injury claim. The jury found that the insurer's liability coverage required it to indemnify the tortfeasor. A dispute was presented as to whether a settlement that had been negotiated by the tortfeasor was reasonable. An interrogatory was submitted to the jury asking it to determine if the settlement was reasonable, which it answered in the negative. No verdict form was given the jury to determine what a reasonable settlement amount would have been.
The insured tortfeasor in the Six case had not objected to the interrogatories submitted to the jury, but we concluded that he adequately preserved the issue of an incomplete verdict by means of a posttrial motion. In ruling on that posttrial motion, the district court in Six concluded that the jury's response had resolved the case in a manner that denied any recovery to the plaintiff.
In our review of this ruling, we stated, "We are convinced that, if coverage exists, an insurer that declines to defend a claim continues to be liable to hold its insured harmless for that portion of the stipulated judgment that represents a reasonable and prudent settlement." Six, 558 N.W.2d at 207. We then referred to the provisions of *418 Iowa Rule of Civil Procedure 205 (now Iowa R. Civ. P. 1.933), which provides that, if the special verdicts submitted to the jury are incomplete as to an essential element, the trial court, following the jury's discharge, may render any essential factual finding that has been omitted. Six, 558 N.W.2d at 207 (citing P.H.C.C.C., Inc. v. Johnston, 340 N.W.2d 774, 777 (Iowa 1983)). Based on the provisions of that rule, we remanded the case to the district court to make a factual finding, as in a jury-waived adjudication, as to what a reasonable settlement amount would have been. Id.
Plaintiffs' situation in the present case is similar to that presented in Six because an essential factual issue was not included in the special verdicts presented to the jury. Our cases applying Iowa Code section 668.14 make it clear that plaintiffs are to be protected against a double reduction of their award that would result from a reduction based on third-party payments when the third-party payor remains subrogated to the remaining recovery. Kuta v. Newberg, 600 N.W.2d 280, 290 (Iowa 1999); Schonberger v. Roberts, 456 N.W.2d 201, 203 (Iowa 1990). To prevent this from occurring in the present case, the jury should have been required to render a finding as to whether the third-party payor had a subrogation right. Because the issue was not submitted to the jury, an essential factual issue was missing from the special verdicts that the jury returned.
Rule 1.933 provides a method to remedy that omission by having the court render a finding of fact on the subrogation issue based on the existing record. To accomplish that result, we vacate the judgment against Vaknin and remand the case to the district court with instructions to render a finding as to whether a subrogation right existed in the third-party payor. The court shall then enter a new judgment based on the jury's special verdicts as supplemented by its own finding on the subrogation issue.
The judgment in favor of American Family is affirmed. The judgment against Vaknin is vacated and the case remanded for further proceedings in accordance with our instructions Costs are assessed seventy-five percent to appellants and twenty-five percent to Vaknin.
AFFIRMED IN PART; VACATED IN PART; AND REMANDED.
NOTES
[1] Reliance was also placed on the statutory definition of "operator" as contained in the motor vehicle statutes in a decision this court rendered in a boat operator case. Pfeiffer v. Weiland, 226 N.W.2d 218 (Iowa 1975), presented the question of whether a water skier trailing behind a boat and giving commands concerning its operation could be considered an operator for purposes of Iowa Code section 106.18 (1966), which rendered the "operator" of a boat liable for its negligent operation. Relying on the statutory definition of operator contained in the statutory predecessor of Iowa Code section 321.1(48), we held that to be an operator of a boat one must have actual physical control of the vessel. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/310727/ | 477 F.2d 680
Vivadean P. WALLACE, Plaintiff-Appellee,v.CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Defendant-Appellant.
No. 72-2025.
United States Court of Appeals,Fifth Circuit.
April 30, 1973.
James W. Gewin, Birmingham, Ala., for defendant-appellant.
William L. Irons, Birmingham, Ala., for plaintiff-appellee.
Before JOHN R. BROWN, Chief Judge, and MOORE* and RONEY, Circuit Judges.
MOORE, Circuit Judge.
1
Plaintiff, Vivadean P. Wallace, is the widow of her husband, Billy Gene Wallace (Wallace). She is the undisputed beneficiary of a $50,000 accidental death insurance policy issued to her husband when he was for a brief period of time an employee of the Gulf Oil Corporation (Gulf). A certificate evidencing this insurance had been issued to Wallace under a "Voluntary Group Accident Policy" under which the Connecticut General Life Insurance Company (Connecticut General), the defendant-appellant, insured employees of Gulf.
2
This action was commenced in the United States District Court for the Northern District of Alabama to recover the proceeds of the policy. Jurisdiction was grounded upon diversity of citizenship of the parties. The case was tried before the Court without a jury. Judgment was entered for the plaintiff. Connecticut General, the insurer, appeals.
3
A brief resume of the facts suffices to frame the issues raised on this appeal.
4
Plaintiff and her husband had lived together in Alabama for approximately eight years, during which time he had held various jobs. They had six children. In October, 1969, Wallace, leaving his wife and children in Alabama, went to Texas where he rented an apartment and lived with a Joyce Wallace (not his wife). Although Wallace returned to Alabama on three brief occasions prior to June, 1970, his employment was in Texas, first with Gulf, then Foley's, and again with Gulf, an employment which lasted from January to May, 1970. During this time Wallace became insured under the Gulf group policy, which was paid up through June 30, 1970. Plaintiff was the named beneficiary under the policy which covered death from an "accidental bodily injury". Wallace continued to live with Joyce near Tuscaloosa, Alabama, until his death on June 26, 1970.
5
Wallace's occupation upon his return to Alabama, from which he derived some income, seems to have involved the unlawful cutting, removal, and sale of copper telephone wire from telephone poles in the Tuscaloosa area. Unfortunately, while engaged in this enterprise, wire, which Wallace had in his possession, must have come into contact with high tension (44,000 volts) power wires. Wallace's body, badly burned, was found near the base of a telephone pole. There was burned wire in contact with the body. The facts more than justify the trial court's conclusion that Wallace died "as a result of electrocution" and that "beyond any reasonable doubt * * * the insured [Wallace] was engaged in an illegal act * * *."1
6
The trial court addressed itself to the two main issues: (1) Was this an accidental death? and (2) Did the fact that Wallace was engaged in an illegal act constitute a defense under the policy?
7
Were there a substantial difference in the applicable law of Alabama and Texas to the facts here presented, a dissertation on conflict of laws might be required, but such is not the case.
8
The trial court's conclusion that "the act of cutting the wire does not have such inherent hazards in and of itself" as to make serious injury or death a "natural and probable consequence" is clearly supported by the facts.2
9
Connecticut General argues that, where a person voluntarily engages in an act, the natural and probable consequences of which may be injury or death, death or injury therefrom is not an accident. The types of cases cited from Alabama and Texas deal with radically different situations. Thus, if an insured knowingly places himself in a position where injury or death is likely to result, injury or death is not accidental. Examples: injury caused by being shot while committing a crime;3 altercation and assault upon a man known to be armed, resulting in insured's death;4 resisting arrest, insured killed by the officer in self-defense.5 The element of reasonable foreseeability of injury or death is stressed in the applicable decisions as a prerequisite to denial of recovery.6 Where injury or death is not a reasonable probability, recovery is allowed.7
10
Accidental death has been defined as the happening of "something unforeseen, unexpected, and unusual."8 Conversely, if death or injury was not a reasonably foreseeable consequence of the insured's acts, death might well be, dependent upon the facts, accidental. Here, upon the facts, the trial court found that death was not "foreseeable and that the act of cutting the wire does not have such inherent hazards in and of itself as to make him [Wallace] or make one there engaged in that act a voluntary participant in the unexpected contact with some other wire which produce[d] his [Wallace's] death."9
11
Even though the proof be convincing that Wallace's death was accidental, Connecticut General argues that the public policy of Alabama bars a recovery to an insured whose death occurred while he was committing a felony. It is true that the trial court in its opinion in dealing with what constituted accidental death noted a difference between Texas and Alabama law and said that under Alabama law "as a matter of public policy coverage may be denied or at least recovery may be denied as a matter of public policy, if the insured met his death while engaged in an unlawful act."10 However, the court came to the conclusion that "the public policy in Alabama which is against the proceeds of the insurance policy being paid to some beneficiary of someone engaged in an illegal act is not so strong a public policy as to require its enforcement by a court of this forum, * * *."11
12
Although the court suggested that an "appellate question" might be presented, it concluded that under the law of Alabama the policy "should be treated as a Texas contract and interpreted under the laws of the State of Texas"12 and that under Texas law the beneficiary was entitled to recover. Thus, the court-despite its finding that "were the state laws of the State of Alabama to be applied to this, that the beneficiary would not be entitled to recover"13-did not actually have to base its decision on this hypothetical assumption as to Alabama law. Accordingly, we AFFIRM the decision of the district court.
*
Hon. Leonard P. Moore, Senior Circuit Judge of the Second Circuit, sitting by designation
1
Opinion read into trial record at close of trial. Appendix 314, 315
2
Opinion, App. 316, 317
3
Wright v. Western & Southern Life Ins. Co., 443 S.W.2d 790 (Tex.Civ.App. 1969)
4
Texas Prudential Ins. Co. v. Turner, 127 S.W.2d 563 (Tex.Civ.App.1939)
5
Massachusetts Bonding & Ins. Co. v. Richardson, 27 S.W.2d 921 (Tex.Civ. App.1930)
6
Texas Prudential Ins. Co. v. Turner, supra, 127 S.W.2d at 565; Hutcherson v. Sovereign Camp, W. O. W., 112 Tex. 551, 556, 251 S.W. 491, 493 (Tex.Civ. App.1923); American Nat'1 Ins. Co. v. Garrison, 97 S.W.2d 534, 536 (Tex.Civ. App.1936); Perry v. Aetna Life Ins. Co. of Conn., 380 S.W.2d 868, 877 (Tex.Civ. App.1964)
7
See cases cited in note 6, supra
8
O'Bar v. Southern Life & Health Ins. Co., 232 Ala. 459, 461, 168 So. 580, 582 (1936)
9
Opinion, App. 317. In Great Am. Reserve Ins. Co. v. Sumner, 464 S.W.2d 212 (Tex.Civ.App.1971), Summer was killed when caught in the act of adultery with the assailant's wife. Texas had apparently decided to relieve the courts of this type of homicide by setting up certain standards by providing (Texas Penal Code, Vernon's Ann.P.C. Article 1220) that:
Homicide is justifiable when committed by the husband upon one taken in the act of adultery with the wife, provided the killing take place before the parties to the act have separated * * *.
Despite this provision of the law, the Civil Court of Appeals of Texas held that a man killed by an enraged husband under circumstances clearly within the purview of Article 1220 died "accidentally" for the purposes of an accidental death insurance policy. In so concluding the court said:
There is nothing in the crime of adultery * * * calculated to produce the death of the adulterer.
464
S.W.2d at 216
If death from wife stealing is accidental, a fortiori, so should be death from wire stealing.
10
Opinion, App. 315-16
11
Id. at 318
12
Id. at 312
13
Id. at 318 | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/1645105/ | 40 So. 3d 927 (2010)
AGENCY FOR PERSONS WITH DISABILITIES, Petitioner,
v.
Dexter LOCKE, Respondent.
No. 1D10-1806.
District Court of Appeal of Florida, First District.
August 5, 2010.
Julie Waldman, Supervising Attorney-Institutions/Forensics, Agency for Persons with Disabilities, Gainesville, for Petitioner.
Gene Mitchell, Pensacola, for Respondent.
PER CURIAM.
DENIED. See Agency for Persons with Disabilities v. Dallas, 38 So. 3d 831 (Fla. 1st DCA 2010).
THOMAS, ROBERTS, and MARSTILLER, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3339300/ | [EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.]MEMORANDUM OF DECISION
Prior to a hearing on a Motion for Contempt, the defendant filed Motion to Release (Disqualify) #329R and Motion to Disqualify Counsel #322R and 323R. CT Page 9134
The Motion for Contempt was addressed to the issue of the non-payment of child support.
The defendant filed a multi-page "brief" citing Canons 1, 2 and 3 of the Code of Judicial Conduct, the Rules of Professional Conduct, and certain Amendments to the United States constitution. No case cites were offered to the court as authority for the defendant's position. The defendant alleged criminal conduct on the part of the court, and asked that the court refer the motion to another court for an evidentiary hearing. This court found no reasonable basis for such a factual hearing.
The law recognizes that the integrity of the judicial system requires that both the fact and the appearance of impartiality are essential to a fair hearing. A party who has a good faith belief, grounded on facts, that a judge is biased, is entitled to demonstrate that bias, and that demonstration must be based on more than opinion or conclusion of the party making such a claim. The claim must amount to more than a compendium of vague and unverified assertions of partiality. See Szypula v. Szypula,2 Conn. App. 650 (1984). Public confidence in a fair trial is implicated upon such a claim. (Cameron v. Cameron, 187 Conn. 163,168 (1984). Felix v. Hall-Brooke Sanitarium, 140 Conn. 496
(1953), and Papa v. New Haven Federation of Teachers, 186 Conn. 725
(1982) (which case implies that if a factual hearing is in order then that hearing should be conducted before another judge.))
The motion was made immediately prior to the hearing on the Motion for Contempt.
The timeliness of the motion is of concern and must be assessed Krattenstein v. G. Fox Co., 155 Conn. 609 (1967). Nonaction by a party at trial "can be construed as the functional equivalent of `consent in open court' to [the judge's] presiding over the trial. Timm v. Timm, 195 Conn. 202 (1985), Pavel v.Pavel, 4 Conn. App. 575 (1985).
The claim of bias or prejudice, to be disqualifying must emanate from some extra-judicial source and result in an opinion on the merits on some basis other than what the judge learned from his participation in the case. United States v. GrinnellCorp., 384 U.S. 563, 86 S. Ct. 1698 (1966). The judge should, CT Page 9135 however, refrain from any statement or attitude which would deny the party a fair trial. State v. Gionfriddo, 154 Conn. 90 (1966). In Cameron v. Cameron, 187 Conn. 163 (1982) the trial judge in a dissolution action actually commented, during the trial of the case, that the defendant lacked credibility and found him in contempt. That court held that a judge has the obligation to insure that no falsehood or fraud is perpetrated in court, and to reprimand counsel in order to protect the rights of litigants. InBarca v. Barca, 15 Conn. App. 604 (1988), the claim was made, after the trial, that comments from the trial judge were such that a party was denied a fair trial. The court held that there was no instance in the record of judicial conduct "so obvious that it affect[ed] the fairness and integrity of and public confidence in the judicial proceedings [which] . . . result[ed] in an unreliable verdict or a miscarriage of justice." (Citations omitted; internal quotation marks omitted.) Smith v. Czescel,12 Conn. App. 558, 563 (1987) quoting State v. Hinckley, 198 Conn. 77,88 (1985).
The defendant's motion to disqualify this court was made prior to the court's having heard any issues on the case. The defendant appeared and agreed on the record many of the vague and unverified assertions not only of partiality, but of criminality.
Most importantly to this exercise however, was his statement, after the court allowed him to speak at length that ". . . [A]nd I would submit not only your Honor, but no judge could" (Emphasis added) (T., 8/14/95, After Session, pg. 25).
The defendant argued that only after a review by the U.S. Attorney that no criminality took place, could any judge of the Superior Court hear the motion for contempt.
This court finds that there is no competent claim sufficient to require recusal and that the defendant's motion was and may continue to interpose the same vague and unverified assertions if yet another judge is called upon to hear this matter.
The motion to recuse, is denied. The motion to disqualify the attorney for the plaintiff is denied on the basis that the defendant has no standing to assert such a claim.
The motion for contempt will be heard by this court on the short calendar in the Litchfield Judicial District on December 9, 1996 unless earlier withdrawn by the plaintiff. CT Page 9136
DRANGINIS, J. | 01-03-2023 | 07-05-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/1570700/ | 29 So. 3d 1125 (2010)
BOYD
v.
STATE.
No. 2D08-2775.
District Court of Appeal of Florida, Second District.
March 12, 2010.
Decision Without Published Opinion Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917536/ | 178 B.R. 174 (1995)
In re Karol Jeanne WILDER a/k/a Karol Jeanne Stockett, Debtor.
ILLINOIS DEPARTMENT OF PUBLIC AID, Plaintiff,
v.
Karol Jeanne WILDER a/k/a Karol Jeanne Stockett, Defendant.
Bankruptcy No. 94-41013-172. Adv. No. 94-4234-172.
United States Bankruptcy Court, E.D. Missouri, Eastern Division.
February 15, 1995.
*175 Robert J. Blackwell, Trustee, St. Louis, MO.
Sherilyn Jo Bennett, St. Louis, MO, for defendant.
Thomas Benedick, Asst. Atty. Gen., State of Ill., Belleville, IL, for plaintiff.
MEMORANDUM
JAMES J. BARTA, Bankruptcy Judge.
This matter is before the Court on the Parties' respective Motions for Summary Judgment. The Illinois Department of Public Aid ("Plaintiff") has requested a judgment on its complaint to determine that certain monies it paid to Karol Jeanne Wilder ("Debtor") created a debt that is nondischargeable in this bankruptcy proceeding pursuant to 11 U.S.C. § 523(a)(2). The Debtor has argued in her motion that the statute of limitations applicable to the Plaintiff's cause of action has expired, and, therefore, the Plaintiff is barred from prosecuting its dischargeability complaint. For the reasons set forth below, the Defendant's Motion for Summary Judgment will be granted, and the Plaintiff's Motion for Summary Judgment will be denied.
This is a core proceeding pursuant to Section 157(b)(2)(I) of Title 28 of the United States Code. The Court has jurisdiction over the parties and this matter pursuant to 28 U.S.C. §§ 151, 157 and 1334, and Rule 29 of the Local Rules of the United States District Court for the Eastern District of Missouri. These determinations and orders are the final findings and conclusions of the Bankruptcy Court.
Facts
The parties have stipulated to the relevant facts in this case. From May 1984 through December 1986, the Defendant received public assistance from the State of Illinois through its agent, the Plaintiff, pursuant to Ill.Ann.Stat. ch. 305, para. 5/11-18 (Smith-Hurd 1994). The statute requires that a *176 recipient of aid from the Plaintiff notify the Plaintiff of any change of status with respect to situations like income, need, property and monetary contributions and other support. If the recipient fails to notify the Plaintiff or other appropriate agency of a relevant change in status, the recipient is liable to the agency for any wrongfully paid amounts. Unless the recipient repays the money, the money may be recovered in a civil action.
The Plaintiff investigated certain payments to the Debtor and determined that the Debtor had experienced a change in status that the Debtor had not reported to the Plaintiff. The change involved $11,129.96 in wages, in addition to other benefits, which the Debtor received from her employment with the City of East St. Louis. As a result of the Debtor's failure to notify the Plaintiff of the change, the Plaintiff overpaid assistance to the Debtor in the amount of $12,976.00. The Plaintiff discovered the alleged fraud on September 24, 1986. The Plaintiff commenced the instant adversary proceeding on May 27, 1994.
In the Joint Stipulation of Facts, the Parties agreed that the Debtor would not have received financial aid but for the fact that the Debtor made a false statement, willful misrepresentation, or failed to notify the agency of the change in status, in violation of Ill.Ann. Stat. ch. 305, para. 5/8A-7 (Smith-Hurd 1994). The Plaintiff has received no payments from the Debtor. As a result of the actions of the Debtor, the United States District Court for the Southern District of Illinois, in cause 90-30009, adjudged the Debtor guilty of one count of making false statements in violation of 18 U.S.C. § 1001.
Discussion
The Plaintiff has requested this Court to declare that the overpayment of $12,976.00 to the Debtor is a nondischargeable debt. Because Section 523 of the Bankruptcy Code lists the types of debts that are excepted from discharge, the Court must first find that a "debt" exists before it may find the debt nondischargeable. Once a debt is established, the Court then looks to see if the debt falls within any of the nondischargeable types of debts listed in Section 523.[1]
In this case the Plaintiff must show that the overpayment to the Debtor constitutes a "debt" within the meaning of the Bankruptcy Code. The Code defines a "debt" as "liability on a claim." 11 U.S.C. § 101(12). The United States Supreme Court has indicated that the meanings of "debt" and "claim" are coextensive. Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 558, 110 S. Ct. 2126, 2130, 109 L. Ed. 2d 588 (1990).[2] In turn, the Code defines "claim" as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. . . ." 11 U.S.C. § 101(5)(A). Finally, the Supreme Court has interpreted "right to payment" to mean "nothing more nor less than an enforceable obligation." Id. at 559, 110 S. Ct. at 2131; see also In re Long, 148 B.R. 904, 908 (Bankr.W.D.Mo. 1992). In this context the Supreme Court further indicates that the term "claim" is to be given expansive scope, particularly in light of Congress' use of the modifying language ("whether or not such right is . . ."), which broadens the class of obligations that qualifies as "claims" and, thus, the class that constitutes "debts." See Davenport, 495 U.S. at 558, 110 S. Ct. at 2130. Based on the language of Sections 101(5) and 101(12), as well as the Supreme Court's instruction regarding the interpretation of the relevant terms, this Court concludes, for the reasons *177 set forth below, that as of the commencement of this Bankruptcy case, the IDPA held no claim against the Debtor.
For a claim, and hence a debt, to exist, a right to payment must exist. As the Supreme Court indicated in Davenport and reaffirmed in Johnson, a right to payment exists if an enforceable obligation exists. To determine if the IDPA has an enforceable claim against the Debtor, this Court must address the Debtor's affirmative defense based on the statute of limitations. Generally, a bankruptcy court applies the law of the state where the debtor resides or where a contract took place in applying any statute of limitations. In re Burger, 125 B.R. 894, 901 (Bankr.D.Del.1991). In the case before the Court, the Illinois statute of limitations applies because the debtor resided at all relevant times in Illinois. Pursuant to Section 108(c) of the Bankruptcy Code, a statute of limitations is tolled until 30 days after the termination of the automatic stay. However, if the limitations period has expired prior to the filing of the bankruptcy petition, then Section 108(c) does not apply. Id.
The Parties have agreed that IDPA first attempted to collect any obligation owed by the Debtor by filing the instant adversary proceeding on May 27, 1994, almost eight years after it discovered the alleged fraud by the Debtor. As a result, no enforceable obligation in favor of the IDPA exists because the five year statute of limitations, within which the IDPA must bring a civil action to recover any monetary amounts resulting from the welfare fraud, has expired. See Joint Stipulation of Facts, Document # 9, filed October 14, 1994. The expiration of the statute of limitations extinguished the IDPA's right to enforce this obligation owed to it by the Debtor. Absent an enforceable obligation, there is no right to payment. Absent a right to payment, the IDPA possesses no claim against the Debtor. Therefore, no debt existed as of the commencement of the case.
The Court has determined that the pleadings, depositions, answers to interrogatories and admissions together with any affidavits, show that there is no genuine issue as to any material fact, and that the Debtor is entitled to a judgment as a matter of law. The Plaintiff's requests to declare certain obligations to be nondischargeable are denied.
NOTES
[1] In this case the Plaintiff relies on Section 523(a)(2)(A) and (B), which except from discharge any debt for money to the extent obtained by "false pretenses, a false representation, or actual fraud . . ." or any debt obtained by the use of a "materially false" written statement "respecting the debtor's . . . financial condition . . . on which the creditor to whom the debtor is liable for such money reasonably relied and . . . that the debtor caused to be made or published with intent to deceive. . . ."
[2] This Court is aware that Congress overruled the result in Davenport by passing the Criminal Victims Protection Act of 1990, Pub.L. 101-581, § 3, 104 Stat. 2865. However, as the Supreme Court noted in Johnson v. Home State Bank, 501 U.S. 78, 83 n. 4, 111 S. Ct. 2150, 2154 n. 4, 115 L. Ed. 2d 66 (1991), Congress did so without "disturbing our general conclusions on the breadth of the definition of `claim' under the Code." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/4558404/ | Fourth Court of Appeals
San Antonio, Texas
August 19, 2020
No. 04-20-00290-CR
Neil Howard MCGINNIS,
Appellant
v.
The STATE of Texas,
Appellee
From the 451st Judicial District Court, Kendall County, Texas
Trial Court No. 6775
Honorable Kirsten Cohoon, Judge Presiding
ORDER
On August 10, 2020, we advised the court reporter that the records were late. On August
17, 2020, court reporter Connie Calvert advised this court that counsel has not asked her to
prepare the reporter’s records.
We ORDER Appellant to provide written proof to this court within TEN DAYS of the
date of this order that (1) Appellant has delivered a written request to prepare the reporter’s
records to court reporter Connie Calvert that designates any exhibits to be included, see TEX. R.
APP. P. 34.6(b), and (2) either the arrangements have been made to pay the reporter’s fee, or
Appellant is entitled to free reporter’s records, see TEX. R. APP. P. 20.2.
If Appellant fails to respond as ordered, Appellant’s briefs will be due within THIRTY
DAYS of the date of this order, and the court will only consider those issues or points raised in
Appellant’s briefs that do not require a reporter’s record for a decision. See TEX. R. APP. P.
37.3(c).
_________________________________
Patricia O. Alvarez, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 19th day of August, 2020.
___________________________________
Michael A. Cruz,
Clerk of Court | 01-03-2023 | 08-25-2020 |
https://www.courtlistener.com/api/rest/v3/opinions/1917495/ | 178 B.R. 563 (1994)
In re BRIDGEPORT PLUMBING PRODUCTS, INC., EIN: XX-XXXXXXX, Debtor.
Bankruptcy No. 93-60312.
United States Bankruptcy Court, M.D. Georgia, Thomasville Division.
September 9, 1994.
Robert L. Kraselsky, Albany, GA, for Clarklift South, Inc.
Thomas D. Lovett, Albany, GA, for debtor.
Charles S. Glidewell, Asst. U.S. Trustee, Tallahassee, FL.
MEMORANDUM OPINION
JOHN T. LANEY, III, Bankruptcy Judge.
On April 28, 1994, the court held a hearing on the objection of Debtor to the request of Clarklift South, Inc. for payment of administrative expenses in connection with a certain lease dated February 28, 1990, of two forklifts by Debtor. The court also considered the limited objection of Congress Financial Corp. to such request for administrative expenses. At the conclusion of the hearing, the court took the matter under advisement to allow the parties the opportunity to submit briefs on the issue of how to measure Clarklift South's administrative expense claim. Clarklift South contends that it should be paid the minimum monthly amounts under *564 the lease from the date of the filing of the bankruptcy petition until the date the lease was rejected. At the hearing, counsel for Clarklift South indicated that since Debtor's bankruptcy petition was filed on September 2, 1993, the amount of administrative expenses requested is actually $4,064.03 and not $5,888.27, which is the amount set forth in Clarklift South's Request for Payment of Administrative Expenses filed with the court on March 29, 1994 (which includes the August lease payment and related late charges). Debtor contends that Clarklift South is not entitled to any administrative expense claim. The court, having considered the briefs submitted by the parties, now renders this memorandum opinion. For the reasons stated herein, the court finds that Clarklift South is entitled to an administrative expense claim in the amount of $100.00.
On September 2, 1993, Debtor filed its Chapter 11 petition. At the time of the October 29, 1993, § 341(a) first meeting of creditors, Clarklift South's counsel recalls that the president of Debtor, Mr. Phillips, stated an intention to retain the forklifts. Mr. Phillips nor Debtor's counsel recalls this discussion but they also do not deny it. At the request of Debtor's counsel, counsel for Clarklift South prepared and mailed a letter to Debtor's counsel dated November 30, 1993, indicating the amount needed to bring Debtor's account current. In early December, Debtor decided to reject the lease. Counsel for Clarklift South signed a consent order on December 22, 1993, agreeing to Debtor's rejection of the lease. The signed consent order was returned to Debtor's counsel, who, on December 23, 1993, filed the consent order with the court requesting approval of the rejection of the lease. The court signed the consent order on December 23, 1993. Soon thereafter but before the end of December, 1993, Clarklift South picked up the forklifts.
Under the lease, the two forklifts were leased for a total of $1,250 per month. Debtor or could not use either of the forklifts more than 375 hours per quarter (125 hours per month) without incurring a charge in addition to the forklift's monthly lease payment. The average cost per hour if the large forklift was not used more than 375 hours per quarter was approximately $6.00. The average cost per hour if the small forklift was not used more than 375 hours per quarter was approximately $4.00. Thus, the average cost per hour if each of the two forklifts was not used more than 375 hours per quarter was a total of $10.00. During the hearing, the parties stipulated that the forklifts were used for only ten hours between the period of filing the bankruptcy petition and rejecting the lease. However, the evidence presented, including the testimony of Mr. Phillips, was not clear as to whether the stipulated ten hours of use was for the forklifts together or separately. Mr. Phillips testified that use of the forklifts was limited after September 2, 1993, since the business was not in operation and there was no need to move heavy boxes or equipment. The rejection of the lease occurred pre-confirmation. The parties also stipulated that any administrative expense claim Clarklift South might have would be subordinated to Congress Financial's postpetition claim.
Debtor relies upon the Eleventh Circuit's decision of In re Airlift Int'l, Inc., 761 F.2d 1503 (11th Cir.1985), which is discussed below, as authority for its contention that Clarklift South is not entitled to an administrative expense claim, but that the breach of the lease should be deemed to have occurred pre-petition under § 502(g) of the Bankruptcy Code.
Clarklift South contends that it has an administrative expense claim for the lease of the forklifts, and that Airlift Int'l is not applicable in that the entire decision is based on a post-petition stipulation pursuant to § 1110(a) of the Bankruptcy Code which obligated the debtor to pay monthly installments coming due.
Debtor contends, by pointing out Broadcast Corp. of Ga. v. Broadfoot (In re Subscription Television of Greater Atlanta), 789 F.2d 1530 (11th Cir.1986), that even if Clarklift South is entitled to an administrative expense claim, the amount of such claim should be limited to the actual benefit received by Debtor's estate as a result of the actual use of the forklifts. Therefore, Debtor argues that since the forklifts were used for *565 only ten hours, and the forklifts' monthly rental rate for no more than 375 hours per quarter (125 hours per month) was $1,250, the amount of the administrative expense claim should only be $100.00.
Clarklift South urges the court to follow the decisions which hold that pursuant to § 503(b)(1)(A) of the Bankruptcy Code, in connection with a lease which is ultimately rejected by a Chapter 11 debtor, an administrative expense claim for the rental of the property is computed by reference to the reasonable rental value of the property and not to its benefit, if any, to the debtor. See In re Curry Printers, 135 B.R. 564 (Bankr. N.D.Ind.1991); In re Fred Sanders Co., 22 B.R. 902 (Bankr.E.D.Mich.1982). Clarklift South argues that to hold otherwise would compel the creditor to move immediately to obtain a court order requiring the debtor to assume or reject an existing lease, which would result in a penalty to creditors who cooperate with debtors and give them time to resolve their financial difficulties.
The initial question to be decided by this court is whether Clarklift South is entitled to an administrative expense claim under § 503(b) of the Bankruptcy Code. Section 503(b) of the Bankruptcy Code provides that: "After notice and a hearing, there shall be allowed, administrative expenses, . . . including (1)(A) the actual, necessary costs and expenses of preserving the estate, . . ." 11 U.S.C.A. § 503(b)(1)(A) (West 1993).
Debtor argues, in reliance on the Eleventh Circuit's decision in Airlift Int'l, that Clarklift South is not entitled to an administrative expense claim, but to a pre-petition claim under § 502(g) of the Bankruptcy Code.
Our review indicates there are three general situations involving executory contracts or unexpired leases where the effect of a breach by the debtor or trustee must be considered: (1) where the trustee elects not to assume an ongoing executory contract or unexpired lease and rejects it, (2) where the trustee assumes an ongoing executory contract or unexpired lease prior to confirmation of the plan, and (3) where the trustee during reorganization proceedings enters into a new executory contract.
In the first instance where the contract is not assumed prior to confirmation, the breach of the executory contract or unexpired lease is deemed to have occurred pre-petition, giving rise to a pre-petition claim under section 502(g), but not an administrative expense under section 503(b).
Airlift Int'l, 761 F.2d at 1508-09 (emphasis added) (footnote omitted).
It appears clear to this court that the three listed situations in Airlift Int'l indicate the general rule, rather than an absolute rule. The Eleventh Circuit does not address the administrative expense issue in the context where, as here, the leased equipment is used post-petition by the debtor and the lease is ultimately rejected by the debtor prior to confirmation. The Eleventh Circuit, though, in discussing § 365 of the Bankruptcy Code, stated:
Where the debtor is a lessee, the estate is liable for the reasonable value of the use and occupancy of the property during the period between filing and assumption or rejection of the unexpired lease. See In re Rhymes, Inc., 14 B.R. 807, 808 (Bkrtcy. D.Conn.1981); 2 Collier on Bankruptcy, ¶ 365.03[2] (15th ed. 1979). While "[t]he rent reserved in the lease is presumptively a fair rental . . .," the court may authorize a different figure based upon evidence of the actual use by the debtor. See In re Peninsula Gunite, Inc., 24 B.R. 593, 595 (9th Cir. BAP 1982).
Airlift Int'l, 761 F.2d at 1508.
It is well established that once an executory contract or unexpired lease is rejected, the creditor may file an administrative expense claim for the "reasonable value of the use and occupancy" by the trustee of the creditor's property during the time before rejection. 2 Collier on Bankruptcy ¶ 365.03 at 365-36 (15th ed. 1992). See Philadelphia Co. v. Dipple, 312 U.S. 168, 174, 61 S.Ct. 538, 541, 85 L.Ed. 651, 655 (1941) (during the period when the trustee is deciding whether to accept or reject a lease contract, he is liable to pay only "the amount due for use and occupation"); American Anthracite & Bituminous Coal Corp. v. Leonardo Arrivabene, S.A., 280 F.2d 119, 126 (2d Cir.1960) (according priority only for actual use and *566 occupancy; fair value of conferred benefit is based on the "equitable principle of preventing unjust enrichment of the debtor's estate, rather than the compensation of the creditor for the loss to him").
With respect to equipment leases, many courts have disallowed a claim for administrative expense status after finding that no actual use of the leased equipment was made by the debtor or trustee, thereby resulting in no benefit to the debtor's estate. See General American Transp. Corp. v. Martin (In re Mid Region Petroleum, Inc.), 1 F.3d 1130 (10th Cir.1993) (disallowed administrative expense claim; held that neither potential to benefit Chapter 11 debtor's estate nor mere possession was sufficient to grant administrative expense status for accrued rent under rail car lease agreement); In re Dixie Fuels, Inc., 52 B.R. 26 (Bankr.N.D.Ala.1985) (since Chapter 11 debtor made no actual use of leased rock trucks prior to rejecting leases, payments due were not actual, necessary costs of preserving the estate); In re Pickens-Bond Constr. Co., 83 B.R. 581 (Bankr. E.D.Ark.1988) (valued administrative expense at zero since Chapter 11 debtor did not use leased airplane between filing the petition and rejecting the lease); In re Carmichael, 109 B.R. 849 (Bankr.N.D.Ill.1990) (lessor of irrigation equipment could receive only, as an administrative expense, the amount the Chapter 12 estate actually benefitted by possession of the equipment; since the equipment was not used, thereby conferring no benefit to the estate, the claim for administrative expense was not allowed); In re Intran Corp., 62 B.R. 435 (Bankr.D.Minn. 1986) (Chapter 11 debtor obligated only for actual use made of leased computer equipment and software; since leased property was not used, no administrative expense claim was allowed); In re Templeton, 154 B.R. 930 (Bankr.W.D.Tex.1993) (claim for rent by equipment lessor not entitled to administrative expense status where no benefit to Chapter 12 estate shown); In re Vyvyan, 55 B.R. 691 (Bankr.E.D.Wisc.1985) (no administrative expense status due to nonuse of leased farm equipment rendering no benefit to Chapter 7 debtor's estate).
This court finds that since Debtor actually used one or both of the forklifts (as stipulated by the parties) during the period between filing the bankruptcy petition and rejecting the lease, Clarklift South is entitled to an administrative expense claim for such use.
The court now must focus on the proper valuation of Clarklift South's administrative expense claim. Courts have varied in their interpretations of how an administrative claim should be valued. Upon review of the relevant law in this area, the court realizes that there appears to be three lines of cases which address the determination of the reasonable value of a creditor's administrative expense for the use and occupancy of leased property by a debtor or trustee.
One line of cases restricts a creditor's claim to the extent of the actual benefit received by the debtor's estate from the actual use of the leased property, with a rebuttable presumption that the lease terms represent the fair value of the benefit. The debtor or trustee can rebut the presumption by showing that the actual benefit to the estate is less than the lease amount based upon the actual use of the leased property. Only after it is established that the debtor's estate actually benefitted from the transaction may a court estimate the amount of the "benefit" by considering the reasonable use of the property. Courts often adopt this approach where the property is easily divisible into discreet or leasable units by which to measure the claim. See Broadcast Corp. of Ga. v. Broadfoot (In re Subscription Television of Greater Atlanta), 789 F.2d 1530 (11th Cir.1986) (administrative expense allowed for only seventeen days of use by Chapter 7 trustee since after use for seventeen days, trustee made no further use of the subscription television service until rejection of the lease at the end of the 60-day period allowed under § 365(d)(1) of the Bankruptcy Code); In re Lease-A-Fleet, Inc., 140 B.R. 840 (Bankr. E.D.Pa.1992) (reasonable rental value of automobiles based on number of automobiles actually subleased by Chapter 11 debtor when debtor was subleasing automobiles it had previously leased from creditor); In re N-Ren Corp., 68 B.R. 404 (Bankr.S.D.Ohio *567 1986) (creditor entitled to administrative expense priority for retention by Chapter 11 debtor of leased railroad cars based on number of actual rail car shipments when debtor leased 61 railroad cars but only used them for a limited number of shipments; debtor could have leased necessary railroad cars for only those shipments actually made; found the rate for "reasonable value" to be the same as that secured from creditor).
A second line of cases values the creditor's claim without regard to any use of the leased property whatsoever and essentially eliminates any requirement of a benefit to the debtor's estate. Such approach focuses on the compensation of the creditor for his loss during the pre-rejection period. Courts following this approach have applied an objective method based on the fair and reasonable value of the lease on the open market, with a rebuttable presumption that the lease terms represent the fair value of the administrative expense claim. The debtor or trustee can rebut the presumption by showing that the market rate for the lease of similar property is less than the rate of the lease in effect. Often, this method of valuation has been applied where the property was not or could not be used in discrete, leasable units. Decisions using the fair market valuation approach have expressed concern about the burden the actual use method places on the creditor who should not be penalized by the debtor's desire to reduce administrative expenses by using the leased property at less than full capacity. Additional reasoning in such decisions includes reference to the availability of the leased property for use by the debtor or trustee and the creditor's right to assume that until rejection of the lease, the property is being used for the purpose for which it was leased and that the debtor or trustee will pay the reasonable value of the property measured by such use. See Thompson v. IFG Leasing Co. (In re Thompson), 788 F.2d 560 (9th Cir.1986) (considered the fair and reasonable value of the leased farm equipment (Harvestore System) on the open market as controlling in determining allowable administrative expense; Chapter 11 debtor's testimony regarding actual use was largely irrelevant when equating reasonableness with fair market value); In re Curry Printers, Inc., 135 B.R. 564 (Bankr. N.D.Ind.1991) (based administrative expense claim on "reasonable rental value" instead of "actual use" in Chapter 11 case where lessor's claim was based on two photocopy machines leased to debtor); In re Fred Sanders Co., 22 B.R. 902 (Bankr.E.D.Mich.1982) (equitable method based on benefit to Chapter 11 debtor was not applied; valued post-petition use of vans based on amount of the lease payments notwithstanding debtor's claim of nonuse of the leased vans; found that a debtor is generally aware that a bankruptcy will be necessary and should plan in advance to decide which leases should be retained).
A third line of cases has rejected the strict application of either the actual use/resulting benefit method or the fair market value method and instead has applied a method that is based on the nature of the property and its use. Therefore, if the nature or use of the property can be divided into discreet, leasable units, then the actual use method is applied. If not, the fair market value method is used. See Litho Specialties, Inc. v. Fleet Credit Corp. (In re Litho Specialties, Inc.), 154 B.R. 733 (D.Minn.1993) (printing press lease valued at fair market value since it involved indivisible pieces of equipment and no evidence was introduced to show use by Chapter 11 debtor was limited to a specified period of time).
This court believes it is clear that the Eleventh Circuit has adopted the actual use/resulting benefit method. A relevant case decided by a bankruptcy court in the Eleventh Circuit is In re Dixie Fuels, Inc., 52 B.R. 26 (Bankr.N.D.Ala.1985). The court found that where a leased truck was not used post-petition by the Chapter 11 debtor and the lease was rejected prior to confirmation, the lessor was not entitled to an administrative expense claim. Dixie Fuels, 52 B.R. at 27. The Dixie Fuels court quoted the same portion of Airlift Int'l that Debtor finds relevant. Id. However, the court in Dixie Fuels implied that if the trucks had been used there would have been an administrative expense based on the "actual use by the debtor" and "actual value received by the estate." Id. The Dixie Fuels court stated:
*568 The Court may authorize a figure different from that reserved in the lease based upon evidence of the actual use by the debtor. Id. (citing In re Peninsula Gunite, Inc., 24 B.R. 593 (9th Cir. BAP 1982)). Claims under 11 U.S.C. Section 503(b)(1)(A) (1978) are judged by the actual value received by the estate. In re Rhymes, Inc., 14 B.R. 807, 808, 8 B.C.D. 636, 637, 5 C.B.C.2d 478, 480 (Bkrtcy. D.Conn.1981). The liability for actual use and occupancy is based upon the equitable principle of preventing unjust enrichment, rather than compensation of the creditor for loss to him. Id.
. . . .
Because Dixie made no use of the five rock trucks prior to rejecting the leases, the Court determines that the trucks were of no benefit to the estate. Therefore, the payments due the lessor under the lease were not "actual, necessary costs and expenses of preserving the estate." 11 U.S.C. Section 503(b)(1)(A) (1978); cf. In re Rhymes, Inc., 14 B.R. 807, 8 B.C.D. 636, 5 C.B.C.2d 478 (Bkrtcy.D.Conn.1981).
Id.
Not long after Dixie Fuels was decided, the Eleventh Circuit Court of Appeals was faced with a request for administrative expenses where the trustee had used leased property during the pre-rejection period. In Broadcast Corp. of Ga. v. Broadfoot (In re Subscription Television of Greater Atlanta), 789 F.2d 1530 (11th Cir.1986), the debtor entered into a contract with Broadcast for the provision of subscription television. Subscription Television, 789 F.2d at 1531. Broadcast was obligated to provide the debtor with a scrambled television signal during certain hours of the day in return for payment from the debtor. Id. The debtor filed a Chapter 11 bankruptcy case which was later converted to a Chapter 7 bankruptcy. Id. The Chapter 7 trustee continued the operations of the debtor for seventeen days, but kept the contract as an assumable, executory contract for the 60-day period allowed under § 365(d)(1) of the Bankruptcy Code. Id. The contract was rejected by operation of law at the end of the 60-day period. Id. The bankruptcy judge allowed an administrative expense for the entire 60-day period. Id. The district court on appeal held that administrative expense priority did not exist for that part of the claim which exceeded the seventeen-day period of operation and actual use by the Chapter 7 trustee. Id. The district court's ruling was summarily but clearly affirmed by the Eleventh Circuit Court of Appeals. Id. at 1532. See Broadcast Corp. of Georgia v. Broadfoot, 54 B.R. 606 (N.D.Ga.1985), aff'd sub nom. Broadcast Corp. of Ga. v. Broadfoot (In re Subscription Television of Greater Atlanta), 789 F.2d 1530 (11th Cir.1986). The Eleventh Circuit then went on to state an important standard in its circuit, which must be applied by this United States Bankruptcy Court:
The priority of an administrative expense is the highest. 11 U.S.C. § 507(a)(1). The allowance of such a priority is to be carefully considered, only after notice and hearing. 11 U.S.C. § 503(b). That which is actually utilized by a trustee in the operation of a debtor's business is a necessary cost and expense of preserving the estate and should be accorded the priority of an administrative expense. That which is thought to have some potential benefit, in that it makes a business more likely salable, may be a benefit but is too speculative to be allowed as an "actual, necessary cost and expense of preserving the estate."
To accord a creditor holding an executory contract an administrative priority for every claim arising thereunder during the sixty-day section 365(d)(1) period would produce a strained and unintended construction of that statute. Each case must be judged subjectively. The treatment of similar contracts may vary with the facts of the case, the trustee's need for the subject matter of the executory contract, and the benefits to be derived by the bankrupt estate.
Subscription Television, 789 F.2d at 1532.
Quoting the district court's opinion, the Eleventh Circuit stated that "there must be an actual, concrete benefit to the estate before a claim is allowable . . ." as an administrative expense. Id. (quoting Broadcast Corp. of *569 Georgia v. Broadfoot, 54 B.R. 606, 613 (N.D.Ga.1985), aff'd sub nom. Broadcast Corp. of Ga. v. Broadfoot (In re Subscription Television of Greater Atlanta), 789 F.2d 1530 (11th Cir.1986)).
This court realizes that Subscription Television arises out of a Chapter 7 proceeding, but believes its interpretation of 11 U.S.C.A. § 503(b)(1)(A) of the Bankruptcy Code is also applicable to a Chapter 11 case. In fact, several Chapter 11 cases have followed Subscription Television's view that a claim is allowed as an administrative expense only if there was actual use of the creditor's property which resulted in an actual benefit to the debtor's estate. See, e.g., Kinnan & Kinnan Partnership v. Agristor Leasing, 116 B.R. 162 (D.Neb.1990); In re Pickens-Bond Constr. Co., 83 B.R. 581 (Bankr.E.D.Ark. 1988); In re Intran Corp., 62 B.R. 435 (Bankr.D.Minn.1986); In re Grant Broadcasting of Philadelphia, Inc., 71 B.R. 891 (Bankr.E.D.Pa.1987).
The court notes that the Eleventh Circuit, as evidenced by its decision in Subscription Television, does not believe that Congress intended, in enacting § 503(b)(1)(A) of the Bankruptcy Code, to give certain creditors preferential treatment by creating a broad category of administrative expenses. This court believes that the use of the words "actual" and "necessary" in § 503(b)(1)(A) of the Bankruptcy Code was not accidental but that such words were included to impose a requirement that the debtor's estate be actually benefitted. When interpreting a statute, a court's analysis should begin with the actual language of the statute and be consistent with the plain meaning of the statutory language. See United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241-43, 109 S.Ct. 1026, 1030-31, 103 L.Ed.2d 290, 298-99 (1989); Davis v. Davis (In re Davis), 911 F.2d 560, 562 (11th Cir.1990).
Furthermore, the court notes that keeping administrative expenses to a minimum furthers the debtor's rehabilitation. The wording of § 503(b)(1)(A) defining administrative expenses looks at the use of property from the debtor's perspective and requires that the debtor pay only for the actual use and benefit obtained from the leased property. Other provisions of the Bankruptcy Code look at such transactions from the creditor's perspective and in fact put the burden on creditors to protect their interests. See 11 U.S.C.A. § 362(d)(1) (West 1993) (creditor can move for relief from the automatic stay); 11 U.S.C.A. § 363(e) (West 1993) (creditor can seek adequate protection); 11 U.S.C.A. § 365(d)(2) (creditor can move for court to set an early date by which debtor must assume or reject an executory contract or unexpired lease).
The court is persuaded that acceptance of Clarklift South's argument would make a debtor liable for its full contract obligations on executory contracts and unexpired leases before acceptance or rejection, which in turn would create tremendous pressure on the debtor to reject as many contracts and leases as soon as possible. Such result would be contrary to the spirit and purpose of the Bankruptcy Code, which allows the debtor to assume or reject an executory contract or unexpired lease at any time before confirmation of a plan, unless a party to the executory contract or unexpired lease forces an earlier decision. See 11 U.S.C.A. § 365(d)(2) (West 1993).
Therefore, after reviewing relevant Eleventh Circuit decisions and noting similar decisions in several other jurisdictions, and upon consideration of the plain meaning rule of statutory interpretation and the spirit of the Bankruptcy Code, the court finds that the reasonable value of Clarklift South's administrative expense claim against Debtor's estate should be determined by considering the actual benefit conferred on Debtor's estate as a result of the actual use of the forklifts by Debtor.
The burden of proving entitlement to an administrative expense claim was on Clarklift South, to prove not only that the expense was "actual" and "necessary," but also the reasonable value of the expense. The parties have stipulated that Debtor actually used the forklifts for only ten hours between the period of filing the bankruptcy petition and rejecting the lease. The forklifts conferred no further benefit to Debtor's estate since they remained idle for the remainder of the time they were in Debtor's *570 possession. The court notes that in Broadcast Corp., the district court found the amount of the administrative expense claim to be the amount by which the debtor's estate was benefitted for the seventeen days the trustee actually used the subscription television service provided by Broadcast. Broadcast Corp., 54 B.R. at 613. The trustee conceded that the court should use the full contract rate in arriving at a daily lease rate. Id. The court is persuaded that the reasonable value of the administrative expense as determined by the benefit conferred on Debtor's estate as a result of the actual use of the forklifts, absent any evidence to the contrary, is represented by the hourly rental amounts set forth in the lease. According to the lease, Debtor could not use either of the forklifts more than 375 hours per quarter (125 hours per month), without incurring a charge in addition to the lease payments (no evidence was introduced to show that Debtor ever used either or both forklifts more than 375 hours per quarter). The average cost per hour if the large forklift was not used more than 375 hours per quarter was approximately $6.00. The average cost per hour if the small forklift was not used more than 375 hours per quarter was approximately $4.00. The evidence presented to the court was not clear whether the stipulated ten hours of use was for the forklifts together or separately. The court has decided to calculate the reasonable value of the administrative expense as follows: $100.00 (ten hours of use at the large forklift rate of $6.00 per hour and ten hours of use at the small forklift rate of $4.00 per hour).
An order in accordance with this Memorandum Opinion will be entered.
ORDER
In accordance with the Memorandum Opinion issued this date, the court finds that Clarklift South, Inc. is entitled to an administrative expense claim in the amount of $100.00, and authorizes Debtor to pay such claim when funds are available to pay expenses of that priority. The court does not authorize the use by Debtor of Congress Financial Corp.'s cash collateral or the subordination of Congress' post-petition claim to Clarklift South's administrative claim.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917500/ | 178 B.R. 346 (1995)
In re WOODMERE INVESTORS LIMITED PARTNERSHIP, Debtor.
Bankruptcy No. 92-B-46455(CB).
United States Bankruptcy Court, S.D. New York.
February 3, 1995.
*347 *348 *349 Cadwalader, Wickersham & Taft by Barry J. Dichter, James P. Seery, Jr., Susan Dicicco, New York City, for debtor.
Bachner, Tally, Polevoy & Misher by William J. Lowy, Ruth Berkowitz Bergwerk, *350 New York City, for Connecticut Mut. Life Ins.
MEMORANDUM DECISION ON CONFIRMATION OF THE DEBTOR'S PLAN OF REORGANIZATION
CORNELIUS BLACKSHEAR, Bankruptcy Judge.
INTRODUCTION
The matter before this Court is the confirmation of the plan of reorganization, as amended, filed by Woodmere Investors Limited Partnership (the "Debtor"). As more fully explained below, Connecticut Mutual Insurance Company ("Connecticut Mutual"), the first mortgagee of the Debtor's single asset an apartment complex, objects to confirmation of the Debtor's plan because it does not meet the requirements for confirmation pursuant to section 1129 of Title 11 of the United States Code (the "Bankruptcy Code").
Two additional issues inextricably related to the Debtor's confirmation of its plan, will also be decided by this Court the Debtor's objection to Connecticut Mutual's claim and Connecticut Mutual's motion for summary judgment in an adversary proceeding filed by the Debtor.[1]
For the following reasons, the Debtor's plan cannot be confirmed.
BACKGROUND
The Debtor is a Michigan limited partnership formed on October 19, 1984. One of the two general partners is SVB Capital, Inc., a New York Corporation, which is wholly owned by Stephen Blumenthal. The other is Samson Capital Corporation, a Rhode Island Corporation, which is wholly owned by Earl Samson. In addition, the Debtor has approximately 33 limited partners.
The Debtor owns a 24 building, 268 unit garden apartment complex located in Grand Rapids, Michigan or commonly known as "Fox Meadow Apartments" (the "Property").[2] The Property is encumbered by Connecticut Mutual's first mortgage which secures an indebtedness of the Debtor of approximately $5.58 million.[3]
On or about December 14, 1987, the Debtor executed and delivered several loan documents (the "Loan Documents") to Connecticut Mutual, including a mortgage note (the "Note") in the original principal amount of $5,500,000, and a Mortgage and Security Agreement (the "Mortgage"). On the same day, the Mortgage was duly recorded. There are no other mortgages on the Property. The Debtor also executed and delivered to Connecticut Mutual an Assignment of Rents and Leases (the "Assignment of Rents") to further secure repayment of the Note. The Assignments of Rents was also duly recorded. The Note matured on December 1, 1992.
The Debtor defaulted under the terms of the Loan Documents, in part because it failed to pay principal and interest due from and after June 1, 1992, and real estate taxes for the Property for 1991 and 1992. Despite negotiations between Connecticut Mutual and the Debtor to reach an agreement, the parties remained at an impasse. Thereafter, Connecticut Mutual took steps to enforce the Assignment of Rents and to foreclose the Mortgage.
Foreclosure Proceedings and Woodmere's Chapter 11 Filing
On October 19, 1992, Connecticut Mutual filed a Statutory Notice of Default which was duly recorded (the "Notice of Default"). Connecticut Mutual subsequently served a copy of the Assignment of Rents and the Notice of Default on the tenants of the Property. In addition, Connecticut Mutual also served a notice on all tenants, directing them to make all subsequent rental payments to Connecticut Mutual's agent, Hartger & Willard Mortgage Associates, Inc. ("Hartger & *351 Willard"). A disputed issue in this contested confirmation is whether Connecticut Mutual has sufficiently enforced the Assignment of Rents under Michigan law and thereby extinguished any interest of the Debtor in the rents generated by the Property (the "Rents") to the detriment of the Debtor's bankruptcy estate.
In November 1992, Connecticut Mutual began foreclosure proceedings against the Debtor by advertisement as provided by applicable Michigan Law, and sought the appointment of a receiver for the Property.
The Bankruptcy Proceedings
On or about November 19, 1992, five days before the Michigan State Court was to hear Connecticut Mutual's motion for appointment of a receiver, the Debtor filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code. In response, Connecticut Mutual filed its proof of claim for $5,571,995.52 plus other post petition charges. The Debtor filed an objection to the amount of Connecticut Mutual's claim on or about April 8, 1993.
Rents and Property of the Estate
On or about December 19, 1992, the Debtor made an application pursuant to Section 364 of the Bankruptcy Code for authorization to use the Rents (the "Cash Collateral Motion"). Connecticut Mutual opposed the Cash Collateral Motion on several grounds, including the inability of the Debtor to use the Rents it claims are not property of the estate. In addition, Connecticut Mutual moved to transfer venue of the Debtor's Chapter 11 case to the United States Bankruptcy Court for the Western District of Michigan, the district in which the Property is located (the "Venue Motion"). The Debtor opposed the Venue Motion.
At a hearing before this Court on January 19, 1993, this Court resolved the Cash Collateral Motion and the Venue Motion.[4] The Court ordered the Debtor to file a plan and disclosure statement on or before February 3, 1993. In the event that the Debtor failed to file a plan and disclosure statement by that date, the Chapter 11 case would be transferred to the Michigan Bankruptcy Court.[5]
Connecticut Mutual and the Debtor entered into a stipulation which allows Connecticut Mutual to continue to collect the Rents through Hartger & Willard. In exchange, Connecticut Mutual would advance funds to the Debtor for payment of necessary operating expenses of the Property pursuant to an agreed budget from rents collected. Money in excess of the amounts necessary for operating expenses would be applied to reduce Connecticut Mutual's claim.[6] However, the parties are in disagreement as to the method of reducing the indebtedness owing to Connecticut Mutual; the Debtor asserts that the Rents should be applied to the secured portion of Connecticut Mutual's loan while Connecticut Mutual argues that it should be applied to the entire claim.
The valuation of the Property is another contested issue. Since 1987, the Debtor has made improvements to the Property valued at approximately $1,000,000.[7] Debtor contends that, except for during the renovation period, Fox Meadow has consistently maintained high occupancy rates. Debtor asserts that the value of the Property ranges from $5.4 to $5.5 million while Connecticut Mutual *352 argues that the value is $4.8 million. Despite their disagreements, the parties do not seriously dispute that Connecticut Mutual is an under-secured creditor because the City of Grand Rapid's tax claim, in the amount of $175,000, has priority over Connecticut Mutual's claim.
The Debtor's Plans of Reorganization
In compliance with this Court's order, on or about February 3, 1993, the Debtor filed a plan (the "Initial Plan") and a Disclosure Statement (the "Initial Disclosure Statement"). Following a hearing before this Court held on March 2, 1993, this Court directed that certain modifications be made to the Initial Disclosure Statement. On or about March 8, 1993, this Court entered an order approving the Debtor's amended Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code (the "Amended Disclosure Statement"). Subsequently, the Debtor transmitted the Disclosure Statement along with the Debtor's First Amended Plan of Reorganization (the "First Amended Plan").[8] A hearing (the "Confirmation Hearing") to consider confirmation of the Debtor's First Amended Plan was scheduled for April 8, 1993. On or about April 19, 1993, the Debtor filed a modification of the First Amended Plan. On or about April 30, 1993, the Debtor again filed a second modification of the First Amended Plan (collectively, the First Amended Plan and all the modifications thereto are hereinafter the "Plan"). The following is a summary of the Plan:
CLASS 1 (Allowed Priority Claims): Class 1 consists of allowed priority claims. Such claims entitled to priority pursuant to section 507(a) of the Bankruptcy Code will be paid in full. Consequently, Class 1 is not impaired.
CLASS 2 (Allowed Convenience Claims): Class 2 consists of unsecured claims not exceeding $1,500, or which are voluntarily reduced to $1,500. Such claims will be paid in two equal installments, commencing on the first and second months after the effective date.[9] Class 2 is impaired.
CLASS 3: Class 3 consists of the secured real estate tax claims of the City of Grand Rapids which is fixed at $178,000, and is to be paid over five years at 7.5% per annum. Class 3 is impaired.
CLASS 4: Class 4 consists of Connecticut Mutual's secured claim to be paid over six years. To the extent of the value of the Property, Connecticut Mutual shall receive a new mortgage and non-recourse note with a maturity of nine years, accruing interest at 7.62% per annum (the "Modified Note")[10]. The principal of the Modified Note is to be amortized on a quarterly basis, after payment in full of the Class 6 claims. Such funds for amortization will be provided for by seventy-five percent (75%) of the Property's "Available Cash."[11] At maturity, the Modified Note is to be paid in full[12]. Class 4 is impaired.
CLASS 5: Class 5 consists of all allowed secured claims that are not in classes 3 and 4. The Debtor does not believe that there are any claimants in this class.
CLASS 6: Class 6 consists of unsecured claims including trade claims and the deficiency claim of Connecticut Mutual. Class 6 is impaired under the Plan. Such claims will accrue interest at the rate of 7.62%. Class 6 Claims shall be paid on a pro-rata basis from all available cash flow for 1993 and 1994 and subsequently seventy-five percent of Available Cash each calendar quarter until all Class 6 claims are paid in full.
CLASS 7: (Deferred Management Fee) Class 7 consists of the unsecured claims of *353 Synchron Management Company, the Debtor's managing Agent, for deferred managing fees of $62,960. The Claimants will be paid from twenty-five percent (25%) of the Available Cash. Class 7 claims will not be paid any interest on the claims. The Debtor reserves the right to make any payments due to the Class 7 claimants for the benefit of Class 6 claims. Class 7 is impaired under the Plan.
CLASS 8: (Limited Partner Loan Claims) Class 8 consists of the limited partner loan claims of $553,062, to be paid in full after Classes 4, 6, and 7 claims have been paid in full. Payment of Class 8 claims shall be fully subordinated to these classes. Such claims will accrue interest at 7.5% per annum but no interest shall accrue or be paid on unpaid interest. Class 8 is impaired under the Plan.
CLASS 9: (Security Deposit Claims) Class 9 consists of unimpaired claims of tenants for security deposits;
CLASS 10: (Subordinated Principal Amount Claim). Class 10 consists of the subordinate principal amount claims of Connecticut Mutual's claim, assuming the Debtor prevails in its adversary proceeding against Connecticut Mutual to equitably subordinate its claims. However, at a hearing held before this Court on December 8, 1993, this Court held in favor of Connecticut Mutual and dismissed that portion of Woodmere's complaint which sought to equitably subordinate Connecticut Mutual's claim for violation of the Fair Housing Act. Thus, there are no claims in this class.
CLASS 11: (Limited Partner Interests) Class 11 consists of the interest of the limited partners of the Debtor. Class 11 is unimpaired.
CLASS 12: (General Partner Interests) Class 12 consists of the interest of the General Partners of the Debtor.[13] Class 12 is unimpaired.
The impaired classes entitled to vote on the Plan are classes 2, 3, 4, 6, 7, and 8.[14] Classes 4 (Connecticut Mutual's secured claim) and 6 (Connecticut Mutual's unsecured claim and trade claims) voted to reject the Plan pursuant to Rule 3018(d) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules")[15]. Classes 2, 3, 7 and 8 have voted in favor of the Plan. Therefore, the Debtor is seeking confirmation of the Plan pursuant to section 1129(b)(1) of the Code or what is referred to in the vernacular as "cram down"[16].
Connecticut Mutual's Objections
Connecticut Mutual's primary objections to the Plan are as follows: (1) the improper classification of the Plan violates sections 1122 and 1129 of the Bankruptcy Code; (2) the Plan violates section 1129(b)(2)(B)(ii) of the Bankruptcy Code because the classes to which Connecticut Mutual's claims belong are impaired while the classes containing the partnership interests in the Debtor are unimpaired i.e., the limited and general partners retain their equity interests in the Debtor; (3) the Plan calls for unfair treatment in violation of section 1129(b)(2)(A)(i)(II) of the Bankruptcy Code; and (4) the Plan is not feasible as required in section 1129(a)(ii) of the Bankruptcy Code.
The Summary Judgment Motion
On or about December 28, 1992, Woodmere commenced an adversary proceeding *354 against Connecticut Mutual seeking to: (1) subordinate a portion of its claim because of the Connecticut Mutual's alleged violation of the Fair Housing Act, 42 U.S.C. § 3601 et seq. (the "Housing Act") and (2) determine whether the Rents constitute property of the Debtor's estate. On or about November 23, 1993, Connecticut Mutual moved for summary judgment (the "Summary Judgment Motion") pursuant to Bankruptcy Rule 7056.
On or about December 8, 1993, this Court held a hearing to consider the Summary Judgment Motion. At the hearing, this Court ruled in favor of Connecticut Mutual and denied the Debtor's request for equitable subordination of Connecticut Mutual's claim. However, as to the issue concerning whether the Rents constitute cash collateral, this Court found that it was inextricably tied to confirmation of the plan. Accordingly, this Court took this issue under advisement and will address this issue in conjunction with confirmation of the Plan.
DISCUSSION
I. THE DEBTOR'S OBJECTION TO THE AMOUNT OF CONNECTICUT MUTUAL'S CLAIM
This Court will first determine the total amount of Connecticut Mutual's claim. Connecticut Mutual had filed a proof of claim in the amount of approximately $5,571,995 and in addition asserts a claim for post-petition fees and charges. Debtor contests the portion of the claim which consists of anything other than principal and pre-petition interest.
The Proof of Claim filed by Connecticut Mutual asserts the following amounts: $5,222,699.36 in outstanding principal; accrued interest of $284,671.68; $9,192.88 for pre-petition attorney's fees; default interest in the amount of $18,549.13; and $36,882.47 for late charges.
The Debtor cites Section 506(b) of the Bankruptcy Code which authorizes any reasonable fees, costs, or charges to be included to a claim that is over-secured. The Debtor argues that since Connecticut Mutual is not an over-secured creditor, it cannot make a claim for such costs and fees.[17]
In challenging a claim, the opponent bears the burden of proof. A proof of claim when filed is prima facie evidence of such claim. See, Bankruptcy Rule 3001(f). 8 King, Colliers on Bankruptcy ¶ 3007.03 at 3007-43007-5 (15th Ed.1994). Thus, the Debtor bears the burden of proof that Connecticut Mutual's claim should be disallowed.
A. Pre-Petition Attorney Fees
Section 502(b) of the Bankruptcy Code provides that the claim of the creditor is to be determined as of the date of the filing of the petition. According to Paragraph 9 of the Note, Connecticut Mutual is entitled to "reasonable attorneys' fees" if the Note is "placed in the hands of an attorney for collection, . . . to enforce its collection . . . or to protect the security for its payment." Courts have awarded pre-petition attorney fees and collection costs in bankruptcy claims if the unsecured or undersecured creditors claimants has a right to them, which right is valid under state law. See, e.g., In re Drexel Burnham Lambert Group, Inc., 148 B.R. 979, 980 (Bankr.S.D.N.Y.1992) (contractual claim for pre-petition attorney's fees allowed).
The Debtor does not contest the validity of these pre-petition fees and costs under state law. According to Paragraph 9 of the Note, Connecticut Mutual is entitled to "reasonable attorneys' fees" if the Note is "placed in the hands of an attorney for collection, . . . to enforce its collection . . . or to protect the security for its payment."
The Debtor instead argues that the amount claimed by Connecticut Mutual is unreasonable and thus, should be disallowed. However, it is the Debtor which bears the burden of proof. Here, the Debtor merely asserts that Connecticut Mutual failed to provide justification for its fees. Based upon *355 the evidence submitted, this Court finds that the Debtor has not met this burden. In the absence of persuasive evidence, this Court finds that the legal fees charged by Connecticut Mutual to be reasonable. Therefore, the Debtor's objection as to Connecticut Mutual's pre-petition attorney fees of $9,192.88 is overruled.
B. Default Interest and Late Charges
By the same token, the Debtor does not dispute that a contractual provision providing for an increased interest rate upon default is unenforceable under Michigan law. The Debtor merely asserts that the default interest charged is an unenforceable penalty. However, when two sophisticated parties enter into a contract calling for an established rate on default, this Court will not disturb the agreement absent persuasive evidence of overreaching. Cruise v. Castleton, Inc., 449 F.Supp. 564, 567-68 (S.D.N.Y.1978). Since no such evidence was presented, the default interest charged pre-petition is allowed.
Connecticut Mutual is also entitled to late charges pursuant to paragraph 8 of the Note. Paragraph 8 states, in relevant part, that:
[t]he undersigned agrees to pay a late charge of five percent (5%) of any installments of interest and/or principal or any portion thereof which are accepted by Obligee and are not paid within five (5) days after the same shall become due and payable under this Note, to cover the extra expense involved in handling delinquent payments (emphasis added).
As a matter of contract law, the Debtor argues that pursuant to the plain language of paragraph 8 of the Note, no late charges are due because no payments were made. Consequently, Connecticut Mutual incurred no expense in handling delinquent installments. This Court agrees. Timberline Property Development, 136 B.R. 382, 386 (Bankr.D.N.J. 1992), is a persuasive case wherein the court interpreted a similar provision and concluded that late charges should be disallowed when no payments were made at all because there should be no expense involved in handling the delinquent payments. Similarly, a plain reading of the paragraph indicates that the purpose of the late charge was to compensate Connecticut Mutual for the extra expense in handling delinquent payments. Since the Debtor failed to make any payments to Connecticut Mutual, additional expenses in handling delinquent payments do not exist. Thus, the $36,882.47 claimed as late charges is disallowed.
C. Post-Petition Interest and Fees
The Debtor also challenges Connecticut Mutual's claim for post-petition interest. Case law and section 506(b) of the Bankruptcy Code make it clear that post-petition interest is not permitted unless Connecticut Mutual is an over-secured creditor. See, United Savings Association v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988); 3 King, Colliers on Bankruptcy ¶ 506-05 (15 Ed.1994). Since Connecticut Mutual is not an over-secured creditor, it is not entitled to post-petition interest.
The Debtor also objects to Connecticut Mutual's claim for post-petition attorney fees and costs. In support of its position, Connecticut Mutual cites In re United Merchants & Manufacturers, Inc., 674 F.2d 134 (2d Cir.1982) and In re Ladycliff College, 56 B.R. 765 (S.D.N.Y.1985) for the proposition that an under-secured creditor is entitled to post-petition attorney fees and costs.
This Court notes that the ruling in United Merchants was made pursuant to Section 63 of the Bankruptcy Act. The Second Circuit in United Merchants expressly noted that section 506(b) was inapplicable. United Merchants, 674 F.2d at 138, Fn. 6. In dicta, the Second Circuit concluded that the Bankruptcy Code and legislative history do not shed any light on the status of an undersecured creditor's contractual claims for attorney's fees. In re United Merchants, 674 F.2d at 138. In reliance on United Merchants, other courts have held post-Code that an under-secured creditor is allowed to include post-petition attorney fees as part of the claim. E.g., In re Ladycliff College, 56 B.R. 765 (S.D.N.Y.1985); Liberty Nat'l Bank v. George, 70 B.R. 312 (W.D.Kentucky 1987).
*356 Other courts, in applying the doctrine of espresso unius est exclusio alterius (a maxim of statutory interpretation meaning that the expression of one thing is the exclusion of another), have concluded to the contrary. See, e.g., In re Sakowitz, Inc., 110 B.R. 268 (Bankr.S.D.Tex.1989); In re Saunders, 130 B.R. 208 (Bankr.W.D.Va.1991). According to the rationale, since Congress provided for attorney fees only for over-secured creditors, it did not mean to allow attorney fees for under-secured creditors. While this Court finds this statutory interpretation maxim and the rationale of the court in Sakowitz convincing, United Savings Association v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988) is a more convincing reason to prohibit the recovery of post-petition attorney fees.
In the Timbers case, the United States Supreme Court concluded that since section 506(b):
permits post-petition interest to be paid only out of the `security cushion,' the under-secured creditor, who has no such cushion, falls within the general rule disallowing post-petition interest.
Id. at 372-73, 108 S.Ct. at 631.
The same rationale is applicable to a claim for attorney fees and costs. If no "security cushion" exists to allow for post-petition interest, none exists for the allowance of attorney fees and costs. Section 506(b) does not distinguish between interest rates and attorney fees. In light of the Timbers holding, this Court does not feel compelled to follow the holding of United Merchants or Ladycliff College, both cases decided pre-Timbers. Accordingly, Connecticut Mutual, as an under-secured creditor, is not entitled to post-petition attorney fees.
II. VALUATION OF THE PROPERTY
The determination of the value of the Property is necessary to establish the secured portion of Connecticut Mutual's claim pursuant to Section 506(a) of the Bankruptcy Code.[18] The Debtor claims that the value of the Property falls within the range of $5.4 to $5.5 million. This value is based primarily on the assessed value, as determined by Michigan statute. Mich. Comp. Laws Chapter 211 (1992). Connecticut Mutual disagrees and asserts a valuation of $4.8 million. In support of its position, Connecticut Mutual has presented expert testimony from the appraiser, David Rice, MAI, who performed an appraisal of the Property as of March 29, 1993 (the "Appraisal Report"). Based upon the evidence presented at trial and the papers submitted by the parties, this Court finds that the value of the Property is $5,100,000.
A. The Property
As previously mentioned, the Property consists of a 24 building, 268 unit garden apartment complex constructed on a 18.7 acre site, located in the city of Grand Rapids. The Property was constructed in 1951 and renovated in the late 1980s. Vacancy rates have been low[19]. At the Confirmation Hearing, Connecticut Mutual's agent from Hartger & Willard testified that the Debtor's management was adequate and that his firm could not achieve much better results.
Despite the high occupancy rates, the apartment rental markets have been soft due to the construction of competing new apartments.
*357 B. The Assessed Value and Connecticut Mutual's Internal Valuation
The Property has been valued by the city of Grand Rapids Assessor at $2.75 million[20], or one-half of the "Cash Value" as defined in Mich.Comp. Laws section 211.27 (1992).[21] The Debtor contends that under Michigan law, "cash value" is equivalent to market value and thus, the Property reflects a market value of $5.5 million.
The Debtor also draws this Court's attention to the fact that the assessed value had been recently reduced in 1992 after a successful appeal by the Debtor. The Debtor presented testimony that the 1992 assessed value of $5.5 million was not appealed in light of the perceived increase in property values. In support of its position, the Debtor also makes reference to Connecticut Mutual's own evaluation of the Property of $5.325 million in September 1992 as part of its portfolio evaluation process (the "September 1992 Report"). See Debtor's Exhibit 33. This internal valuation was performed by Hartger & Willard, independently assessed by Thomas Kelley Connecticut Mutual's investment officer and reviewed by Mr. Kelly's supervisor and Connecticut Mutual's Portfolio Review Committee.
Courts have considered the assessed value of properties as probative in determining property values.[22] However, in light of other evidence before this court, this Court finds that the value of the Property to be lower than that assessed. Nor is this Court inclined to take the value derived in the September 1992 report as controlling. This Court is persuaded that the value derived in that report is also too optimistic as it was predicated upon an erroneous projections of financial statements.[23] Moreover, the fact that the Debtor had placed the Property on the market and failed to obtain an offer close to the assessed value is another indication that the value asserted by the Debtor is overly optimistic. On the other hand, this Court is also not persuaded that the $4.8 million value derived in the Appraisal Report is correct. For the reasons set forth below, the Court finds that the value derived in the Appraisal Report to be too low.
C. The Appraisal Report
As noted previously, the Appraisal Report valued the Property at $4.8 million. Mr. Rice, the appraiser, utilized two of the three typical appraisal approaches in the valuation of real estate. The values derived by utilizing the sales comparison approach and the income approach were $5.1 million and $4.7 million, respectively.
The sales comparison approach essentially entails the analysis and comparison of market transactions involving similar properties. The premise of this approach is that an informed purchaser would pay no more for the Property than the cost of acquiring a similar property with the same utility. The sales price of these comparable sales are then adjusted to minimize the differences of the comparable property, and eventually arrive at an indication of value for the subject property. The "effective gross income multiplier" is derived from market transactions and illustrates the relationship of property income to sale price.
This effective gross income multiplier was used by Mr. Rice in the Appraisal Report. This Court finds persuasive the Debtor's argument that the multiplier used should have been higher. At the hearing, Mr. Rice testified that he failed to consider the multiplier for one of the comparable sales one that was sold two months prior with a higher multiplier and sold in a condition worse than Fox Meadows. If Mr. Rice had considered that multiplier, this Court is persuaded that the value derived by the market approach would have been higher.
The second approach used by Mr. Rice is the income approach which is based on the assumption that there is a relationship between *358 the amount of income a property will generate and its value. The anticipated annual net income[24] is discounted via a method called capitalization. Capitalization involves dividing the net income by a rate which weighs such factors as risk, time and interest on capital investment. There is some dispute as to whether the appropriate vacancy rate was utilized by the appraiser. See Tr. at 428, 460. This Court is persuaded that the net income utilized by Mr. Rice is somewhat understated, and consequently the value derived from the income approach should have been higher. For the foregoing reasons, this Court concludes that the Property is worth $5.1 million.
III. ASSIGNMENT OF RENTS AND PROPERTY OF THE ESTATE
By Order of this Court dated April 9, 1993, Rents generated by the Property have been collected by Connecticut Mutual's agent Hartger & Willard. The Rents pay all expenses incurred in connection to the operation and maintenance of the Property and the remainder is ear-marked to reduce Connecticut Mutual's claim. However, both parties agreed to hold in abeyance the determination of the ownership of the Rents.
Whether the Rents constitute property of the estate not only bears directly upon the feasibility of the Plan, as will be discussed later, but also upon the amount of Connecticut Mutual's claim. Thus, it is appropriate to address this issue at this juncture.
Questions concerning the validity and enforceability of assignments of rents and property rights in rents must be decided by reference to applicable state law. Butner v. U.S., 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979); In re Vienna Park Properties, 112 B.R. 597 (S.D.N.Y.1990), aff'd 976 F.2d 106 (2d Cir.1992). Thus, Michigan law, the law of the state in which the property is located controls. Predictably, both parties disagree as to the interpretation of Michigan law.
The controlling provisions of Michigan law regarding assignments of rents and enforcement thereof are set forth in Mich.Comp. Laws Ann. sections 554.231 and 554.232 which provide, in part, as follows:
554.231 Assignment of rents to accrue from leases as additional mortgage security.
Sec. 1. Hereafter, in or in connection with any mortgage on commercial or industrial property other than an apartment with less than 6 apartments or any family residence to secure notes, bonds or other fixed obligations, it shall be lawful to assign the rents, or any portion thereof, under any oral or written leases upon the mortgaged property to the mortgagee, as security in addition to the property described in such mortgage. Such assignment of rents shall be binding upon such assignor only in the event of default in the terms and conditions of said mortgage, and shall operate against and be binding upon the occupiers of the premises from the date of filing by the mortgagee in the office of the register of deeds for the county in which the property is located of a notice of default in the terms and conditions of the mortgage and service of a copy of such notice upon the occupiers of the mortgaged premises.
554.232 Assignment of rents; validity.
Sec. 2. The assignment of rents, when so made, shall be a good and valid assignment of the rents under any lease or leases in existence or coming into existence during the period the mortgage is in effect, against the mortgagor or mortgagors or those claiming under or through them from the date of the recording of such mortgage, and shall be binding on the tenant under the lease or leases upon service of a copy of the instrument under which the assignment is made, together with notice of default as required by section 1.
Mich. Comp. Laws Ann. Sections 554.231 and 554.232 (West 1988).
As set forth in the Michigan statute, complete enforcement of an assignment of rents occurs when five steps have been taken by the mortgagee: (1) execution of the assignment of rents; (2) recording of the assignment of rents; (3) default under the Mortgage; (4) recording of notice of default; *359 and (5) service of the recorded notice of default and the instrument creating the assignment of rents upon the tenants. In re Mount Pleasant Ltd. Partnership, 144 B.R. 727 (Bankr.W.D.Mich.1992). There is no dispute that Connecticut Mutual has taken all the necessary steps to enforce its assignment of rents.
The Debtor argues that despite the fact that Connecticut Mutual took all the requisite steps to enforce its assignment of rents, the Rents remain property of the estate. Consequently, Connecticut Mutual only retains a security interest in the Rents. The Debtor relies primarily upon United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983), for its proposition. The Debtor alludes to its equitable interest in the Rents and argues that Whiting Pools applies.
Connecticut Mutual instead relies upon In re Mount Pleasant Ltd. Partnership, 144 B.R. 727, 734 (Bankr.W.D.Mich.1992), for the proposition that under Michigan law, once a creditor has taken the requisite steps to enforce the assignment of rents, ownership of the Rents is transferred from the mortgagor to mortgagee. This Court agrees with Connecticut Mutual's interpretation of Michigan law for the following reasons.
Michigan law allows a mortgagee to exercise its entitlement to collect rents without requiring the mortgagee to first take possession of the mortgaged premises or that a receiver be appointed. Security Trust Co. v. Sloman, 252 Mich. 266, 233 N.W. 216 (1930). An assignment of rents is "not merely an incident to the right of the possession of land, but is a distinct remedy and additional security." Id. at 273, 233 N.W. 216.[25] The right of the mortgagee to collect rents ceases at the expiration of the period of redemption if the premises are not redeemed. Id. at 274, 233 N.W. 216. However, the mortgagor's right of redemption is an interest in the future rents and not an interest in the present rents when the Mortgage is in default. In re Mount Pleasant, 144 B.R. at 737. Thus, the mortgagor no longer has any interest in the present rents once a default has occurred. Otis Elevator Co. v. Mid-America Realty Investors, 206 Mich.App. 710, 522 N.W.2d 732 (1994) (creditor could not garnish mortgagor's interest in rents after mortgagor defaulted under the terms of its mortgage).
Otis Elevator, a case recently decided by the Court of Appeals of Michigan, cited with approval two federal bankruptcy court cases, In re Mount Pleasant Ltd. Partnership, 144 B.R. 727, 733-34 (Bankr.W.D.Mich.1992), and In re Coventry Commons Associates, 143 B.R. 837, 838 (E.D.Mich.1992), which cases interpreted Michigan law for this very issue ownership of rents in a single asset case. Id. 206 Mich.App. at 713-14, 522 N.W.2d 732.
In Coventry Commons, the mortgagee recorded the assignment of rents but failed to record a notice of default and did not send copies of such notice to the tenants. In re Coventry Commons, 143 B.R. at 838. The district court held that the mortgagee had a perfected security interest and, as such, the rents constituted cash collateral. Id. at 839. In a situation more analogous to the present case, the court in Mount Pleasant held that once a mortgagee completed all the necessary five-steps for complete enforcement, the debtor lost any interest in the rents under state law. In re Mount Pleasant Ltd., Partnership, 144 B.R. at 737.[26] Similarly, since Connecticut Mutual had taken all the necessary steps for complete enforcement of its Assignment of Rents, the Debtor has lost its interest in the Rents.
This Court remains unconvinced that Whiting Pools mandates a different outcome. The debtor in Mount Pleasant also unsuccessfully made the same argument. Id. This court is persuaded that Whiting Pools is inapplicable because the Debtor no longer has any interest in the Rents. Whiting *360 Pools only applies when ownership of the seized property has not been transferred. Whiting Pools, 462 U.S. 198, 209, 103 S.Ct. 2309, 2316 ("of course, if a tax levy or seizure transfers . . . ownership of the property seized, section 542(a) may not apply. . . . But those provisions do not transfer ownership of the property. . . . ").
Michigan law transfers ownership of the Rents to the mortgagee until the Mortgage is satisfied. The equitable interest the Debtor alludes to as property of the estate was correctly characterized by the Mount Pleasant court as an equitable interest in future rents and not in the present rents. In re Mount Pleasant Ltd. Partnership, 144 B.R. at 737. Under Michigan law, the interest revests if the mortgagor redeems the Mortgage.[27] However, all rents collected by the mortgagee from the time of default to the time of redemption belongs to the mortgagee until the Debtor redeems the Property. Until that time, the Rents belong to Connecticut Mutual. Id.
A bankruptcy court in the Eastern District of Michigan recently ruled that the rents in a single asset case constituted cash collateral even though the mortgagee had complied with all the necessary requirements to enforce its assignment of rents. See In re Newberry Square, Inc., 175 B.R. 910 (Banker.E.D.Mich.1994). The court decided that the Otis Elevator Company case was not controlling as it merely determined the "relative priority rights of two creditors of the mortgagee." Id. at 914. However, with all due respect to the Newberry Square court, this Court disagrees. While it is true that the ultimate issue decided by the Michigan Court of Appeals was the relative rights of two creditors, the court clearly determined that the judgment creditor could not garnish the mortgagor's interest in rents because the mortgagor no longer had a valid property interest (emphasis added). Otis Elevator, 206 Mich.App. 710, 715, 522 N.W.2d 732. The Michigan Court of Appeals determined the "relative" rights of the creditors based upon the property rights of the mortgagor. Moreover, the Otis Elevator court cited with approval the Mount Pleasant case. Id. at 714. Thus, this Court does not believe that the Newberry Square case requires a different outcome.
The Debtor alternatively argues that the future rents should be used to fund its plan since the Plan will cure the default and that curing the default would be the equivalent of redemption. A review of Michigan law reveals that redemption is consistently defined as payment in full. See, e.g., Mich. Comp. Laws section 600.5744(6) ("writ of restitution shall not issue if . . . the amount as stated in the judgment, together with the taxed costs, is paid. . . ."); Mich.Comp. Laws section 570.1121(6) ("[r]edemption from a foreclosure sale is complete upon payment of all sums set forth in the judgment of foreclosure, together with any sums due for the payment of taxes or insurance premiums. . . ."). Thus, this Court declines to hold that "cramming" down a creditor pursuant to section 1129(b)(1) constitutes redemption for the purposes of Michigan law. To do so would be in contravention of Butner; no matter what state law provided, a mortgagee's entitlement to rents would be cut short by the mortgagor's bankruptcy filing and a plan of reorganization which gives the mortgagee much less than he is entitled to pursuant to state law.
Therefore, the Rents collected by Connecticut Mutual do not constitute property of the estate and cannot be used in the Debtor's reorganization.
The Court notes that under Michigan law, these rents collected must go towards the upkeep of the Property and reduction of the indebtedness. There was an issue raised by the parties whether that the amount should be used to reduce the total indebtedness or only to reduce the secured portion. In light of its holding regarding the ownership of the rents, the court need not decide this issue in this case. However, in light of Michigan law, if this Court were to decide this issue, Rents collected should be offset against the total amount of the claim *361 and not solely against the secured portion of the loan.
Moreover, setting aside state law, Connecticut Mutual has bargained for and received a security interest in the Rents. This is a separate and distinct collateral from a mortgage on the Property itself and, as such, the value of each interest must be separately considered. See e.g., In re Landing Associates, 122 B.R. 288, 296 (Bankr. W.D.Tex.1990) ("an assignment of rents confers rights which have discrete value apart from the underlying deed of trust interest in the real property generating those rents"); In re 499 W. Warren Street Assoc., Ltd. Partnership, 142 B.R. 53, 56 (Bankr. N.D.N.Y.1992) ("A secured creditor holding both a mortgage securing a debt on a parcel of real property, and a perfected security interest in rents derived therefrom, holds two distinct interests. . . . The value of each of those interests must be separately considered. . . . ").
Even assuming arguendo that the Rents were property of the estate, the Rents received constitutes additional collateral and, as such, these Rents increased Connecticut Mutual's allowed secured claim in equal amounts and by payment, decreased the secured portion of Connecticut Mutual's claim by that same amount. Thus, it would be inappropriate to solely offset the Rents against the secured portion of Connecticut Mutual's Claim.
IV. OBJECTIONS TO CONFIRMATION
After concluding that the Rents are not property of the estate, this Court finds that the Plan fails to meet the requirements of section 1129(a)(11) of the Bankruptcy Code which requires that a plan be feasible. The feasibility test as set forth in section 1129(a)(11) requires an independent determination as to whether the Plan is workable and has a reasonable likelihood of success.[28]In re Drexel Burnham Lambert Group, 138 B.R. 723, 762 (Bankr.S.D.N.Y. 1992); In re 8315 Fourth Avenue Corp., 172 B.R. 725, 734 (Bankr.E.D.N.Y.1994). In light of the Debtor's inability to utilize the Rents for its plan and in the absence of alternative funding for the Plan, feasibility is a hurdle the Debtors are unable to overcome.
Assuming arguendo that the Rents were property of the estate, the Plan also cannot be confirmed because it cannot meet the requirements of "cram-down" pursuant to 11 U.S.C. § 1129(b)(1).[29]
As previously mentioned, Connecticut Mutual raises several other objections to the Plan which are as follows: (1) improper classification, in violation of sections 1122 and 1129(a)(1) of the Bankruptcy Code; (2) violation of the "absolute priority rule" as codified by section 1129(b)(2)(B)(ii) of the Bankruptcy Code; and (3) unfair treatment, in violation of section 1129(b)(2)(A)(i)(II) of the Bankruptcy Code. Of the above objections, this Court notes that improper classification pursuant to section 1129(a)(1) is a moot issue because an impaired, non-insider class, Class 3 consisting of the secured tax claim of the city of Grand Rapids has accepted the Plan.
To satisfy the "fair and equitable requirement" with respect to a secured claim, the claimholder must: (1) retain its lien, and (2) receive "deferred cash payments totaling at least the allowed amount of such claim, of a value, as of the effective date of the Plan, of at least the value of such holder's interest in the estate's interest in such property." 11 *362 U.S.C. § 1129(b)(2)(A)(i)(I)-(II); In re One Times Square Associates Ltd. Partnership, 159 B.R. 695, 706 (Bankr.S.D.N.Y.1993) (citations omitted). Since the Plan calls for retention of Connecticut Mutual's lien, the pivotal issue in dispute is whether the Debtor has provided an interest rate so that the present value of the deferred payments would equal the value of Connecticut Mutual's interest. See e.g., Id.
In an ideal setting, the appropriate interest rate would be the current market rate for loans which are similar in term, quality of security, and risk of repayment. Id. Here, the parties both agree that there is no market financing for a 100% loan-to-value, older apartment complex, with adequate cash flows. Thus, this court will use the "formula approach," or look to the prime interest rate or the interest rate on "riskfree" investments of similar duration and add an appropriate "risk-premium." See, e.g., In re Briscoe Enterprises, Ltd. II, 994 F.2d 1160, 1169 (5th Cir.1993) cert. denied, ___ U.S. ___, 114 S.Ct. 550, 126 L.Ed.2d 451 (1993); In re Eastland Partners Ltd. Partnership, 149 B.R. 105 (Bankr.E.D.Mich. 1992).
The Plan calls for Connecticut Mutual's secured claim in Class 4 to be paid over six (6) years at an interest rate of 7.62%. Said interest rate was derived by applying the six (6) year U.S. Treasury Note[30] plus a risk factor of 225 basis points to derive a percentage of 7.62%.
Both parties offered expert testimony as to the appropriate interest rate. The Debtor's expert witness, Conrad D. Stephenson, testified that a risk factor of 225 basis points was appropriate[31] while Connecticut Mutual's expert witness, Dennis Bernard,[32] testified that a risk factor of 450 to 500 basis points would be appropriate. For the following reasons, this Court finds that the appropriate risk premium is 350 basis points.
This Court is not persuaded that 225 basis points is sufficient as a risk factor because the evidence indicates that this premium was more appropriate for underwriting commercial property with a low loan-to-value ratio, a newer building and an adequate debt service coverage. In contrast, the Property in an older apartment building with a 100% loan-to-value ratio and a debt service coverage below the norm. Based upon the evidence, this Court is persuaded that 350 basis points would be the appropriate premium for this property. Thus, the Plan does not comply with the requirements of section 1129(b)(2)(A)(i)(II) of the Bankruptcy Code and cannot be confirmed.
Connecticut Mutual also asserts that the Plan violates the absolute priority rule as embodied in section 1129(b)(2)(B)(ii) of the Bankruptcy Code. For the reasons set forth below, this Court finds that the Plan violates the "absolute priority rule" as codified in 11 U.S.C. § 1129(b)(2)(B)(ii).
Section 1129(b)(2)(B) provides that the Debtor either pay Connecticut Mutual the allowed amount of its claim or that the Plan not violate the absolute priority rule. The Debtor purports to pay Connecticut Mutual, over time, the amount "equal to the allowed amount of such claim." However, based upon the actual performance of the Property, and the averaging of the Property's performance over the course of 1993 and 1994, the amount of administrative expenses in this case, this Court finds it unlikely that the amount is equal to the present value of Connecticut Mutual's claim.
Section 1129(b)(2)(B)(ii) provides that "the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the Plan on account of such junior claim or interest any property." Class 6, which is impaired, consists of the unsecured claims of the trade claims and the deficiency claim of Connecticut Mutual. Connecticut Mutual objects to the Plan because it calls for the retention of the equity interest of both the limited partners and the general partners in Classes 11 and 12, respectivelywhile *363 failing to provide the dissenting creditor the consideration to which it is entitled.
While this Court has already recognized the existence of the "new value" exception to the absolute priority rule in In re One Times Square, 159 B.R. 695, 706 (Bankr.S.D.N.Y.1993); aff'd 165 B.R. 773 (S.D.N.Y.1994), this Court finds that the partners' contribution to the Plan fails to meet the requirements. In order to constitute "new value," the old equity holders must contribute capital that is new, substantial money or money's worth, necessary for a successful reorganization and reasonably equivalent to the value or interest received. In re Bonner Mall, 2 F.3d 899 (9th Cir.1993). Arguably, the Debtor's general partner could be contributing "sweat equity" as new value but it is settled law that sweat equity is not "money's worth". See e.g., Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988); In re Eitemiller, 149 B.R. 626 (Bankr.D. Idaho 1993); In re Custer, 1993 WL 7965, 1993 Bankr. LEXIS 20 (Bankr.E.D.Pa. January 7, 1993). Assuming arguendo that the Rents from the Property could be construed as property of the estate, and that the Debtor's old equity could arguably claim that they were pledging the Rents as contribution, the Rents do not constitute "new value" for two reasons. First, it is settled law that a promise to pay future income is not "new value." See e.g., In re 8315 Fourth Ave. Corp., 172 B.R. 725 (E.D.N.Y.1994); In re Hendrix, 131 B.R. 751 (Bankr.M.D.Fla.1991); In re Boyd (Seattle Mortgage v. Boyd), 15 F.3d 1089, 1993 WL 533471 (9th Cir. Dec. 23, 1993). Second, rental income from the very asset the Debtor is attempting to keep over Connecticut Mutual's objection cannot be "new." In re Boyd (Seattle Mortgage v. Boyd), 15 F.3d 1089, 1993 WL 533471 (9th Cir.1993). Thus, the Plan cannot satisfy all the requirements of the new value exception and cannot be confirmed pursuant to section 1129(b)(2).
IV. CONCLUSION
1. The Rents belong to Connecticut Mutual and does not constitute property of the estate.
2. The Debtor's Plan cannot satisfy all the requirements of Section 1129(b)(1) and thus, cannot be confirmed.
CONNECTICUT MUTUAL IS TO SETTLE AN ORDER CONSISTENT WITH THIS OPINION ON FIVE (5) DAYS NOTICE.
NOTES
[1] Adversary Proceeding No. 92-1246A.
[2] There are 210 two bedroom units and 58 one bedroom units.
[3] These figures are as of the April 8, 1993 hearing. See Transcript at 27. There is also a real estate tax lien in favor of the City of Grand Rapids set approximately at $175,000 which has priority over Connecticut Mutual's lien. Thus, the total liens on the property amounts to approximately $5.8 million.
[4] The motions were resolved by essentially administering this case on the "fast-track".
[5] In addition, in the event that the Debtor did not timely file a plan of reorganization, the automatic stay pursuant to Code Section 362 would be lifted in favor of Connecticut Mutual.
[6] On March 10, 1993, an order was signed authorizing the Debtor to repay tenants their prepetition security deposits as they become due, and those that are past due, in the ordinary course of the Debtor's business.
[7] The facades on the individual buildings have been repainted. All of the boilers have been rebuilt, insulation has been installed in the attics, and all common hallways have been re-carpeted. In addition, the Debtor has put an asphalt topping on the parking areas and a number of roofs have been replaced. 254 of the 268 apartment units have been completely remodeled and are equipped with new kitchen cabinets, refrigerators, stoves, dishwashers and disposals. In addition, ceiling fans were installed in both the bedroom and dining room areas of each unit. Also each unit has been re-carpeted, repainted and rewired with updated electrical outlets and switches.
[8] On or about March 10, 1993, Debtor filed a technical amendment to the First Amended Plan.
[9] If there are any convenience claims amounting to $800 or less, such claims shall be paid in full in one payment.
[10] The interest rate is calculated at 2.25% over the yield on U.S. Treasury Notes maturing in May 1999, as reported in the April 19, 1993, Wall Street Journal.
[11] "Available Cash" is defined in the Plan as the total income in a given quarter less payments made in the ordinary course expense and certain required payments to claimants in Classes 1, 2, 3, 4 and 9.
[12] The Plan contemplates that the "balloon payment" at maturity will be paid from the proceeds of the sale of the Property or the re-finance of the loan.
[13] In addition, the Plan provides for the payment of administrative expenses including attorney's fees. The Debtor estimates that administrative expenses in excess of pre-petition retainers will $75,000.
[14] As noted earlier, Classes 5, 9, 11, and 12 are not impaired under the Plan.
[15] Rule 3018(d) of the Federal Rules of Bankruptcy Procedure provides that:
[a] creditor whose claim has been allowed in part as a secured claim and in part as an unsecured claim shall be entitled to accept or reject a plan in both capacities.
[16] Section 1129(b)(1) of the Code provides in relevant part that:
. . . [i]f all of the applicable requirements of subsection (a) of this section other than paragraph (8) are met with respect to a plan, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.
[17] Section 506(b) states in relevant part:
[t]o the extent that an allowed secured claim is secured by property the value of which . . . is greater than the amount of such claim, there shall be allowed to the holder of such claim interest on such claim, and any reasonable fees, costs or charges provided for under the agreement under which such claim arose.
11 U.S.C. § 506(b).
[18] Section 506(a) of the Bankruptcy Code states in relevant part:
An allowed claim of a creditor secured by a lien on property in which the estate has an interest, . . . is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property, . . . and is an unsecured claim to the extent that the value of such creditor's interest is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest.
11 U.S.C. § 506(a).
[19] During the 53 months between January 1988 and May 1992, the occupancy rate fell just below 90%. However, during the period from 1988 through 1991, the Debtor maintains that the average occupancy rates for the Property remained between 93.6% and 96.7%. When Connecticut Mutual's appraiser inspected the Property on March 29, 1993, the Property had a 94% occupancy rate.
[20] The assessed value was derived pursuant to Mich.Comp. Law section 211.27a(1) (1992).
[21] See Debtor's Exhibit 12.
[22] See, e.g., Frieders v. Commissioner of Internal Revenue, 687 F.2d 224 (7th Cir.1982), cert. denied, 460 U.S. 1011, 103 S.Ct. 1251, 75 L.Ed.2d 480 (1983).
[23] See Transcript at 744-745.
[24] Net income is defined as income prior to debt services, interest or depreciation.
[25] The rents collected shall be applied to the debt. Id. 252 Mich. at 273, 233 N.W. 216.
[26] Mount Pleasant actually involved two cases: Mount Pleasant and Grand Traverse Resort. Because the cases involved the same issue, the court consolidated those two matters. The Mount Pleasant mortgagee had failed to take all the steps necessary to enforce its assignment of rents while the mortgagee in Grand Traverse did take all the requisite steps. Id. at 729-31.
[27] That Connecticut Mutual is required by statute to use the rent to preserve its the Property does not, in this Court's opinion, bear upon the ownership of the rents.
[28] Section 1129(a)(11) states that the court shall confirm a plan only if:
[c]onfirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor of the debtor under the plan, unless such liquidation or reorganization is proposed in the plan.
11 U.S.C. § 1129(a)(11).
[29] Section 1129(b)(1) of the Bankruptcy Code provides:
Notwithstanding section 510(a) of this title, if all the applicable requirements of subsection (a) of this section other than paragraph (8) are met with respect to a plan, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.
11 U.S.C. § 1129(b)(1).
[30] The Treasury Note rate is the yield on U.S. Treasury Notes maturing in May 1999 as reported in the April 19, 1993 Wall Street Journal. See section 4.04 of the Plan.
[31] Transcript at 123-125.
[32] Transcript at 628. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1200944/ | 92 Ga. App. 706 (1955)
89 S.E.2d 840
DUREN
v.
CITY OF THOMASVILLE et al.
35782.
Court of Appeals of Georgia.
Decided September 13, 1955.
Rehearing Denied October 6, 1955.
*707 Titus, Altman & Johnson, for plaintiff in error.
Alexander, Vann & Lilly, Cain & Smith, contra.
NICHOLS, J.
The parties in this case base their argument primarily on two decisions of the court. The defendants contend that the case is directly in point with the decision in City of East Point v. Mason, and Crowe v. Mason, 86 Ga. App. 832 (72 S. E. *708 2d 787), while the plaintiff contends that the decision in Mason v. Crowe, 88 Ga. App. 191 (76 S. E. 2d 432), is controlling. In the first case above cited, this court held that no cause of action was set forth against either the city or the property owner on the theory that the petition showed the gravel or sand was carried onto the sidewalk by natural causes, and not by the negligence of either of the defendants, and further that the petition did not show that the defendants were guilty of any act of omission. In the other decision above cited, the allegations were somewhat different, and the petition alleged that the property owner was negligent in that his trucks carried some of the gravel or rocks onto the sidewalk, and that the property owner and the city were negligent in not taking some action after they had knowledge of the fact that gravel was accumulating on the concrete sidewalk.
The defendants contend that as a matter of law the petition shows that the plaintiff was guilty of such contributory negligence as to be precluded from any recovery, since the petition shows that it was 10:30 a. m. when she fell and was injured, and the petition does not show any reason why she could not have seen the "small, loose rocks" on the sidewalk. The petition shows, in addition to the above, that the rocks on which the plaintiff stepped and then fell were approximately the same color as the sidewalk and not readily perceptible to the plaintiff, and that she was exercising ordinary care at the time she fell. "Questions as to diligence and negligence, including contributory negligence and what constitutes the proximate cause of an injury complained of, are peculiarly questions for the jury, and this court will not solve them on general demurrer unless they appear palpably clear." Mason v. Frankel, 49 Ga. App. 145 (2) (174 S. E. 546). Therefore, the defendants' argument that the trial court's judgment sustaining the general demurrers to the petition should be affirmed on this ground is without merit, since it is not palpably clear that negligence on the part of the plaintiff was the proximate cause of the injury complained of.
The petition alleged that the "rocks" on the sidewalk created a hazardous condition, and, "even a minor defect causing an injury is sufficient to authorize a submission to a jury of the question of whether or not a defendant municipality was negligent in permitting it to remain." Mason v. Crowe, supra, p. 194. Actual *709 knowledge on the part of the city is not necessary. "It is the duty of a municipal corporation to keep its streets and sidewalks in a reasonably safe condition; and if a defect has existed in a sidewalk for such a length of time that by reasonable diligence in the performance of their duties the defect ought to have been known by the proper authorities, notice will be presumed, and proof of actual knowledge will not be necessary in order to render the municipality liable for injuries occasioned thereby." Ellis v. Southern Grocery Stores, 46 Ga. App. 254 (1) (167 S. E. 324), and cases cited. "It is a jury question as to what length of time a defect or dangerous condition must exist in a sidewalk or street to charge a municipality with knowledge of negligence." City of Dalton v. Joyce, 70 Ga. App. 557, 561 (29 S. E. 2d 112), and cases cited. Accordingly, the petition set forth a cause of action against the defendant City of Thomasville.
"An owner of property abutting upon a street or highway is not, by virtue of being such owner, liable for defects in the street or highway. But this rule has no application where the owner of abutting property creates a defect in a street or highway or a nuisance abutting therein. In the latter event he is liable, not because he owns the abutting property, but because he creates or maintains the thing from which injury results." Ellis v. Southern Grocery Stores, 46 Ga. App. 255, supra, headnote 2. In the present case, it is alleged that the defendants trading as the Sing-Wilkes Service Station placed on the property abutting on the sidewalk where the plaintiff was injured small, loose rocks or pebbles, which were carried onto the sidewalk by the automobiles of customers trading with these defendants and by their own trucks. Accordingly, it must be said, construing the petition on general demurrer, that the owners of the property abutting on the sidewalk created the hazard referred to in the petition. Mason v. Crowe, supra. The petition set forth a cause of action against the defendants, and the trial court erred in sustaining the general demurrers thereto.
Judgment reversed. Felton, C. J., and Quillian, J., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917503/ | 178 B.R. 31 (1994)
In re THINKING MACHINES CORPORATION, Debtor.
Bankruptcy No. 94-15405-WCH.
United States Bankruptcy Court, D. Massachusetts.
December 21, 1994.
Charles R. Dougherty, Hill & Barlow, Boston, MA, for Thinking Machines Corp.
Charles R. Bennett, Riemer & Braunstein, Boston, MA, for Mellon Financial Services Corp. # 1.
DECISION ON MOTION FOR POSSESSION AND PAYMENT OF ADMINISTRATIVE RENT CLAIM
WILLIAM C. HILLMAN, Bankruptcy Judge.
This matter is before the Court on the motion of Mellon Financial Services Corporation # 1 ("Mellon") for an order seeking immediate possession of certain premises now or formerly leased and occupied by Thinking Machines Corporation ("Debtor"). Mellon also seeks payment of an administrative rent claim.
At the hearing it was agreed that the only issue remaining for my decision is a determination of the date on which the lease was rejected. The parties have agreed on the financial ramifications of that decision and will do the necessary arithmetic once the operative date is determined.
Agreed Facts
Debtor filed its petition under Chapter 11 on August 17, 1994. At that time it was the tenant of Mellon at certain nonresidential real property located in Cambridge, Massachusetts.
On September 13, 1994, Debtor filed a motion to reject certain leases, including the Mellon lease. An order approving the rejection was entered on October 4, 1994.
Issue Presented
Section 365(a) of the Bankruptcy Code provides that
"[T]he trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor."
11 U.S.C. § 365(a).
Section 365(d)(3) requires a trustee, with certain exceptions not relevant here, to
"timely perform all of the obligations of the debtor . . . arising from and after the order for relief under any unexpired lease *32 of nonresidential real property, until such lease is assumed or rejected. . . . "
11 U.S.C. § 365(d)(3) (emphasis added).
Thus, until a lease is rejected, the trustee is responsible for payment of rents at the rate set in the lease. Because of the great disparity between the lease rental and the current fair market rental values of the property involved here, the date of rejection is financially significant.
Mellon contends that rent under the lease is payable until the order authorizing rejection is entered. The Debtor argues that the date of the filing of the motion to reject should control.
Discussion
There are literally hundreds of cases discussing what event constitutes assumption or rejection of an executory contract under § 365(d).
The words "assume" and "reject", in various forms, appear throughout § 365. I consider cases that determine the meaning of those words in any part of § 365(d) to be relevant to the present inquiry. In re Casual Male Corp., 120 B.R. 256, 260 (Bankr. D.Mass.1990) (presumably the same meaning in subsections (a) and (d)(4)). I also regard the cases dealing with assumption to be useful in dealing with the issue of rejection. Unfortunately, the decisions are in disarray.
The cases addressing the issue of what constitutes assumption or rejection can be collected under three general classifications:
1. Timely and unequivocal statements to the lessor
Most of the cases arise in the context of assumption of leases, since certain executory contracts are deemed rejected 60 days after the order for relief enters if not assumed during that time.[1]
In the only relevant decision in this district, Judge Queenan stated that
"we can be confident . . . that court approval is not the equivalent of the debtor's action to `assume'. . . . The words `subject to' and `approval' [in § 365(a)] connote action which precedes the court order; otherwise words of prior authorization would have been used. The divided case law . . . is in agreement that the debtor's action to assume, and not the court order, need take place within the initial or extended period. The disharmony lies in what form of conduct qualifies as a debtor's action to assume within the initial period."
Casual Male at 259 (footnote omitted).
The Casual Male approach has also been stated as requiring "an express declaration of assumption or a specific, unequivocal action leading to no possible conclusion than that an assumption has taken place." In re Hodgson, 54 B.R. 688, 690 (Bankr.W.D.Wis.1985).[2]
These cases, for the most part, do not say that the unequivocal act is the assumption in and of itself. They stand for the proposition that taking the first step before the 60-day period expires is adequate to toll the running of that temporal limitation, and hence the second step judicial approval need not be taken within the same time.
2. Filing of a timely motion to assume or reject
Under this view, anything less than a motion timely filed is inadequate to constitute assumption or rejection.[3]
*33 Fortunately, it is not necessary for me to take a position as between these groupings. The parties have agreed that the earliest date of rejection was the date of the filing of the motion to reject.
3. Granting of a motion to assume or reject
In a third body of cases, courts have held that there is no assumption or rejection of the lease until an order approving the trustee's action has entered. The cases primarily deal with rejection of leases.[4]
Analysis of the cases
Stating what he found to be the majority view, Judge Schermer held that "the effective date of a debtor's lease rejection is that on which the Court entered its order approving such rejection." In re Worths Stores Corp., 130 B.R. 531, 533 (Bankr.E.D.Mo. 1991). In reaching this result he relied primarily on "the plain language of Section 365(a), which clearly requires a debtor to obtain prior court approval of its lease rejection."
On the other hand, Judge Katz read the same language and reached the opposite conclusion:
"The Court finds neither the plain language of or past practice under Section 365(d), nor the policy underlying payment of an administrative expense support a finding that rejection of an unexpired nonresidential lease should be the date the court approves the same. . . . The operative wording of Section 365 provides that provides that `the trustee, subject to the court's approval, may assume or reject. . . .' Notably, nowhere does the plain language . . . expressly require prior court authorization to assume or reject an executory contract or unexpired lease. . . . "
"Section 365 contemplates two distinct actionsone by the trustee and one by the court. The trustee assumes or rejects, and the court approvesnothing suggests the court authorizes. Although the [Bankruptcy] Code does not specify how the trustee is to assume or reject a lease, it certainly makes clear that the trustee's actions are different from and independent of the court's. . . . If the trustee . . . takes affirmative acts to assume or reject a lease . . . such action is subject to court review to assure any such assumption or rejection is in the best interest of the estate."
In re Joseph C. Spiess Co., 145 B.R. 597, 600-01 (Bankr.N.D.Ill.1992) (footnote omitted).
I disagree with both of these opinions to the extent that I find neither view clearly expressed in the statute.
However, the better reasoned argument is represented by the majority view. It accepts that two acts are necessary, together constituting rejection, with the court order, the last to occur, controlling the effective date.
This is consistent with Casual Male. Judge Queenan held that assumption consists of two elements, the unequivocal act and approval. I hold that rejection consists of the same two elements. In the present case I need not determine whether something less than the filing of the motion to reject will suffice for the first element.
This conclusion is supported by the practical operation of the real estate market. If I were to hold that the lease had been rejected upon the filing of the motion, I would be depriving the lessor of the contractually agreed rent during a period when it is unable to relet the premises. Until the court approves the rejection, a possibility exists that approval might not be granted.
*34 "Section 365 is designed in part to ensure greater factual certainty as to the date of rejection of a lease. The minority interpretation of § 365(a) discourages a lessor from reletting property vacated by a debtor until after the court has approved the debtor's rejection because the lessor might become obligated to rent the premises to two lessees if the debtor's motion is denied. This interpretation places the burden created by the debtor's indecision on the lessor and contravenes clear Congressional intent that the debtor timely perform all of its obligations under a lease until the lease is assumed or rejected."
Tobago Bay Trading at 532. See also Paul Harris Stores at 309.
Conclusion
I hold that the effective date of the rejection of a lease is the date upon which the court enters an order approving the rejection.
NOTES
[1] "Notwithstanding paragraphs (1) and (4) of this subsection, . . . if the trustee does not assume or reject an unexpired lease of nonresidential real property under which the debtor is the lessee within 60 days after the date of the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such lease is deemed rejected. . . ." 11 U.S.C. § 365(d)(4).
[2] See, e.g., By-Rite Distributing, Inc. v. Brierley (In re By-Rite Distributing, Inc.), 55 B.R. 740 (D.Utah 1985); In re Audra-John Corp., 140 B.R. 752 (Bankr.D.Minn.1992); In re Deppe, 110 B.R. 898 (Bankr.D.Minn.1990); Carlisle Homes, Inc. v. Azzari (In re Carlisle Homes, Inc.), 103 B.R. 524 (Bankr.D.N.J.1988); In re BDM Corp., 71 B.R. 142 (Bankr.E.D.Ill.1987); Elliott v. Leounes (In re Brittingham), 39 B.R. 575 (Bankr.D.Del. 1984).
[3] See, e.g., In re Curry Printers, Inc., 135 B.R. 564 (Bankr.N.D.Ind.1991); In re Del Grosso, 115 B.R. 136 (Bankr.N.D.Ill.1990); In re D'Lites of America, Inc., 86 B.R. 299 (Bankr.N.D.Ga.1988); In re Diamond Head Emporium, Inc., 69 B.R. 487 (Bankr.D.Haw.1987); Corporate Property Investors v. Chandel Enterprises, Inc. (In re Chandel Enterprises, Inc.), 64 B.R. 607 (Bankr.C.D.Cal. 1986).
[4] See, e.g., Paul Harris Stores, Inc. v. Mabel L. Salter Realty Trust (In re Paul Harris Stores, Inc.), 148 B.R. 307 (S.D.Ind.1992); Swiss Hot Dog Co. v. Vail Village Inn, Inc. (In re Swiss Hot Dog Co.), 72 B.R. 569 (D.Colo.1987); Montrose Centre v. Northeast Consumer Technology Stores, Inc., 148 B.R. 234 (Bankr.W.D.Pa.1992); In re Child World, Inc., 147 B.R. 847 (Bankr.S.D.N.Y.1992); WB Ltd. v. Tobago Bay Trading Co. (In re Tobago Bay Trading Co.), 142 B.R. 528 (Bankr.N.D.Ga. 1991) and cases cited. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570775/ | 29 So. 3d 1124 (2010)
TOMAS
v.
PLANTS IN DESIGN/HORTICA-FLORISTS MUT. INS. CO.
No. 1D09-2906.
District Court of Appeal of Florida, First District.
March 12, 2010.
Decision Without Published Opinion Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570763/ | 298 S.W.2d 344 (1957)
Mary HALL, Appellant,
v.
George CLARK, Respondent.
No. 45301.
Supreme Court of Missouri, Division No. 2.
January 14, 1957.
Rehearing Denied February 11, 1957.
*345 Thomas F. Manion, J. D. Leritz, J. L. Leritz, St. Louis, for (plaintiff) appellant.
Ernest E. Baker, St. Louis, for respondent.
BOHLING, Commissioner.
This is an intersection collision case between a Plymouth and a Chevrolet automobile. Mary Hall sued George Clark, who filed a counterclaim. The jury found the issues against the plaintiff on plaintiff's claim and in favor of defendant on his counterclaim; and, in accordance with the verdict, judgment was entered for $12,500 against plaintiff. Plaintiff contends error was committed in the giving of instructions, in the admission and exclusion of evidence, and that the verdict is grossly excessive.
Plaintiff predicated a verdict on negligence under the humanitarian doctrine in that defendant failed to sound a warning, or failed to stop, or to reduce speed, or to swerve his automobile.
*346 Defendant's instructions were to the following effect: No. 1 was an abstract instruction informing the jury every driver of an automobile was required to exercise the highest degree of care and a failure to exercise the highest degree of care constituted negligence. No. 3 was a defendant's burden of proof instruction. No. 4 predicated a defendant's verdict upon findings that plaintiff failed to come to a complete stop for the intersection and that such failure to stop constituted negligence, if the jury found defendant was not negligent as submitted in the instructions. No. 6 was a defendant's converse humanitarian instruction. No. 7 was a sole cause instruction. No. 13 was defendant's measure of damages instruction.
Plaintiff attacks defendant's sole cause instruction on several grounds, including the ground that the evidence did not present a sole cause situation. The instruction predicated a verdict for defendant on plaintiff's claim on findings that plaintiff drove her car "to the south of a motor truck at said intersection, and that she emerged from the south side of said motor truck and drove into the path of defendant's automobile, at a time when the defendant's automobile was approaching and was so near to plaintiff, and traveling at such a rate of speed that plaintiff, in the exercise of the highest degree of care, knew or should have known that a collision was likely to result," and a finding that such action on the part of plaintiff was negligence and the sole, direct and proximate cause of the collision. It, in form, is much like instructions approved in Kimbrough v. Chervitz, 353 Mo. 1154, 186 S.W.2d 461, 465[7]; Jants v. St. Louis Pub. Serv. Co., 356 Mo. 985, 204 S.W.2d 698, 701[1-8]; Schlemmer v. McGee, Mo., 185 S.W.2d 806 [1,2].
Defendant says plaintiff failed to make a submissible humanitarian case and cannot complain of error in defendant's sole cause instruction or error in its abstract instruction (No. 1). Blankenship v. St. Joseph Fuel Oil & Mfg. Co., 360 Mo. 1171, 232 S.W.2d 954, 960[11-13]; Knorp v. Thompson, 352 Mo. 44, 175 S.W.2d 889, 899, 900; Kirkpatrick v. Wabash R. Co., 357 Mo. 1246, 212 S.W.2d 764, 769; Elkin v. St. Louis Pub. Serv. Co., 335 Mo. 951, 74 S.W.2d 600, 604. The issues call for a statement of the facts.
The collision occurred at the intersection of Bremen, an east-west street, and North Florissant boulevard (for brevity herein designated Florissant), a north-south street, in the city of St. Louis between 4:00 and 4:15 p. m. August 8, 1949, a clear, dry day. Each street is 36 feet wide. Bremen is level, but there is a slight downgrade for southbound traffic on Florissant at Bremen. There were "stop" signs at both corners on Bremen for traffic approaching Florissant, but none on Florissant for Bremen. The westbound traffic "stop" sign was about 19 or 20 feet east of the curb on Florissant and about 20 feet farther east was a "No Parking" sign. At the northeast corner of the intersection is a small lawn, a sidewalk and then a brick building, its west wall being 10 or 12 feet east of the curb of Florissant.
Defendant was driving a 1947 Chevrolet southwardly on Florissant, with his wife and Mrs. Doris Finch on the seat with him. His car was proceeding about 7 or 8 feet east of the west curb and 2 or 3 feet west of the center line of Florissant, and traveling 25 to 30 m. p. h. The Chevrolet was in good operating condition.
Plaintiff (her only witness to the collision) was driving a 1949 four-door Plymouth westwardly on Bremen, following a course about 8 feet south of the north curb and about 2 feet north of the center line of Bremen. She had been driving for 35 years and was familiar with the intersection. She was traveling about 20 to 25 m. p. h. as she approached Florissant. She came to a complete stop about even with or a little past the stop sign, about 19 feet east of Florissant, and had reached a speed of approximately 12 to 15 m. p. h. when her car was struck. She saw an eastbound *347 Krey Packing Company Ford, driven by Raymond Faupel, approaching Florissant, which stopped west of Bremen for the intersection. When she stopped she looked to the north and to the south. Then, as she "eased up" to the crosswalk, she again looked to the south and to the north, and as there was no traffic from the north or south on Florissant, she proceeded to cross the intersection with her car in low gear. She estimated she could see 150 to 200 feet north and 75 feet south on Florissant. Defendant offered in evidence part of a deposition by plaintiff to the effect that she stopped at the stop sign and that she did not look north or south on Florissant after she started up. Plaintiff looked straight ahead as she crossed the intersection and did not see defendant's car. When the front of plaintiff's car was about at the west crosswalk and the front wheels about at the west curb of Florissant, she heard an application of brakes and "almost simultaneously," the rear of the right rear door and rear fender of her car was struck by the front of defendant's car and plaintiff's car was knocked against the front bumper of the Krey Packing Company Ford parked in the south lane of Bremen at the west edge of the west crosswalk of the intersection. The Plymouth stopped at an angle, headed northwest, with the right rear wheel perhaps in the intersection and most of the car west of the west curb line of Florissant.
For the defendant there was testimony that northbound and southbound traffic was moving on Florissant at the time and place in question; that defendant was traveling 25 to 30 m. p. h.; that plaintiff did not stop but entered and proceeded across the intersection at the speed of 20 to 25 m. p. h., and when plaintiff's car was 2 or 3 feet past the center line of Florissant it was struck on the right rear door by defendant's Chevrolet. Defendant and Mrs. Finch testified that a truck was parked at the north curb of Bremen east of Florissant and west of the stop sign. Defendant testified plaintiff was traveling south of this truck, which was higher than a passenger car, and he first saw plaintiff's car as it was emerging from south of the truck and coming into the crosswalk. "I thought that she was going to run right out in front of me, and I immediately applied by brakes." Defendant was then somewhere like 30 or 40 feet or 50 feet from the north curb of Bremen. He also testified that plaintiff traveled 50 to 65 feet from the point where he first saw her to the point of collision. Defendant's witnesses Lonnie Huitt and Raymond Faupel put the speed of the Plymouth at 15 to 20 m. p. h. and 15 m. p. h., respectively.
Plaintiff testified there were no automobiles at the intersection, parked or moving, other than her car and the Krey Packing Co. Ford. Huitt testified that a truck was parked at the east curb of Florissant, north of Bremen sidewalk, and as he looked between this truck and the building he saw the Plymouth coming through the "stop" sign on Bremen. Defendant did not see this truck. Faupel stated that the only parked car near Florissant and Bremen was at the south curb of Bremen at least 32 feet east of Florissant.
Faupel stated that defendant did not swerve his car but it "shot off" to the left after the impact.
Plaintiff testified she heard no horn. Defendant's witness Faupel testified defendant did not sound his horn. No witness testified to hearing a horn. Defendant testified: "Q. Did you sound a horn? A. I don't remember. Q. Did you sound your horn? A. I don't know."
The collision occurred in the northwest quadrant of the intersection. The front wheels of plaintiff's Plymouth were even with the west curb of Florissant and the north side of the Plymouth was 8 feet south of the north curb of Bremen. The jury could find that she traveled about 56 feet after stopping at the stop sign before her car was struck. She was oblivious of defendant's automobile. Defendant stated he saw plaintiff coming into the east crosswalk, and that plaintiff traveled 50 to 65 *348 feet thereafter. Plaintiff traveled at least 46 feet after defendant saw her car. Her average speed was 6 or 7½ m.p.h. At 6 m.p.h. she moved about 9 feet a second; and at 7½ m.p.h., about 11 feet a second. Four seconds elapsed after she "started up" before the collision occurred. Although defendant's witness Huitt's testimony is somewhat confusing he testified that he was driving south about 30 to 35 feet back of defendant, and when he first saw plaintiff's car "coming through the stop sign" he was ("around that neighborhood, approximately") 150 feet north of the intersection. Plaintiff was not necessarily bound by defendant's estimates of speed and distance offered by her as admissions against defendant's interest. Williams v. Ricklemann, Mo., 292 S.W.2d 276, 280 [2-5], and cases cited.
A witness for plaintiff testified on direct examination that a 1947 Chevrolet traveling 25 m.p.h. could stop in 30 to 34 feet braking distance, to which should be added about 20% for reaction time, or 36 to 42 feet; and traveling 30 m.p.h., could be stopped in 40 to 45 feet braking distance, and 20% added for reaction time, or 48 to 54 feet. On cross-examination the witness estimated the stopping distance, allowing 2/3rds of a second for reaction time, to be 59 feet at a speed of 25 m.p.h. and 75 feet at 30 m.p.h.; and, allowing ¾ths of a second for reaction time, in 62 feet at 25 m.p.h.
Viewing all the evidence in the light most favorable to plaintiff, including the reasonable inferences to be drawn therefrom, De Lay v. Ward, 364 Mo. 431, 262 S.W.2d 628, 633 [3,4]; Wofford v. St. Louis Pub. Serv. Co., Mo., 252 S.W.2d 529, 531 [4], plaintiff made a submissible humanitarian case on defendant's duty to warn or swerve. Williams v. Ricklemann, supra, 292 S.W.2d loc. cit. 281 [8, 9]; Wofford v. St. Louis Pub. Serv. Co., supra, 252 S.W.2d loc. cit. 531 [1-3]; Wright v. Osborn, 356 Mo. 382, 201 S.W.2d 935, 939; Bunch v. Mueller, Mo., 284 S.W.2d 440, 443 [3-7]; De Lay v. Ward, supra, 262 S.W. 2d loc. cit. 634, 635. Plaintiff could see 150 to 200 feet north on Florissant and from defendant's witness Huitt's testimony that, when approximately 150 feet north of Florissant, he first saw plaintiff and defendant was about 35 feet ahead of him, the jury could find that defendant could have stopped or reduced speed and avoided striking plaintiff's car. The Bunch and Wofford cases, supra; Pitcher v. Schoch, 345 Mo. 1184, 139 S.W.2d 463, 467 [8-11]; Spoeneman v. Uhri, 332 Mo. 821, 60 S.W.2d 9, 12.
A defendant is entitled to a converse humanitarian instruction, plaintiff having the burden of proof. A sole cause defense seeks to defeat plaintiff's claim of actionable negligence by, in addition to exonerating defendant of all concurring negligence, establishing the cause as the sole act of another than defendant. So long as a defendant's acts may constitute concurring negligence in a humanitarian submission, a converse humanitarian instruction submits the defense. Notwithstanding a sole cause defense may be shown under a general denial, Long v. Mild, 347 Mo. 1002, 149 S.W.2d 853, 857 [3,11], "there must be facts in evidence which will sustain a sole cause defense before a defendant may properly have a sole cause instruction." Bunch v. Mueller, supra, 284 S.W.2d loc. cit. 444 [8-10] and cases cited; Watts v. Moussette, 337 Mo. 533, 85 S.W.2d 487, 491 [6,7]; Stanich v. Western U. Tel. Co., 348 Mo. 188, 153 S.W.2d 54; Crews v. Kansas City Pub. Serv. Co., 341 Mo. 1090, 111 S.W.2d 54, 59 [7]. "If his, the defendant's evidence, completely exonerates him of fault and is susceptible of an hypothesization demonstrating that the plaintiff's injuries were not due to the defendant's acts or conduct but were wholly and alone due to the negligent acts or conduct of some third person or of the plaintiff himself he is entitled to an instruction submitting those facts to the jury as his theory of the case and the reason he should be exonerated." Semar v. Kelly, 352 Mo. 157, 176 S.W.2d 289, 291.
*349 In Semar v. Kelly, supra, plaintiff predicated a verdict on a finding that defendant was negligent in driving on the wrong side of the street. Defendant adduced evidence that Williams, the driver of the car in which plaintiff was a guest, came over the crest of a hill in the middle of the street at an excessive rate of speed and, without varying his course, collided with defendant's car, and that defendant at all times was on his side of the street and swerved to the right but was unable to avoid the Williams' car. Defendant submitted a sole cause instruction predicating a defendant's verdict upon a finding of negligence in the excessiveness of the speed of the Williams' car. We held the instruction erroneous, stating, 176 S.W.2d loc.cit. 293: "His [defendant's] testimony was that he was never on the wrong side of the street. Furthermore, he said that Williams suddenly appeared over the hill at an excessive speed, in the middle of the street, without ever varying his course. It takes these additional facts and circumstances, in this case, to make it appear that Williams' negligence alone caused the collision." See also Fassi v. Schuler, 349 Mo. 160, 159 S.W.2d 774, 777.
In the instant case the testimony is that defendant did not sound his horn. There is no testimony that he did. "`The humanitarian doctrine calls into action every means at hand to prevent the threatened injury.'" Wofford v. St. Louis Pub. Serv. Co., Mo., 252 S.W.2d 529, 531 [2]; Gray v. Columbia Terminals Co., 331 Mo. 73, 52 S.W.2d 809 [2]. One must act on reasonable appearances at a time when action would be effective to be free of negligence under the humanitarian doctrine. Womack v. Missouri P. R. Co., 337 Mo. 1160, 88 S.W.2d 368, 371, citing cases. After the instant defendant saw plaintiff, plaintiff traveled at least 46 feet and there was testimony by defendant that plaintiff traveled from 50 to 65 feet. Plaintiff was an adult, an experienced driver, and needed only a few feet to escape. We are not willing to hold under the facts favorable to defendant that a timely warning could not have been given for plaintiff to have accelerated her speed or to have stopped and avoid the collision. Bunch v. Mueller, supra; Wofford v. St. Louis Pub. Serv. Co., supra, among others. In the circumstances there was no sufficient showing of facts upon which to base a sole cause submission.
The facts distinguish the instant case from defendant's cases. In Vietmeier v. Voss, Mo., 246 S.W.2d 785, 790, a five year old boy, chasing a ball, ran suddenly into the street and into the side of defendant's car, and we consider that, in view of the short time available and plaintiff's age, it was speculative to say a warning would have been effective. In Kimbrough v. Chervitz, 353 Mo. 1154, 186 S.W.2d 461, 463, and Johnson v. Dawidoff, 352 Mo. 343, 177 S.W.2d 467, 468, pedestrians emerged suddenly from behind some obstruction to the view and ran or walked fast in front of or into the side of defendant's automobile in circumstances under which defendant could not avoid the pedestrian under the humanitarian doctrine.
We need not consider the other attacks against the instruction.
Defendant, pointing out that the verdict of the jury was in favor of defendant and against plaintiff on both plaintiff's cause of action and defendant's counterclaim, argues that the verdict shows the error was harmless, stressing Brewer v. Rowe, 363 Mo. 592, 252 S.W.2d 372, 375 [3], and Banks v. Koogler, Mo., 291 S.W.2d 883, 890. The Brewer case is distinguishable in that it involved a claim and a counterclaim based on primary negligence; and the finding for plaintiff on his claim and against defendant on his counterclaim as submitted under Instruction No. 1 therein (submitting several grounds of negligence in the conjunctive) established that defendant's contributory negligence barred a recovery on his counterclaim. Nor is Banks v. Koogler controlling here. Each case involved a claimed error in an instruction. Neither involved a verdict directing instruction not supported by substantial evidence. *350 A plaintiff's contributory negligence is not a defense to his humanitarian case; and a humanitarian submission is generally postulated on the fact plaintiff was contributorily negligent. Defendant's position would authorize a sole cause submission whether or not the defendant's evidence absolved him of concurrent negligence. We have to indulge in speculation to say defendant's sole cause instruction had no effect upon the jury, and are on safer ground in holding that such verdict directing instructions should be supported by evidence.
Defendant's instruction No. 1 did not direct a verdict. It informed the jury that it is the duty of the "driver of every automobile on the streets" (emphasis supplied) to exercise the highest degree of care in the operation of such automobile, and that the failure to so exercise the highest degree of care "is negligence as that term is used in these instructions."
"It has been repeatedly held that instructions merely stating abstract principles of law should not be given. Such instructions merely tend to confuse and mislead the jury. No one can know how a jury would apply said abstract propositions of law to the case at hand." Schipper v. Brashear Truck Co., Mo., 132 S.W.2d 993, 995 [3,4], 125 A.L.R. 674; Shields v. Keller, 348 Mo. 326, 153 S.W.2d 60, 63; Humphreys v. Chicago, M., St. P. & P. R. Co., Mo.App., 83 S.W.2d 586, 589 [6,7]. Consult Christman v. Reichholdt, Mo.App., 150 S.W.2d 527, 532 [6-8]. Under plaintiff's humanitarian submission the jury was concerned with defendant's duty and not with plaintiff's duty in driving her car, as plaintiff's failure to exercise the highest degree of care would not defeat a plaintiff's verdict. McCall v. Thompson, 348 Mo. 795, 155 S.W.2d 161, 167 [9]; Largo v. Bonadonna, Mo., 269 S.W.2d 879, 884 [4]. We hold this abstract statement of the law should not be given in the event of another trial, and it is not necessary to determine whether it constituted reversible error upon a consideration of the other instructions.
Defendant's instruction on damages was general in nature with respect to the damages to his automobile. As held in Brunk v. Hamilton-Brown Shoe Co., 334 Mo. 517, 66 S.W.2d 903, 910 [23,24], the proper measure of damages to personal property is the difference between the reasonable market value before and after injury, and the proper rule for determining such damages should be given to the jury. A remittitur was required for failure to so instruct in the Brunk case. The instruction should be redrafted.
Plaintiff objected to the admission of certain evidence on behalf of defendant on the ground the question called for a conclusion. Plaintiff, abandoning the ground presented in the trial court, makes the point here that the testimony was hearsay. The point is not open for consideration on review. Teel v. May Department Stores Co., 352 Mo. 127, 176 S.W.2d 440, 446 [12]; Scott v. Missouri P. R. Co., 333 Mo. 374, 62 S.W.2d 834, 839 [14]; City of St. Louis v. St. Louis, I. M. & S. R. Co., 248 Mo. 10, 25, 154 S.W. 55, 60 [7,8]. We need not develop another similar instance calling for a like ruling.
There was evidence indicating defendant received a back injury while in the Army and after the collision, informing the Veterans Hospital he was in an accident while in the Army, defendant had an operation on his back. The following occurred: "Q. Now, in so far as your back condition is concerned, you don't really know what caused your back condition; do you? A. All I know is that, after the accident, it was bothering me more and more. Q. But I say: You personally don't know, or you never did know what caused your back condition?" The court sustained defendant's objection and plaintiff claims reversible error. We dispose of the point with the observation that a wide latitude should be allowed in the cross-examination of a party to an action Hoffman v. Illinois T. R. Co., Mo.App., 274 S.W.2d 591, 594 [5]; but defendant's answer *351 to the previous question appears to have covered the question asked. The trial court is vested with a proper discretion in limiting the cross-examination of a party. Gardner v. St. Louis Union Trust Co., Mo., 85 S.W.2d 86, 90.
The judgment is reversed and the cause is remanded.
BARRETT and STOCKARD, CC., concur.
PER CURIAM.
The foregoing opinion by BOHLING, C., is adopted as the opinion of the court.
EAGER, P. J., STORCKMAN, J., and STONE, Special Judge, concur. LEEDY, J., not sitting. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917506/ | 178 B.R. 787 (1995)
In re Wendell JETER and Betty Jeter, Debtors.
Doran SHUBERT, Appellant,
v.
Wendell JETER, et al., Appellees.
Bankruptcy Nos. 93-60788, 94-3419-CV-S-4. Adv. No. 93-6068.
United States District Court, W.D. Missouri, Southern Division.
February 13, 1995.
*788 *789 Lincoln Knauer, Farrington & Curtis, Springfield, MO, for appellant.
Traci Turner, Carmichael, Gardner & Clark, Springfield, MO, for trustee.
Raymond I. Plaster, Springfield, MO, for Tri-Lakes.
James R. Doran, Springfield, MO, for Jeter.
Cynthia B. McGinnis, Springfield, MO, for Osmond.
ORDER
RUSSELL G. CLARK, Senior District Judge.
Appellant Doran Shubert appeals a decision of the Bankruptcy Court and files a brief in support of his appeal. Thomas J. Carlson, trustee for the estate, has filed a brief in opposition to the appeal. Appellant Shubert filed a reply brief. Appellant Shubert has also filed a motion for stay on appeal and suggestions in support of his motion. For the following reasons, the decision of the bankruptcy court will be affirmed and appellant's motion for stay will be denied as moot.
Jurisdiction of this Court
This case comes before the court on appeal from the Bankruptcy Court in the Western District of Missouri, Southern Division, pursuant to 28 U.S.C. § 158(a). This provision vests jurisdiction of an appeal in the district court sitting where the bankruptcy judge is serving.
Applicable Standard of Appellate Review
District courts are to apply the "clearly erroneous" standard when reviewing the factual findings of the bankruptcy court. In re Hunter, 771 F.2d 1126, 1129 n. 3 (8th Cir.1985); In re Gerald Harris Builder, Inc., 927 F.2d 1067, 1069 (8th Cir.1991). This Court is bound by the findings of fact made by the bankruptcy court unless it determines them to be clearly erroneous. In re Hunter, at 1129 n. 3. This Court reviews the legal conclusions made by the bankruptcy court under the de novo standard. In re Gerald Harris Builder, Inc., at 1069; Wegner v. Grunewaldt, 821 F.2d 1317, 1320 (8th Cir. 1987).
Brief Statement of Facts
The Court adopts the bankruptcy court's statement of facts included in its memorandum and order dated September 14, 1994, and sets forth a very brief summary of the facts. In May of 1984, Doran Shubert loaned $105,000.00 to Wendell and Betty Jeter in the *790 form of an unsecured loan. A promissory note was executed in that amount to be due in one year. In short, payment was never made on the note. The Jeters invested the money in a vacation resort which they eventually sold. The Jeters used the funds from the sale to purchase another hotel and ended up seeking relief under a Chapter 11 bankruptcy petition. The money received from the remaining proceedings was used to purchase a certificate of deposit at the Ozark Mountain Bank.
Shubert filed suit for non-payment of the promissory note in August 1986. While the suit was pending, the Jeters moved to California, taking some of the money from the Ozark Mountain Bank with them. In California they purchased a business which was later sold. They moved back to Missouri in February of 1990 and moved their assets into accounts at the same Ozark Mountain Bank. The accounts were operated in the names of the Jeters and in the name of the Jeter's son, Farrell Jeter. The Jeters were involved in the business of buying and selling realty. They had several named corporations. Accounts for the corporations were kept in Farrell Jeter's name. The Jeters admitted they had their son execute a power of attorney to them which allowed the Jeters to buy and sell realty and operate bank accounts under the name of Farrell Jeter which allowed Wendell and Betty Jeter to frustrate their creditors.
In September 1990, Shubert's lawsuit on the promissory note was tried in Taney County, Missouri. On February 22, 1991, Judge James Eiffert rendered a judgment against the Jeters in the amount of $267,000.00 which represented the amount of the promissory note of $105,000.00 plus interest accrued to that time and attorney's fees. Post-judgment interest accrues at the contract rate of 13%.
In October 1991, Shubert attempted to garnish the accounts of the Jeters. Due to Wendell and Betty's actions of having their checking accounts in their son's name, the garnishment was largely unsuccessful. The garnishment attached only to an account with Wendell and Betty's name on it. Thus, the Jeters were successful in keeping their funds from Shubert. In January of 1992, Shubert again attempted to execute a garnishment. Again, the execution was unsuccessful because only a modest sum of money was in the account titled in the names of Wendell and Betty Jeter.
On August 16, 1993, the Jeters filed a petition in bankruptcy under Chapter 7 of the Bankruptcy Code. The schedules filed by the debtors were inaccurate. The Jeters concealed assets of the estate and failed to report property of the estate. During a 11 U.S.C. Rule 2004 examination conducted in November of 1993, it was determined that the sale of a house built by Tri-Lakes Builders, the corporation owned by the Jeters, was sold to Merrill and Mary Osmond and the deal had closed that morning. The Osmonds deposited the sale proceeds of approximately $72,000.00 into the Tri-Lakes Builders account which had only Farrell Jeter's name on it. Bills on the house remained unpaid and work remained to be done, so the bankruptcy court entered an order freezing the account so that the funds deposited there would not be dissipated pending the resolution of the case.
After the Jeters filed for personal bankruptcy, their trustee, Thomas J. Carlson, moved to consolidate the estate with the assets and liabilities of the Jeter's corporation. Shubert filed an adversary proceeding to revoke the debtor's discharge, to impose a constructive trust on the Osmond sale proceeds, and to prohibit the trustee from consolidating any funds allegedly subject to the constructive trust with the Jeter's estate.
Following a trial on the merits, the bankruptcy court granted judgment in favor of Shubert on his 11 U.S.C. § 727 claim to revoke the discharge previously granted the debtors. The bankruptcy court consolidated the assets and liabilities of the Jeter's personal estate and the accounts of the corporation controlled by the Jeters, Tri-Lakes Builders. The bankruptcy court denied Shubert's request for a constructive trust.
Issues on Appeal
Appellant Shubert asked that the bankruptcy court impose a constructive trust on *791 the funds in the Tri-Lakes Builders account on the premise that he was unable to collect on a judgment through garnishments because of the Jeters concealing assets under their son's name. He contends the garnishments did not attach to assets that should have been in the debtors' names. Appellant argues the bankruptcy court erred in not imposing a constructive trust on the funds that were in the name of Farrell Jeter since the Jeters kept the accounts and the property titled in their son's name in order to avoid the collection by creditors. Appellant argues the bankruptcy court did not apply the correct legal standard to the facts of the case in denying Shubert the constructive trust he seeks. Further, plaintiff argues the bankruptcy court erred in ordering the consolidation of Tri-Lakes Builders assets and debts and the estate of the Jeters. Shubert argues the Tri-Lakes assets were subject to a constructive trust in his favor and, therefore, were not property of the estate and could not come into the estate under any condition. This Court is to determine whether the bankruptcy court applied the correct law and whether the trial court correctly applied the facts to the law.
Applicable Law
Appellant argues the bankruptcy court should have determined that the frozen assets of the Tri-Lakes Builders account constitute a constructive trust for Shubert. There is an abundance of Missouri law defining what constructive trusts are and when courts should establish such a trust. Constructive trusts are not trusts at all but are an equitable device used by courts in order to "remedy a situation where a party has been wrongfully deprived of some right, title, benefit or interest in property as a result of fraud or in violation of confidence or faith reposed in another." Fix v. Fix, 847 S.W.2d 762, 765 (Mo. banc 1993); Schultz v. Schultz, 637 S.W.2d 1, 4 (Mo. banc 1982). The plaintiff who seeks this remedy in equity has lost some equity, interest, or expectancy in the property which, otherwise and but for such fraudulent or wrongful act or conduct, he would have had. Suhre v. Busch, 343 Mo. 679, 123 S.W.2d 8, 15 (1938). Either actual or constructive fraud is sufficient to support the imposition of a constructive trust. Fix v. Fix, at 765; Swon v. Huddleston, 282 S.W.2d 18, 25 (Mo.1955). "The object of the constructive trust is to restore to the rightful owner the property wrongfully withheld by the defendant." Fix v. Fix, at 765; March v. Gerstenschlager, 436 S.W.2d 6, 8 (Mo.1969). By imposing a constructive trust, a court of equity uses a trust to prevent fraud by making the person who has wrongfully acquired property a trustee for the person defrauded or injured by such fraudulent conduct. Schultz v. Schultz, at 4.
"To establish a constructive trust, an extraordinary degree of proof is required. The evidence must be unquestionable in character. The evidence must be so clear, cogent, and convincing as to exclude every reasonable doubt in the mind of the trial court." Fix v. Fix, at 765; Suhre v. Busch, at 19.
Courts are to consider the equitable considerations before using extraordinary remedies such as constructive trusts. It is well-established that before a plaintiff can invoke the equitable powers of a court, he must first plead and prove that he has no adequate legal remedy. Blue Cross Health Services, Inc. v. Sauer, 800 S.W.2d 72, 76 (Mo.Ct.App.1990).
Fraud involved in constructive trust cases typically involve false representations which cause the injured party to transfer property to the so-called "trustee" of the constructive trust. See Suhre v. Busch, at 19; Schultz v. Schultz, at 4. Courts often equate constructive trusts with the existence of a fiduciary or confidential relationship between the "trustee" and the wronged party. Fix v. Fix, at 765.
Application of Law to the Facts
The bankruptcy court found that Shubert is merely another creditor of the Jeters and is not entitled to any special treatment. This Court agrees. Shubert made an unsecured loan to the Jeters. He has no special fiduciary relationship with the Jeters. Shubert legally loaned the money to the Jeters and there was no fraud involved in the transaction. The Jeters putting accounts in their son's name frustrated all creditors of the *792 Jeters, not just Shubert. The Jeters are not going to be unjustly enriched without a constructive trust being imposed because the Jeters do not retain any assets of their estate. However, to this day, the Jeters continue to be indebted to Shubert.
Before a court should invoke an equitable remedy such as a constructive trust, the plaintiff must prove that he has no adequate legal remedy. Shubert is mistaken when he argues that he has no real legal remedy available to him now that the Jeters have gone through bankruptcy. Shubert has an adequate remedy at law through enforcement of the 1991 judgment he obtained in Taney County, Missouri. Due to entry of the judgment revoking the debtors' discharge pursuant to 11 U.S.C. § 727(d), as requested by plaintiff, the judgment debt will survive bankruptcy, and Shubert can continue to pursue collection of the judgment. This is an ongoing and continuing legal remedy available to Shubert. Shubert is able to garnish the wages of the Jeters and to continue executing garnishments of their personal accounts until his judgment is satisfied. Garnishment may not be a speedy legal remedy, but it is an adequate remedy. The bankruptcy court correctly refused to impose the equitable remedy of a constructive trust when there is adequate legal remedy available at law.
The Court finds the bankruptcy court did not err in refusing to impose a constructive trust. Therefore, the remaining constructive trust issues raised by Shubert are rendered moot. Since the Court finds that the bankruptcy court correctly applied Missouri law concerning constructive trusts to the facts of the case, the corporation funds were not part of such a trust and, therefore, it was not improper to consolidate those funds with the Jeters' personal estate. Further, sufficient evidence was presented to the bankruptcy court of commingling of the Jeters and Tri-Lakes Builders finances and affairs to support substantive consolidation of the accounts.
Accordingly, it is hereby
ORDERED the decision of the bankruptcy court is affirmed; it is further
ORDERED appellant's motion for stay is denied as moot. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917512/ | 178 B.R. 478 (1995)
In the Matter of Leslie G. CHURCHILL, Debtor.
Bankruptcy No. BK94-40295.
United States Bankruptcy Court, D. Nebraska.
February 28, 1995.
Bert E. Blackwell, McCook, NE, for debtor.
Philip M. Kelly, Trustee, Scottsbluff, NE.
Tim W. Thompson, North Platte, NE, for Howard H. Gatlin and Keith J. Pennell, creditors.
MEMORANDUM
JOHN C. MINAHAN, Jr., Bankruptcy Judge.
Before the court is an Application for Dismissal by the Debtor (Fil. # 16), the Trustee's Objection to Application for Dismissal (Fil. # 18), the Resistance to Trustee's Objection to Application for Dismissal (Fil. # 19), and the Objection by Howard H. Gatlin and Keith J. Pennell, Creditors, to the Debtor's Application for Dismissal (Fil. # 20). I conclude that the Application for Dismissal by the Debtor (Fil. # 16) should be denied.
FINDINGS OF FACT
On March 31, 1971, the debtor filed a previous voluntary Chapter 11 case. The debtor, Mr. Leslie G. Churchill, was unable to formulate a plan of reorganization, and consented to being adjudicated a bankrupt on October 26, 1971 (Exhibit I). Objections to discharge were filed by Howard Gatlin and Keith Pennell, along with other creditors, in this previous case asserting fraud and concealment of assets on the part of the debtor. A trial was set on the objections to discharge. The debtor failed to appear at the trial, and an order was entered finding that the bankrupt had waived his right to discharge (Exhibit N).
On March 15, 1994, the debtor filed the present Chapter 7 bankruptcy. At the § 341 meeting in this case, the debtor testified that he had never filed bankruptcy before. The debtor testified that the land he currently resides on is owned by his son, Leslie Dean *479 Churchill, and that he was leasing the land from his son. The debtor also testified that he did not own a home, and had not transferred property within twelve months of the bankruptcy filing. Subsequently, the debtor has admitted his previous bankruptcy filing. In addition, it has been alleged that the debtor was involved in an arguably fraudulent transfer of property prior to the present bankruptcy case in which the debtor signed the name of his son as purchaser on the contract for purchase of the land where he resides without authorization and without disclosing this fact to the notary present. This property is not listed on the debtor's bankruptcy schedules, which lists a different address for the debtor. The debtor has also admitted to transferring this property to his girlfriend, Jan Schulte, within twelve months of bankruptcy by signing his son's name to a quitclaim deed without authorization. Furthermore, it has been alleged that prior to the bankruptcy filing, the debtor and his girlfriend, posing as his wife, purchased a manufactured home which is located on the property aforementioned, and in which the debtor currently resides. This ownership interest in the manufactured home was not disclosed on the debtor's bankruptcy schedules. The debtor also failed to disclose a lien interest in the home held by Green Tree Acceptance Corp., and a lien interest in a diesel tractor held by Ford Motor Credit. These various undisclosed facts and allegations have become known through the diligent efforts of the trustee and the objecting creditors.
The debtor has now moved to dismiss this case, alleging that he intends to file a Chapter 13 bankruptcy under the new eligibility standards which increases debt limits. The trustee and two creditors of the debtor have objected to dismissal.
DISCUSSION
Chapter 7 of the Bankruptcy Code serves dual purposes. It provides debtors with an opportunity for a fresh start, free of dischargeable debts. Equally important, it provides creditors with a collective remedy by which non-exempt assets are liquidated in an efficient way for the benefit of creditors. Once a Chapter 7 case is commenced and under administration, the goal of providing a collective remedy to creditors would be frustrated if the Chapter 7 debtor, having enjoyed the benefits of bankruptcy protection under § 362, could dismiss the case as a matter of right. Such frustration of the creditors' collective remedy, particularly when creditors and the trustee have discovered undisclosed assets, would be unfair absent good cause.
In congruence therewith, § 707(a) provides that a Chapter 7 bankruptcy case may only be dismissed "for cause". 11 U.S.C. § 707(a) (1995); In re Franck, 87 Neb.Bank.Op. 57, March 24, 1987. Section 707(a) has been held to apply to dismissal by a debtor. In re Underwood, 24 B.R. 570, 571 (S.D.W.Va.1982). Furthermore, determining whether cause exists to dismiss a case requires a balancing of the interests of the debtor and creditors. In re Schwartz, 58 B.R. 923, 925 (Bankr.S.D.N.Y.1986). I conclude that the debtor has not shown that cause exists to dismiss this case.
The trustee and creditors of the debtor have provided ample evidence why this case should not be dismissedthe debtor has concealed assets and failed to disclose important information. In this case the creditors are entitled to the collective remedy provided by Chapter 7 bankruptcy.
The fact that the debtor may be barred by § 727 from receiving a discharge in this case does not suggest to me that the case should be dismissed. Having filed a voluntary Chapter 7 case and concealed assets the debtor is subject to the consequence of his acts and omissions.
I thus conclude that the debtor should not be permitted to avoid the orderly liquidation of assets and possible non-discharge of debts. Dismissal and refiling by the debtor in Chapter 13 would only serve the debtor's self-interest and the delay would further frustrate creditors in this case, who have been seeking recovery since the first bankruptcy proceeding commenced in 1971.
*480 IT IS THEREFORE ORDERED, that the Application for Dismissal by the Debtor (Fil. # 16) is denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917800/ | 135 N.W.2d 737 (1965)
RELIANCE INDEPENDENT SCHOOL DISTRICT NUMBER 9 OF LYMAN COUNTY, South Dakota, Plaintiff and Respondent,
v.
Marvin BURULL, Joe Straka, Marvin Swanson, Carl Kittelson, Myron Nelson, Robert Hills, David Moore as the Board of Education of Lyman County, State of South Dakota, Defendants and Appellants.
No. 10177.
Supreme Court of South Dakota.
June 10, 1965.
Frank L. Farrar, Atty. Gen., L. A. Weisensee, Asst. Atty. Gen., Pierre, Patrick McKeever, Lyman County State's Atty., Kennebec, for defendants and appellants.
George F. Johnson, Gregory, for plaintiff and respondent.
HANSON, Judge.
On January 2, 1963, Donald E. Hamiel and Josephine Hamiel presented a petition to the Lyman County Board of Education requesting a quarter section of land be transferred from the Reliance Independent School District to the Norway Common School District. Petitioners wanted the change as the grade school in the Norway District is four miles closer to their home than any other school and their children could attend Chamberlain High School rather than the Reliance High School.
The County Board of Education approved and granted the petition. Pursuant to SDC 1960 Supp. 15.2344 the Reliance School District appealed to the circuit court which, after trial, entered judgment vacating the decision of the Lyman County Board of Education. The County Board of Education in turn has appealed here. The only question presented is whether or not the County Board of Education had authority, under the law in effect at the time, to grant the petition.
The territorial change was sought under SDC 1960 Supp. 15.2017 as amended by Chapter 73 of the Session Laws of 1961[1] reading as follows:
"15.2017. Change of district boundaries. The county board shall have the power at its discretion upon proper petition as hereinafter provided to make minor boundary changes of any school district within its county without a vote of any electors providing the boundary change does not create any more or any less school districts than those already in existence and providing such change meets the requirements and limitations for reorganization.
"All applications for a change in school district boundaries must be made to the county board of education in *738 the form of a petition signed by over fifty per cent of the electors residing in the area to be transferred by such boundary change. Any boundary change made under this section of the law shall not leave any school district with less than the minimum requirements of a school district as provided in this chapter.
"Provided further that this section shall not be used by the electorate or the county board until a school district has been reorganized and the master plan of the county or the proposed school district adopted by the electorate as provided by law."
It is conceded by all parties the petition is legally sufficient and meets all the requirements of the above statute for a minor change of school district boundaries except that neither school district involved has been reorganized and neither has a master plan for Lyman County nor a proposed school district ever been adopted by the electorate. Appellants contend those requirements are obviated by Section 7(8) of Chapter 61, Laws of 1959 which states:
"If any county board of education shall fail to comply with the provisions as herein set forth to the extent that no master plan has been adopted for the county on or before January 1, 1962, such county shall be considered to have an adopted county unit master plan of school district organization or reorganization until a different master plan has been adopted according to law;"
By virtue of such law Lyman County must be considered as having an adopted county master plan of school district reorganization at the time the petition for a school district boundary change was presented and acted upon by the County Board of Education. Notwithstanding, the Lyman County Board of Education had no authority to grant the same. Chapter 73, Laws of 1961, specifically provides that a petition for change of boundaries cannot be granted until (1) a school district has been reorganized and (2) a master plan or a proposed school district thereunder has been adopted by the electorate. This accords with the spirit of school reorganization which is to have all territory within the state eventually included in reorganized school districts of sufficient size to provide adequate educational opportunities for all children in the state. As the Norway School District has never been reorganized by the electorate the County Board of Education had no power to grant a petition which would transfer additional territory thereto.
Affirmed.
All the Judges concur.
NOTES
[1] Subsequently amended by Chapter 72, Session Laws of 1963. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917456/ | 178 B.R. 722 (1995)
In re Robert L. BROWN, Debtor.
Bankruptcy No. 93-13786.
United States Bankruptcy Court, E.D. Tennessee.
February 24, 1995.
*723 Thomas E. Ray, Chattanooga, TN, for debtor.
David G. Epstein, Special Counsel, Atlanta, GA, for trustee.
MEMORANDUM
JOHN C. COOK, Bankruptcy Judge.
This case is before the court on the trustee's objections to the exemptions claimed by the debtor and on the debtor's motion to strike the trustee's objections for untimeliness. After considering the briefs of the parties, the evidence presented at a hearing, and the argument of counsel, the court is of the opinion that the debtor's motion to strike objections should be granted.
I.
The facts are undisputed. This case commenced as an involuntary Chapter 7 on October *724 12, 1993. On January 14, 1994, the debtor converted the case to Chapter 11, filing his schedules, including the claim of exemptions now at issue, on January 18, 1994. An Official Unsecured Creditors Committee was appointed on February 4, 1994, and the meeting of creditors required by 11 U.S.C. § 341 was held and concluded on February 8, 1994. On June 2, 1994, the court appointed a Chapter 11 trustee, who filed objections to the debtor's claimed exemptions on June 14, 1994, some eighteen weeks after the conclusion of the original meeting of creditors.
The debtor's Chapter 11 case was converted back to Chapter 7 on October 19, 1994, before the trustee's objections were heard, and another meeting of creditors was held and concluded in the new Chapter 7 on November 15, 1994. Three days later, on November 18, 1994, the Chapter 7 trustee filed an "Amended Objection to Claim of Exemptions," which repeated the objections previously made in the Chapter 11 case and added some others. On December 15, 1994, the debtor filed a motion to strike all the trustee's objections to his exemptions.
The principal issue in this case is whether any of the objections to the debtor's exemptions were timely filed. More particularly the issue is whether the 30-day period allowed by Fed.R.Bankr.P. 4003(b) for filing objections to exemptions expires forever once it has run out in a Chapter 11 case, or whether it is retriggered somehow to run anew when the Chapter 11 case is converted to Chapter 7 and a new meeting of creditors is held.
II.
A.
The problem in this case is how to interpret Fed.R.Bankr.P. 4003(b), which reads in pertinent part:
(b) Objections to Claim of Exemptions. The trustee or any creditor may file objections to the list of property claimed as exempt within 30 days after the conclusion of the meeting of creditors held pursuant to Rule 2003(a) or the filing of any amendment[1] to the list or supplemental schedules unless, within such period, further time is granted by the court.[2]
In a case in which there has been only one meeting of creditors, the rule is clear and simple to apply. However, where more than one meeting of creditors may be held, such as in cases involving conversions between chapters, the question arises whether the 30-day period mentioned in Rule 4003(b) closes once and for all after the first meeting of creditors, or whether a new period for objections begins to run after any meeting of creditors. The question is a crucial one because 11 U.S.C. § 522(l) provides that, as to the debtor's list of exemptions, "[u]nless a party in interest objects, the property claimed as exempt on such list is exempt." (Emphasis added.) No objections to the debtor's list of exemptions were filed in the 30 days following the conclusion of the meeting of creditors in the Chapter 11 phase of this case, and the Chapter 11 trustee's objections filed 18 weeks after the meeting of creditors were obviously untimely under Rule 4003(b). Therefore, unless a new window for objections opened after conversion and after the meeting of creditors in the Chapter 7 case, all the trustee's objections are untimely, even the amended objections filed within three days of the Chapter 7 meeting of creditors.
The analysis of this problem must begin with Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S. Ct. 1644, 118 L. Ed. 2d 280 (1992), in which the Supreme Court held that a trustee in a Chapter 7 case could not successfully object to a debtor's claimed exemption after Rule 4003(b)'s time period had run, even though the debtor had no colorable basis in law for claiming the exemption. The Court viewed the time period as important for purposes of finality and strictly enforced it, declining to follow a line of cases holding that courts had discretion to invalidate exemptions after expiration of the 30-day period if the debtor did not have a good faith or reasonably disputable basis for claiming them. Id. at 643-44, 112 S. Ct. at 1648. Replying *725 to the trustee's argument that the Court's refusal to follow those cases would encourage abusive, bad faith exemptions by debtors, the Court stated, "Congress may enact . . . provisions to address the difficulties that [the trustee] predicts will follow our decision. We have no authority to limit the application of § 522(l) to exemptions claimed in good faith." Id. at 643-46, 112 S. Ct. at 1648-49.
Taylor, a Chapter 7 case throughout, did not involve conversion among the chapters of the Code, and so it cannot directly solve the problem presented by the present case. Taylor does, however, stand for the idea that courts should be wary of modifying the operation of Rule 4003(b) for policy reasons they deem expedient, and in that regard Taylor may be particularly pertinent to this case.
The trustee's main argument is drawn from cases, all decided after Taylor, in which bankruptcy courts have held that a new time period for objections must arise after conversion to Chapter 7 because, prior to conversion, no party in interest in a Chapter 11 (or a Chapter 13) had much interest in reviewing or contesting the debtor's claimed exemptions. For example, the court in In re Havanec, 175 B.R. 920, 924 (Bankr.N.D.Ohio 1994), found that
[c]ertainly the realities of bankruptcy administration militate in favor of finding a new objection period after a case is converted to chapter 7. Otherwise, the chapter 7 trustee will have no opportunity to object to claims. That job will necessarily be left to chapter 11 creditors who are likely to have neither the interest nor expertise to do so. As noted previously, the chapter 11 process is focused on the debtor's development of a plan of reorganization in which exemptions usually play a minor role. On the other hand, the chapter 7 trustee is charged with the responsibility to review exemptions. In light of Taylor v. Freeland & Kronz, supra, which precluded collateral attack after the 30-day bar date on exemptions claimed in bad faith, it is important that the chapter 7 trustee have the right to object to exemptions after the case is converted.
Similar reasoning was employed in In re Bergen, 163 B.R. 377, 379 (Bankr.M.D.Fla. 1994), wherein the court stated:
In Chapter 11, without a trustee to object to the exemptions the debtor claims, objections must be made by creditors. In fact, the exemptions may be of little importance to a creditor in the early stages of a Chapter 11 case, especially if it is receiving an acceptable distribution under the plan.
. . . It is highly probable a creditor would be more aggressive in a Chapter 7 and scrutinize a debtor's exemptions because the exemptions in a Chapter 7 case have a direct short-term impact on distribution. When exemptions are claimed in a Chapter 11 case, a successful objection generally does not create an increased share to the creditor objecting.
Thus, creditor viewpoint and context are paramount, and Chapter 11 creditors cannot be expected to "scrutinize" the debtor's exemptions because "the exemptions are not of immediate importance to creditors, and may only be relevant in the context of best interests of the creditors under 11 U.S.C. § 1129(a)(7)." Id. at 379-80 (emphasis added). Exemptions, in this view, are "academic" in Chapter 11 cases. Id. at 380; accord Carr v. Weissman (In re Weissman), 173 B.R. 235, 236-37 (M.D.Fla.1994) (13/7 conversion); In re de Kleinman, 172 B.R. 764, 769 (Bankr.S.D.N.Y.1994) (11/7 conversion); In re Jenkins, 162 B.R. 579, 580 (Bankr.M.D.Fla.1993) (13/7 conversion); LaRossa v. Leydet (In re Leydet), 150 B.R. 641 (Bankr.E.D.Va.1993) (11/7 conversion).
This reasoning, however, is not without its difficulties. First, it obviously does not apply to cases in which a Chapter 11 trustee has been appointed in time to object to exemptions or obtain an extension of time in which to do so. Not many Chapter 11 trustees are unaware of the possibility that the case could end up in Chapter 7, since so many do.
Second, the possibility that a Chapter 11 case may be converted to a Chapter 7 case is surely known to many creditors, particularly the sophisticated creditors of the Official Unsecured Creditors Committee in this case, the bulk of whom are professional creditors *726 with competent legal counsel.[3] The view-point cases seem to assume that no Chapter 11 creditor could forecast the possibility of a conversion, although it happens frequently and is set out as the debtor's right in 11 U.S.C. § 1112. The idea that creditors should get a second chance to object because it is not normal for them to worry much about exemptions in Chapter 11s is a questionable one: the usual legal rule is that parties in interest in any case must know the law and foresee its consequences or suffer them. In bankruptcy, not even a pro se creditor would be excused from compliance with a rule or statute despite his truthful explanation, "I just didn't think about it."
Another and more serious problem with the viewpoint cases is their tendency to limit § 522(l) in contravention of Taylor. As previously pointed out, the Supreme Court in Taylor held that attempts by lower courts to limit a debtor's exemptions to those claimed in good faith operated to amend 11 U.S.C. § 522(l), which contains no such limitation: once the time for objections has run, the statute provides that the property "is exempt." (Emphasis added.) The trustee, and the cases he relies on, set up an artificial distinction between "academic" exemptions, which are claimed by debtors in Chapter 11s and 13s, and real exemptions (those with a direct impact on distribution), which are claimed in Chapter 7s. Because the Chapter 11 exemptions are not real under this theory, creditors ought not to have to object to them until they become real in the converted case. The problem, of course, is that § 522 makes no such distinction anywhere within its numerous provisions, and § 522(l) purports to apply to all exemptions in every kind of case in which they may be claimed. After Taylor, it seems unwise to attempt the judicial amendment of § 522(l) by limiting the finality of its operation to (a) cases in which a Chapter 7 trustee has had the opportunity to pass on the debtor's exemptions or (b) closed Chapter 11 and 13 cases.
The viewpoint cases see the issue as one of a free choice between two permissible interpretations of Rule 4003(b), the favored one permitting a second window for objections to exemptions after conversion to Chapter 7. They believe that "[n]othing in the language of the Bankruptcy Code or the Federal Rules of Bankruptcy Procedure compels the choice of one result or the other." In re Havanec, 175 B.R. at 923; accord In re Bergen, 163 B.R. at 380 ("There is nothing in the Bankruptcy Code or Rules which forecloses objections to exemptions subsequent to a meeting of creditors in a converted case."). This court respectfully disagrees and believes the Code presents a serious obstacle to the trustee's suggested interpretation of Rule 4003(b), an obstacle that the viewpoint cases fail to overcome.
In In re Halbert, 146 B.R. 185 (Bankr. W.D.Tex.1992), the court was confronted with the issue at bar in almost identical factual circumstances. It held that, once the 30-day period for objections ran in a Chapter 11, the debtor's exemptions were final and could not be reexamined if the case were later converted to Chapter 7. Because by definition exempt property leaves the bankruptcy estate and vests in the debtor, the court reasoned, there would have to be some means of returning the debtor's property to the Chapter 7 estate in order for objections at that point to mean anything. "If the property has already been removed from the estate at some distant point in the past, a current objection in the Chapter 7 would not appear to be a proceeding which would `recover' the property." Id. at 189. How, then, does exempt property get back into the estate? Is it something less than fully exempt to begin with?
There is widespread agreement that the effect of an exemption is to remove property from the bankruptcy estate and to vest it in the debtor. Section 522(b) of the Code directly states that the "debtor may exempt from property of the estate the property listed . . ." on his schedule of exemptions (emphasis added), and § 1123(c) treats exempt property as the debtor's by providing that exempt property may not be used, sold, or *727 leased as part of a plan proposed by someone other than the debtor unless the debtor has consented. When property is removed from the estate by exemption, it revests in the debtor. The Supreme Court has observed that "[a]n exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor." Owen v. Owen, 500 U.S. 305, 308, 111 S. Ct. 1833, 1835, 114 L. Ed. 2d 350 (1991); accord In re Halbert, 146 B.R. at 188 ("Once the property is exempted, it is no longer any part of the property of the estate and it `revests' in the Debtor."); Redfield v. Peat, Marwick, Mitchell & Co. (In re Robertson), 105 B.R. 440, 446 (Bankr.N.D.Ill.1989) ("The effect of the automatic allowance of a claim of exemption due to expiration of the 30-day period is, under well-settled case law, to `revest' the property in the debtor and end its status as `property of the estate.'"); Doyle v. Grossman (In re Grossman), 80 B.R. 311, 314 (Bankr.E.D.Pa. 1987) ("Property exempted from the estate revests in the debtor. . . . A debtor may thereafter use exempt property as (s)he sees fit."); In re Hahn, 60 B.R. 69, 73 (Bankr. D.Minn.1985) ("Once a debtor's claim of exemption to property has been allowed by the running of the period for objection to the claim of exemptions under Bankr.R. 4003(b), the property revests in the debtor and is no longer property of the estate."); Kretzer v. DFW Fed. Credit Union, 48 B.R. 585, 587 (Bankr.D.Nev.1985) ("Unless a party in interest timely objects, property claimed as exempt is exempted from the bankruptcy estate. . . . Property exempted from the estate revests in the debtor."); In re Wiesner, 39 B.R. 963, 965 (Bankr.W.D.Wisc.1984) ("Once property is exempted from the estate it revests in the debtor, and is no longer part of the estate."); Berry v. Dial Consumer Discount Co., 11 B.R. 886, 890 (Bankr. W.D.Pa.1981) ("Therefore, if property is claimed as exempt initially it becomes property of the estate, but revests in the debtor upon failure by any party to object to the exemption within a specified period of time."); In re Cruseturner, 8 B.R. 581, 590 (Bankr.D.Utah 1981) (same); 2 David G. Epstein, Steve H. Nickles & James J. White, Bankruptcy § 8-1, at 453-54 (1992) ("`Unless a party in interest objects, the property claimed as exempt on such list is exempt.' The immediate consequence is that the property leaves the bankruptcy estate and revests in the debtor."). Therefore, unless there is some mechanism for the debtor's property to reenter the bankruptcy estate upon conversion, it would seem that exemptions in the Chapter 11, once considered final and unobjectionable under the rule in Taylor, must be considered final and unobjectionable in the converted case as well.
Because all the viewpoint cases are subsequent to Halbert, and because Halbert directly makes this argument, it is interesting that none of the viewpoint cases attempt to answer it, even if they cite Halbert as a contrary case. They seem to assume that something in the conversion process must adjust things so their preferred outcome can obtain, but they do not state what that something is or how it might operate within the Code.
Indeed, in analogous situations where property leaves the bankruptcy estate and vests in the debtor, courts have had no difficulty in recognizing that conversion does nothing to recapture the property. For example, the property of a Chapter 11 estate that has revested in the debtor due to the confirmation of the plan "does not reenter the chapter 7 estate in the event of conversion." In re Winom Tool & Die, Inc., 173 B.R. 613, 619 (Bankr.E.D.Mich.1994); see also Still v. Rossville Bank (In re Chattanooga Wholesale Antiques, Inc.), 930 F.2d 458, 461 (6th Cir.1991) (holding that Chapter 7 trustee in a converted case could not avoid and recover a postconfirmation transfer of property during the Chapter 11 phase because, under § 1141(b), the Chapter 11 property had revested in the debtor on confirmation of the plan, and § 549(a), under which recovery was sought, applied only to the recovery of property of the estate). Thus, courts recognize the principle that the revesting of estate property in the debtor means that the property cannot pass over into a Chapter 7 estate on conversion unless the plan so provides. There is no apparent difference between the revesting of property upon confirmation and the revesting of property on account of a successful exemption: *728 revested property belongs to the debtor. How and why one revesting should be less final than the other is, therefore, unclear.
If the trustee were correct in his insistence that conversion reopens the otherwise closed question of exemptions, some evidence of this effect should be found in the Code or Rules. As has already been pointed out, the Code does not supply the mechanism necessary to return exempted property to the Chapter 7 estate for further administration. Without it, a Chapter 7 trustee's objections to exemptions that have not been timely objected to in the Chapter 11 are invalid. As for the Rules, Fed.R.Bankr.P. 1019(2) deals specifically with the subject of conversion, rerunning the times allowed for filing a claim, objecting to discharge, and objecting to the dischargeability of a particular debt. If a new time period for objections to exemptions began to run upon conversion of a case, one would expect to see it mentioned in Rule 1019(2). It is not there.
For all of these reasons, the court declines to follow the viewpoint cases and will hold with In re Halbert instead.[4]
B.
The trustee next points to what he contends are deficiencies in the way the exemptions on the debtor's Schedule C were listed, such as erroneous specification of the law under which some exemptions were claimed, the failure to specify any law under which one exemption was claimed, and the statement that the exempt value of some property was "unknown." He makes two different arguments from his observations.
First, he argues that the court should disallow the exemptions claimed by the debtor because they were not claimed in good faith. He contends that 11 U.S.C. § 105(a) provides the grounds for such action, correctly pointing out that the Supreme Court did not reach the § 105 issue in Taylor because it had not been raised in the courts below. Taylor, 503 U.S. at 645-46, 112 S. Ct. at 1649. Section 105(a) provides:
(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
In Coie v. Sadkin (In re Sadkin), 36 F.3d 473 (1994) (per curiam), the Fifth Circuit rejected this argument, agreeing with its lower courts that in the absence of fraud there was no "abuse of process" that could be corrected under § 105(a). In Sadkin, a Chapter 7 case, a creditor filed a late objection to the debtor's claim of exemption, charging that the debtor had no legal basis for the exemption. The bankruptcy court, however, found no fraud on the part of the debtor and denied relief under the "abuse of process" clause of § 105(a). Both the district court and circuit court of appeals affirmed.
In the present case, the trustee presented no proof on the question of fraud or abuse of process by the debtor. As a result, there is no evidence of an intention to deceive or take unfair advantage. There is some evidence of sloppiness in completing the debtor's Schedule C, but that is all. *729 There is not even a showing that creditors were misled. This kind of sloppiness does not rise to the level of fraud or abuse of process remediable by § 105. Of course, it may have been objectionable, but, then, no one objected.
Under § 105(a), the court may also fashion such orders as are "necessary or appropriate to carry out the provisions . . ." of the Bankruptcy Code. The statute, however, "does not authorize the bankruptcy courts to create substantive rights that are otherwise unavailable under applicable law, or constitute a roving commission to do equity." United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir.1986). In this case, an order allowing late objections to exemptions would obviously not carry out the provisions of the Code as the court understands them. See discussion in Part IIA hereof.
The second argument fashioned by the trustee as a result of alleged deficiencies in the debtor's Schedule C is to the effect that those deficiencies are so egregious that the Schedule C is a nullity and could not operate to exempt the property. The result would be that the property, although scheduled for exemption, would remain in the Chapter 11 estate and there survive conversion by passing over into the Chapter 7 estate.
This argument, intended to solve the Halbert problem, carries precision too far, for it is generally held that something less than perfection, something that gives adequate notice of the property proposed for exemption, is enough.
Schedule C of Official Form 6, as amended by the 1991 Amendments to the Bankruptcy Rules and Official Forms, requires the debtor to estimate the value of the articles claimed and indicate the law under which the exemption is asserted. The failure of the debtor to observe precisely the requirements of Schedule C in making his or her claim is not fatal, and a lack of specific enumeration of itemization of the articles claimed will not defeat the claim.
3 Collier On Bankruptcy ¶ 522.26, at 522-89 (Lawrence P. King, et al. eds., 1994). Even the Advisory Committee note (1983) to Fed. R.Bankr.P. 9009, which is the rule requiring the use of the Official Forms in bankruptcy, states that "[t]he use of the Official Forms has generally been held subject to a `rule of substantial compliance'. . . ."
The cases bear this out. In Taylor, the Supreme Court allowed the exemption for the debtor's unliquidated chose in action even though its value was listed as "unknown" and even though the parties stipulated that the exemption had no colorable basis in law, i.e., that the statutory or constitutional basis listed, if any, was completely wrong. In In re Hickman, 157 B.R. 336 (Bankr.N.D.Ohio 1993), the court, following Taylor, held that a debtor's failure to state the statutory basis for a claimed exemption did not render the exemption invalid or excuse the trustee from objecting to it in a timely fashion.
Although a prudent debtor would have provided a statutory basis for the exemption, not doing so does not render it an invalid or "bad faith" exemption. The trustee could have, per § 522(l), requested additional time from the Court to inquire further into the Debtor's claim. Extra time surely would have been granted.
Id. at 339.
Nor is it fatal to assign the wrong value to a claim of exemption. In Allen v. Green (In re Green), 31 F.3d 1098 (11th Cir.1994), the debtor listed the value of a pending tort lawsuit as $1.00 on both her schedule of personal property and her list of exemptions. The trustee understood that the value assigned was a nominal value and was not misled as to the probable real value of the exemption. Under these circumstances, the Eleventh Circuit, relying on Taylor, held that the trustee's failure to object to the claim of exemption resulted in the exemption of the full value of the lawsuit, not just the $1.00 assigned as its value. Id. at 1101.
The foregoing cases demonstrate that, in the absence of fraud, deficiencies in the debtor's exemption schedule do not invalidate the exemptions. There is no evidence of fraud in the debtor's exemption schedules in this case, and the deficiencies therein are only such as would put creditors on notice to inquire further. *730 Accordingly, the court finds that the exemptions in this case were fully operational and not to be treated as nullities.
III.
In Taylor, the Supreme Court mentioned finality as an important consideration in its decision to sweep aside the judicial amendments it found engrafted on the operation § 522(l). Arguably, finality is an even more important consideration in conversion cases because they may last much longer than straight liquidations. If the trustee is right that conversion retroactively destroys the finality of § 522(l)'s operation, then years and years may go by in a Chapter 11 case during which the debtor must remain uncertain about what is his and what is not.
The trustee, however, is unable to explain how conversion destroys the finality with which, according to the Supreme Court, § 522(l) operates. To do so, he would have to explain how the Code reloads exempted property into the bankruptcy estate upon conversion of a case; but there simply is no mechanism for that, and without it the trustee's suggested interpretation of Rule 4003(b) must be rejected.
Finally, there is no convincing precedent to support the argument that the deficiencies found in the debtor's Schedule C render his exemptions fraudulent and invalid. This kind of deficiency may well be grounds for objection, but no objections were made.
For the foregoing reasons, the court concludes that the trustee's objections and amended objections to the debtor's exemptions are irremediably untimely. Therefore, the debtor's motion to strike the objections is well taken and should be granted. An appropriate order will enter.
NOTES
[1] The debtor has never amended his list of exemptions.
[2] No extension of time was asked for or granted.
[3] The Committee was comprised of five major banks and a limited partnership. In five of the six cases, the notice of appointment to the Committee was sent directly to the creditor's attorney, each of whom was experienced commercial or bankruptcy counsel. See debtor's Exhibit 6.
[4] Some of the viewpoint cases observe that, unless their rationale is followed, postpetition creditors in a Chapter 11 could be slighted procedurally when their administrative expense claims became mere unsecured claims on conversion to Chapter 7. If those creditors had not had a chance to object to the debtor's exemptions in the Chapter 11, they would never get one in the Chapter 7. In re de Kleinman, 172 B.R. at 769; In re Bergen, 163 B.R. at 380. While it might be argued that postpetition creditors should have a chance to object to everything that had already happened in the case, the fact is that this is unworkable. For example, property may exit a Chapter 11 estate not only by exemption, but by abandonment, sale, or foreclosure after stay relief. In none of those other instances would a postpetition creditor be heard to complain, after conversion, that it had not had the opportunity to object during the Chapter 11. Postpetition creditors cannot unravel the fabric of time in attempts to recover property that has legally vested in the debtor or someone else long before the postpetition creditor became a creditor. There is simply no mechanism for this in the Code, and so post-petition creditors do business with a Chapter 11 debtor at a certain peril. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917459/ | 178 B.R. 57 (1995)
In re EDP MEDICAL COMPUTER SYSTEMS, INC., Debtor.
EDP MEDICAL COMPUTER SYSTEMS, INC., Plaintiff,
v.
UNITED STATES of AMERICA, Defendant.
Bankruptcy No. 5-92-002230. Adv. No. 5-94-00109A. No. 4:CV-94-1804.
United States District Court, M.D. Pennsylvania.
February 23, 1995.
*58 Ronald P. Langella, Bradford, PA, for EDP Medical Computer Systems, Inc.
John A. Morano, Asst. U.S. Atty., Scranton, PA, for U.S.
MEMORANDUM
McCLURE, District Judge.
BACKGROUND:
This case arises from a bankruptcy proceeding initiated by plaintiff EDP Medical Computer Systems, Inc., when it filed a petition in bankruptcy under Chapter 11 of the Bankruptcy Code. An adversary proceeding was initiated by EDP when it filed a complaint seeking to enjoin permanently the United States from pursuing a civil action in the United States District Court for the Eastern District of New York. The United States filed a motion for change of venue, which the bankruptcy court denied. By Order of Court dated February 10, 1995, this court granted the United States' motion for an interlocutory appeal of the bankruptcy court's order.
The issue before the court is whether the bankruptcy court erred as a matter of law when it held that venue lies in this district.
DISCUSSION:
I. STATEMENT OF FACTS AND PROCEDURAL HISTORY
The following are the facts as recited in the motion for leave to appeal, the briefs of the parties, and the supporting documentation.
EDP Medical Computer Systems, Inc., is a New York corporation with its principal offices in Jamaica, New York. Its president is Bernard Gelb, a resident of Rego Park, New York. Gelb was convicted of criminal violations *59 and sentenced to a period of incarceration, as well as fines and restitution in excess of $5 million.
In 1990, the United States initiated a civil action against Gelb and EDP, alleging that Gelb had made fraudulent conveyances to EDP and others in order to avoid the fines and restitution. The civil case is United States v. Gelb, et al., No. CV-90-1543 (E.D.N.Y.).
In 1992, Gelb filed a petition for bankruptcy in the Western District of Pennsylvania, the district in which he then was incarcerated. In re: Gelb, 92-00321E (Bankr. W.D.Pa.). The Bankruptcy Court for the Western District of Pennsylvania held that venue was improper, since incarceration in the Western District did not establish residence or domicile there. The case was transferred to the Eastern District of New York for consolidation with the civil action initiated by the United States. In re: Gelb, No. 92-00321E (Bankr.W.D.Pa. filed November 3, 1992). The Bankruptcy Court was affirmed by the District Court. In re: Gelb, Civil Action No. 93-44 (W.D.Pa. filed May 5, 1993). An appeal to the Third Circuit was dismissed. Gelb v. United States, No. 93-3285 (3d Cir. issued August 30, 1993).
On December 2, 1992, EDP filed its petition under Chapter 11 of the Bankruptcy Code. In re: EDP Medical Computer Systems, Inc., Bankr.No. X-XX-XXXXXX (Bankr. M.D.Pa.). Venue in the Middle District of Pennsylvania was asserted based on Gelb's incarceration at the Federal Correctional Institution at Allenwood, White Deer, Union County, Pennsylvania. On June 6, 1994, EDP commenced an adversary action seeking to enjoin the United States from pursuing its civil action in the Eastern District of New York. In re: EDP Medical Computer Systems, Inc., Adv. No. 5-94-00109A (Bankr. M.D.Pa.).
As reasons for finding that venue is improper in the Middle District of Pennsylvania, and proper in the Eastern District of New York, the United States adds the following facts:
(1) EDP is a New York Corporation with its principal offices in New York.
(2) EDP did business solely within the Eastern District of New York.
(3) EDP has no place of business within the Middle District of Pennsylvania.
(4) None of EDP's assets is located within the Middle District of Pennsylvania.
(5) EDP's schedule of liabilities, filed as part of the bankruptcy action in the Middle District of Pennsylvania, indicates that all of EDP's creditors are located in the Eastern District of New York.
(6) EDP owns no realty, and all of its personalty, which consists of office equipment, is located in the Eastern District of New York.
(7) Gelb resided in the Eastern District of New York before and after his incarceration.
In response, EDP asserts the following:
(1) Gelb is the only person familiar with the financial affairs of EDP.
(2) Gelb has historically made all of the financial decisions for EDP, and continues to make such decisions.
(3) During the period of Gelb's incarceration at FCI-Allenwood, the financial decisions were made there.
(4) Gelb stated in an affidavit in 1992 that he considered the Middle District of Pennsylvania to be his home, and planned to remain there following his release from incarceration.
II. INTERLOCUTORY APPEAL
In the Order of Court dated February 10, 1995, due to the pendency of proceedings in the Bankruptcy Court, the court was necessarily concise in explaining the decision to allow an interlocutory appeal by the United States. We explained:
A district court has jurisdiction over interlocutory appeals taken from orders of a bankruptcy court. 28 U.S.C. § 158(a). Generally, leave to take an interlocutory appeal is granted for the same reasons that an interlocutory appeal to the court of appeals may be taken from an order of a district court. See, e.g. In re Neshaminy Office Building Associates, 81 B.R. 301, 302-03 (Bankr.E.D.Pa.1987) (citations omitted). However, no certification by the *60 bankruptcy court is necessary. In re Bertoli, 812 F.2d 136, 139 (3d Cir.1987).
Interlocutory appeals from a district court to the court of appeals are governed by 28 U.S.C. § 1292(b), and are allowed only when: (1) a controlling question of law is involved; (2) the question is one where there is a substantial ground for difference of opinion; and (3) an immediate appeal would materially advance the ultimate termination of the litigation. In re Neshaminy Office Building Associates, 81 B.R. at 303 (citing § 1292(b)).
In this case, there is a controlling question of law. The question before the court is whether venue properly lies with a court in this district. Of course, certain sub-issues are involved, but each is a legal question. EDP argues that venue is a factual question. The simple answer to that argument is that venue is established by proving certain facts; the issue of whether established facts support venue is a legal question.
There also is a substantial ground for difference of opinion. The United States points to precedent established by the Third Circuit to support its arguments. Moreover, the United States District Court for the Western District of Pennsylvania and the Bankruptcy Court in the Western District held that venue in a related case lay in the Eastern District of New York.
Finally, an immediate appeal would materially advance the ultimate termination of the litigation. Consolidating the proceedings in one court would facilitate matters considerably, should the United States prevail. Should EDP prevail in this litigation, the proceedings both here and in the Eastern District of New York would be resolved.
The court in In re Delaware and Hudson Railway Co., 96 B.R. 469 (D.Del.1989), applied the same standard. It added the necessity of "exceptional circumstances" for allowing appeal of an order denying a motion for change of venue. That court first noted that there is no appeal as of right because a transfer of venue order is not a final order and because such an order does not fall within the "collateral order doctrine." 96 B.R. at 471-72. The court then applied the standard of § 1292(b) and found that review was inappropriate. 96 B.R. at 472-74.
There are two major differences between this case and Delaware and Hudson which make review appropriate in this case. First, the Bankruptcy Court's decision in Delaware and Hudson "was the result of the careful weighing of conflicting interests and equities based upon the particular circumstances of the case . . ." 96 B.R. at 473. In other words, the decision of the Bankruptcy Court was discretionary, based upon the facts presented. In this case, the United States is not appealing an exercise of discretion by the Bankruptcy Court. It argues that venue does not lie at all in the Middle District of Pennsylvania. That is, it is not a matter of weighing conflicting interests and equities; since no facts and circumstances support venue in the Middle District of Pennsylvania (according to the United States), there should be no "weighing," i.e. no exercise of discretion.
Second, unlike the situation in Delaware and Hudson, there are exceptional circumstances supporting review in this case. The Bankruptcy Court for the Western District of Pennsylvania already has transferred a related case to the Eastern District of New York, and was affirmed by the District Court for the Western District of Pennsylvania. The original criminal proceedings took place in the Eastern District of New York, and the civil proceedings are taking place there. The sole basis asserted for venue is the incarceration of the chief decision-maker of the debtor in this district. The debtor, through its adversary action, seeks to enjoin civil proceedings in another district. All of these factors support a finding that exceptional circumstances exist, warranting review of the order denying the motion for a change of venue.
To all of this it should be added that this court is not making any factual determinations. The facts recited above are those presented by the parties, and mainly constitute facts reflected by the dockets of the various actions, as well as basic facts concerning the debtor. Simply stated, the facts are not in dispute; it is the legal significance of the facts which is before the court.
*61 III. VENUE GENERALLY
Venue for cases under the Bankruptcy Code is governed by 28 U.S.C. § 1408, which states:
Except as provided in section 1410 of this title, a case under title 11 may be commenced in the district court for the district
(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district; or
(2) in which there is pending a case under title 11 concerning such person's affiliate, general partner, or partnership.
28 U.S.C. § 1408 (28 U.S.C. § 1410, which relates to cases ancillary to foreign proceedings, is inapplicable).
With regard to proceedings arising under the Bankruptcy Code, or arising in or related to cases under the Bankruptcy Code, the applicable statute provides:
(a) Except as otherwise provided in subsections (b) and (d), a proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending.
(b) Except as provided in subsection (d) of this section, a trustee in a case under title 11 may commence a proceeding arising in or related to such case to recover a money judgment of or property worth less than $1,000 or a consumer debt of less than $5,000 only in the district court for the district in which the defendant resides.
(c) Except as provided in subsection (b) of this section, a trustee in a case under title 11 may commence a proceeding arising in or related to such case as statutory successor to the debtor or creditors under section 541 or 544(b) of title 11 in the district court for the district where the State or Federal court sits in which, under applicable nonbankruptcy venue provisions, the debtor or creditors, as the case may be, may have commenced an action on which such proceeding is based if the case under title 11 had not been commenced.
(d) A trustee may commence a proceeding arising under title 11 or arising in or related to a case under title 11 based on a claim arising after the commencement of such case from the operation of the business of the debtor only in the district court for the district where a State or Federal court sits in which, under applicable nonbankruptcy venue provisions, an action on such claim may have been brought. . . .
28 U.S.C. § 1409.
The general venue statute states in relevant part:
A civil action wherein jurisdiction is not founded solely on diversity of citizenship may, except as otherwise provided by law, be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant may be found, if there is no district in which the action may otherwise be brought.
28 U.S.C. § 1391(b).
Finally, the Bankruptcy Rule governing transfer for venue reasons states in part:
If a petition is filed in an improper district, on timely motion of a party in interest and after hearing on notice to the petitioners, the United States trustee, and other entities as directed by the court, the case may be dismissed or transferred to any other district if the court determines that transfer is in the interest of justice or for the convenience of the parties.
Bankr.R. 1014(a)(2).
IV. DOMICILE OR RESIDENCE
Having reviewed the various statutes, etc., set forth above, it appears that the first step *62 in determining whether venue lies in the Middle District of Pennsylvania is to determine the domicile or residence of EDP. Both parties base their arguments as to the domicile or residence of EDP upon the supposition that a corporation is domiciled or has its residence in the state in which it has its principal place of business, although there may be some question about this rule. Compare McMahan & Co. v. Donaldson, Lufkin & Jenrette Securities Corp., 727 F. Supp. 833, 834 (S.D.N.Y.1989) ("A corporation's principal place of business, rather than its state of incorporation, determines its residence."; citation omitted), with Pennsylvania Insurance Guaranty Ass'n v. Charter Abstract Corp., 790 F. Supp. 82, 85 (E.D.Pa.1992) ("It is the settled rule that, insofar as a corporation can be considered a resident of a state, it is a resident of the state in which it is incorporated, and no other."; citations omitted). In either instance, EDP is not and never has been a resident of Pennsylvania.
As noted, EDP is a New York corporation. If the rule is that the state of incorporation is the state of domicile or residence, EDP is a resident of New York.
If the rule is that the principal place of business is the state of domicile or residence, EDP is a resident of New York.
With regard to the latter question, EDP places great emphasis on the fact that corporate decisions were made by Gelb during his incarceration in FCI-Allenwood. The Third Circuit long ago rejected the "nerve center" test for the principal place of business of a corporation. Kelly v. United States Steel Corp., 284 F.2d 850 (3d Cir.1960). To determine the principal place of business, courts of this circuit apply the "operational test," which looks "to the state where the corporation has its headquarters of `day-to-day corporate activity and management.'" Crum v. Veterans of Foreign Wars, 502 F. Supp. 1377 (D.Del.1980) (quoting Kelly, 284 F.2d at 854). In undertaking this analysis, a court considers factors such as the location of personnel, equipment and real estate of the corporation, and the location of executive and high-level management's daily decisions. Id. (citations omitted).
Normally, the place where high-level decisions are made certainly would be an important factor. See, e.g., Wheelabrator Frackville Energy Co., Inc. v. Morea Culm Services, Inc., 741 F. Supp. 536, 539-40 (E.D.Pa.1990) (for purposes of diversity jurisdiction, New Hampshire was principal place of business of corporation because nearly all high-level management decisions made there). However, it also has long been the law of this circuit that the place of incarceration of an individual is not that person's domicile or residence. United States v. Stabler, 169 F.2d 995, 998 (3d Cir.1948). In so ruling, the Third Circuit reasoned that "some picking out of a place to live in by the individual concerned is involved." Id.
We think that the same reasoning applies when the question is the residency of a corporation. Gelb may have been living in FCI-Allenwood in 1992, but he had not chosen to live there. The fact that he made decisions for EDP at that time, then, is of no more consequence in determining EDP's domicile or residence than it was in determining Gelb's own domicile or residence. Gelb's residence and domicile at the time his period of incarceration began was the Eastern District of New York, and it remained so throughout the period of his incarceration.
EDP cites a "modern trend" of cases holding that the place of incarceration is the place of residence. The modern trend recited does not include a case overruling Stabler.
EDP also cites a line of cases allowing an inmate to establish domicile or residence in the place of incarceration by rebutting a presumption that the inmate will return to his or her former residence upon release. In support, EDP points to an affidavit of Gelb signed in 1992 indicating that he considered Pennsylvania to be his home. Actually, the affidavit refers to the period of Gelb's incarceration in the Western District of Pennsylvania. Moreover, the copy provided is unsigned and unverified.
More importantly, there is no support for Gelb's affidavit. The affidavit does not say that Gelb has arranged to purchase or rent a home in Pennsylvania, that he has made permanent social contacts beyond the *63 confines of the prison, or that he has arranged for employment or business upon release. In short, he did none of the things that a person who plans to reside in a particular place would do. A bald allegation that an inmate considers his place of incarceration to be his home is of little practical value, and we reject it as evidence that he intended to live in Pennsylvania after his period of incarceration, even assuming that proving residence in this manner is proper. The fact that Gelb returned to New York immediately upon release is an example of the value of such an affidavit.
In short, EDP is not and never has been a resident of Pennsylvania.
V. VENUE STATUTES
Having made the latter determination, the next question becomes whether venue properly lies in the Middle District of Pennsylvania under any of the statutes quoted above.
Venue does not lie under § 1408, since EDP is not a resident nor is its principal place of business located in Pennsylvania, and all of its assets are located in New York. Since venue was not otherwise proper, venue is improper under § 1409.
Venue is improper under § 1391(a), since jurisdiction is based upon the relation of this case to the bankruptcy proceedings, not diversity of citizenship. The United States does not "reside" in any one district, so that § 1391(b)(1) does not apply. The property at issue is located in the Eastern District of New York, and the events giving rise to the claim took place in the Eastern District of New York, so that § 1391(b)(2) dos not apply. Since the action could have been brought in the Eastern District of New York, § 1391(b)(3) does not apply. Further, § 1391(e) applies to suits against officers and employees of the United States, not the United States itself. Venue in the Middle District of Pennsylvania was and is improper.
VI. TRANSFER
Having determined that venue in this district is improper, the next question to be resolved is the appropriate action to be taken. The language of Bankruptcy Rule 1014(a)(2), quoted above, gives the court discretion either to dismiss the case or to transfer the action to a proper district, on timely motion by a party in interest, if the court finds that transfer would be in the interest of justice or for the convenience of the parties. Some courts have held that Rule 1014(a)(2) conflicts with 28 U.S.C. § 1412, which gives a court discretion to transfer a case under the Bankruptcy Code "in the interest of justice or for the convenience of the parties." Sec. 1412.
The court in In re Washington, Perito & Dubuc, 154 B.R. 853 (Bankr.S.D.N.Y.1993), discussed this issue at some length. It determined that Congress intended Rule 1014(a)(2) to read as it does when it allowed the Rule to become law. Moreover, the Advisory Committee, in its comments to the 1987 amendments to Rule 1014(a)(2) indicated that § 1412 applies when the action is properly venued, but that 28 U.S.C. § 1406(a) governs an improperly venued action. The latter section is consistent with Rule 1014(a)(2) in requiring that the court dismiss the action or, if it is in the interest of justice, transfer the action to the district in which it should have been brought. In re Washington, Perito & Dubuc, 154 B.R. at 857-58.
We agree with the reasoning of the Washington court, and also hold that a bankruptcy court faced with an improperly venued action must either dismiss the action or transfer it, if transfer is in the interest of justice or for the convenience of the parties, pursuant to Rule 1014(a)(2) and § 1406(a).
EDP contends that the motion by the United States is untimely. We disagree: The United States filed its motion on the date set for a response to the complaint. EDP also refers to the fact that the United States had received notice of the petition at an earlier time. However, the United States was not a "party in interest" until the complaint was filed. Moreover, the United States, through the NLRB, had earlier moved for a change of venue, which was denied. The United States moved for a *64 change of venue at the two most appropriate times.
The question, then, is whether the bankruptcy court abused its discretion in refusing to transfer the case "in the interest of justice or for the convenience of the parties." The bankruptcy judge held:
I'm gonna deny your motion without prejudice to raise it again before in a in a timely fashion before we actually go to trial. That point will determine what the status of his New York cases are. And at this juncture I believe, the interest of this estate can best be served by the United States filing a response within 20 days.
Notes of Testimony of Hearing on Motion for Change of Venue, dated October 13, 1994, at 23 lines 6-11 (Exhibit 1 to EDP's Brief in Opposition to Motion for Leave to Appeal).
As noted, the bankruptcy court's discretion was limited to transfer of the case or dismissal. The retention of an improperly venued action was error, and the order of the bankruptcy court will be reversed.
VII. CONCLUSION
The record does not support a determination that venue properly lies in the Middle District of Pennsylvania. An improperly venued action must be dismissed or transferred. Since neither party seeks dismissal for the lack of venue in this district, the case will be transferred to the Eastern District of New York.
An order reversing the decision of the bankruptcy court and remanding for further proceedings shall issue. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570803/ | 722 N.W.2d 400 (2006)
2006 WI App 194
PLATTEN DEV., LLC v. LIRC.
No. 2005AP1931.
Wisconsin Court of Appeals.
August 31, 2006.
Unpublished opinion. Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570818/ | 277 S.W.2d 340 (1955)
Carl Eugene FISHER
v.
STATE of Tennessee.
Supreme Court of Tennessee.
March 11, 1955.
Roy N. Stansberry, Knoxville, for plaintiff in error.
Knox Bigham, Asst. Atty. Gen., for the State.
BURNETT, Justice.
This is an appeal on the technical record from a conviction for a crime against nature. Code, § 11184. There appears to be no error in the technical record. Upon an examination of the record we found that the plaintiff in error had no counsel and it was thus that the court appointed Mr. Roy Stansberry to represent him. The only insistence made is that the offense as described in the indictment is not within the contemplation of the Statute which is:
"Crimes against nature. Crimes against nature, either with mankind or any beast, are punishable by imprisonment in the penitentiary not less than five nor more than fifteen years." Code, § 11184.
The indictment in the case charges penetration per os. The able brief, prepared by Mr. Stansberry and his assistant, Mr. Tom Dossett of the University of Tennessee Law School, relies upon the common law rule that such an act does not constitute the crime of sodomy. To support this contention counsel cites numerous cases from many States in the Union as well as English decisions. To the contrary the State insists that the Statute is not entitled to such a narrow construction and that the trend of all modern authority supports the position under this Statute the indictment here is good.
The narrow restrictive definition of the offense is referred to in the case of State v. Start, 65 Or. 178, 132 P. 512, 46 L.R.A., N.S., 266, thus:
"Many precedents are cited by the defendant in support of his theory. They are all traced back to and have their origin in the case of Rex v. Jacobs, Russell and Ryan's Crown Cases, p. 331. The prisoner there was convicted on evidence showing conclusively that he had accomplished the act by force in the mouth of a boy about seven years old, and the question was whether this was sodomy. All that is said in answer to the question in the report of the case follows: `In Easter term, 1817, the judges met and were of opinion that this did not constitute the offense of sodomy, and directed a pardon to be applied for.' The authorities cited by the defendant have implicitly followed this ipse dixit of the English court without *341 giving any reason therefor, always controlled solely by the doctrine of stare decisis, and often with protests against the authority of the rule."
Thus it appears that the rule contended for which is supported by numerous authorities that the basis of this rule was more or less perfunctory and was arrived at with apparently no reason. This ancient doctrine has been repudiated by many modern authorities as illustrated by the following cases: State v. Griffin, 175 N.C. 767, 94 S.E. 678; Honselman v. People, 168 Ill. 172, 48 N.E. 304; State v. Start, supra; Ex parte De Ford, 14 Okla. Crim. 133, 168 P. 58; Means v. State, 125 Wis. 650, 104 N.W. 815; State v. Whitmarsh, 26 S.D. 426, 128 N.W. 580; State v. Maida, 6 Boyce 40, 29 Del. 40, 96 A. 207; State v. Altwatter, 29 Idaho 107, 157 P. 256; State v. Cyr, 135 Me. 513, 514, 198 A. 743; 48 Am. Jur., Sodomy, Sec. 2.
This Court in an unpublished opinion of Lester Brewer v. State, Knox Criminal, November 1943, supports and upholds the position taken by the State in the instant case, that is, that the Statute covers the crime. This Court in that opinion relied upon what it there called the leading case of State v. Cyr, supra, above cited.
Of course counsel for the plaintiff in error did not have access to this unpublished opinion. We do not like to nor do we ordinarily refer to unpublished opinions. Normally the opinions are not published because there is authority on the matter already published in the State. When there is no authority for it and the opinion is not published the opinion is not to be taken as general authority. Phoenix Cotton Oil Co. v. Royal Ind. Co., 140 Tenn. 438, 442, 205 S.W. 128. We think though that the reasoning of the Court is very persuasive and we must adopt such a reasoning in this case and hold that under the indictment herein it is an offense against the Statute a crime against nature.
We must thank Mr. Roy Stansberry and his able assistant Mr. Tom Dossett of the University of Tennessee for the excellent work they did on behalf of the plaintiff in error herein.
For the reasons expressed the opinion below must be affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570792/ | 277 S.W.2d 130 (1955)
H. F. BANKER, Appellant,
v.
JEFFERSON COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. ONE, Appellee.
No. 4963.
Court of Civil Appeals of Texas, Beaumont.
March 17, 1955.
Rehearing Denied April 6, 1955.
*131 Rutan & Phares, Pt. Arthur, for appellant.
Earl Black, Pt. Arthur, for appellee.
ANDERSON, Justice.
The plaintiff seeks primarily to recover damages for an alleged breach of contract. Alternatively, he seeks to recover for an alleged conversion of certain water lines. A so-called plea in abatement, heard on an agreed statement of facts, was sustained and the suit dismissed. The appeal has been perfected from the order of dismissal.
Under date of May 22, 1947, the plaintiff, H. F. Banker, and the defendant, Jefferson County Water Control and Improvement District No. One, entered into a written contract by the terms of which Banker, as party of the first part, was to install, at his own expense, along a prescribed route, a water line from the south boundary of the District to a point inside Lyndale Addition and thence west across the north end of said Addition, and the Water Control and Improvement District, as party of the second part, was to take charge of the line and supply water through it to persons desiring it. Among other provisions, the contract contained the following:
"It is agreed by and between the parties that said line and any extension thereof will remain the property of first party subject to the terms and conditions of this contract and the said District will never be called on to purchase, condemn or otherwise acquire the same regardless of whether or not the area served by said line shall ever become a part of said District. Provided, however, the District shall operate the same and make all necessary repairs thereon at its own expense; and, provided, further, that all income and revenue derived from the sale and distribution of water through said system shall be and remain the property of the District, free and clear of all claims of First Party.
*132 "In consideration of the mutual promises and covenants on the part of each party to be kept and performed, and particularly for and in consideration of the District furnishing water to the purchasers, owners, and residents of the lots in said Lyndale Addition, First Party hereby and by these presents does let, demise and lease unto the District all of the said water lines hereinabove mentioned, together with all extensions thereof for and in perpetuity, or so long as any property owners or residents within said Lyndale Addition shall require water connections.
"The District shall use said line so demised herein for the sale of water to the residents or property owners in said Lyndale Addition or to residents or property owners abutting any extension of said line.
"The District shall have the exclusive right to tap said line or any extension thereof and to place meters, valves, cutoffs and service lines thereon and the said meters, valves, cutoffs and service mains so installed by the District shall remain the property of the District providing said District shall under no circumstances have the right to `tap' any water line or extension outside of Lyndale Addition, or inside of Lyndale Addition to serve any prospective users whose property is not in Lyndale Addition, until and unless said District shall be authorized to do so in writing by said First Party, his heirs, assigns, or legal representatives.
"The District agrees to furnish water to the users at its regularly published `out of district rates' and no discrimination will be made against any user in said Lyndale Addition or elsewhere upon any extension of said line.
"It is agreed by and between the parties that any extension of the water system outside of Lyndale Addition shall be made by the said First Party or under his direction only after procuring the written consent of the District and all such extensions shall be made under the supervision of the District and in compliance with the sanitary code and the plumbing code of said District."
After the contract was entered into, Mr. Banker procured a private easement across the land lying between the south boundary of the Water Control and Improvement District and the north boundary of Lyndale Addition, and installed the water line as agreed upon, using six-inch cast iron pipe for the purpose. He then installed smaller (two-inch) lines by all lots in both Lyndale Addition and Fairdale Addition the latter being an Addition lying just west of Lyndale Addition and connected these smaller lines to the larger one first mentioned. When installation had been completed, the Water Control and Improvement District assumed control of said lines and commenced to supply water through them to its customers; and it has ever since used them as a part of its water distributing system.
At the time it first assumed control of the lines and commenced using them, the Water Control and Improvement District was acting altogether under its contract with Mr. Banker, because at that time none of the lines in question nor any of the area served by them was located within the boundaries of the District. However, subsequently, on December 29, 1951, the District annexed the entire area. Alleged breaches of contract occurring both before and after the annexation are involved.
The proviso of the contract which is alleged to have been breached is the following: "* * * providing said District shall under no circumstances have the right to `tap' any water line or extension outside of Lyndale Addition, or inside of Lyndale Addition to serve any prospective users whose property is not in Lyndale Addition, until and unless said District shall be authorized to do so in writing by said First Party, his heirs, assigns, or legal representatives."
Without having been authorized by Mr. Banker to do so, the Water Control and Improvement District connected service *133 lines to the distribution lines for a number of new customers in Fairhaven Addition.
As the price for his consent for new connections to be made in Fairhaven Addition Mr. Banker had expected to collect from each new customer a pro rated part of the expense he himself had incurred in installing the distribution lines. He alleges that by making the connections without his authorization the defendant deprived him of any chance to collect the amounts he would have collected otherwise, and he seeks to recover of the defendant the aggregate of those amounts as damages.
We think the trial court committed no error in dismissing plaintiff's suit. There can be no recovery for breach of contract, because, for reasons presently to be stated, the provision of the contract which is claimed to have been breached is contrary to public policy and void. And there can be no alternative recovery as for conversion, because, even if the water lines be considered as personalty and as being owned by Mr. Banker (matters on which we express no opinion), plaintiff's petition shows on its face that such possession as the defendant has had of the lines, and such control or dominion as it has exercised over them, has been with plaintiff's consent and approval. There can be no conversion where the owner or person entitled to possession has expressly or impliedly assented to the taking or disposition of property by the one sought to be held liable. Terry v. Witherspoon, Tex.Civ. App., 255 S.W. 471, 473, affirmed, Tex. Com.App., 267 S.W. 973; Gulf, C. & S. F. R. Co. v. Pratt, Tex.Civ.App., 183 S.W. 103, error refused; 42 Tex.Jur. 512, Troyer and Conversion, Sec. 5.
The provision of the contract which is claimed to have been breached is contrary to public policy and void because it endeavors to restrict the Water Control and Improvement District, a governmental agency, in the exercise of its and the State's police powers and governmental functions.
The District was organized under and by authority of Section 59, Article 16, of the Constitution, Vernon's Ann.St. and Articles 7880-1 to 7880-147z, Vernon's Texas Civil Statutes. The constitution itself provides, art. 16, Sec. 59a: "The conservation and development of all of the natural resources of this State, including the control, storing, preservation and distribution of its storm and flood waters, the waters of its rivers and streams, for irrigation, power and all other useful purposes, * * * and the preservation and conservation of all such natural resources of the State are each and all hereby declared public rights and duties; and the Legislature shall pass all such laws as may be appropriate thereto." It also authorizes the creation of conservation and reclamation districts for the purpose of accomplishing the contemplated conservation, development, and preservation of said natural resources, art. 16, Sec. 59(b), and provides that districts so created "shall be governmental agencies and bodies politic and corporate with such powers of government and with the authority to exercise such rights, privileges and functions concerning the subject matter of this amendment as may be conferred by law."
Districts, including Water Control and Improvement Districts, created by or pursuant to statutes enacted under the aforesaid provisions of the constitution have been consistently recognized by our courts as being political subdivisions of the State which perform governmental functions and which stand upon the same footing as counties and other political subdivisions established by law. Willacy County Water Control and Improvement Dist. No. 1 v. Abendroth, 142 Tex. 320, 177 S.W.2d 936, and the cases there cited.
In discharging their governmental functions, such districts, as agents of the State, are essentially exercising the State's and their own police power, which has been defined as "a grant of authority from the people to their governmental agents for the protection of the health, the safety, the comfort and the welfare of the public." Spann v. City of Dallas, 111 Tex. 350, 235 S.W. 513, 515, 19 A.L.R. 1387. The provision *134 of the constitution with which we are dealing is clearly a grant from the people to their governmental agents of the kind of authority contemplated by the foregoing definition, because the conservation, development, and preservation of the State's natural resources acts which are unquestionably calculated to protect and promote the health, safety, comfort and welfare of the public are expressly declared by the provision itself to be "public rights and duties", and the Legislature is commanded or directed to enact laws looking to the protection of those rights and to the discharge of those duties.
The police power of a government or of a governmental agency can never be abdicated or bargained away, and is inalienable even by express grant. City of New Braunfels v. Waldschmidt, 109 Tex. 302, 207 S.W. 303; Arneson v. Shary, Tex. Civ.App., 32 S.W.2d 907; 9 Tex.Jur. 502, Constitutional Law, Sec. 74. The same is equally true, it seems, of any truly governmental power or function. City of Crosbyton v. Texas-New Mexico Utilities Co., Tex.Civ.App., 157 S.W.2d 418, error refused; Bowers v. City of Taylor, Com. App., 16 S.W.2d 520; State ex rel. City of Jasper v. Gulf States Utilities Co., 144 Tex. 184, 189 S.W.2d 693, 698; City of Brenham v. Brenham Water Co., 67 Tex. 542, 4 S.W. 143; City of Beaumont v. Calder Place Corporation, 143 Tex. 244, 183 S.W.2d 713, 716.
As a Water Control and Improvement District, the defendant is authorized by statute to control, store, preserve and distribute "its waters and flood waters, the waters of its rivers and streams, for irrigation, power and all other useful purposes," to "construct all works and improvements necessary * * * to supply water for municipal uses, domestic uses, power and commercial purposes, and all other beneficial uses", and to "sell any surplus water that it may have to lands in the same vicinity * * * for the purpose of irrigation, domestic or commercial uses". Articles 7880-3, 7880-48, 7880-138, Vernon's Texas Civil Statutes.
It is a governmental function of such districts, we think, and one involving exercise of the police power, to determine whether or not they have or will have surplus water for sale, the people and lands most in need of and most entitled to any such surplus, and the people to whom and the conditions upon which any such surplus will be sold. It follows, therefore, that the duty and right to make these and similar decisions cannot be ceded or bartered or contracted away. We think the provision of the contract the plaintiff seeks to enforce in the case at bar, the effect of which would be to place it within the power of the plaintiff to determine whether the defendant may supply water to certain would-be users, is in conflict with the stated fundamental principles of law, and for such reason is illegal and void.
The defendant did not in its socalled plea in abatement plead this illegality, but pleaded instead that the contract was superseded by operation of law when the Water Control and Improvement District annexed the territory that included the water lines. However, the illegal nature of the portion of the contract sought to be enforced was apparent on the face of plaintiff's petition, and it was therefore not necessary, we think, that the defendant specially plead it before the trial court was at liberty to take cognizance of it as a basis for dismissing the suit. This was unquestionably the rule prior to adoption of our Texas Rules of Civil Procedure. Texas & P. Coal Co. v. Lawson, 89 Tex. 394, 32 S.W. 871, and 89 Tex. 394, 34 S.W. 919; Burt v. St. Paul Mut. Hail & Cyclone Ins. Co., Tex. Civ.App., 264 S.W. 686; Montgomery Ward & Co. v. Lusk, Civ.App., 52 S.W.2d 1110, error refused. Rule 94, T.R.C.P., it is true, now lists illegality as a matter to be affirmatively pleaded if it is to avail the party asserting it; but, as we interpret the decisions in which the rule in this respect has been construed, in those instances where a party's cause of action or defense must necessarily rest upon the illegal phase of the transaction or contract, and the illegality of the transaction or contract is affirmatively disclosed on the face of such *135 party's pleading, it is still not necessary that the opposing party specially and affirmatively plead it in order to be entitled to take advantage of it. Reid v. Associated Employers Lloyds, Tex.Civ.App., 164 S.W.2d 584, error refused; Federal Underwriters Exchange v. Craighead, Tex.Civ.App., 168 S.W.2d 699, er. ref. e. m.; Continental Fire & Cas. Ins. Corp. v. American Mfg. Co., Tex.Civ.App., 206 S.W.2d 669; Smothers v. Gawlick, Tex.Civ.App., 214 S.W.2d 894, er. ref. n. r. e.; Texas Civil Practice (McDonald), Vol. 2, sec. 7.39. In the case first cited it was said [164 S.W.2d 586]: "If there existed in the transaction some character of illegality which would constitute a defense to the suit, the burden was upon the defendant to plead and prove it, unless it was such as would necessarily appear from plaintiff's presentation of his case." And in Continental Fire & Cas. Ins. Corp. v. American Mfg. Co. [206 S.W.2d 672] it was said: "It may also be observed that if plaintiff's petition affirmatively and conclusively shows upon its face the illegality of the transaction upon which suit is based, it becomes a judicial admission and defendant can rely upon it."
For yet another reason we think it immaterial in this instance that the defendant failed to plead the illegality of the contract. The so-called plea in abatement was, as aforesaid, heard on an agreed statement of facts. The parties were obviously seeking a ruling on whether the plaintiff had pleaded a cause of action. The trial court passed on the question and held that plaintiff's petition stated no cause of action. The result, therefore, is not materially different from what it would have been if the case on its merits had been submitted on an agreed statement of facts; and in the latter situation it seems to be well established that the pleadings of the parties are not of material consequence. Rule 263, T.R.C.P.; Scott v. Slaughter, 97 Tex. 244, 77 S.W. 949; Cobb v. Harrington, 144 Tex. 360, 190 S.W.2d 709, 172 A.L.R. 837; Patton v. Wilson, Tex.Civ.App., 220 S.W.2d 184.
The procedure adopted by the parties to test the sufficiency of the plaintiff's petition was similar to that which formerly prevailed when general demurrers were in use. The suit was dismissed despite the fact that alleged breaches of the contract occurring before the boundaries of the District were expanded were pleaded, and it is therefore to be inferred that the trial court considered the portion of the contract declared upon void from its inception. We think that, all circumstances considered, the court was at liberty to pass upon the question. However, the procedure followed in this instance, smacking as it does of the general demurrer which has been eliminated from our procedure, is not to be encouraged.
The views we have expressed render it unnecessary that we pass upon the question of the property rights of the parties in the water lines in question, or upon the question of whether the annexation affected the rights of the parties in any particular.
For the reasons assigned, the judgment of the trial court is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570857/ | 277 S.W.2d 749 (1955)
Rosalie MARINO and Adam Gurskl, Appellants.
v.
Carrie LOMBARDO, Appellee.
No. 4992.
Court of Civil Appeals of Texas, Beaumont.
March 30, 1955.
Rehearing Denied April 20, 1955.
Jack M. Moore, Beaumont, John H. Benckenstein, Beaumont, for appellants.
W. G. Walley, Beaumont, for appellee.
*750 ANDERSON, Justice.
Upon original submission of this appeal, the judgment of the trial court was reversed and the cause was remanded for a new trial. Reconsideration of the record led to the conclusion that, as contended by appellee in her motion for rehearing, the legal theory on which the reversal was predicated should probably not have been given application on the assignments of error contained in the motions for new trial that were filed by the parties in the trial court. Appellant Rosalie Marino was then ordered to rebrief the case. She did this, and has now brought forward in acceptable form a point which was not passed upon in our original opinion because of procedural question attending it. We have therefore withdrawn our original opinion, and the following is substituted in lieu of it as the opinion of the court.
The suit is in trespass to try title to Lots 5 and 6 in Block 3 of the Flowers Addition to the city of Beaumont. It was originally instituted by Rosalie Marino against Carrie Lombardo and husband, Carmelo Lombardo, on February 28, 1952. The plaintiff later, on October 15, 1952, filed her first amended original petition, in which Carrie Lombardo alone was named as defendant. Carmelo Lombardo had died during the interim. Appellant Adam Gurski was brought into the suit by the defendant, Carrie Lombardo, by a so-called cross-action, the primary, if not the sole, purpose of which was to procure injunctive relief against certain alleged trespasses. The cross-petition was filed on April 8, 1953, and both the plaintiff, Rosalie Marino, and the said Adam Gurski were named in it as cross-defendants. On April 8, 1953, a temporary restraining order was granted on the cross-petition. Whether or not a temporary injunction was subsequently granted is not reflected of record. On May 2, 1953, the defendant, Carrie Lombardo, filed her first amended original answer to plaintiff's petition. Of the several defensive pleas interposed by her, we need note only her general denial and her plea of not guilty. By supplemental petition filed on May 8, 1953, the plaintiff entered a general denial and plea of not guilty to the defendant's amended answer, and also pleaded that she was an innocent purchaser for value, without notice of matters contained in said amended answer. Both Rosalie Marino and Adam Gurski interposed general denials and pleas of not guilty to the cross-petition of the defendant.
On a jury's special-issue verdict, judgment was rendered whereby it was ordered, adjudged and decreed: "that Plaintiff, Rosalie Marino, do have and recover of and from the Defendant, Carrie Lombardo, the title to an undivided one-half (½) interest in and to Lot Number six (6) of Block Number three (3) of the Flowers Addition to the City of Beaumont, Jefferson County, Texas, according to the map or plat of said addition of record in the office of the county clerk of Jefferson County, Texas; but, that with regard to all of the other rights, title and interests sought by said Plaintiff, Rosalie Marino, against Defendant, Carrie Lombardo, in this suit, Plaintiff shall take nothing"; and, "that Cross-Defendant, Adam Gurski, be, and he is hereby, restrained and enjoined permanently from removing or damaging any of the improvements, houses, dwelling places, sheds, clothes lines, or clothes poles situated in, over or upon said property, and further from molesting or harassing Defendant and Cross-Plaintiff, Carrie Lombardo, or interfering in any manner with her right of possession of said property or premises." From this judgment, both the plaintiff, Rosalie Marino, and the cross-defendant, Adam Gurski, have appealed.
The plaintiff, Rosalie Marino, relies on what she insists is the superior record title under a common source, she and the defendant, Carrie Lombardo, having agreed upon Carmelo Lombardo, Carrie's deceased husband, as the common source of the respective titles and rights asserted by them. Cross-defendant Gurski holds and relies on the title of the plaintiff, having acquired it during pendency of the suit, and in addition contends that a verdict should have been instructed and judgment should have been rendered in his favor because, as he maintains, the cross-action of the defendant, Carrie Lombardo, is in form of trespass to *751 try title, and said defendant failed to prove either title or right of possession in herself. He points out, in this connection, that he has at no time sought affirmative relief, but is a party to the suit only as a defendant in cross-action, and that he answered the cross-petition by plea of not guilty. He did not expressly enter into any agreements as to a common source of title.
The defendant, Carrie Lombardo, appears to rely primarily on her claim of homestead rights in the property in controversy. While no mention is made of it in her brief, we assume she also asserts whatever inherative rights her husband's death cast upon her. She also maintains that one of the deeds appearing in the plaintiff's chain of title is void, this being a deed from Carmelo Lombardo to Roy C. Lombardo, dated May 20, 1946. This contention is based upon the theory that, at the time the deed was made, the premises sought to be conveyed by it constituted a part of the homestead of the defendant and her husband, and the defendant neither signed nor acknowledged the deed.
The only special issues submitted to the jury pertained to defendant's claim of homestead rights. The jury found that on May 20, 1946, (the date of the deed which is claimed to be void) the land in controversy was a part of the homestead of Carmelo Lombardo and the defendant; and failed to find from a preponderance of the evidence either that Carmelo Lombardo abandoned the lots in controversy "for the purposes of a home" before May 20, 1946, he represented to Roy Lombardo (the grantee) that he never intended to use said lots as a home.
For the purpose of showing title in herself under the common source, the plaintiff, without objection having been made to their introduction, introduced in evidence three deeds. The first of these was a deed from Carmelo Lombardo to his son, Roy C. Lombardo, dated February 3, 1943. By it, for a recited consideration of $200 in cash which, according to the evidence, was actually paid the grantor conveyed to the grantee and undivided one-half interest in Lots 6 and 7 in Block 3 of the Flowers Addition. This deed contained, among others, the following provision: "I, the said Carmelo Lombardo, do hereby reserve unto myself my homestead rights in and to said property so long as I shall live and use same or any part thereof as my homestead. It is expressly understood and agreed that the improvements consisting of a one-story house in which I live is located on Lot 5 of Block 3 of said Flowers Addition to the City of Beaumont, and if for any reason we should be mistaken concerning the location of said home and said house should actually be located on either Lot No. 6, Lot No. 7, or both, in Block No. 3 of the Flowers Addition * * * then I hereby except and reserve unto myself said house and the same shall be considered as personal property and subject to removal by me, and I shall have the right to maintain and keep said house on the land it is now located during my lifetime." The deed also contained a general warranty of title.
Instead of being situated on Lot 5 as represented, the dwelling house referred to in the quoted portion of the deed was then actually situated, and thereafter remained, altogether on Lot 7.
The second of the deeds introduced by the plaintiff is the deed the defendant claims is void because she neither signed nor acknowledged it. It is, as aforesaid, a deed from Carmelo Lombardo to Roy C. Lombardo, dated May 20, 1946. It purports to convey to the grantee all of the grantor's "right, title and interest in and to" all of Lots 5 and 6 in Block 3 of the Flowers Addition, and contains a general warranty of title. Among the recitations of the deed, is the following: "The above described property being vacant lots, and constitute no part of my homestead, my home now being located on Lot No. Seven (7) in said Block No. Three (3) of said addition." The recited consideration for the deed was $10 in cash and the grantee's agreement to pay all taxes due on the grantor's part of Lots 5 and 6 as well as Lot 7 in Block 3 of the Flowers Addition. Evidence was introduced to prove that at the time the deed *752 was executed a tax suit was pending against the owners of said lots, and that all of the delinquent taxes then due on the three lots were paid by the grantee, Roy C. Lombardo.
The third deed introduced by the plaintiff is one from Roy Lombardo, Phillip Lombardo, James Fumuso, Albert John Fumuso, and Bertha Fumuso Lombardo and husband, Joe Lombardo, to Rosalie Marino, the plaintiff in this suit. This deed, which bears date of August 19, 1946, purports to convey to the grantee the lots in controversy, Lots 5 and 6. The deed contains a general warranty of title. The recited consideration for the conveyance was $1,200 in cash, and evidence was introduced to show that this sum of money was in fact paid for the lots, and that it was a fair price for them.
The cross-defendant Adam Gurski introduced in evidence a deed which the plaintiff, Rosalie Marino, executed and delivered to him under date of April 6, 1953. This deed, which contains only a special warranty of title, purports to convey to the said Gurski the land in controversy, Lots 5 and 6. The evidence shows a consideration of $1,500 to have been paid for the conveyance.
Evidence was then introduced which shows without dispute the following facts: Carmelo Lombardo, who, as between the plaintiff and the defendant, was the agreed common source of title, was married three times. There were born as issue of his first marriage six children; viz., Marie, Annie, Sam, Tom (who died in 1938), Frank, and Roy. His second marriage, which occurred about the year 1908, was to a widow, Josephine Fumuso, who herself had three living children by her previous marriage; viz., James Fumuso, Frank Fumuso (who was dead when the case was tried, but the record is silent as to when he died), and Bertha Fumuso, who married Joe Lombardo. There was born as issue of this second marriage one son, Philip Lombardo. The third marriage was to the defendant, Carrie Lombardo, and took place on or about May 3, 1943. No issue was born of this last marriage. Except for one brief period, Carmelo Lombardo and his second wife, Josephine, lived in the house on Lot 7 from about the year 1920 until the wife's death in 1940 or 1941. They procured the house to be built. After the death of his second wife, Carmelo Lombardo continued to live in the same house until he married the defendant, and then he and the latter lived in it together until perhaps September of 1947, when he was placed in a nursing home, where he remained until his death on March 23, 1952. The defendant, Carrie Lombardo, continued to live in the house on Lot 7, both after her husband was placed in the hospital and after his death, and was still living in it at the time the case was tried.
The plaintiff tendered evidence to show that the lots in controversy were community property of Carmelo Lombardo and his second wife, Josephine, but, except for the limited purpose of showing Carmelo Lombardo's intent (in just what respect is not made clear by the record), this evidence was excluded on the defendant's objection that the agreed common source of title could not be gone behind. The tendered evidence consisted of a general warranty deed from Union Macaroni Company to Carmelo Lombardo, dated February 20, 1936, of a general warranty deed from Frank Fumuso and wife, Josephine, to Carmelo Lombardo, dated June 30, 1939, and of the probate proceedings whereby the community estate of Carmelo Lombardo and his second wife was administered. Each of these deeds purported to convey all of Lots 5, 6, and 7 in Block 3 of the Flowers Additions, and said lots were inventoried by Carmelo Lombardo as a part of the community estate of himself and his deceased second wife.
The defendant made no contention that the property in controversy belonged to the community estate of herself and Carmelo Lombardo. She admitted that none of it was acquired after they were married.
The evidence is sharply conflicting with reference to whether Lots 5 and 6 were used by Carmelo Lombardo and the defendant in connection with Lot 7, on which their *753 dwelling was situated, for the purposes of a home and in such manner as to constitute them a part of their homestead. The evidence introduced by the plaintiff is to the effect that Lots 5 and 6 were all along vacant, unimproved lots, and that absolutely no use was made of either of them by Carmelo Lombardo and his family, either during or between any of his marriages. On the other hand, evidence introduced by the defendant is to the effect that from the time of her marriage in 1943 until after 1946 a small building which was used for storage purposes stood on Lot 6, a duck pen was maintained on one or the other or both of the lots, fig, pear and mulberry trees, the fruits of which were used by the family, were situated on both lots, the family clothes line was stretched across the lots, vegetables were raised in season on Lot 5, the family's chickens and ducks ranged on the lots, the grandchildren played on them, and that, in general, without distinction as to their boundaries, Lots 5 and 6, together with Lot 7, were used by the defendant and her husband as a part of their home and homestead. Commencing in about the year 1948 and continuing down to the date of trial, the defendant maintained on Lots 5 and 6 small portable houses which she rented from month to month as a means of gaining a livelihood.
The three lots, 5, 6 and 7, are parallel to one another, and are of equal size, each being 60 feet in width (east and west) and 110 feet in length. Lot 7 is the most westerly of the three, is adjoined by Lot 6, and the latter is in turn adjoined by Lot 5. The house on Lot 7 faces south, and, according to the evidence, is situated nearer the lot's west than its east line.
We deduce from the record as a whole that the judgment of the trial court was the result of the following process of reasoning: The deed by which Carmelo Lombardo, while unmarried, conveyed to Roy C. Lombardo an undivided one-half interest in Lots 6 and 7, this being the deed bearing date of February 3, 1943, together with the deed bearing date of August 19, 1946, by which Roy C. Lombardo, et al, ostensibly conveyed to the plaintiff, Rosalie Marino, all of Lots 5 and 6, was considered to have vested in the plaintiff title to an undivided one-half interest in Lot 6, this being the title awarded her by the judgment. The deed which Carmelo Lombardo executed and delivered while married to the defendant, the deed of May 20, 1946, by which he undertook to convey all of his right, title and interest in Lots 5 and 6 to Roy C. Lombardo, was treated as being absolutely void and as having conveyed no right or interest in either lot because it represented an attempt by the husband, without joinder of the wife, to convey a part of the marital homestead. The agreement of the plaintiff and the defendant upon Carmelo Lombardo as the common source of title was held to preclude a showing that the land in controversy was community property of Carmelo Lombardo and his second wife; and, therefore, despite proof of the second wife's death, the deed of the second wife's children to the plaintiff was held unavailing as proof of title designed through the second wife and her children from the agreed common source. The defendant's homestead rights in the premises were held to entitle her to the exclusive possession of both lots in their entirety.
The jury's finding that on May 20, 1946, the land in controversy was a part of the homestead of Carmelo Lombardo and the defendant is, we think, supported by the evidence. See: Hancock v. Morgan, 17 Tex. 582; Gulf, B. & G. N. Ry. Co. v. Lewis, Tex.Civ.App., 85 S.W. 817, error refused; Seidemann v. New Braunfels State Bank, Tex.Civ.App., 75 S.W.2d 167, error refused. Therefore, on the record as it stands, the deed of that date by which Carmelo Lombardo, without the joinder of his wife, undertook to convey all of his right, title and interest in Lots 5 and 6 to his son, Roy C. Lombardo, was wholly inoperative, and during continuation of defendant's homestead rights in the premises cannot of itself become operative (by estoppel or otherwise), to convey to the said Roy C. Lombardo or his vendees any right, title or interest in the premises. Stallings v. Hullum, 89 Tex. 431, 35 S.W. 2; Colonial & U. S. Mortgage Co. v. Thetford, *754 27 Tex. Civ. App. 152, 66 S.W. 103, error refused; Martin v. Astin, Tex.Com. App., 295 S.W.2d 584; Cates v. Greene, Tex. Civ.App., 114 S.W.2d 592, 595; Hair v. Wood, 58 Tex. 77. It follows that such title as Carmelo Lombardo held to the premises at the time he made the aforesaid deed remained in him until his death, and thereupon, absent any showing that he died testate, passed under the laws of descent and distribution to his heirs, subject to the defendant's homestead rights and to said deed insofar as, in changed circumstances, it might subsequently become operative.
The right of the defendant under her claim of homestead to use and occupy the premises extends to only such interest as her husband owned in them at the time of his death. If her husband owned less than the whole, but by virtue of homestead rights which accrued to him under a previous marriage was nevertheless entitled during his lifetime to use and occupy the lots in their entirety, it does not follow that at his death the defendant herself succeeded to the same rights. On the contrary, at his death, the outstanding interests were unburdened, the lots became subject to be partitioned, and the owners of the outstanding interests became entitled to have their part of the property set aside to them for their own use, benefit and enjoyment. Gilliam v. Null, 58 Tex. 298; Pressley's Heirs v. Robinson, 57 Tex. 453; Richmond v. Sims, Tex.Civ.App., 144 S.W. 1142; Murphey v. Murphey, Tex.Civ.App., 131 S.W.2d 158; 22 Tex.Jur. 351, sec. 242.
The foregoing conclusions make readily apparent the materiality of determining whether the lots were or were not a part of the community estate of Carmelo Lombardo and his second wife, Josephine. However, the judgment of the trial court has rendered the question of even more importance in this instance than might ordinarily be true. If the lots were in fact community property of the second marriage, the plaintiff acquired title under the deed of August 19, 1946, to a substantial undivided interest in them by purchase from three of the heirs of the second wife, and the trial court's judgment divested her of this title and vested it in the defendant, a stranger to it.
It was the latter consideration in particular that prompted us to order the case rebriefed by appellant Rosalie Marino. It was questionable as to whether her brief on original submission contained a point assigning as error the exclusion of the evidence she tendered to prove that the lots in controversy were community property of Carmelo Lombardo and his second wife. She had merely adopted the brief of appellant Gurski, and had not herself assigned any independent points of error. The Gurski brief contained points complaining of the exclusion of the evidence, but the points were framed as if Gurski himself had tendered the evidence, when in reality he had neither tendered it nor joined in the plaintiff's tender of it. Therefore, by adopting Gurski's brief, including his points, appellant Marino was herself apparently complaining of the trial court's refusal to permit Gurski to introduce the excluded evidence; and the trial court had ruled on no such tender.
In her new or supplemental brief, appellant Marino has brought forward a point in which she complains of the trial court's refusal to permit her to introduce the evidence which is under discussion. However, she represents that the point is germane to, or is predicated upon, a particular assignment of error appearing in appellant Gurski's motion for new trial. The assignment to which reference is made is itself framed as if Gurski instead of the plaintiff had tendered the excluded evidence. Therefore, notwithstanding the fact that appellant Marino adopted Gurski's motion for new trial as her own in the trial court, if her point on appeal had no other support in the record than the assignment to which our attention has been directed, it would perhaps still not entitle us to pass upon the ruling of the trial court which she seeks to have reviewed. However, an examination of the record has disclosed that in her own motion for new trial the plaintiff, in addition to adopting the motion of Gurski, independently assigned *755 error as follows: "The trial court erred in overruling the offer of the plaintiff to introduce into evidence the prior record title of the land involved in this suit, prior to the investment of title in the common source, because such prior record was offered for the purpose of showing that Carmelo Lombardo, the common source, did not claim the land involved in this suit as a homestead and also in contradiction to the evidence given by the defendant, Carrie Lombardo." In the circumstances of the particular case, we construe this assignment of error as being sufficient to direct the trial court's attention to the matter complained of, and to call for a review of the ruling which excluded the evidence in question.
We think the refusal by the trial court to permit plaintiff to introduce the evidence which she tendered to prove that the lots in controversy were community property of Carmelo Lombardo and his second wife was reversible error. It is not permissible, it is true, for either party to question the validity of any link in the chain of title between the common source and the sovereignty of the soil when a common source of title has been agreed upon. However, that rule did not preclude a showing by plaintiff that the lots, the legal title to which was held in the name of Carmelo Lombardo, were in fact community property of Carmelo Lombardo and his second wife, and that the second wife, under whom the plaintiff claims, owned an undivided one-half interest in them. Taylor v. Doom, 43 Tex. Civ. App. 59, 95 S.W. 4; Fairmont Creamery Co. v. Minter, Tex.Civ.App., 274 S.W. 281, error refused. Such a showing, a showing of for whose benefit the legal title was held, did not constitute an attack upon the validity of any link in the chain of title between Carmelo Lombardo and the sovereignty of the soil.
Since the permanent injunction which was granted against the appellant Gurski has its basis in the portion of the judgment adjudicating title, and the judgment in that respect must be reversed, the portion of the judgment granting injunctive relief must also be reversed. Accordingly, appellants' twelfth point, to the extent only that it complains of such portion of the judgment, and not for the reasons assigned in it, is sustained. All other of appellant Gurski's points are overruled. Also, all other of appellant Marino's points except such of them as complain of the refusal to permit her to introduce the evidence above discussed are overruled.
For the error pointed out, the judgment of the trial court is reversed and the cause is remanded for a new trial. Upon the basis of this substituted opinion, appellee's motion for rehearing is overruled. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2460295/ | 16 F. Supp. 2d 690 (1998)
Rai BARNETT, the natural mother of Courtney Barnett, et al., Plaintiffs,
v.
TEXAS WRESTLING ASSOCIATION, a/k/a Texas Interscholastic Wrestling Association, et al., Defendants.
Civil Action No. 3:96-CV-3425-G.
United States District Court, N.D. Texas, Dallas Division.
August 3, 1998.
*691 Anthony Hume, Law Office of Anthony Hume, Dallas, TX, Carrie Beth Sperling, Law Office of Carrie Sperling, Dallas, TX, for Rai Barnett, Karen L. Herring.
Michael Lawrence Williams, Galilee Group, Arlington, TX, for Texas Wrestling Association, Jim Giunta, Texas Wrestling Officials Association, John Rizzuti.
William Lowell Banowsky, Mia M. Martin, David Michael Pryor, Thompson & Knight, Dallas, TX, for Board of Trustees of the Highland Park Independent School District, John Connolly, Carolyn Bukhair.
James W. Deatherage, Power & Deatherage, Irving, TX, Thomas Phillip Brandt, Fanning Harper & Martinson, Preston Commons West, Dallas, TX, for Board of Trustees of the Irving Independent School District, Jack Singley.
Mia M. Martin, Thompson & Knight, Dallas, TX for Board of Trustees of the Richardson Independent School District.
*692 MEMORANDUM ORDER
FISH, District Judge.
Before the court are the first, second, and supplemental motions for summary judgment of the defendant Irving Independent School District ("IISD")[1] and the supplemental summary judgment brief of the defendants Texas Interscholastic Wrestling Association ("TIWA")[2] and Texas Wrestling Officials Association ("TWOA,"[3] collectively with the IISD and TIWA, "defendants").[4] For the following reasons, the defendants' motions for summary judgment are granted in part and denied in part.
I. BACKGROUND
Rai Barnett and Karen Herring bring this action on behalf of their minor daughters Courtney Barnett ("Courtney"), and Melony Monahan ("Melony") (collectively, "plaintiffs"). The plaintiffs seek injunctive relief, compensatory and punitive damages, and attorneys' fees for alleged state and federal equal protection violations and for violations of state and federal statutory prohibitions against discrimination on the basis of sex in education. See Plaintiffs' First Amended Original Complaint and Request for Injunctive Relief ("Complaint") at 5, 19, 23.
The facts presented to the court are largely undisputed. During the 1996-97 academic year, Courtney and Melony were juniors in the Arlington Independent School District, attending Martin High School ("MHS") and Sam Houston High School ("SHHS"), respectively. Complaint at 2, 7. Each was a member of her school's varsity wrestling team. Id. TIWA is an unincorporated association organized to promote and regulate high school interscholastic wrestling in Texas. Id. at 2, 5. TIWA is supported largely by the annual membership fees paid by participating schools. See Texas Interscholastic Wrestling Association 1997 Legislative Council Meeting at 1, attached as Exhibit 7 to Plaintiffs' Brief in Support of Motion for Rule 56(f) Continuance and Response to Defendants' (IISD and Jack Singley) Motion for Summary Judgment and Second Motion for Summary Judgment ("Plaintiffs' Brief I"); Declaration of James Hyden at 2, attached as Exhibit 6 to Plaintiffs' Brief I. The three high schools of the IISD were members of TIWA during the 1996-97 academic year. Affidavit of Jack Singley ("Singley Affidavit") at 1, attached as Exhibit 2 to Defendants Irving Independent School District's and Jack Singley's Motion for Summary Judgment ("IISD Motion I"). TWOA is an unincorporated association of referees who officiate events sanctioned by TIWA. Complaint at 3.
In November of 1996, the MHS and SHHS wrestling teams attended the North Texas Open wrestling tournament hosted by MacArthur High School in the IISD. Id. at 9-10, 10-11. Courtney and Melony requested, but were denied, permission to participate in mixed-gender matches at the tournament. Id.; Declaration of Melony Monahan at 1-2, attached as Exhibit 2 to Plaintiffs' Brief I. The tournament was sanctioned by TIWA and officiated by members of TWOA. See Complaint at 9, 10-11.
In December of 1996, the plaintiffs brought this action claiming, inter alia, that their rights were violated when the IISD and TWOA officials refused to let them wrestle *693 pursuant to a TIWA rule forbidding inter-gender matches (the "rule"). See generally Complaint. In January of 1997, the plaintiffs requested that the court temporarily restrain the defendants from enforcing the rule. Following a hearing, the court denied the plaintiffs' request for a TRO and ordered the parties to submit affidavits and/or depositions addressing the plaintiffs' request for a temporary injunction. In early February of 1997, the defendants moved for an order dismissing the plaintiffs' complaint for failure to state a claim upon which relief can be granted. Shortly thereafter, the court denied the plaintiffs' request for a preliminary injunction. In June of 1997, the court also denied the defendants' motions to dismiss.
In early August of 1997, the IISD filed the first of its motions for summary judgment. See generally IISD Motion I. In this motion, the IISD assert that the plaintiffs' 14th Amendment claims, brought under 42 U.S.C. § 1983, failed as a matter of law because the IISD had no policy of discrimination. Id. at 4-12. Later that month, the IISD filed its second summary judgment motion. See generally Defendants Irving Independent School District's and Jack Singley's Second Motion for summary Judgment ("IISD Motion II"). This second motion attacks the plaintiffs' claims for punitive damages under § 1983 and for compensatory and punitive damages under the Texas Constitution and Texas Education Code. Id. at 7-9. The plaintiffs responded to the IISD's motions and requested a Rule 56(f) continuance. See generally Plaintiffs' Brief I.
In January of 1998, the court ordered the defendants to submit additional summary judgment briefs addressing the issue of whether the plaintiffs had suffered a deprivation of their right to equal protection at all, an issue theretofore unaddressed by the parties.[5] Order (Jan. 20, 1998). Rather than address the issue as ordered, however, the IISD attempted to analogize this case to recent Supreme Court decisions involving assisted suicide and renewed the "no policy" arguments of its first motion for summary judgment. See generally Defendants Irving ISD and Jack Singley's Summary Judgment Brief (Feb. 3, 1998); Defendants Irving ISD and Jack Singley's Supplemental Summary Judgment Brief (Feb. 6, 1998). The brief filed by TIWA and TWOA also avoided the equal protection issue, arguing instead that they did not act "under color of state law" as required by § 1983 and that the plaintiffs' claims against them are moot. Defendants' Brief in Support of Summary Judgment ("TIWA Brief") at 3-5. The plaintiffs' responded, the IISD replied, and the motions are now ripe for decision.
II. ANALYSIS
A. The Defendants' Motions for Summary Judgment
1. Evidentiary Burdens
Summary judgment is proper when the pleadings and evidence on file show that no genuine issue exists as to any material fact and that the moving parties are entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). "[T]he substantive law will identify which facts are material." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id.
The parties moving for summary judgment make such a showing by informing the court of the basis of their motion and by identifying the portions of the record which reveal that there are no genuine material fact issues to support the nonmovants' case. Celotex Corporation v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). The pleadings, depositions, admissions, and affidavits, if any, must demonstrate that no genuine issue of material fact exists. Fed. R.Civ.P. 56(c).
Once the movants make this showing, the nonmovants may not rest on the allegations in their pleadings. Isquith for and on Behalf of Isquith v. Middle South Utilities, Inc., 847 *694 F.2d 186, 199 (5th Cir.), cert. denied, 488 U.S. 926, 109 S. Ct. 310, 102 L. Ed. 2d 329 (1988). Rather, they must direct the court's attention to evidence in the record sufficient to establish that there is a genuine issue of material fact for trial. Celotex, 477 U.S. at 324, 106 S. Ct. 2548. To carry this burden, the "opponent must do more than simply show ... some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corporation, 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). Instead, the nonmovants must present evidence sufficient to support a resolution of the factual issue in their favor. Anderson, 477 U.S. at 257, 106 S. Ct. 2505.
While all of the evidence must be viewed in a light most favorable to the plaintiffs as the motions' opponents, Anderson, 477 U.S. at 255, 106 S. Ct. 2505 (citing Adickes v. S.H. Kress & Company, 398 U.S. 144, 158-59, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970)), neither conclusory allegations nor unsubstantiated assertions will satisfy their summary judgment burden. Marshall v. East Carroll Parish Hospital Service District, 134 F.3d 319, 324 (5th Cir.1998); Little v. Liquid Air Corporation, 37 F.3d 1069, 1075 (5th Cir.1994) (en banc); Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied, 506 U.S. 825, 113 S. Ct. 82, 121 L. Ed. 2d 46 (1992). Summary judgment in favor of the defendants is proper if, after adequate time for discovery, the plaintiffs fail to establish the existence of an element essential to their case and as to which they will bear the burden of proof at trial. Celotex, 477 U.S. at 322-23, 106 S. Ct. 2548.
2. The Court's Entry of Summary Judgment Sua Sponte
"[D]istrict courts are widely acknowledged to possess the power to enter summary judgments sua sponte ...." Celotex, 477 U.S. at 326, 106 S. Ct. 2548. When a court grants summary judgment sua sponte, the parties must receive notice as provided by Federal Rule of Civil Procedure 56(c). Balogun v. Immigration and Naturalization Service, 9 F.3d 347, 352 (5th Cir.1993); see also Celotex, 477 U.S. at 326, 106 S. Ct. 2548 (sua sponte summary judgment proper "so long as the losing party was on notice that she had to come forward with all of her evidence."); Daniels v. Morris, 746 F.2d 271, 275-76 (5th Cir.1984) (district court did not err in granting summary judgment on the basis of facts not specifically urged by movant as long as the opponent had been given ample opportunity to respond to the motion). Under this rule, the court may not render summary judgment until ten days after the parties receive notice of its intention to do so. Isquith, 847 F.2d at 195-96.
B. Plaintiffs' Title IX Claims
Title IX of the Education Amendments of 1972 ("Title XI"), 20 U.S.C. § 1681 et seq., generally prohibits discrimination on the basis of sex in education programs or activities receiving federal financial assistance. Title IX does not expressly authorize suit by those aggrieved by violations of its provisions. See id. § 1682 (providing for federal administrative enforcement). However, the Supreme Court has recognized an implied private right of action under Title IX violations. Cannon v. University of Chicago, 441 U.S. 677, 688-89, 99 S. Ct. 1946, 60 L. Ed. 2d 560 (1979) (recognizing cause of action); Franklin v. Gwinnett County Public Schools, 503 U.S. 60, 76, 112 S. Ct. 1028, 117 L. Ed. 2d 208 (1992) (relief may include monetary damages).
None of the summary judgment pleadings filed by the parties in this case have explicitly addressed the defendants' Title IX liability. But on the facts presented, the court concludes that the plaintiffs may not, as a matter of law, recover under Title IX.
The United States Department of Education and the United States Department of Health and Human Services have promulgated substantially identical regulations interpreting Title IX. Compare, e.g., 34 C.F.R. § 106.41 with 45 C.F.R. § 86.41. These regulations expressly permit schools to sponsor sexually segregated teams "where selection for such teams is based upon competitive skill or the activity involved is a contact sport." 34 C.F.R. § 106.41(b); 45 C.F.R. § 86.41(b). Wrestling, as recognized by the regulations, is the quintessential contact sport. See 34 C.F.R. § 106.41(b); 45 C.F.R. § 86.41(b). The Fifth Circuit and other circuit courts of appeals have granted the regulations *695 appreciable deference. See, e.g., Rowinsky v. Bryan Independent School District, 80 F.3d 1006, 1014 n. 20 (5th Cir.), cert. denied, ___ U.S. ___, 117 S. Ct. 165, 136 L. Ed. 2d 108 (1996); Cohen v. Brown University, 991 F.2d 888, 895 (1st Cir.1993). Based on these regulations, the court concludes that the defendants were free to exclude Courtney and Melony from participation in boys wrestling without fear of Title IX liability.
C. Plaintiffs' 14th Amendment Claims
The lack of a Title IX violation, however, does not mean that the defendants' actions were in all respects lawful. See, e.g., Mississippi University for Women v. Hogan, 458 U.S. 718, 732, 102 S. Ct. 3331, 73 L. Ed. 2d 1090 (1982) (although Title IX expressly permitted traditionally single-sex university, sexual segregation at the university violated 14th Amendment). Section One of the Fourteenth Amendment to the Constitution provides in part: "No State shall ... deny to any person within its jurisdiction the equal protection of the laws." When, as alleged here, a policy of a state actor expressly discriminates among persons on the basis of their gender, the policy, is subject to constitutional scrutiny. Reed v. Reed, 404 U.S. 71, 75, 92 S. Ct. 251, 30 L. Ed. 2d 225 (1971).
"Parties who seek to defend gender-based government action must demonstrate an `exceedingly persuasive justification' for that action." United States v. Virginia, 518 U.S. 515, 531, 116 S. Ct. 2264, 135 L. Ed. 2d 735 (1996). This burden is met "by showing at least that the classification serves important governmental objectives and that the discriminatory means employed are substantially related to the achievement of those objectives." Hogan, 458 U.S. at 724, 102 S. Ct. 3331 (internal quotation marks omitted); accord J.E.B. v. Alabama, 511 U.S. 127, 136-37, 114 S. Ct. 1419, 128 L. Ed. 2d 89 (1994).
Section 1983 of Title 42 of the United States Code provides the statutory vehicle for addressing alleged violations of Fourteenth Amendment rights. See Burns-Toole v. Byrne, 11 F.3d 1270, 1273 n. 3 (5th Cir.), cert. denied, 512 U.S. 1207, 114 S. Ct. 2680, 129 L. Ed. 2d 814 (1994). This statute creates a private right of action against any person who, under color of state law, deprives another of any rights, privileges, or immunities secured by the constitution and laws of the United States. 42 U.S.C. § 1983. Municipalities and other local governmental bodies, as well as individuals, qualify as "persons" within the meaning of § 1983. Monell v. Department of Social Services of City of New York, 436 U.S. 658, 689-90, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978).
Municipalities, however, may not be held vicariously liable under § 1983 for the wrongdoing of others. Id. at 691, 98 S. Ct. 2018. Rather, a municipality may be held liable only when the execution of a municipal policy causes the injury. Board of County Commissioners of Bryan County, Oklahoma v. Brown, 520 U.S. 397, 117 S. Ct. 1382, 1388, 137 L. Ed. 2d 626 (1997); Monell, 436 U.S. at 694, 98 S. Ct. 2018. A municipal "policy" need not be written or have received formal approval to be actionable. Monell, 436 U.S. at 690-691, 98 S. Ct. 2018. It must, however, be so permanent and well settled "`as to constitute a "custom or usage" with the force of law,'" id. (quoting Adickes, 398 U.S. at 167-68, 90 S. Ct. 1598); see also Johnson v. Moore, 958 F.2d 92, 94 (5th Cir.1992), and must result from the decisions of a "duly constituted legislative body or of those officials whose acts may fairly be said to be those of the municipality," Brown, 117 S.Ct. at 1388, 117 S. Ct. 1382; see also Bennett v. City of Slidell, 728 F.2d 762, 767 (5th Cir. 1984) (en banc), cert. denied, 472 U.S. 1016, 105 S. Ct. 3476, 87 L. Ed. 2d 612 (1985).
1. Compensatory Damages
As mentioned above, the defendants' summary judgment motions and briefs fail to address the substance of the plaintiffs' constitutional claims the refusal to permit mixed-gender wrestling. The court finds this failure particularly surprising because it is far from clear that the refusal to sanction a mixed-gender contact sport violates the Fourteenth Amendment. Compare O'Connor v. Board of Education of School District 23, 449 U.S. 1301, 1307-08, 101 S. Ct. 72, 66 L. Ed. 2d 179 (1980) (Stevens, Circuit Justice) (refusing to lift court of appeals' stay of *696 district court's preliminary injunction requiring school to permit girl to try out for boys' basketball); Williams v. School District of Bethlehem, 998 F.2d 168, 177, 180 (3d Cir. 1993) (reversing summary judgment for plaintiff on Title IX claim and refusing to address equal protection claim in exclusion of boy from girls' field hockey), cert. denied, 510 U.S. 1043, 114 S. Ct. 689, 126 L. Ed. 2d 656 (1994); Clark v. Arizona Interscholastic Association, 695 F.2d 1126, 1131 (9th Cir.1982) (permitting exclusion of boys from girls' volleyball team), cert. denied, 464 U.S. 818, 104 S. Ct. 79, 78 L. Ed. 2d 90 (1983); O'Connor v. Board of Education of School District No. 23, 645 F.2d 578, 582 (7th Cir.) ("O'Connor II") (reversing grant of preliminary injunction requiring school to permit girl to try out for boys' basketball), cert. denied, 454 U.S. 1084, 102 S. Ct. 641, 70 L. Ed. 2d 619 (1981); O'Connor v. Board of Education of School District 23, 545 F. Supp. 376, 381 (N.D.Ill. 1982) (granting summary judgment for defendants on remand from O'Connor II); Lafler v. Athletic Board of Control, 536 F. Supp. 104, 108 (W.D.Mich.1982) (dissolving TRO which permitted mixed-gender boxing) with Adams v. Baker, 919 F. Supp. 1496, 1505 (D.Kan.1996) (granting TRO against enforcement of rule prohibiting mixed gender wrestling); Saint v. Nebraska School Activities Association, 684 F. Supp. 626, 630 (D.Neb. 1988) (same); Lantz v. Ambach, 620 F. Supp. 663, 666 (S.D.N.Y.1985) (requiring state officials to permit girl to try out for boys' football); Force v. Pierce City R-VI School District, 570 F. Supp. 1020, 1031-32 (W.D.Mo. 1983) (same); see also Hoover v. Meiklejohn, 430 F. Supp. 164, 172 (D.Colo.1977) (athletic association must either discontinue soccer, permit mixed-gender soccer, or establish substantially comparable boys' and girls' programs). Instead, the defendants attempt to rend the plaintiffs' claims for compensatory damages with a procedural whipsaw: the IISD, which obviously is a state actor, insists that it had no policy of discrimination, while the TIWA and TWOA, which admit to discriminating, insist that they did not act under color of state law. See IISD Motion I at 4-12; TIWA Brief at 3-4.
Upon review of the pleadings and evidence on file, the court finds that the plaintiffs have presented an issue of material fact on both points of contention. First, IISD schools voluntarily joined TIWA and employed TWOA officials; they agreed to follow the associations' rules; and they enforced those rules at school sponsored events. Although Singley claims that the IISD board was ignorant of any discrimination and although the IISD board later adopted a formal anti-discrimination policy, see Singley Affidavit at 1-2, the long standing relationship between the TIWA, TWOA, and IISD schools raises an issue of fact concerning whether the IISD had informally adopted the associations' formal policy of discrimination. See, e.g., Bennett, 728 F.2d at 767 (a "policy" includes a pattern of conduct in actual practice). Second, athletic associations whose "membership consist[s] entirely of institutions located within the same State, many of them public institutions created by the same sovereign," are state actors for the purposes of § 1983; and the Fourteenth Amendment. National Collegiate Athletic Association v. Tarkanian, 488 U.S. 179, 193 n. 13, 109 S. Ct. 454, 102 L. Ed. 2d 469 (1988); see also Clark v. Arizona Interscholastic Association, 695 F.2d at 1128; Louisiana High School Athletic Association v. St. Augustine High School, 396 F.2d 224, 227 (5th Cir.1968); Brewer v. Purvis, 816 F. Supp. 1560, 1575 (M.D.Ga.1993), aff'd, 44 F.3d 1008 (11th Cir.) (table), cert. denied, 514 U.S. 1111, 115 S. Ct. 1965, 131 L. Ed. 2d 855 (1995). Thus, the policies of TIWA and TWOA are "state action" subject to constitutional scrutiny. See Tarkanian, 488 U.S. at 193 n. 13, 109 S. Ct. 454. Because the plaintiffs have presented evidence from which a reasonable jury could find in their favor on these issues, the plaintiffs' claims for compensatory damages under § 1983 should proceed to trial.
2. Punitive Damages
The IISD also seeks a specific determination that the plaintiffs' claims for punitive damages fail as a matter of law. IISD Motion II at 7-8 (citing City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 101 S. Ct. 2748, 69 L. Ed. 2d 616 (1981)). The plaintiffs have not contested the IISD's position. See generally Plaintiffs' Brief 1. Upon review of the pleadings and evidence on file, the court concludes *697 that the plaintiffs' claims for punitive damages under § 1983 fail as a matter of law and will order summary judgment accordingly. See City of Newport, 453 U.S. at 271, 101 S. Ct. 2748.
3. Injunctive Relief
Federal courts are courts of limited jurisdiction. Owen Equipment and Erection Company v. Kroger, 437 U.S. 365, 374, 98 S. Ct. 2396, 57 L. Ed. 2d 274 (1978), A federal court may exercise jurisdiction only as expressly provided by the Constitution and laws of the United States. See U.S. Const. art. III § 2. Section 1331 of Title 28 of the United States Code provides the federal district courts with jurisdiction over claims arising under the Constitution, laws, or treaties of the United States. However, this jurisdiction is limited to the resolution of actual cases and controversies. See, e.g., Arizonans for Official English v. Arizona, 520 U.S. 43, ___, 117 S. Ct. 1055, 1067, 137 L. Ed. 2d 170 (1997). Thus, to maintain a suit in federal court, a plaintiff must show:
[1] that [s]he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant ...
[2] that the injury "fairly can be traced to the challenged action" and
[3] [that the injury] "is likely to be redressed by, a favorable decision."
Cramer v. Skinner, 931 F.2d 1020, 1024 (5th Cir.) (quoting Valley Forge Christian College v. Americans for Separation of Church and State, Inc., 454 U.S. 464, 472, 102 S. Ct. 752, 70 L. Ed. 2d 700 (1982)), cert. denied, 502 U.S. 907, 112 S. Ct. 298, 116 L. Ed. 2d 242 (1991).
Here, the defendants argue that intervening events have rendered moot the plaintiffs' claims for injunctive relief. Defendants Irving ISD and Jack Singley's Summary Judgment Brief (Feb. 3, 1998) at 9; TIWA Brief at 5. The plaintiffs have failed to respond to this allegation. See generally Plaintiffs' Response to Defendants Irving ISD and Jack Singley's Motion for Summary Judgment and Supplemental Motion for Summary Judgment; Plaintiffs' Response to TIWA Defendants' and TWOA Defendants' Motion for Summary Judgment.
Upon review of the pleadings and evidence on file, the court agrees with the defendants. It is clear that an order of prospective equitable relief is unlikely to redress any existing or threatened injury to the plaintiffs. First, the IISD severed its ties with TIWA and TWOA following the 1996-97 school year and adopted a formal policy of non-discrimination. See Memorandum from Jack Singley, attached as Exhibit 1 to Defendant Irving ISD's Reply to Plaintiffs' Response to Its Motions for Summary Judgment and Its Response to Plaintiffs' Rule 56(f) Motion for Continuance and Brief in Support; Resolution No. 96-97-13 at 3, attached as Exhibit 1 to IISD Motion I. Second, the University Interscholastic League has replaced the TIWA as the organization responsible for managing Texas high school wrestling. TIWA Brief at 2; see also TIWA Judicial Committee Meeting # 14 at 9, attached as Exhibit 8 to Plaintiffs' Brief I. Third, the TWOA has disbanded. Complaint at 8-9; Defendants [sic] Original Answer to Plaintiffs' First Amended Complaint and Request for Injunctive Relief at 6. Fourth, the plaintiffs have graduated from high school, thereby ending their varsity wrestling careers. TIWA Brief at 5; see also Complaint at 7 (alleging that Courtney and Melony were juniors in January of 1997). Accordingly, the plaintiffs' claims for injunctive relief are dismissed as moot. Cf. Habetz v. Louisiana High School Athletic Association, 842 F.2d 136, 137-38 (5th Cir.1988) (finding that voluntary amendment of association rules rendered allegation of discrimination moot).
D. Plaintiffs' Texas Education Code Claims
The defendants also seek summary judgment on the plaintiffs' claims brought under § 33.082 of the Texas Education Code. IISD Motion II at 8-9. This statute prohibits school districts from sponsoring, or sanctioning extracurricular activities at athletic clubs which discriminate on the basis of race, color, religion, creed, national origin, or sex. Tex. Education Code Ann. § 33.082(a) (Vernon 1996). The defendants seek summary judgment based on sovereign immunity, the absence *698 of an express private right of action,[6] and the Plaintiffs' failure to exhaust administrative remedies. IISD Motion II at 9. Moreover, the defendants argue that § 33.082, by its own terms, does not apply to the facts alleged in this case. Id. The plaintiffs' have failed to contest summary adjudication of this claim. For the reasons set forth by the defendants, the court concludes that the defendants are entitled, as a matter of law, to judgment on this claim.
E. Plaintiffs' Claims Under the Texas Constitution
Finally, the defendants aver that they cannot be held liable for damages under the Texas Constitution. IISD Motion II at 8 (citing City of Beaumont v. Bouillion, 896 S.W.2d 143 (Tex.1995)). The plaintiffs do not contest this assertion. See Plaintiffs' Brief I at 18-19. Instead, they note that Bouillion, 896 S.W.2d at 149, expressly recognized a right to pursue injunctive relief, as they have done, directly under the Texas Constitution. Plaintiffs' Brief I at 18-19. But, as discussed above, the plaintiffs' claims for injunctive relief are now moot. See supra Part II.C.3. Accordingly, summary judgment in favor of the defendants on the plaintiffs' claims brought directly under the Texas Constitution is appropriate. See University of Texas System v. Courtney, 946 S.W.2d 464, 469 (Tex.App. Fort Worth 1997, writ denied).
III. CONCLUSION
For the foregoing reasons, the defendants' motions for summary judgment are GRANTED, except as to the plaintiffs claims for compensatory damages under 42 U.S.C. § 1983. The defendants' motions for summary judgment on the plaintiffs' claims for compensatory damages under § 1983 are DENIED.
SO ORDERED.
NOTES
[1] Jack Singley ("Singley"), the superintendent of the IISD, has been sued in his official capacity. It is well settled, however, that a suit against a public official in his official capacity is really a suit against the governmental entity. E.g., Kentucky v. Graham, 473 U.S. 159, 165-66, 105 S. Ct. 3099, 87 L. Ed. 2d 114 (1985). Therefore, the court will address the plaintiffs' claims against Singley together with those against the IISD.
[2] Jim Guinta ("Guinta"), the executive director of the TIWA, is also named in his official capacity. As with Singley and the IISD, the court will address the plaintiffs' claims against Guinta and the TIWA together.
[3] John Rizzuti, president of the TWOA, like Singley and Guinta is named as a defendant in his official capacity. As with the other officials, the court will address the claims against Rizzuti and the TWOA together.
[4] The plaintiffs originally sought relief against the Highland Park and Richardson Independent School Districts as well. Because these claims have been settled, the Highland Park and Richardson districts, and their respective superintendents, are no longer parties to this action. See Order of Dismissal with Prejudice and Final Judgment (June 22, 1998).
[5] This order, raising new issues and delaying by several months the court's consideration of the motions for summary judgment, effectively granted the plaintiffs' motion for Rule 56(f) continuance.
[6] This statute does not expressly provide for the private enforcement of its provisions. See Tex. Education Code Ann. § 33.082(a) (Vernon 1996). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1542246/ | 947 A.2d 978 (2008)
108 Conn.App. 156
Kim M. WASKO et al.
v.
Daniel T. FARLEY, Jr., et al.
No. 28074.
Appellate Court of Connecticut.
Argued February 4, 2008.
Decided June 3, 2008.
*981 Eddi Z. Zyko, Middlebury, for the appellant (named plaintiff).
Robert O. Hickey, with whom, on the brief, was Sarah F. DePanfilis, Stamford, for the appellees (defendants).
HARPER, LAVINE and PELLEGRINO, Js.
PELLEGRINO, J.
In this negligence action, the plaintiff Kim M. Wasko[1] appeals from the judgment of the trial court, rendered after a jury trial, in favor of the defendants, Daniel T. Farley, Sr., and Daniel T. Farley, Jr. On appeal, the plaintiff claims that (1) the court failed to comply with General Statutes § 52-434, thereby depriving the court of subject matter jurisdiction, (2) the court required the plaintiff to attend jury selection in violation of General Statutes § 51-240(a), Practice Book § 16-6 and the constitution of Connecticut, (3) the judge who denied the plaintiff's motion to be excused from jury selection improperly failed to recuse himself and (4) the court improperly charged the jury. We affirm the judgment of the trial court.
The following facts and procedural history are relevant to our resolution of the plaintiff's appeal. In December, 2004, the plaintiff commenced this negligence action, which arose out of personal injuries and damages she allegedly sustained as a result of a December 14, 2002 three vehicle accident involving the plaintiff, Francis Bement and Daniel T. Farley, Jr. On August 17, 2005, the court, Brunetti, J., pretried the case without any resolution. On June 6, 2006, the court, Gill, J., pretried the case again without any resolution. Judge Gill then set another pretrial for the following morning and ordered that the plaintiff be present for that proceeding.
On June 7, 2006, Judge Gill pretried the case for a third time, again failing to produce a resolution. Judge Gill then ordered that jury selection proceed. At the start of jury selection, counsel for the plaintiff made an oral motion to excuse the plaintiff from attending jury selection so that she could attend to her dental practice. Judge *982 Gill denied this motion as to the first day of jury selection, stating that there were benefits in having the plaintiff present for jury selection. Jury selection was completed that day. The case thereafter was tried to the jury. The jury returned a verdict in favor of the defendants, and the court, Prescott, J., rendered judgment accordingly. Additional facts will be set forth as necessary.
I
The plaintiff's first claim is that the court lacked subject matter jurisdiction to preside over jury selection.[2] It is her claim that at the time Judge Gill participated in jury selection, he was a senior judge and, in that capacity, was required to obtain the consent of the parties in order to preside over jury selection, which consent he failed to obtain. Our plenary review of her claim reveals it to be without merit. See, e.g., Barry v. Quality Steel Products, Inc., 280 Conn. 1, 8, 905 A.2d 55 (2006).
The plaintiff confuses the powers of a senior judge with those of a judge trial referee. A senior judge is a judge who elects to retire from full-time service prior to reaching the age of seventy.[3] See General Statutes § 51-50i.[4] A senior judge continues to retain all of the powers possessed prior to assuming senior status. See General Statutes § 51-50d.[5] A judge becomes a judge trial referee upon reaching the age of seventy and thereafter has limited authority to act.[6]
At the time of jury selection in the present case, Judge Gill had retired from full-time service but had not attained the age of seventy; he therefore held the position of senior judge. See General Statutes § 51-50i. Senior Judge Gill continued to have the power to preside over jury selection as well as every other power of a Superior Court judge. Accordingly, he did not need to obtain the consent of the parties as the plaintiff has argued. The plaintiff's claim is without merit.
II
The plaintiff's second claim is that the court, Gill, J., improperly compelled her *983 attendance at jury selection. Specifically, the plaintiff claims that the court's actions violated (1) General Statutes § 51-240(a) and Practice Book § 16-6, and (2) article first, § 1, of the constitution of Connecticut and article first, § 19, of the constitution of Connecticut, as amended by article four of the amendments.[7] We disagree.
A
The first portion of the plaintiff's claim is that General Statutes § 51-240(a)[8] and Practice Book § 16-6[9] provide her with a right to have jury selection conducted by counsel and that her compelled attendance at jury selection violates this right. We are not persuaded.
The plaintiff's claim presents a matter of statutory interpretation over which our review is plenary. See, e.g., Barry v. Quality Steel Products, Inc., supra, 280 Conn. at 8, 905 A.2d 55. Our Supreme Court has stated: "When construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature. . . . In other words, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the language actually does apply. . . . In seeking to determine that meaning, General Statutes § 1-2z directs us first to consider the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered. . . . When a statute is not plain and unambiguous, we also look for interpretive guidance to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter. . . ." (Internal quotation marks omitted.) Bloomfield v. United Electrical, Radio & Machine Workers of America, Connecticut Independent Police Union, Local 14, 285 Conn. 278, 286-87, 939 A.2d 561 (2008). "We interpret provisions of the Practice Book according to the same well settled principles of construction that we apply to the General Statutes." Wilson v. Troxler, 91 Conn.App. 864, 871, 883 A.2d 18, cert. denied, 276 Conn. 928, 929, 889 A.2d 819, 820 (2005).
General Statutes § 51-240(a) provides in relevant part that "either party shall have the right to examine, personally or by his counsel, each juror outside the presence of other prospective jurors as to his qualifications to sit as a juror in the action, or as to his interest, if any, in the subject matter of the action, or as to his relations with the parties thereto." Practice Book § 16-6 *984 tracks the operative language of General Statutes § 51-240(a) word for word.[10] It is undisputed that these sections confer on litigants the right to examine each prospective juror. Furthermore, a litigant may exercise this right either personally or through counsel. The plaintiff, however, argues that because this right may be exercised through counsel, compelling her attendance at jury selection violates her right to have counsel examine each juror.
"In construing a statute, common sense must be used and courts must assume that a reasonable and rational result was intended." Norwich Land Co. v. Public Utilities Commission, 170 Conn. 1, 4, 363 A.2d 1386 (1975). General Statutes § 51-240(a) and Practice Book § 16-6 grant parties an affirmative right to examine each prospective juror. The court's order in no way hindered this right. No reasonable reading of these sections can be said to limit a court's inherent power to compel a party's attendance at jury selection.[11] The plaintiff's strained reading of these sections runs counter to their plain and unambiguous text. Accordingly, we reject the plaintiff's interpretation of the statute and rule of practice and conclude that there is no basis in law to justify her claim.
B
The next portion of the plaintiff's claim is that the court violated her fundamental state constitutional rights by compelling her attendance at jury selection.[12] Specifically, the plaintiff claims that the court violated her fundamental rights as set forth in article first, § 1, of the constitution of Connecticut[13] and article first, § 19, as amended by article four of the amendments.[14] We decline to review the plaintiff's state constitutional claims because she has not briefed them adequately.
In State v. Geisler, 222 Conn. 672, 684-85, 610 A.2d 1225 (1992), our Supreme Court set forth six factors that should be considered in examining state constitutional claims. Our Supreme Court repeatedly has emphasized that it "expect[s] counsel to employ [the Geisler factors] [i]n order to [allow reviewing courts] to construe the contours of our state constitution and [to] reach reasoned and principled results. . . ." (Internal quotation marks omitted.) State v. Joyce, 229 Conn. 10, 16 n. 7, 639 A.2d 1007 (1994), on appeal after remand, 243 Conn. 282, 705 A.2d 181 (1997), cert. denied, 523 U.S. 1077, 118 S.Ct. 1523, 140 L.Ed.2d 674 (1998). Our Supreme Court has "made clear that [when a party fails to analyze these factors separately and distinctly, *985 appellate courts] are not bound to review the state constitutional claim." Id., at 16, 639 A.2d 1007. In her brief, the plaintiff did not include the Geisler factors in her analysis. The plaintiff's claim merely quotes two separate sections of our state constitution and then, without citing any legal precedent from this or any other jurisdiction and without providing any legal analysis as to either constitutional provision, claims that the court's order violated her fundamental rights. The plaintiff has not briefed adequately her state constitutional claim. Absent a proper analysis of the claim under the state constitution, we deem abandoned the plaintiff's claim. See State v. Eady, 249 Conn. 431, 435 n. 6, 733 A.2d 112, cert. denied, 528 U.S. 1030, 120 S.Ct. 551, 145 L.Ed.2d 428 (1999).
III
The plaintiff's next claim is that Judge Gill should have recused himself from the pretrial proceedings. Specifically, she claims that a reasonable person would have questioned Judge Gill's impartiality. We decline to review this unpreserved claim.
The following additional facts are relevant. Before jury selection commenced, Judge Gill expressed to the parties his opinion that this case should settle before trial. During jury selection, Judge Gill made statements in the presence of prospective jurors that "[w]e're not going to be here that long" and that voir dire would take only "[a]bout four or five minutes of your time." The plaintiff did not object to any of these alleged improprieties. The case thereafter proceeded to trial before Judge Prescott. After the jury reached its verdict, the plaintiff filed a postverdict motion seeking the recusal of Judge Gill and the voiding of jury selection. Judge Prescott denied the plaintiff's motion.
"[Canon 3(c)(1) of the Code of Judicial Conduct][15] requires a judge to disqualify himself or herself in a proceeding in which the judge's impartiality might reasonably be questioned. The reasonableness standard is an objective one. Thus, the question is not only whether the particular judge is, in fact, impartial but whether a reasonable person would question the judge's impartiality on the basis of all the circumstances. . . . Even in the absence of actual bias, a judge must disqualify himself in any proceeding in which his impartiality might reasonably be questioned, because the appearance and the existence of impartiality are both essential elements of a fair exercise of judicial authority." (Citations omitted; internal quotation marks omitted.) State v. Ortiz, 83 Conn.App. 142, 150, 848 A.2d 1246, cert. denied, 270 Conn. 915, 853 A.2d 530 (2004).
"[A]s a general rule, even in cases alleging judicial bias, this court will not consider the issue on appeal where the party failed to make the proper motion for disqualification at trial. . . . Failure to request recusal or move for a mistrial represents the [parties'] acquiescence to the judge presiding over the trial." (Citation omitted; internal quotation marks omitted.) Schnabel v. Tyler, 32 Conn.App. 704, 714, 630 A.2d 1361 (1993), aff'd, 230 Conn. 735, 646 A.2d 152 (1994); see also Statewide Grievance Committee v. Friedland, 222 Conn. 131, 146-47, 609 A.2d 645 (1992). "Our Supreme Court has criticized the practice whereby an attorney, cognizant of circumstances giving rise to an objection *986 before or during trial, waits until after an unfavorable judgment to raise the issue. We have made it clear that we will not permit parties to anticipate a favorable decision, reserving a right to impeach it or set it aside if it happens to be against them, for a cause which was well known to them before or during the trial." (Internal quotation marks omitted.) Fiddelman v. Redmon, 31 Conn.App. 201, 213, 623 A.2d 1064, cert. denied, 226 Conn. 915, 628 A.2d 986 (1993); see also L & R Realty v. Connecticut National Bank, 53 Conn.App. 524, 543, 732 A.2d 181, cert. denied, 250 Conn. 901, 734 A.2d 984 (1999).
Here, the plaintiff did not object to any of Judge Gill's alleged improprieties. She also did not ask Judge Gill to recuse himself on the basis of a lack of impartiality or seek a mistrial. It was only after the jury reached an unfavorable verdict that the plaintiff challenged Judge Gill's impartiality through a postverdict motion for recusal. This wait and see approach is the type of practice our Supreme Court has criticized and renders the plaintiff's claim unpreserved. Furthermore, the plaintiff has not asked us to review this claim for plain error, and we decline, therefore, to afford it review under that extraordinary standard. See State v. Marsala, 93 Conn. App. 582, 590, 889 A.2d 943 ("This court often has noted that it is not appropriate to engage in a level of review that is not requested. . . . When the parties have neither briefed nor argued plain error [or review pursuant to State v. Golding, 213 Conn. 233, 239-40, 567 A.2d 823 (1989)], we will not afford such review." [Internal quotation marks omitted.]), cert. denied, 278 Conn. 902, 896 A.2d 105 (2006).
Even if we assume that the plaintiff's claim was preserved properly, Judge Gill's actions do not lead a reasonable person to question his impartiality. Judge Gill presided over only jury selection in this case. Judge Prescott presided over the jury trial. Our review of the record reveals no bias against the plaintiff on the part of Judge Gill, nor does it raise a reasonable question concerning his impartiality. See State v. Webb, 238 Conn. 389, 464, 680 A.2d 147 (1996), aff'd after remand, 252 Conn. 128, 750 A.2d 448, cert. denied, 531 U.S. 835, 121 S.Ct. 93, 148 L.Ed.2d 53 (2000). There is nothing improper if a judge expresses his belief that a matter should settle as an alternative to trial. Moreover, the allegedly biased comments made during voir dire by Judge Gill were not improper and could not lead a reasonable person to question his impartiality. The plaintiff's claim is without merit.
IV
The plaintiff's final claim is that the court, Prescott, J., improperly charged the jury. Specifically, she claims that the court (1) failed to charge the jury on damages resulting from additional costs incurred by the plaintiff's dental practice and (2) improperly charged the jury on mitigation of damages. We disagree.
The following additional facts are relevant to our disposition of the plaintiff's claim. The plaintiff claims that as a result of her injuries, she was forced to hire an additional dental assistant to do work that her injuries prevented her from doing. She testified that the dental assistant was paid approximately $22,000 a year and received health insurance and profit sharing benefits, resulting in a total cost to the business of approximately $30,000.
The plaintiff asked that the court charge the jury on damages related to the costs of hiring the additional dental assistant. The court informed the plaintiff that it "did not intend to charge the jury or permit [the plaintiff] to argue to the jury any claim of damages relating to the costs of [her] dental practice in hiring an additional dental assistant." The court stated that because the dental practice is organized as a limited *987 liability company, any additional costs incurred by the business are not personal to the plaintiff and may be recovered only by the business entity. Because the business entity was not a party to the litigation, a charge on costs it incurred was not appropriate. The plaintiff noted her objection to the court's failure to give her requested instruction.
The plaintiff also objected to the court's instructing the jury on mitigation of damages. The plaintiff argued that such an instruction is not permitted because the defendants did not plead mitigation of damages as a special defense. The court found that mitigation does not have to be specially pleaded because it is not listed among the defenses in Practice Book § 10-50 that need to be specially pleaded.[16] Furthermore, the court found that evidence was introduced pertaining to mitigation, thereby making such an instruction proper.
A
The plaintiff's first claim is that the court improperly failed to charge the jury on damages incurred by the plaintiff's dental practice due to her limited work capabilities.[17] We disagree.
"It is well established that [a] request to charge which is relevant to the issues of the case and which is an accurate statement of the law must be given. . . . [A] trial court should instruct a jury on [every] issue for which there is any foundation in the evidence, even if weak or incredible. . . . The trial court has a duty not to submit any issue to the jury upon which the evidence would not support a finding. . . . Accordingly, the right to a jury instruction is limited to those theories for which there is any foundation in the evidence. . . . In determining whether any such foundation exists, [w]e must consider the evidence presented at trial in the light most favorable to supporting the [party's] request to charge. . . . Additionally, [w]hen . . . the trial court draws conclusions of law, our review is plenary and we must decide whether its conclusions are legally and logically correct and find support in the facts that appear in the record." (Internal quotation marks omitted.) *988 Bonan v. Goldring Home Inspections, Inc., 68 Conn.App. 862, 867-68, 794 A.2d 997 (2002).
In the present case, we conclude that the court properly declined to instruct the jury on damages resulting from costs borne by the plaintiff's dental practice because the plaintiff, suing in her capacity as an individual, was not entitled to recover damages incurred by a limited liability company of which she is a member.
A limited liability company is a distinct legal entity whose existence is separate from its members. See Litchfield Asset Management Corp. v. Howell, 70 Conn.App. 133, 147, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002). A limited liability company has the power to sue or be sued in its own name; see General Statutes §§ 34-124(b) and 34-186; or may be a party to an action through a suit brought in its name by a member. See General Statutes § 34-187. A member may not sue in an individual capacity to recover for an injury the basis of which is a wrong to the limited liability company. See Litchfield Asset Management Corp. v. Howell, supra, at 147, 799 A.2d 298; cf. Guarnieri v. Guarnieri, 104 Conn.App. 810, 819, 936 A.2d 254 (2007) (corporate shareholder may sue only on behalf of corporation through derivative suit).
The plaintiff brought this action in her individual capacitythe limited liability company was not a party. Damages incurred by the limited liability company, therefore, were not at issue in the case. Accordingly, the court properly declined to instruct the jury on damages resulting from additional costs incurred by the plaintiff's dental practice.[18]
B
The plaintiff's second claim is that the court improperly instructed the jury on mitigation of damages. Specifically, the plaintiff claims that the defendants did not plead mitigation of damages as a special defense, and, therefore, the court could not give an instruction on the subject. We are not persuaded.
"It has long been a rule of general application that one who has been injured by the negligence of another must use reasonable care to promote recovery and prevent any aggravation or increase of the injuries. . . . When there are facts in evidence that indicate that a plaintiff may have failed to promote his recovery and do what a reasonably prudent person would be expected to do under the same circumstances, the court, when requested to do so, is obliged to charge on the duty to mitigate damages." (Internal quotation marks omitted.) Futterleib v. Mr. Happy's, Inc., 16 Conn.App. 497, 501, 548 A.2d 728 (1988). *989
The plaintiff does not allege that there are no facts in evidence that warranted a mitigation instruction. Furthermore, the plaintiff has set forth no legal analysis as to why she believes mitigation must be specially pleaded before a defendant is entitled to a jury instruction on the subject.[19] Accordingly, we conclude that the court's charge on mitigation of damages was proper.[20]
The judgment is affirmed.
In this opinion the other judges concurred.
NOTES
[1] In the original complaint, Kim M. Wasko and her husband, Robert Cavoli, were named as plaintiffs. Before the case was submitted to the jury, Cavoli withdrew all of his claims. All references to the plaintiff, therefore, refer solely to Wasko.
[2] The plaintiff confuses subject matter jurisdiction with the court's authority to act. "Although related, the court's authority to act pursuant to a statute is different from its subject matter jurisdiction. The power of the court to hear and [to] determine, which is implicit in jurisdiction, is not to be confused with the way in which that power must be exercised in order to comply with the terms of the statute." (Internal quotation marks omitted.) New England Pipe Corp. v. Northeast Corridor Foundation, 271 Conn. 329, 336, 857 A.2d 348 (2004); Amodio v. Amodio, 247 Conn. 724, 728, 724 A.2d 1084 (1999).
[3] The constitution of Connecticut, article fifth, § 6, does not permit a Superior Court judge to hold office after reaching the age of seventy.
[4] General Statutes § 51-50i(a) provides in relevant part: "Any judge who retires from full-time active service, who has not attained the age of seventy . . . shall be a senior judge of the court of which he is a member during the remainder of the term of office for which he was appointed, and he shall be eligible for reappointment to succeeding terms as such senior judge. . . ."
[5] General Statutes § 51-50d provides in relevant part: "(a) A senior judge shall have all the powers of a judge of the court to which he is designated and assigned."
[6] The powers of a judge trial referee are described in General Statutes §§ 52-434, 52-434c and 52-549z. Under § 52-434, a judge trial referee may conduct jury selection in any criminal case, except class A or B felony or capital felony matters, without the consent of the parties. Other than civil cases referred to a judge trial referee under § 52-549z, there is no specific language in the statutes as to the power of a judge trial referee to conduct jury selection without the consent of the parties in civil jury cases.
[7] The plaintiff's claim is limited to whether the court may compel a party's attendance at jury selection. The plaintiff does not claim that if the court has such a power, the court abused its discretion in exercising that power. Our review, therefore, is limited to whether the court could compel the plaintiff's attendance at jury selection.
[8] General Statutes § 51-240(a) provides: "In any civil action tried before a jury, either party shall have the right to examine, personally or by his counsel, each juror outside the presence of other prospective jurors as to his qualifications to sit as a juror in the action, or as to his interest, if any, in the subject matter of the action, or as to his relations with the parties thereto."
[9] Practice Book § 16-6 provides in relevant part: "Each party shall have the right to examine, personally or by counsel, each juror outside the presence of other prospective jurors as to qualifications to sit as a juror in the action, or as to the person's interest, if any, in the subject matter of the action, or as to the person's relations with the parties thereto. . . ."
[10] Practice Book § 16-6 replaces "either" with "each" and replaces the pronoun "his" with the gender neutral language "the person's."
[11] We have long recognized that "courts have a necessary inherent power, independent of statutory authorization, to prescribe rules to regulate their proceedings and to facilitate the administration of justice as they deem necessary." Hamernick v. Bach, 64 Conn.App. 160, 167, 779 A.2d 806 (2001); see also Rozbicki v. Huybrechts, 218 Conn. 386, 390-91, 589 A.2d 363 (1991) (finding party may play significant role at voir dire).
[12] The plaintiff does not raise any federal constitutional claims.
[13] Article first, § 1, of the constitution of Connecticut provides: "All men when they form a social compact, are equal in rights; and no man or set of men are entitled to exclusive public emoluments or privileges from the community."
[14] Article first, § 19, of the constitution of Connecticut, as amended by article four of the amendments, provides in relevant part: "In all civil and criminal actions tried by a jury, the parties shall have the right to challenge jurors peremptorily, the number of such challenges to be established by law. The right to question each juror individually by counsel shall be inviolate."
[15] Canon 3(c)(1)(A) of the Code of Judicial Conduct provides in relevant part: "A judge should disqualify himself or herself in a proceeding in which the judge's impartiality might reasonably be questioned, including but not limited to instances where . . . the judge has a personal bias or prejudice concerning a party, or personal knowledge of disputed evidentiary facts concerning the proceeding. . . ."
[16] Practice Book § 10-50 provides: "No facts may be proved under either a general or special denial except such as show that the plaintiff's statements of fact are untrue. Facts which are consistent with such statements but show, notwithstanding, that the plaintiff has no cause of action, must be specially alleged. Thus, accord and satisfaction, arbitration and award, coverture, duress, fraud, illegality not apparent on the face of the pleadings, infancy, that the defendant was non compos mentis, payment (even though nonpayment is alleged by the plaintiff), release, the statute of limitations and res judicata must be specially pleaded, while advantage may be taken, under a simple denial, of such matters as the statute of frauds, or title in a third person to what the plaintiff sues upon or alleges to be the plaintiff's own."
[17] In her appellate brief, the plaintiff titles this claim: "The court erred in failing to charge as to [the plaintiff's] loss of earnings and earning capacity." We believe this characterization is misleading. There is no indication in the record before us that the court refused to instruct the jury on the plaintiff's loss of earnings or diminished earning capacity. The court stated that it "did not intend to charge the jury or permit [the plaintiff] to argue to the jury any claim of damages relating to the costs of [the plaintiff's] dental practice in hiring an additional dental assistant." (Emphasis added.)
Furthermore, although the plaintiff refers to earnings and earning capacity in the heading of her argument, her argument itself makes clear that she sought to recover damages for the additional costs incurred by her business, rather than for any loss of earnings or diminished earning capacity. Accordingly, our review of this claim is limited to whether the court was required to give an instruction relating to the additional costs incurred by the plaintiff's business.
[18] In her brief, the plaintiff quotes the entire case of Lashin v. Corcoran, 146 Conn. 512, 152 A.2d 639 (1959), as support for her claim. We find Lashin, however, to be inapplicable in this case because of the type of damages the plaintiff seeks to recover. In Lashin, the plaintiff sought damages resulting from her lost earning capacity. Id., at 513, 152 A.2d 639. In the present case, the plaintiff did not seek damages for her lost earning capacity. Her only claim, and the only evidence she presented on the matter, related to the additional costs incurred by the limited liability company of which she is a member.
The plaintiff's brief also includes a lengthy four paragraph quotation from Carrano v. Yale-New Haven Hospital, 279 Conn. 622, 904 A.2d 149 (2006). She has not provided, however, any legal analysis as to why this extensive quotation is relevant to her claim. See, e.g., Giulietti v. Giulietti, 65 Conn.App. 813, 840-41, 784 A.2d 905 ("[t]he parties may not merely cite a legal principle without analyzing the relationship between the facts of the case and the law cited" [internal quotation marks omitted]), cert. denied, 258 Conn. 946, 947, 788 A.2d 95, 96, 97 (2001).
[19] The plaintiff's brief, without offering any legal analysis of its own, urges us to adopt in full the reasoning of the Superior Court in Bates v. Rebimbas, Superior Court, judicial district of Waterbury, Docket No. CV-06-65000640-S, 2006 WL 2773555 (September 13, 2006) (42 Conn. L. Rptr. 51). We decline this invitation because the plaintiff has failed to demonstrate that the reasoning of Bates is applicable to the facts present in this case.
[20] Even if we were to find that the court improperly charged the jury, the plaintiff cannot meet her burden of establishing that any impropriety prejudiced her. Our Supreme Court has often stated that "before a party is entitled to a new trial . . . he or she has the burden of demonstrating that the error was harmful. . . . An instructional impropriety is harmful if it is likely that it affected the verdict." Schoonmaker v. Lawrence Brunoli, Inc., 265 Conn. 210, 243, 828 A.2d 64 (2003). In this case, we conclude that even if the court's instructions on damages were improper, any error was harmless. The plaintiff was able to place before the jury her full case regarding the defendants' alleged negligence. When presented with all the evidence, the jury found in favor of the defendants. Accordingly, any error in the court's instructions is rendered harmless by virtue of the jury's verdict. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1542249/ | 947 A.2d 582 (2008)
179 Md. App. 666
Ernest James McDOWELL
v.
STATE of Maryland.
No. 2367, September Term, 2006.
Court of Special Appeals of Maryland.
May 8, 2008.
*585 Celia Anderson Davis and Stephen T. Harris[**] (Nancy S. Forster, Public Defender on the brief), Baltimore, for Appellant.
Jeremy M. McCoy (Douglas F. Gansler, Atty. General on the brief), Baltimore, for Appellee.
Panel: DAVIS, WOODWARD and LAWRENCE F. RODOWSKY, (Retired, Specially Assigned), JJ.
WOODWARD, Judge.
In the Circuit Court for Queen Anne's County, appellant, Ernest James McDowell, was charged with eight counts of narcotics-related offenses arising from the seizure of heroin and drug paraphernalia following a routine traffic stop on December 20, 2005. At a motions hearing, appellant moved to suppress the evidence seized during the traffic stop and the statements that he made to the police. At the conclusion of the hearing, the judge took the case under advisement and, thereafter, issued a written opinion denying appellant's motion to suppress.
Appellant entered into an agreement with the State to proceed on an agreed statement of facts as to one count of unlawfully bringing a controlled dangerous substance into the State. The trial judge found the agreed facts sufficient to establish a factual basis for the charge and entered a verdict of guilty. On November 29, 2006, appellant was sentenced to 20 years' incarceration. The State entered a nolle pros to the remaining counts. This appeal followed.
The sole issue on appeal is whether the circuit court erred in denying appellant's motion to suppress the physical evidence. Finding no error, we shall affirm the judgment.
BACKGROUND
On August 16, 2006, the hearing on the motion to suppress was held. Trooper Jeremiah Gussoni of the Maryland State Police, Centreville Barrack, was the only witness to testify. Based on his testimony, the following facts were adduced.
On December 20, 2005, at 11:40 p.m., Trooper Gussoni was traveling on Route 301 southbound in Queen Anne's County, Maryland when he observed a Chevy pickup truck driving erratically. Trooper Gussoni testified:
I observed that the vehicle would be [sic] traveling in lane one, the fast lane, would go across the edge line, back over the center line, the divided white line, into lane two, across the edge line, back into lane one; made several erratic moves like that.
At one point, two vehicles actually had to take evasive maneuvers to keep from being struck. I paced the vehicle about a half mile. [It] [w]as actually traveling down the center of both the lanes. I then activated my emergency lights and initiated a traffic stop on the vehicle.
The vehicle pulled over onto the right-hand shoulder of Route 301, a short distance before the 101 mile marker. It was very dark outside, and Trooper Gussoni described the area as "poorly lit." Trooper Gussoni observed two individuals in the vehicle, a driver and a front-seat passenger. *586 When Trooper Gussoni approached the stopped vehicle, he advised the driver of his name and the reason for the stop. The driver apologized, explaining that the reason for his erratic driving was that he was tired. The driver identified himself as Hugh Collins Hines and appellant as his passenger. Appellant stated that it was his vehicle and that he was not carrying any identification.
During the stop, Trooper Gussoni observed that both Hines and appellant were nervous. In particular, Trooper Gussoni noticed that appellant, who was "staring straight, wouldn't look at me, was just just appeared to me to be out of it."[1]
Trooper Gussoni returned to his vehicle and initiated a driver's license check on the status of Hines's license as well as a "check on both men." While sitting in his vehicle, Trooper Gussoni could see into appellant's vehicle, which was illuminated by the trooper's "multi-patrol vehicle spot light." Trooper Gussoni saw appellant "bending down, bending over. I could see him twisting his body. He made several movements like that. At that point, appearing that he might have been retrieving a weapon, I requested backup," which was approximately 15 to 20 minutes away.
Trooper Gussoni exited his patrol car, "went to the rear of [his] vehicle as not to cross [the vehicle's] high beam light," and walked up to the passenger side of the stopped pickup truck. Trooper Gussoni "stood just behind the passenger side window," where he "observed [appellant] reaching underneath his seat and then behind his seat into a gym bag." The gym bag was "a standard gym bag, two and a half feet by a foot and a half" and "undoubtedly" large enough to hold a weapon. Trooper Gussoni testified:
At that point, I knocked on the window and spoke with [appellant]. I asked him what he was reaching for in the bag. I observed that the driver was now smoking a cigarette. [Appellant] had advised me that he was looking for cigarettes. I said, well, [appellant], are there any cigarettes in the bag and he said, well, no. I said what are you doing going into that bag. Again, figuring he had some type of weapon in there.
Appellant's nervous movements made Trooper Gussoni fearful that, based on his training at the State Police Academy, appellant had a weapon. Trooper Gussoni described appellant's movements as "indicative of someone trying to hide an item or retrieving a weapon or hiding a weapon." Trooper Gussoni elaborated: "A normal person is not going to reach underneath a seat, reach behind his seat into a bag and, then, when you ask about his [sic] contents, he is quickly moving away from that bag."
Because of his belief that "there was a weapon in the bag or [appellant] had secreted one," Trooper Gussoni asked appellant to exit the vehicle and bring the bag with him. Hines remained in the driver's seat while Trooper Gussoni directed appellant to "come to the rear of the vehicle, along with the bag." When asked "Why did you have [appellant] bring the bag out [of the car]?," Trooper Gussoni responded: "[F]rom the initial point of the traffic point [sic] how [appellant] was acting, the movements into the bag. I believe he had placed a weapon in there. It would be foolish of me to leave a bag with a weapon with another person in a vehicle with me outside." Trooper Gussoni further explained: "I was going to search the bag for a weapon. I was going to make sure there *587 wasn't a gun in there or a knife or something that would harm me."
When appellant reached the rear of the vehicle, Trooper Gussoni expressed to appellant his fear that appellant was retrieving a weapon or hiding a weapon in the bag. Appellant responded: "[N]o, there's no weapons in there," after which Trooper Gussoni asked appellant to open the bag. Appellant opened the bag "extremely wide from the top and the sides," and Trooper Gussoni observed several prescription bottles, personal hygiene items, clothing, used syringes, and a torn plastic baggy containing white powdery residue. Trooper Gussoni described the syringes: "You could tell from the syringes that they had been used. Some were partly drawn back. There was dry blood in there what appeared to be dried blood at that point[.]"
Based on his training and expertise, Trooper Gussoni believed that the torn baggy was drug paraphernalia containing either cocaine or heroin, because "[t]hose are drugs that are heavily . . . injected into the body." When backup arrived, Trooper Gussoni placed appellant under arrest and performed a search incident to arrest of appellant's person and the pickup truck. Several torn plastic baggies of powdery residue were found in the front pocket of appellant's jeans. Recovered from the vehicle were several torn plastic baggies, a spoon with residue on one side and burn marks on the other side, a syringe left in the glove box, 20 packages of mannite, an agent commonly used for cutting narcotics, and numerous bloody towels.
The gym bag was transported to the police barracks where it was searched further. Trooper Gussoni found two knotted plastic baggies containing 55.5 grams of a brownish substance, later determined to be heroin.
At the conclusion of the hearing, the motions judge took the case under advisement and, on September 7, 2006, issued a written opinion denying appellant's motion to suppress the physical evidence and the statements that he made to the police.[2] In a thorough and well-reasoned opinion, the motions court stated, in pertinent part:
Trooper Gussoni had reasonable articulable suspicion that [appellant] was armed and dangerous, thereby allowing him to conduct a frisk of [appellant], and of the gym bag. Trooper Gussoni described that at the time of the stop it was dark, late at night; the Trooper was conducting a traffic stop whereby he received an out of state driver's license from the driver who did not own the vehicle; the passenger in the right front passenger seat owned the car but was not driving it; the same passenger seemed "out of it"; [appellant] was making furtive gestures towards the rear seat of the car, and the gym bag was in the rear seat. [Appellant] was reaching for it during the traffic stop, and the bag was large enough to hold a handgun. These are not the inchoate, unparticularized facts present in Derricott [v. State, 327 Md. 582, 611 A.2d 592 (1992)] or Payne [v. State, 65 Md.App. 566, 501 A.2d 484 (1985)]. The Trooper here observed what he considered furtive *588 gestures, suspicious activity by the passenger, in particular, while effectuating the stop and attempting to obtain information from and about the driver and passenger, which led him to believe that [appellant] possessed a weapon which might have harmed him. As in Matoumba [v. State, 162 Md.App. 39, 873 A.2d 386 (2005)], Trooper Gussoni acted as a reasonably prudent man in the circumstances and was warranted in the belief that his safety was in danger. Upon re-approaching the car, on the passenger side, he observed [appellant] reaching for the bag. [Appellant] indicated, when questioned about the bag and his activities, that he wanted a cigarette but stated that there were none in the bag. It was then that the officer had [appellant] exit the vehicle with the bag. "When a police officer lawfully conducting a protective search reasonably believes a gun is concealed in the detainee's bag, the officer remains vulnerable and in danger if the bag is returned and the detainee released at the conclusion of the investigative stop. It would be clearly unreasonable to deny the officer the power to take necessary measures to determine whether the person is in fact carrying a weapon and to neutralize the threat of physical harm." Jordan [v. State, 72 Md.App. 528, 531 A.2d 1028 (1987)]. Quite similarly, if Trooper Gussoni had taken a different course of action and allowed [appellant] to reenter the vehicle without further investigation into what he believed contained a weapon, the threat would not have been neutralized.
* * *
The Trooper's order to [appellant] that he get out of the vehicle and for him to bring the bag with him was a protective `frisk' of the passenger and the item, specifically narrowed in scope to the specific bag which the Trooper believed contained the weapon.
* * *
The Court finds the testimony of the Trooper fully credible.
* * *
Consequently, the evidence obtained from [appellant's] gym bag and from any searches of [appellant's] person or automobile . . . will not be suppressed.
On October 5, 2006, appellant entered into an agreement with the State to proceed on an agreed statement of facts as to one count of unlawfully bringing a controlled dangerous substance into the State. At a hearing on October 10, 2006, the judge found that the agreed facts were sufficient to establish a factual basis for the charge and entered a verdict of guilty. On November 29, 2006, appellant was sentenced to 20 years' incarceration. The State entered a nolle prosse to the remaining counts.
Appellant timely noted this appeal.
STANDARD OF REVIEW
In Hoerauf v. State, 178 Md.App. 292, 306, 941 A.2d 1161 (2008), we recently discussed the appropriate standard for reviewing the denial of a motion to suppress:
When reviewing a circuit court's disposition of a motion to suppress evidence, we "consider only the facts and information contained in the record of the suppression hearing." Longshore v. State, 399 Md. 486, 498, 924 A.2d 1129 (2007). "`[W]e view the evidence and inferences that may be reasonably drawn therefrom in a light most favorable to the prevailing party on the motion,'" in this case, the State. Owens v. State, 399 Md. 388, 403, 924 A.2d 1072 *589 (2007) (quoting State v. Rucker, 374 Md. 199, 207, 821 A.2d 439 (2003)). We defer to the trial court's factual findings and uphold them unless they are shown to be clearly erroneous. Id. We also make our "`own independent constitutional appraisal,'" by reviewing the relevant law and applying it to the facts and circumstances of this particular case. Longshore, 399 Md. at 499, 924 A.2d 1129 (quoting Jones v. State, 343 Md. 448, 457, 682 A.2d 248 (1996)).
DISCUSSION
Appellant maintains that the search of the gym bag was unlawful because it was "conducted without a warrant, without probable cause, and without authority under Terry v. Ohio, 392 U.S. 1, 88 S.Ct. 1868, 20 L.Ed.2d 889[] (1968) . . . since there were no facts to suggest that [appellant] was armed." Consequently, appellant contends that the motions court should have suppressed the physical evidence. We disagree.
The Fourth Amendment to the United States Constitution[3] is made applicable to the State of Maryland through the Due Process Clause of the Fourteenth Amendment, see Mapp v. Ohio, 367 U.S. 643, 655, 81 S.Ct. 1684, 6 L.Ed.2d 1081 (1961); Owens v. State, 322 Md. 616, 622, 589 A.2d 59 (1991), and "protects against unreasonable searches and seizures, including seizures that involve only a brief detention." Stokes v. State, 362 Md. 407, 414, 765 A.2d 612 (2001). "It is fundamental, under Federal and Maryland jurisprudence, that the detention of a motorist pursuant to a police traffic stop is a seizure encompassed by the Fourth Amendment." Farewell v. State, 150 Md.App. 540, 562, 822 A.2d 513 (2003); see United States v. Sharpe, 470 U.S. 675, 682, 105 S.Ct. 1568, 84 L.Ed.2d 605 (1985); State v. Green, 375 Md. 595, 609, 826 A.2d 486 (2003); Rowe v. State, 363 Md. 424, 432, 769 A.2d 879 (2001); Ferris v. State, 355 Md. 356, 369, 735 A.2d 491 (1999); Edwards v. State, 143 Md.App. 155, 164, 792 A.2d 1197 (2002). Such a stop, however, does not initially violate the federal Constitution if the police have probable cause to believe that the driver has committed a traffic violation. Whren v. United States, 517 U.S. 806, 810, 116 S.Ct. 1769, 135 L.Ed.2d 89 (1996).
Furthermore, an officer making a traffic stop may order the passengers to get out of the car pending completion of the stop, because the "danger to an officer from a traffic stop[, which] is likely to be greater when there are passengers in addition to the driver," outweighs the "minimal" intrusion on the passenger. Maryland v. Wilson, 519 U.S. 408, 414-15, 117 S.Ct. 882, 137 L.Ed.2d 41 (1997).
"Although warrantless searches are presumptively unreasonable, because the touchstone of the Fourth Amendment is reasonableness, the warrant requirement is subject to certain exceptions." In re Calvin S., 175 Md.App. 516, 528, 930 A.2d 1099 (2007) (internal quotations omitted); Madison-Sheppard v. State, 177 Md.App. 165, 173, 934 A.2d 1046 (2007) ("This constitutional guarantee is subject only to a few limited exceptions when the search or seizure is `conducted outside the judicial process, without prior approval by judge or magistrate.'" (internal quotation omitted)) (quoting Minnesota v. Dickerson, 508 *590 U.S. 366, 372, 113 S.Ct. 2130, 124 L.Ed.2d 334 (1993) (footnote omitted)) (quoting Katz v. United States, 389 U.S. 347, 357, 88 S.Ct. 507, 19 L.Ed.2d 576 (1967)).
One of the exceptions to the warrant requirement was announced in Terry v. Ohio, 392 U.S. 1, 88 S.Ct. 1868, 20 L.Ed.2d 889 (1968). In Terry, the United States Supreme Court authorized police officers to conduct brief, investigatory stops of persons without a warrant or probable cause to arrest, so long as the officer has reasonable suspicion that a crime is being committed, has been committed, or is about to be committed by the individual stopped. Terry, 392 U.S. at 30, 88 S.Ct. 1868. Further, under Terry, when an officer justifiably believes that an individual is armed and presently dangerous, the officer may conduct a pat down search of an individual to determine whether the individual is carrying a weapon. Id. Specifically, the Supreme Court held:
[W]here a police officer observes unusual conduct which leads him reasonably to conclude in light of his experience that criminal activity may be afoot and that the persons with whom he is dealing may be armed and presently dangerous, where in the course of investigating this behavior he identifies himself as a policeman and makes reasonable inquiries, and where nothing in the initial stages of the encounter serves to dispel his reasonable fear for his own or others' safety, he is entitled for the protection of himself and others in the area to conduct a carefully limited search of the outer clothing of such persons in an attempt to discover weapons which might be used to assault him. Such a search is a reasonable search under the Fourth Amendment, and any weapons seized may properly be introduced in evidence against the person from whom they were taken.
Id. at 30-31, 88 S.Ct. 1868.
Thus the purpose of a protective search under Terry is not to discover evidence of a crime; rather, it allows an officer to conduct an investigation without fear of violence. Minnesota v. Dickerson, 508 U.S. 366, 373, 113 S.Ct. 2130, 124 L.Ed.2d 334 (1993). Accordingly, "[i]f the protective search goes beyond what is necessary to determine if the suspect is armed, it is no longer valid under Terry and its fruits will be suppressed." Id.
In Michigan v. Long, 463 U.S. 1032, 1049, 1053, 103 S.Ct. 3469, 77 L.Ed.2d 1201 (1983), the Supreme Court extended the reach of the Terry stop and frisk, holding that, in the context of a roadside encounter, a police officer may conduct a protective search for weapons not only of an individual, but also of the passenger compartment of a motor vehicle.
In Long, two deputy police officers were on patrol one evening when they noticed a car "traveling erratically and at excessive speed," eventually turning onto a side road and swerving into a ditch. Id. at 1035, 103 S.Ct. 3469. When the deputies approached the car to investigate, the driver and only occupant of the automobile met the officers at the rear of the vehicle, "which was protruding from the ditch onto the road." Id. at 1035-36, 103 S.Ct. 3469. The driver's door was left open. Id. at 1036, 103 S.Ct. 3469. The driver did not respond to the initial requests for his license or registration, and according to one of the deputies, "appeared to be under the influence of something." Id. at 1036, 103 S.Ct. 3469 (internal quotation omitted). Having produced his license, the driver was asked again for his registration, after which he turned from the officers and walked toward the open driver's door of the vehicle. Id. Walking behind the driver, *591 the officers observed a large hunting knife on the floorboard of the car. Id. The officers stopped the driver and subjected him to a Terry protective pat down, but recovered no weapons. Id. One of the deputies then proceeded to search the vehicle for other weapons by shining his flashlight into the car without entering the vehicle. Id. When the officer noticed something protruding from under the front armrest, the officer knelt in the vehicle, lifted the armrest, and discovered an open pouch on the front seat. Id. Upon shining his flash light on the pouch, the officer saw that it contained what appeared to be marijuana. Id. The driver was arrested for possession of marijuana. Id.
In considering whether a police officer may conduct a Terry-type search of the passenger compartment of a motor vehicle during a lawful investigatory stop of the occupant, the Court in Long emphasized a police officer's interest in self-protection and the protection of others. Id. at 1047-52, 103 S.Ct. 3469. The Court observed that "investigative detentions involving suspects in vehicles are especially fraught with danger to police officers," id. at 1047, 103 S.Ct. 3469, that "suspects may injure police officers and others by virtue of their access to weapons, even though they may not themselves be armed," id. at 1048, 103 S.Ct. 3469, and that "[i]f a suspect is `dangerous,' he is no less dangerous simply because he is not arrested." Id. at 1050, 103 S.Ct. 3469. In particular, the Court stressed that, when a stop "involves a police investigation `at close range,'" the police officer "remains particularly vulnerable in part because a full custodial arrest has not been effected, and the officer must make a "quick decision as to how to protect himself and others from possible danger." Id. at 1052, 103 S.Ct. 3469. The Court further opined:
Our past cases indicate then that protection of police and others can justify protective searches when police have a reasonable belief that the suspect poses a danger, that roadside encounters between police and suspects are especially hazardous, and that danger may arise from the possible presence of weapons in the area surrounding a suspect.
Id. at 1049, 103 S.Ct. 3469.
The Court held that the police may search the passenger compartment of an automobile, "limited to those areas in which a weapon may be placed or hidden[ ] . . . if the police officer possesses a reasonable belief based on `specific and articulable facts which, taken together with the rational inferences from those facts, reasonably warrant' the officers in believing that the suspect is dangerous and the suspect may gain immediate control of weapons." Id. at 1049-50, 103 S.Ct. 3469 (quoting Terry, 392 U.S. at 21, 88 S.Ct. 1868).
Turning to the facts before it, the Court concluded that the deputies had a reasonable belief that the defendant "posed a danger if he were permitted to reenter his vehicle." Id. at 1050, 103 S.Ct. 3469. The Court explained:
The hour was late and the area rural. [The defendant] was driving his automobile at excessive speed, and his car swerved into a ditch. The officers had to repeat their questions to [the defendant], who appeared to be "under the influence" of some intoxicant. [The defendant] was not frisked until the officers observed that there was a large knife in the interior of the car into which [the defendant] was about to reenter. The subsequent search of the car was restricted to those areas to which [the defendant] would generally have immediate control, and that could contain a weapon. The trial court determined that the leather pouch containing marijuana could have contained a weapon. *592 It is clear that the intrusion was "strictly circumscribed by the exigencies which justifi[ed] its initiation."
Id. at 1050-51, 103 S.Ct. 3469 (alteration in original) (citation omitted) (footnote omitted) (quoting Terry, 392 U.S. at 26, 88 S.Ct. 1868).
Within the framework of the foregoing principles, we address whether the court erred in denying appellant's motion to suppress the evidence seized from the gym bag.
A.
The Stop
In the instant case, it is clear that Trooper Gussoni's investigatory stop and temporary detention of appellant and the driver was constitutionally justified. Based on his observations of Hines's erratic driving, close encounters with other cars, and traveling down the center of two lanes, Trooper Gussoni properly stopped the vehicle for the traffic violations that he had observed. Furthermore, because the scope of an initial intrusion during a lawful traffic stop includes the removal of the passenger of the vehicle, Trooper Gussoni did not violate the Fourth Amendment's proscription against unreasonable searches and seizures when he ordered appellant out of the vehicle. See Wilson, 519 U.S. at 415, 117 S.Ct. 882.
B.
Reasonable Articulable Suspicion
The search of the gym bag during Trooper Gussoni's roadside traffic stop clearly falls within the parameters of Long. Accordingly, we must consider "whether a reasonably prudent man in the circumstances would be warranted in the belief that his safety or that of others was in danger." Long, 463 U.S. at 1050, 103 S.Ct. 3469 (internal quotation omitted). Under Long, "[t]o engage in an area search, which is limited to seeking weapons, the officer must have an articulable suspicion that the suspect is potentially dangerous." Id. at 1052 n. 16, 103 S.Ct. 3469.
Relying on Payne v. State, 65 Md.App. 566, 501 A.2d 484 (1985), cert. denied, 305 Md. 621, 505 A.2d 1342 (1986), appellant argues that there was no reasonable articulable suspicion to perform a Terry-type search of the gym bag. According to appellant, the record reveals only Trooper Gussoni's belief that appellant was retrieving or concealing a weapon with "no facts supporting this belief." Therefore, appellant contends that Trooper Gussoni failed to provide specific and articulable facts that would reasonably warrant a belief that appellant was armed and dangerous.
"The `reasonable articulable suspicion standard' announced in Terry is less demanding than the probable cause standard used to justify a warrantless arrest." Madison-Sheppard, 177 Md.App. at 174, 934 A.2d 1046. Reasonable suspicion, however, requires that the police officer must be able to articulate more than an "inchoate and unparticularized suspicion or `hunch[.]'" Terry, 392 U.S. at 27, 88 S.Ct. 1868; see Sykes v. State, 166 Md.App. 206, 217, 887 A.2d 1095 (2005), cert. denied, 393 Md. 162, 900 A.2d 207 (2006). The Court of Appeals has expounded on the reasonable suspicion standard:
There is no standardized litmus test that governs the reasonable suspicion standard, and any effort to compose one would undoubtedly be futile. The concept of reasonable suspicion purposefully is fluid because like probable cause, [it] is not readily, or even usefully, reduced to a neat set of legal rules. It is a common sense, nontechnical conception *593 that considers factual and practical aspects of daily life and how reasonable and prudent people act.
Cartnail v. State, 359 Md. 272, 286, 753 A.2d 519 (2000) (alteration in original) (citations and internal quotations omitted).
Also, in reviewing a reasonable articulable suspicion determination, courts must look to the "totality of the circumstances." United States v. Arvizu, 534 U.S. 266, 273, 122 S.Ct. 744, 151 L.Ed.2d 740 (2002) (internal quotation omitted). The Supreme Court in Arvizu stated:
When discussing how reviewing courts should make reasonable-suspicion determinations, we have said repeatedly that they must look at the totality of the circumstances of each case to see whether the detaining officer has a particularized and objective basis for suspecting legal wrongdoing. This process allows officers to draw on their own experience and specialized training to make inferences from and deductions about the cumulative information available to them that might well elude an untrained person. Although an officer's reliance on a mere hunch is insufficient to justify a stop, the likelihood of criminal activity need not rise to the level required for probable cause, and it falls considerably short of satisfying a preponderance of the evidence standard.
Arvizu, 534 U.S. at 274-75, 122 S.Ct. 744 (citations and internal quotations omitted).
The totality of the circumstances test was explained by former Chief Justice Burger in United States v. Cortez, 449 U.S. 411, 418, 101 S.Ct. 690, 66 L.Ed.2d 621 (1981):
The idea that an assessment of the whole picture must yield a particularized suspicion contains two elements, each of which must be present before a stop is permissible. First, the assessment must be based upon all the circumstances. The analysis proceeds with various objective observations, information from police reports, if such are available, and consideration of the modes or patterns of operation of certain kinds of lawbreakers. From these data, a trained officer draws inferences and makes deductions-inferences and deductions that might well elude an untrained person.
The process does not deal with hard certainties, but with probabilities. Long before the law of probabilities was articulated as such, practical people formulated certain common sense conclusions about human behavior; jurors as factfinders are permitted to do the same-and so are law enforcement officers. Finally, the evidence thus collected must be seen and weighed not in terms of library analysis by scholars, but as understood by those versed in the field of law enforcement.
The second element contained in the idea that an assessment of the whole picture must yield a particularized suspicion is the concept that the process just described must raise a suspicion that the particular individual being stopped is engaged in wrongdoing. Chief Justice Warren, speaking for the Court in Terry v. Ohio, said that, [t]his demand for specificity in the information upon which police action is predicated is the central teaching of this Court's Fourth Amendment jurisprudence.
(Alteration in original) (emphasis, citations, and internal quotations omitted).
In both Payne v. State, 65 Md.App. 566, 501 A.2d 484 (1985) and Matoumba v. State, 162 Md.App. 39, 873 A.2d 386 (2005), aff'd on other grounds, 390 Md. 544, 890 A.2d 288 (2006), this Court addressed whether there existed specific and articulable facts from which a reasonable inference could be drawn that the defendant was armed and dangerous.
*594 In Matoumba, two police officers were on a "crime suppression detail" one evening in west Baltimore when they stopped a vehicle for traveling over the speed limit. 162 Md.App. at 43, 873 A.2d 386. Both officers exited their cruiser and approached the vehicle, one officer went to the driver's side and the other to the passenger side. Id. The officer who approached the passenger side observed the conduct of the appellant, who was seated in the right rear passenger seat. Id. According to that officer, the appellant "repeatedly looked back at the police cruiser" during the stop, "appeared to dip his right shoulder down toward the floor as [the officer] approached," "placed his right hand behind his back as [the officer] [ ] reached the rear passenger side," "maintained constant eye contact with [the officer]," and "demonstrated visibly shaking hands when commanded to show them." Id. When all of the occupants were ordered out of the vehicle and the appellant was frisked, one of the officers discovered a handgun in the appellant's back pocket. Id.
In considering whether the trial court erred in denying the appellant's motion to suppress, we addressed the appellant's argument that the officer's frisk was invalid under the Fourth Amendment, "because the officer lacked a reasonable articulable suspicion." Id. at 44, 873 A.2d 386. Specifically, the appellant argued that "no objectively reasonably prudent person" in the frisking officer's position would have believed that the appellant was armed. Id. at 47, 873 A.2d 386. Based on our review of the totality of the circumstances, and giving "due weight to [the] appellant's nervous conduct and obvious attempt to conceal some item behind his back, the dangerous nature of the area where the traffic stop occurred, and the initial reasonableness of the stop," we concluded that the officer had reasonable articulable suspicion to frisk the appellant. Id. at 50, 873 A.2d 386. Noting that the facts "surely warrant[ed] a prophylactic frisk to assure public and police officer safety," we stated that the officer "operated on more than a `hunch' of danger." Id.
In Payne, the appellant was the driver of a vehicle, which was double-parked and impeding the flow of traffic in a high crime area of Baltimore City. 65 Md.App. at 568, 501 A.2d 484. After observing the appellant's vehicle, an officer patrolling the area initiated a traffic stop. Id. As the officer pulled behind the appellant's vehicle, the appellant "was bending over as if picking-up or putting something on the floorboard." Id. When the officer approached the vehicle, he observed the appellant "quickly jam a black [leather] bag down to the floorboard . . . concealing it from view." Id. (alteration in original). In response to the officer's request for his driver's license and registration, the appellant acted "very cool" and "deliberate." Id. (internal quotations omitted). During the encounter, however, the officer also observed the passenger seated in the vehicle, who "grew increasingly nervous," "was sitting very rigidly like he was scared," "kept shifting his hands," "kept looking out of the corners of his eyes," and looked at the officer and then in the direction of the black bag. Id. (internal quotation omitted). Thereafter, the officer asked the appellant to step out of the vehicle and to remove the black bag. Id. After patting the exterior of the bag and feeling the outline of a handgun, the officer opened the bag and discovered a handgun, cartridges, and a marijuana cigarette. Id. at 569, 501 A.2d 484.
Reviewing the constitutionality of the frisk, this Court concluded that the record contained "absolutely no `specific and articulable facts' from which a reasonable inference can be drawn that [the appellant] was *595 armed and dangerous." Id. at 574, 501 A.2d 484. We explained:
All [the officer] saw was a car double parked, a motion by [the appellant] during which [the appellant] either placed something on or took something from the floor, a jamming of a `black bag . . . to the floorboard,' and `furtive' glances by a person who was a passenger in [the appellant's] car. How anyone can reasonably deduce from those facts that [the appellant] had a gun totally eludes us, unless [the officer] was clairvoyant. [The officer] might just as easily have concluded that [the appellant] had placed on the floor of the car narcotics, or pornographic matter, or receipts of a `numbers' pickup, or money or jewelry. The list is innumerable.
Id. Accordingly, we concluded that the trial court erred in denying the appellant's motion to suppress the contraband. Id.
We conclude that the facts generating the reasonable suspicion in Matoumba are apposite to those in the instant case, while Payne is factually distinguishable.[4] Unlike the police officer in Payne, whose suspicion about the contents of the black leather bag derived from the appellant jamming the bag under the driver's seat and the passenger exhibiting increasingly nervous behavior, 65 Md.App. at 568, 501 A.2d 484, here Trouper Gussoni's suspicion was much more than a mere hunch.
As in Matoumba, Trooper Gussoni's testimony presented specific and articulable facts, under the particularized circumstances of his roadside encounter, from which he reasonably believed that appellant had immediate control of a weapon via the gym bag. The traffic stop was initiated late at night, in a very dark and "poorly lit" area. The trooper was alone on the shoulder of the road, about 15 to 20 minutes from any backup, and two individuals occupied the stopped pick up truck. The trooper observed that both the driver and appellant were nervous and appellant appeared to be "out of it." When Trooper Gussoni returned to his patrol vehicle, he saw appellant bending down and twisting his body several times. For fear that appellant was retrieving a weapon, Trooper Gussoni requested backup. When he approached the passenger side of the vehicle, Trooper Gussoni observed appellant reaching underneath his seat and then behind his seat into a gym bag. When asked what he was reaching for in the gym bag, appellant said that he was looking for cigarettes. But when the trooper asked him whether there were cigarettes in the bag, appellant said no an answer that Trooper Gussoni interpreted as contradictory. Trooper Gussoni explained that a normal person would not reach underneath his or her seat, then behind the seat into a bag, and, when asked about the contents, "quickly mov[e] away from the bag." Based on his training at the State Police Academy, Trooper Gussoni formed a belief that appellant had a weapon, because appellant's movements were indicative of someone "retrieving a weapon or hiding a weapon."
In light of the trial court's finding that Trooper Gussoni's testimony was "fully credible," we conclude that the record contains sufficient specific and articulable facts from which a reasonable inference could be drawn that appellant was armed *596 and dangerous and that a weapon may have been placed or hidden in the gym bag, which was in the passenger compartment and large enough to contain a weapon. Accordingly, under the teachings of Long and its progeny, Trooper Gussoni was permitted to order appellant to exit the vehicle with the gym bag and to conduct a Terry-type search of the bag for weapons.
C.
The Search Without a Pat Down
Appellant also challenges the scope of Trooper Gussoni's Terry-type search of the gym bag, arguing that "a search of a container is not permissible when its characteristics permit the law enforcement officer to pat it down to determine if a weapon is inside." Under Terry and Long, appellant contends that, if Trooper Gussoni suspected that the gym bag contained a weapon, "he should have separated [appellant] from the bag," and patted down the outside of the bag for weapons.[5] We disagree.
The Supreme Court in Long "had no occasion to consider whether, if the container is soft, a `pat down' of it and discovery of a hard object within are prerequisites to search into the container, just as is true of [a] search of the suspect's person." WAYNE R. LAFAVE, 4 SEARCH AND SEIZURE: A TREATISE ON THE FOURTH AMENDMENT § 9.6 (4th ed.2004). Nevertheless, in United States v. Shranklen, 315 F.3d 959 (8th Cir.), cert. denied, Fleming v. United States, 538 U.S. 971, 123 S.Ct. 1774, 155 L.Ed.2d 529 (2003), the United States Court of Appeals for the Eighth Circuit held that, during a traffic stop where a police officer has reasonable articulable suspicion that an occupant of the vehicle is armed and dangerous, the officer is "not constitutionally required to pat down" a container found in the passenger compartment prior to opening and inspecting it. 315 F.3d at 963.
In Shranklen, the container was a black pouch that was retrieved by the police officer from under the front passenger seat. Id. at 960. The officer opened the pouch, searching for weapons, but instead found new and used syringes and illegal drugs. Id. The Court stated that "a person's privacy interest in an item such as a pouch, while protected by the Fourth Amendment, is not sacrosanct during an investigative traffic stop and must be balanced against the inherent risk of danger to officers at such stops." Id. at 964 (citation omitted). The Court reasoned:
Had the black pouch contained a weapon, there is no guarantee that merely feeling the pouch would have led [the police officer] to discover the weapon. For example, some type of padding could have enveloped the weapon, or the weapon could have been a pocket knife with an unexposed blade. It was therefore reasonable for [the police officer] to open the pouch in order to inspect for weapons with his sense of sight and not solely with his sense of touch.
Id.
Finally, the Court noted the similarity of the facts in Shranklen with those in Long, and stated that "the Supreme Court gave no indication that the officers should have patted down the pouch first." Id.
*597 Similarly, by way of dicta, this Court has interpreted Long as not requiring an officer to first pat down a container found in the passenger compartment that may contain a weapon. Watkins v. State, 90 Md.App. 437, 444-45, 601 A.2d 1115, cert. denied, 327 Md. 80, 607 A.2d 921 (1992). We stated:
By virtue of this rule, when the police legally stop a person in an automobile, the police may "frisk" the automobile for weapons provided the police have reason to believe that a weapon is in the car, the police have reason to believe that the suspect is dangerous, and the police confine their search to areas of the passenger compartment "in which a weapon may be placed or hidden." When in the course of such a search a container is found, the police may open and inspect the container without first patting it.
Id. (emphasis added).
We find the reasoning of Shranklen to be persuasive. There simply is no assurance that merely feeling the outside of a container, which is capable of being physically manipulated, will reveal the presence of a weapon located inside. Only opening and inspecting the container will definitively remove the potential threat to the officer's safety. In addition, a constitutional rule requiring a pat down first of all containers will encounter practical difficulties in the field when a police officer is confronted with a container with both hard and soft sides, such as certain gym bags and back packs.
Finally, under the circumstances of the case sub judice, Trooper Gussoni's safety would have been compromised if he had been required to pat down the gym bag instead of directing appellant to open it. The traffic stop took place late at night in a poorly lighted area, with Trooper Gussoni the only officer on the scene and backup about 15 to 20 minutes away. He had to control two nervous occupants of a vehicle, one of whom he came to reasonably believe was armed and dangerous. Trooper Gussoni also held the reasonable belief that there was a weapon in the gym bag located directly behind appellant in the vehicle. For Trooper Gussoni to have patted down the bag, he would have had to use his hands, thereby exposing his service weapon and inviting possible attack.
Therefore, we transform the dicta in Watkins into a holding that, when a Terry-type search for weapons of the passenger compartment of a motor vehicle is constitutionally permitted and, during such search, a container is found in which a weapon may have been placed or hidden, a police officer may open and inspect the container without first patting it down. Accordingly, Trooper Gussoni did not violate appellant's Fourth Amendment rights when he directed appellant to open the gym bag without first patting it down. Under Long, when a valid Terry-type search for weapons results in the discovery of illegal drugs and drug paraphernalia, the officer need not ignore the contraband, and "the Fourth Amendment does not require its suppression in such circumstances." Long, 463 U.S. at 1050, 103 S.Ct. 3469. The trial court did not err in denying appellant's motion to suppress.
JUDGMENT OF THE CIRCUIT COURT FOR QUEEN ANNE'S COUNTY AFFIRMED. APPELLANT TO PAY COSTS.
NOTES
[**] Student admitted pursuant to Rule 16.
[1] Trooper Gussoni asked Hines whether there was something wrong with appellant. No testimony was adduced regarding Hines's response.
[2] At the motions hearing, Trooper Gussoni testified that, after appellant was given his Miranda warnings at the scene, Trooper Gussoni had a conversation with appellant. In that conversation, appellant admitted to having a very bad heroin addiction, stating that he shot 30 bags a day. Appellant stated that he sometimes sold the mannite, passing it off as heroin to people in North Carolina, and used it to cut heroin. Appellant also said that he needed to sell the heroin and the mannite to support his habit. We do not review the court's refusal to suppress appellant's statements to the police as that decision is not at issue in this appeal.
[3] The Fourth Amendment provides:
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
U.S. CONST. amend. IV.
[4] We note in passing that Payne was decided over 20 years ago and Matoumba only three years ago. The law governing Terry "stop and frisk" cases has changed dramatically during the past two decades. See, e.g., Derricott v. State, 327 Md. 582, 593-94, 611 A.2d 592 (1992); see also WAYNE R. LAFAVE, 4 SEARCH AND SEIZURE: A TREATISE ON THE FOURTH AMENDMENT § 9.6 (4th ed.2004) (exploring the evolution and expansion of the Terry stop and frisk).
[5] We reject appellant's suggestion that Trooper Gussoni should have separated appellant from the gym bag. The Supreme Court expressly stated in Long that an officer, who has to make a "quick decision as to how to protect himself and others from possible danger," need not "adopt alternate means to ensure [his] safety in order to avoid the intrusion involved in a Terry encounter." Long, 463 U.S. at 1052, 103 S.Ct. 3469 (internal quotation omitted). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1542251/ | 947 A.2d 657 (2008)
400 N.J. Super. 350
STATE of New Jersey, Plaintiff-Respondent,
v.
William SCHADEWALD, Defendant-Appellant.
Docket No. A-1191-06T5
Superior Court of New Jersey, Appellate Division.
Argued September 19, 2007.
Decided October 10, 2007.
*658 Edward J. Kologi, Linden, argued the cause for appellant.
Nicole De Palma, Assistant Prosecutor, argued the cause for respondent (Edward J. De Fazio, Hudson County Prosecutor, attorney; Ms. De Palma, on the brief).
Before Judges WEFING, PARKER and LYONS.
The opinion of the court was delivered by
PARKER, J.A.D.
Defendant William Schadewald appeals from his third conviction for driving while intoxicated (DWI), N.J.S.A. 39:4-50, after de novo review. This appeal focuses on defendant's sentence to 180 days in the Hudson County Jail. He may serve up to ninety days in an inpatient rehabilitation facility pursuant to N.J.S.A. 39:4-50(a)(3). The sentence was stayed pending appeal.
Defendant pled guilty in municipal court, but argued that he was entitled to a "step-down" in sentencing from a third offense to a second in accordance with State v. Laurick, 120 N.J. 1, 575 A.2d 1340, cert. denied, 498 U.S. 967, 111 S.Ct. 429, 112 L.Ed.2d 413 (1990). During his plea colloquy, defendant acknowledged that he was previously convicted of DWI in 1989 and again in 2003. He argued, however, that in 1989, he pled guilty without the benefit of counsel. He presented the municipal judge with a copy of the 1989 summons which had a notation that stated:
Explained rights. He talked to his attorney three weeks ago. A 27 year man, attended college. Elected pro se on attorney advice.
The municipal judge denied defendant's application for a step-down in sentencing because the note on the summons indicated that defendant had spoken with counsel before appearing pro se. The municipal judge stayed the custodial sentence pending appeal to the Superior Court, Law Division.
The Law Division heard the matter de novo. State v. Kashi, 360 N.J.Super. 538, 545-46, 823 A.2d 883 (App.Div.2003). Defendant again argued that pursuant to Laurick, he was entitled to a sentence step-down. The Law Division reviewed the notations on the 1989 summons and stated:
It is the defendant's burden . . . to show that the outcome could have been different if in fact this case had gone to trial. I believe that the standard would then require the defendant to get police reports and show that in effect there could have been a legitimate challenge to that original conviction.
So I believe that the courts have placed a very heavy burden on the defendant to overcome that conviction. And therefore I do not find that that burden has been met.
The court then concluded:
I think on the first aspect the mere talking to an attorney, knowing you had the right to an attorney, knowing you had the right to be represented by an attorney and challenge the conviction, that . . . alone makes it a counseled conviction.
In this appeal, defendant argues:
POINT ONE
DEFENDANT'S FIRST CONVICTION WAS "UNCOUNSELED" WITHIN THE INTENDMENT OF STATE V. LAURICK AND ITS PROGENY
POINT TWO
*659 THE LAW DIVISION ERRED IN HOLDING THAT DEFENDANT SHOULD HAVE RAISED THE ISSUE IN WESTFIELD COURT AS OPPOSED TO IN THE INSTANT MATTER
We note initially that this is a direct appeal from defendant's conviction, rather than from a petition for post-conviction relief (PCR) pursuant to R. 7:10-2.
In Laurick, our Supreme Court addressed the issue of enhanced penalties based upon prior uncounseled DWI convictions. 120 N.J. at 1-2, 575 A.2d 1340. The Court held
that with the exception that a prior DWI conviction that was uncounseled in violation of court policy may not be used to increase a defendant's loss of liberty, there is no constitutional impediment to the use of the prior uncounseled DWI conviction to establish repeat-offender status under DWI laws. With respect to collateral consequences of an uncounseled conviction other than a loss of liberty, any relief to be afforded should follow our usual principles for affording post-conviction relief from criminal judgments, namely, a showing of a denial of fundamental justice or other miscarriage of justice.
[120 N.J. at 4-5, 575 A.2d 1340.]
The right to counsel attaches in misdemeanor cases "only if the conviction results in imprisonment." Id. at 7, 575 A.2d 1340 (citing Argersinger v. Hamlin, 407 U.S. 25, 92 S.Ct. 2006, 32 L.Ed.2d 530 (1972)). In Laurick, the Court established the principle that
[a] defendant in a second or subsequent DWI proceeding should have the right to establish that [notice of right to counsel] was not given in his or her earlier case, and that if defendant is indigent, the DWI conviction was a product of an absence of notice of the right to assignment of counsel and non-assignment of such counsel without waiver. A non-indigent defendant should have the right to establish such lack of notice as well as the absence of knowledge of the right to be represented by counsel of one's choosing and to prove that the absence of such counsel had an impact on the guilt or innocence of the accused or otherwise "wrought a miscarriage of justice for the individual defendant."
[Id. at 11, 575 A.2d 1340 (quoting State v. Cerbo, 78 N.J. 595, 607, 397 A.2d 671 (1979)).]
Defendants should present their step-down applications "in the court of original jurisdiction [for the uncounseled conviction], which will be in the best position to evaluate whether there has been any denial of fundamental justice." Id. at 17, 575 A.2d 1340. If defendants can establish that they were not advised of the right to counsel, they must further show a prejudicial effect on the outcome of the proceedings. Laurick, supra, 120 N.J. at 12, 575 A.2d 1340. "[T]o establish injustice there should at least be some showing that the absence of the notice [of right to counsel] . . . had a `real probability' of having played a role in the determination of guilt." Id. at 13, 575 A.2d 1340 (quoting State v. Reynolds, 43 N.J. 597, 602, 206 A.2d 750 (1965)).
In State v. Hrycak, 184 N.J. 351, 877 A.2d 1209 (2005), the Court reaffirmed its decision in Laurick and established the test for a Laurick challenge.
A defendant is faced with a three-step undertaking in proving that a prior uncounseled DWI conviction should not *660 serve to enhance the jail component of a sentence imposed on a subsequent DWI conviction. As a threshold matter, the defendant has the burden of proving in a second or subsequent DWI proceeding that he or she did not receive notice of the right to counsel in the prior case. He or she must then meet the two-tiered Laurick burden. 120 N.J. at 11, 575 A.2d 1340. In that vein, if a defendant proves that notice of the right to counsel was not provided, the inquiry is then bifurcated into whether the defendant was indigent or not indigent. "[I]f [the] defendant [was] indigent, [the defendant must prove that] the DWI conviction was a product of an absence of notice of the right to assignment of counsel and non-assignment of such counsel without waiver." Ibid. On the other hand, if the defendant was not indigent at the time of the prior uncounseled conviction,
[the] defendant should have the right to establish such lack of notice as well as the absence of knowledge of the right to be represented by counsel of one's choosing and to prove that the absence of such counsel had an impact on the guilt or innocence of the accused or otherwise `wrought a miscarriage of justice for the individual defendant.'
[Hrycak, supra, 184 N.J. at 363, 877 A.2d 1209 (quoting Cerbo, supra, 78 N.J. at 607, 397 A.2d 671).]
In other words, to establish entitlement to the step-down sentence for a second or subsequent DWI:
1. Indigent defendants must establish that they were not given notice of their right to counsel and advised that counsel would be provided for them if they could not afford one.
2. Non-indigent defendants must establish that they were not advised of their right to counsel and that they were unaware of such right at the time they entered the uncounseled pleas.
3. Defendants who establish that they were not adequately noticed of their right to counsel must then demonstrate that if they had been represented by counsel, they had a defense to the DWI charge and the outcome would, in all likelihood, have been different. Police reports, witness statements, insurance investigations and the like may be used to submit proofs that the outcome would have been different if the defendant had the benefit of counsel before pleading guilty.
Here, defendant has presented the 1989 summons with the notation indicating that he had spoken with an attorney who advised him to appear pro se and plead guilty. From that cryptic note, we are unable to determine whether defendant discussed any possible defenses with the attorney, whether defendant could have afforded an attorney of his own, and whether he was advised that an attorney would be appointed for him if he could not afford an attorney of his choice. Since we have not been provided with the record of the uncounseled plea in 1989, we are unable to determine what advice was given to defendant by the municipal court or the attorney he contacted. Moreover, the record before us does not indicate whether defendant had a defense to the 1989 charge. In short, based upon the record before us, we are unable to make a determination of whether defendant is entitled to a sentence step-down as a result of the uncounseled conviction in 1989. Accordingly, we remand for a hearing in accordance with the principles established in Laurick and Hrycak.
*661 We note that R. 7:10-2 was amended, effective September 1, 2007, to set forth the specific procedures for making a Laurick application in municipal court. Pressler, Current N.J. Court Rules, comment 2 on R. 7:10-2 (2008). Although the rule was not in effect at the time of defendant's sentencing, the procedure provides guidance for future applications.
Rule 7:10-2(f) provides:
(f) Procedure.
(1) The municipal court administrator shall make an entry of the filing of the petition in the proceedings in which the conviction took place, and if it is filed pro se, shall forthwith transmit a copy to the municipal prosecutor. An attorney filing the petition shall serve a copy on the municipal prosecutor before filing.
(2) The petition shall be verified by defendant and shall set forth with specificity the facts upon which the claim for relief is based, the legal grounds of the complaint asserted and the particular relief sought. The petition shall include the following information:
(A) the date, docket number and contents of the complaint upon which the conviction is based and the municipality where filed;
(B) the sentence or judgment complained of, the date it was imposed or entered, and the name of the municipal court judge then presiding;
(C) any appellate proceedings brought from the conviction, with copies of the appellate opinions attached;
(D) any prior post-conviction relief proceedings relating to the same conviction, including the date and nature of the claim and the date and nature of disposition, and whether an appeal was taken from those proceedings and, if so, the judgment on appeal;
(E) the name of counsel, if any, representing defendant in any prior proceeding relating to the conviction, and whether counsel was retained or assigned; and
(F) whether and where defendant is presently confined. A separate memorandum of law may be submitted.
(G) In addition, the moving papers in support of such an application shall include, if available, records related to the underlying conviction, including, but not limited to, copies of all complaints, applications for assignment of counsel, waiver forms and transcripts of the defendant's first appearance, entry of guilty plea and all other municipal court proceedings related to the conviction sought to be challenged. The petitioner shall account for any unavailable records by way of written documentation from the municipal court administrator or the custodian of records, as the case may be.
(3) Amendments of the petitions shall be liberally allowed. Assigned counsel may, as a matter of course, serve and file an amended petition within 25 days after assignment. Within 30 days after service of a copy of the petition or amended petition, the municipal prosecutor shall serve and file an answer to the petition or move on ten days' notice for dismissal. If the motion for dismissal is denied, the government's answer shall be filed within fifteen days after entry of the order denying the dismissal.
(4) A defendant in custody shall be present in court if oral testimony is adduced on a material issue of fact within the defendant's personal knowledge. A defendant in custody may otherwise be present in court only in the judge's discretion.
*662 (5) In making a final determination on a petition, either on motion for dismissal or after hearing, the court shall state separately its findings of fact and conclusions of law and shall enter judgment or sentence in the conviction proceedings and any appropriate provisions as to rearraignment, retrial, custody, bail, discharge, correction of sentence or as may otherwise be required.
Rule 7:10-2(g) sets forth the criteria for relief from enhanced custodial terms based on prior convictions:
(g) Petition to Obtain Relief from Enhanced Custodial Term Based on a Prior Conviction.
(1) Venue. A post-conviction petition to obtain relief from an enhanced custodial term based on a prior conviction shall be brought in the court where the prior conviction was entered.
(2) Time Limitations. The time limitations for filing petitions for post-conviction relief under this section shall be the same as those set forth in R. 3:22-12 [which provides a five-year limitation period for PCR petitions in criminal cases].
(3) Procedure. A petition for post-conviction relief sought under this section shall be in writing and shall conform to the requirements of R. 7:10-2(f). In addition, the moving papers in support of such application shall include, if available, records related to the underlying conviction, including, but not limited to, copies of all complaints, applications for assignment of counsel, waiver forms and transcripts of the defendant's first appearance, entry of a guilty plea and all other municipal court proceedings related to the conviction sought to be challenged. The petitioner shall account for any unavailable records by way of written documentation from the municipal court administrator or the custodian of records, as the case may be.
(4) Appeal. Appeals from a denial of post-conviction relief from the effect of a prior conviction shall be combined with any appeal from proceedings involving the repeat offense. Appeals by the State may be taken under R. 3:23-2(a).
The amended rule clearly sets forth the procedures for making PCR applications in municipal courts to obtain relief from enhanced penalties for uncounseled subsequent DWI offenses. Although the rule was effective on September 1, 2007, we find those procedures appropriate for cases that arose before September 1, 2007.
The matter is, therefore, remanded for defendant to make his PCR application in the court where he entered his uncounseled 1989 plea. That application shall be made within thirty days of the date of this opinion. If defendant prevails on the PCR application, within ten days of that decision, he shall return to the court in which he pled to this offense for resentencing in accordance with Laurick. If defendant's PCR application is denied, the stay of his custodial sentence shall be dissolved and he shall surrender to the county jail within ten days of the denial of PCR.
We do not retain jurisdiction. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/718638/ | 84 F.3d 803
Robert C. APARICIO, Plaintiff-Appellant,v.NORFOLK & WESTERN RAILWAY COMPANY, Defendant-Appellee.
No. 95-3068.
United States Court of Appeals,Sixth Circuit.
Argued April 29, 1996.Decided May 30, 1996.
Mark T. Coulter (argued and briefed), Robert N. Peirce, Jr. & Associates, Pittsburgh, PA, Steve C. Foley, Robert E. Sweeney & Co., Cleveland, OH, for plaintiff-appellant.
David W. Stuckey (argued and briefed), Robison, Curphey & O'Connell, Toledo, OH, for defendant-appellee.
Before: MARTIN and SILER, Circuit Judges; HEYBURN, District Judge.*
BOYCE F. MARTIN, Jr., Circuit Judge.
1
This is an appeal from a decision granting judgment as a matter of law to defendant Norfolk & Western Railway Company after the close of Robert Aparicio's case during the trial of his claim under the Federal Employers' Liability Act, 45 U.S.C. §§ 51-60 (1988). Aparicio appeals the district court's decision granting judgment as a matter of law to Norfolk & Western and raises two other issues on appeal. For the following reasons, we REVERSE in part and AFFIRM in part the decision of the district court and REMAND for retrial.
2
Beginning in 1976, Aparicio worked as a track maintenance laborer for Norfolk & Western until his resignation in January of 1994. Aparicio worked on the "maintenance of way" crew, and his responsibilities included making repairs to the track and railroad crossings. Aparicio's work required him to work with many types of tools such as air tampers, jack hammers, impact wrenches, claw bars, anchor wrenches, grinders, and spiking guns. Between 1987 and 1990 Aparicio changed duties on the crew, and his primary job during that period was to sit and operate the controls of heavy machinery. After 1990, Aparicio returned to his "hands on" duties as a track maintenance laborer.
3
As early as 1987, Aparicio visited Dr. John Osborne, complaining of numbness and tingling in his right hand. Dr. Osborne recommended conservative treatment and the symptoms resolved themselves. Aparicio returned to work in six weeks and did not have any more difficulty for approximately five years. In late January 1992, Aparicio again sought Dr. Osborne's help regarding pain in both of his hands and wrists. Dr. Osborne referred Aparicio to Dr. Patrick Murray, an orthopedic surgeon, who diagnosed carpal tunnel syndrome. Dr. Murray performed four surgeries on Aparicio for his condition and Aparicio returned to work on May 1, 1992. In September 1993, Aparicio was having pain in his right elbow. Dr. Murray diagnosed epicondylitis ("tennis elbow"). After several months of treatment, Dr. Murray concluded that Aparicio could not return to work. Aparicio has not worked since January 1994.
4
Aparicio filed suit in May 1993 under Section 51 of the Federal Employers' Liability Act. Section 51 of the Federal Employers' Liability Act provides in pertinent part that:
5
Every common carrier by railroad while engaging in [interstate or international] commerce ..., shall be liable in damages to any person suffering injury [or death] while he is employed by such carrier in such commerce ... for such injury or death resulting in whole or in part from the negligence of any of the [officers, agents, or employees] of such carrier, or by reason of any defect or insufficiency, due to its negligence, in its cars, engines, appliances, machinery, track, roadbed, works, boats, wharves, or other equipment.
6
Aparicio's complaint alleged that his injuries were due to his job duties, which exposed him to "excessive and harmful cumulative trauma to his hands, wrists and arms due to the equipment with which he performed his work for the defendant." Aparicio claimed that Norfolk & Western failed to use ordinary care to provide him with a reasonably safe work environment by requiring him to do work in a way that exposed his upper extremities to repetitive trauma. Aparicio further contended that Norfolk & Western was negligent by not evaluating the trauma to his upper body, by not redesigning his job functions or tasks in a more ergonomically sound manner and by not advising him of the risk of developing carpal tunnel syndrome.
7
Norfolk & Western moved for summary judgment, claiming that Aparicio's action was time-barred by the three-year statute of limitations in Federal Employers' Liability Act actions because Aparicio should have known in 1987 that his injuries were work-related. As discussed below, the district court granted the motion in part and denied it in part. The case proceeded to trial on the theory that Aparicio could recover if the jury found that his 1992 injuries were separate from his 1987 injury to his right hand.
8
The trial began on December 19, 1994. At the close of Aparicio's case, Norfolk & Western moved for judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50(a). The district court granted the motion, concluding that the record was "barren of any evidence tending to prove negligence." Aparicio now appeals, challenging the district court's decision to grant judgment as a matter of law to Norfolk & Western, to grant partial summary judgment to Norfolk & Western, and to exclude some testimony evidence.
I.
9
We review de novo a district court's decision to grant judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50(a), Snyder v. Ag Trucking, Inc., 57 F.3d 484, 490 (6th Cir.1995), applying the same standard as did the district court. Phelps v. Yale Security, Inc., 986 F.2d 1020, 1023 (6th Cir.), cert. denied, --- U.S. ----, 114 S.Ct. 175, 126 L.Ed.2d 135 (1993). Federal Rule of Civil Procedure 50(a) provides that:
10
If during a trial by jury a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue, the court may determine the issue against that party and may grant a motion for judgment as a matter of law.
11
Unless otherwise prescribed by law, we have held that a district court should grant a motion for judgment as a matter of law if "there is either a complete absence of proof on the issues or no controverted issues of fact upon which reasonable persons could differ." Monette v. AM-7-7 Baking Co., 929 F.2d 276, 280 (6th Cir.1991) (citation omitted). Without weighing the evidence or judging the credibility of witnesses, and drawing all inferences in favor of the non-moving party, a district court usually undertakes to determine whether there is sufficient evidence to permit reasonable jurors to find for the non-moving party. Cook v. American Steamship Co., 53 F.3d 733, 740 (6th Cir.1995) (citation omitted). Where the defendant has moved for judgment as a matter of law at the close of the plaintiff's case, this standard requires the district court to decide whether a reasonable jury could conclude that the plaintiff has not proven an element of his or her case. The "reasonableness" inquiry upon a defendant's motion for judgment as a matter of law is not determined by asking whether the plaintiff has proven his or her case by a preponderance of the evidence because the defendant has not yet presented any proof. Rather, a court looks only to the plaintiff's evidence to make its determination.
12
A different standard applies in Federal Employers' Liability Act cases. The Supreme Court has held that a jury question is created in a Federal Employers' Liability Act case if
13
the proofs justify with reason the conclusion that employer negligence played any part, even the slightest, in producing the injury or death for which damages are sought. It does not matter that, from the evidence, the jury may also with reason, on grounds of probability, attribute the result to other causes, including the employee's contributory negligence. Judicial appraisal of the proofs to determine whether a jury question is presented is narrowly limited to the single inquiry whether, with reason, the conclusion may be drawn that negligence of the employer played any part at all in the injury or death. Judges are to fix their sights primarily to make that appraisal and, if that test is met, are bound to find that a case for the jury is made out whether or not the evidence allows the jury a choice of other probabilities. The statute expressly imposes liability upon the employer to pay damages for injury or death due "in whole or in part" to its negligence.
14
Rogers v. Missouri Pac. R.R. Co., 352 U.S. 500, 506-07, 77 S.Ct. 443, 448-49, 1 L.Ed.2d 493 (1957) (footnotes omitted); see also Green v. River Terminal Ry. Co., 763 F.2d 805, 806-07 (6th Cir.1985) (same, quoting Rogers). While the Rogers standard for the quantum of evidence also uses the language of "reasonableness," the content of the Rogers "justify with reason" standard is informed more by the public policy behind the Federal Employers' Liability Act rather than by an abstract notion of "reasonableness." Consequently, no appellate court has approved of applying the customary "reasonableness" standard when a district court is faced with a motion for judgment as a matter of law in a Federal Employers' Liability Act case.
15
The Supreme Court has observed that Congress, in enacting the Federal Employers' Liability Act, intended it to be a departure from common law principles of liability as a "response to the special needs of railroad workers who are daily exposed to the risks inherent in railroad work and are helpless to provide adequately for their own safety." Sinkler v. Missouri Pac. R.R. Co., 356 U.S. 326, 329, 78 S.Ct. 758, 762, 2 L.Ed.2d 799 (1958); Consolidated Rail Corp. v. Gottshall, --- U.S. ----, ----, 114 S.Ct. 2396, 2404, 129 L.Ed.2d 427 (1994) (stating that through the Federal Employers' Liability Act "Congress crafted a federal remedy [for railroad workers] that shifted part of the 'human overhead' of doing business from employees to their employers") (citations omitted). This Court has called the Federal Employers' Liability Act a "remedial and humanitarian statute ... enacted by Congress to afford relief to employees from injury incurred in the railway industry." Edsall v. Penn Cent. Transp. Co., 479 F.2d 33, 35 (6th Cir.), cert. denied, 414 U.S. 1040, 94 S.Ct. 541, 38 L.Ed.2d 331 (1973). Describing Congress's preference that facts in Federal Employers' Liability Act cases be determined by a jury, the Supreme Court observed in Rogers that "decisions of this Court after the 1939 amendments [to the Federal Employers' Liability Act] teach that the Congress vested the power of decision in these actions exclusively in the jury in all but the infrequent cases where fair-minded jurors cannot honestly differ whether fault of the employer played any part in the employee's injury." 352 U.S. at 510, 77 S.Ct. at 451; see also Bailey v. Central Vermont Ry., Inc., 319 U.S. 350, 354, 63 S.Ct. 1062, 1064, 87 L.Ed. 1444 (1943) (noting that the "right to trial by jury is ... part and parcel of the remedy afforded railroad workers under the [Federal] Employers' Liability Act"). Because the benefit of a jury trial is considered to be "a goodly portion of the relief" which Congress has afforded railroad workers under the Federal Employers' Liability Act, Bailey, 319 U.S. at 354, 63 S.Ct. at 1064, the jury should determine liability so long as the evidence justifies with reason the conclusion that employer negligence played any part, even the slightest, in producing the injury. Nevertheless, despite Congress's desire to preserve a plaintiff's right to a jury trial in Federal Employers' Liability Act cases, "it is still the function of the trial judge within narrowly prescribed limits ... to pass upon the sufficiency of the evidence." Green, 763 F.2d at 807 (quoting Fritts v. Toledo Terminal R.R. Co., 293 F.2d 361, 363 (6th Cir.1961)).
16
Aparicio argues that in a Federal Employers' Liability Act case, judgment as a matter of law can be directed only in the complete absence of any probative facts. Aparicio is not correct. While the Supreme Court has made it clear on more than one occasion since Rogers that an employer subject to the Federal Employers' Liability Act need be only slightly negligent in order to be liable to a plaintiff, Gottshall, --- U.S. at ----, 114 S.Ct. at 2404, the question has remained as to the quantum of evidence a Federal Employers' Liability Act plaintiff must present to overcome a motion for judgment as a matter of law. Specifically, courts have struggled with the question of whether a Federal Employers' Liability Act plaintiff need present only slight evidence or a scintilla of evidence as to each element of his or her claim in order to withstand a motion for judgment as a matter of law, or whether a plaintiff must present something more than that.
17
Prior to Rogers, the Supreme Court required something more than a scintilla of evidence tending to show negligence. Brady v. Southern Ry. Co., 320 U.S. 476, 479, 64 S.Ct. 232, 234, 88 L.Ed. 239 (1943). In Brady, the Court held that:
18
The weight of the evidence under the Employers' Liability Act must be more than a scintilla before the case may be properly left to the discretion of the trier of fact--in this case, the jury. When the evidence is
19
such that without weighing the credibility of the witnesses there can be but one reasonable conclusion as to the verdict, the court should determine the proceeding by non-suit, directed verdict or otherwise in accordance with the applicable practice without submission to the jury, or by judgment notwithstanding the verdict. By such direction of the trial the result is saved from the mischance of speculation over legally unfounded claims.
20
320 U.S. at 479, 64 S.Ct. at 234 (citations omitted). After Rogers, however, some members of the Supreme Court interpreted Rogers as requiring only a scintilla of evidence to prove negligence. In a dissenting opinion in Sinkler v. Missouri Pac. R.R. Co., Justice Harlan interpreted Rogers as requiring a Federal Employers' Liability Act plaintiff to present only a scintilla of evidence as to each element of the claim in order to create a jury question. Justice Harlan wrote:
21
This case is a further step in a course of decisions through which the Court has been rapidly converting the Federal Employers' Liability Act ... into a workmen's compensation statute.
22
This progress recently gained marked momentum with Rogers v. Missouri Pacific R. Co. ... decided in the 1956 Term, where the Court in effect established a "scintilla" rule in these cases for judging the sufficiency of the evidence on the issue of "causation." In subsequent decisions that rule has been extended, sub silentio, to cover also the issue of "negligence." More recently in Kernan v. American Dredging Co., 355 U.S. 426, 78 S.Ct. 394, 2 L.Ed.2d 382 (1958) ... decided a few months ago, the Court still further expanded these enactments to embrace a concept of absolute liability for violation of any statutory duty occasioning injury to one entitled to sue under them.
23
356 U.S. at 332-33, 78 S.Ct. at 763-64 (footnote omitted) (J. Harlan, dissenting, joined by J. Frankfurter); Harris v. Pennsylvania R.R. Co., 361 U.S. 15, 27, 80 S.Ct. 22, 30, 4 L.Ed.2d 1 (1959) (J. Harlan, dissenting, joined by J. Whittaker) ("I cannot understand how on this record even the 'scintilla' rule of Rogers and its progeny, ... can be thought to justify the overturning of this judgment."). A majority of the Supreme Court since Rogers, however, has not defined in a more precise manner the quantum of evidence a Federal Employers' Liability Act plaintiff must produce in order to withstand a defendant's motion for judgment as a matter of law.
24
Appellate courts have not uniformly understood Rogers as requiring a Federal Employers' Liability Act plaintiff to present only a scintilla of evidence to overcome a motion for judgment as a matter of law. The Seventh Circuit has embraced the scintilla rule. See Harbin v. Burlington Northern R.R. Co., 921 F.2d 129, 131 (7th Cir.1990) (holding that a trial judge "must submit an [FELA] case to the jury when there is even slight evidence of negligence").1 More federal courts have rejected the scintilla rule. See Mullahon v. Union Pac. R.R., 64 F.3d 1358, 1364 (9th Cir.1995) (rejecting the scintilla rule and stating that the test for submitting a Federal Employers' Liability Act case to a jury is whether it is "not outside the possibility of reason" that the evidence supports the plaintiff's case) (citation omitted); Brown v. CSX Transp., Inc., 18 F.3d 245, 248 (4th Cir.1994) (adopting a "substantial evidence" standard in order to submit a Federal Employers' Liability Act case to the jury) (citation omitted);2 Gill v. Pennsylvania, 201 F.2d 718, 720 (3d Cir.), cert. denied, 346 U.S. 816, 74 S.Ct. 27, 98 L.Ed. 343 (1953) (applying the Brady quantum of evidence standard).
25
This Circuit has not specifically addressed the issue of the quantum of evidence a Federal Employers' Liability Act plaintiff must present as to each element of his or her claim in order to withstand a defendant's Rule 50(a) motion. In Rodriguez v. Delray Connecting R.R., this Court refused to adopt the scintilla rule and affirmed the district court under the "justify with reason" standard of Rogers. 473 F.2d 819, 820 (6th Cir.1973). In Rodriguez this Court observed that
26
[t]he quantum of fault necessary to support a finding of employer liability was resolved by the Supreme Court in Rogers v. Missouri Pac. R.R. Co., 352 U.S. 500, 506, 77 S.Ct. 443, 448, 1 L.Ed.2d 493 ..., wherein the Court stated: "Under this statute the test of a jury case is simply whether the proofs justify with reason the conclusion that employer negligence played any part, even the slightest, in producing the injury or death for which damages are sought.".... Dean Prosser has written that under this test jury verdicts for the employee can be sustained upon evidence which would not be sufficient in an ordinary negligence action. Prosser, Torts (4th ed.1971) § 80 p. 536. Professor Moore argues that where this minimal amount of evidence is sufficient to withstand a motion for a directed verdict, the federal courts in fact, if not in name, have adopted the "scintilla rule." 5A Moore's Federal Practice p 50.02; See Harlan, J., dissenting in Ferguson v. Moore-McCormick Lines, 352 U.S. 521, 563-564, 77 S.Ct. 459, 480-481, 1 L.Ed.2d 515 (1957)3. While we expressly disclaim any intention of adopting this rule in this Circuit, we conclude that under the foregoing Supreme Court decisions we cannot say that the District Court committed reversible error in denying the railroad's motion for a directed verdict.
3
It should be noted that in pre-Rogers cases the Court stated that even in F.E.L.A. cases the plaintiff must present more than a scintilla of evidence before the case may properly be submitted to the jury. Brady v. Southern Ry. Co., 320 U.S. 476, 479, 64 S.Ct. 232 , 88 L.Ed. 239 (1943); Western & Atlantic R.R. Co. v. Hughes, 278 U.S. 496, 498, 49 S.Ct. 231 , 73 L.Ed. 473 (1929)
Id. (emphasis added). Thus, after Rodriguez, the precise quantum of proof required of a Federal Employers' Liability Act plaintiff to withstand a motion for judgment as a matter of law in this Circuit was not certain.
In 1987, this Court stated that the Brady "more than a scintilla" standard applied for determining whether a plaintiff's claim under the Federal Safety Appliance Act, 45 U.S.C. § 1, should be submitted to a jury. Erskine v. Consolidated Rail Corp., 814 F.2d 266, 269 (6th Cir.1987). The Supreme Court has observed that the Federal Safety Appliance Act does not create a cause of action, but that the cause of action under that statute is created by the Federal Employers' Liability Act. Crane v. Cedar Rapids & Iowa Ry. Co., 395 U.S. 164, 166, 89 S.Ct. 1706, 1708, 23 L.Ed.2d 176 (1969). Thus, arguably, Erskine answers the question left unresolved in Rodriguez. Because we did not discuss the effect of Rogers and its progeny on the Brady standard in Erskine, we take the opportunity to clarify the Brady standard now in light of these cases.
With all due respect to Justice Harlan's view of Rogers, we believe that the "more than a scintilla" rule of Brady is still the standard governing the quantum of evidence a plaintiff in a Federal Employers' Liability Act case must present in order to withstand a Rule 50(a) motion. Our disagreement with Justice Harlan, however, may be based upon a distinction without a difference. "More than a scintilla" means precious little more than a scintilla given the Supreme Court's view that Congress has favored Federal Employers' Liability Act plaintiffs with a jury resolution of all colorable factual issues. Rogers, 352 U.S. at 510, 77 S.Ct. at 451. Thus, we hold that Brady and Rogers require a Federal Employers' Liability Act plaintiff to present more than a scintilla of evidence in order to create a jury question on the issue of employer liability, but not much more.
A Federal Employers' Liability Act plaintiff must "prove the traditional common law elements of negligence: duty, breach, foreseeability, and causation." Adams v. CSX Transp., Inc., 899 F.2d 536, 539 (6th Cir.1990) (quoting Robert v. Consolidated Rail Corp., 832 F.2d 3, 6 (1st Cir.1987)). A plaintiff must present more than a scintilla of evidence to prove that (1) an injury occurred while the plaintiff was working within the scope of his or her employment with the railroad, (2) the employment was in the furtherance of the railroad's interstate transportation business, (3) the employer railroad was negligent, and (4) the employer's negligence played some part in causing the injury for which compensation is sought under the Act. Green, 763 F.2d at 808.3 We now turn to the elements of Aparicio's claim--duty, breach, foreseeability, and causation--to determine if judgment as a matter of law was warranted.
Duty and Breach. The Supreme Court in Urie v. Thompson stated that railroads have a duty to furnish employees with a "reasonably safe place in which to work and such protection [against the hazard causing the injury] as would be expected of a person in the exercise of ordinary care under those circumstances." 337 U.S. at 179 n. 16, 69 S.Ct. at 1029 n. 16, (citing Sadowski v. Long Island R.R. Co., 292 N.Y. 448, 55 N.E.2d 497, 501 (1944)). The Court continued by noting that "[o]rdinary care must be in proportion to the danger to be avoided and the consequences that might reasonably be anticipated from the neglect.... It must be commensurate with known dangers." Id. (quoting Sadowski, 55 N.E.2d at 500). However, "known dangers" does not mean that the injury must have occurred on a previous occasion to the same or a similarly situated worker. Gallick v. Baltimore & Ohio R.R., 372 U.S. 108, 83 S.Ct. 659, 9 L.Ed.2d 618 (1963).4
While a railroad has a duty to use ordinary care to protect employees from known dangers, Urie v. Thompson also established that a railroad breaches its duty to its employees by failing to provide a safe working environment if it knew or should have known that it was not acting adequately to protect its employees. "[W]e think that negligence, within the meaning of the Federal Employers' Liability Act, attach[es] if the [employer] 'knew, or by the exercise of due care should have known,' that prevalent standards of conduct were inadequate to protect petitioner and similarly situated employees." Urie, 337 U.S. at 178, 69 S.Ct. at 1028. In Green, we stated that "[t]he defendant's duty [in a Federal Employers' Liability Act case] is measured by what a reasonably prudent person should or could have reasonably anticipated as occurring under like circumstances." 763 F.2d at 809 (citations omitted).
Norfolk & Western argues that it could not have breached its duty to Aparicio because there are no standards regarding ergonomics5 set forth by the Federal Railroad Administration. It argues further that there are no standards recognized by the scientific community to determine whether a particular person was exposed unreasonably to a risk of developing carpal tunnel syndrome or epicondylitis, and that Aparicio failed to put forth any evidence to show that it breached any standard of care. Norfolk & Western also argues, without controlling authority, that, for it to have breached any duty of care to Aparicio, it would have to have had actual or constructive notice that Aparicio's work conditions would cause the alleged injury. Norfolk & Western believes that, at most, the evidence permits the conclusion that it was aware of general studies regarding carpal tunnel syndrome and epicondylitis, "none of which related these conditions to the jobs Aparicio performed." Norfolk & Western also argues that it had no notice, and therefore no duty, because it had received no other complaints from employees regarding carpal tunnel syndrome and epicondylitis.
The fact that a regulatory body has not issued any applicable ergonomic standards does not relieve Norfolk & Western of its duty to provide a workplace safe from foreseeable conditions which might pose a danger to its workers. The standard of care is whether Norfolk & Western acted as a reasonably prudent employer, not whether it complied with any applicable regulations. The testimony of Dr. Robert Andres, Aparicio's ergonomics expert, shows that there were ergonomic risk factors and known remedial measures that had been described and accepted by the scientific community. This information was widely published in trade and scientific journals. A jury could accept Dr. Andres' testimony and find that a reasonably prudent employer would have known about the risk factors and taken steps to ameliorate them. In addition, the law does not impose a duty on an employer to address a safety hazard or risk only in the event that a similar injury has occurred before from the same cause.
Construing the evidence in a light favorable to Aparicio, he has presented more than a scintilla of evidence to show that Norfolk & Western should have known that he was at risk for developing an upper extremity cumulative trauma injury and that a reasonably prudent employer would have taken steps to ameliorate the risk of injury. Dr. Andres testified as to the risk factors accepted in the biomechanical and ergonomics community for upper extremity cumulative trauma disorders such as carpal tunnel syndrome and epicondylitis. These risks factors include sustained exertion, such as holding something for a long period of time and applying force, placing hands in positions not in line with the forearm, and being subjected to vibrations from power tools. J.A. at 171-73; 185-92. Dr. Andres also testified that an industrial employer like Norfolk & Western would learn of these ergonomic risk factors, as well as of methods of determining whether an employee was exposed to a risk of injury and methods of amelioration, through scientific and professional publications, trade journals and industry publications. Further, Dr. Andres stated that an employer like Norfolk & Western would know of the ergonomic literature through its medical department or safety person. J.A. at 193; 200-201.
From the depositions of Norfolk & Western's medical director, Ray Prible, M.D., and former medical director from 1987 to 1994, John Salb, M.D., the jury would learn that Norfolk & Western had an "ergonomics program" which included the identification of risk factors, and amelioration of the risk factors through engineering changes or administrative controls (job rotation and breaks). J.A. at 348-49. Dr. Salb was aware of professional articles being published about carpal tunnel syndrome and repetitive or forceful activities in the workplace as early as the 1970's. Dr. Prible testified that he understood that risk factors "are things that you do that could potentially put you in a position of having problems down the road." J.A. at 345. Dr. Prible also testified that, as medical director of Norfolk & Western, if it came to his attention that a worker suffered from carpal tunnel syndrome because of work, he would either go out to the workplace himself or send Norfolk & Western's safety person to investigate the job. J.A. at 346. Aparicio testified that in 1992 he informed Norfolk & Western in writing that he had carpal tunnel syndrome because of his work (Plaintiff's Exhibit 4), but that defendant returned him to the same job duties with no modifications after his surgeries. Aparicio's evidence could justify with reason a finding that, in the exercise of due care, Norfolk & Western should have known that Aparicio's job duties put him at risk for developing a cumulative trauma disorder such a carpal tunnel syndrome or epicondylitis. A jury could also find, based on the depositions of Drs. Prible and Salb, that Norfolk & Western breached its duty by not evaluating Aparicio's job and taking remedial measures in that it knew or should have known that he was exposed to repetitive shocks and vibration from his tools that put him at risk for cumulative trauma disorders.
Causation and Foreseeability. Aparicio contends that he presented probative evidence as to the issues of causation and foreseeability. The test for causation in Federal Employers' Liability Act cases is whether an employer's actions played any part at all in causing the injury. "[T]he causation test is whether 'employer negligence played any part, even the slightest, in producing the injury' for which the plaintiff seeks recovery." Adams, 899 F.2d at 539 (quoting Rogers, 352 U.S. at 506, 77 S.Ct. at 448). On the issue of causation, Norfolk & Western argues that Dr. Murray did not testify that Aparicio's job caused his conditions and, furthermore, that Dr. Andres was not called to testify on the issue of causation by work activities. No tests or experiments were performed regarding whether Aparicio's work was the cause of his condition. Norfolk & Western argues that, "[t]he most that can be inferred from the evidence is simply that Aparicio developed these conditions at work."
Given the "relaxed" standard of causation in Federal Employers' Liability Act cases, Gottshall, --- U.S. at ----, 114 S.Ct. at 2404, we believe Aparicio has presented more than a scintilla of evidence to prove that Norfolk & Western's breach of its duty to him was a causal factor, at least in small part, of his injuries. Favorably construed, Dr. Prible's deposition would permit an inference that a person with a risk factor for an injury or illness may result in the person with the risk factor developing the injury or illness. J.A. at 345-46. Aparicio and his crew co-worker John Powers testified extensively about the repetitive vibrations and shocks to which workers on the maintenance crew were daily exposed from the various power tools. J.A. at 82-85 (Aparicio); 336-338; 341-42 (Powers). Dr. Salb's evidence tends to prove that Norfolk & Western was aware of the occupational hazard of repetitive motion injury and that Norfolk & Western would take corrective measures to prevent such injuries. J.A. at 352-53.6 Dr. Salb's statements also show that some of the tools Aparicio worked with--jack hammers, tampers and impact wrenches--caused vibrations and that a remedial measure to protect against excessive vibration would be to put an anti-vibratory wrap on the handles of such tools. J.A. at 355. This evidence was sufficient to create a jury question as to whether Norfolk & Western's negligence may have caused, even in some small way, Aparicio's injuries. To say that the evidence is sufficient to create a jury question does not mean, of course, that a jury will ultimately find that Norfolk & Western's negligence caused Aparicio's injuries under the preponderance standard applicable when the case is submitted to the jury. Morrison v. New York Cent. R.R. Co., 361 F.2d 319, 320-21 (6th Cir.1966); see also Hausrath v. New York Cent. R.R. Co., 401 F.2d 634, 637-38 (6th Cir.1968) (discussing Morrison).
On the issue of foreseeability, Norfolk & Western reads the Supreme Court's decision in Gallick v. Baltimore & Ohio R.R. as holding that previous incidents of injury are not required for the injury to be foreseeable if there is other evidence of foreseeability. Norfolk & Western insists that it simply had no reason to believe that Aparicio was susceptible to developing carpal tunnel syndrome and epicondylitis from his work duties. As stated above, Gallick held that even if direct causation is proven, a Federal Employers' Liability Act case is not over. Reasonable foreseeability of harm must also be determined. 372 U.S. at 117, 83 S.Ct. at 665 (stating that "reasonable foreseeability of harm is an essential ingredient of Federal Employers' Liability Act negligence"). Although the Supreme Court in Gallick does not discuss in detail a definition of "reasonable foreseeability" in terms of the degree of certainty, the Court in Gallick disapproved of any definition of foreseeability requiring that a similar incident have occurred previously. 372 U.S. at 120, 83 S.Ct. at 667. Neither do we find a requirement in Gallick that there must be some other evidence of foreseeability if a similar injury has not occurred previously to another worker.
Regarding the degree of certainty to which a railroad must anticipate harm in order to be held liable, the Supreme Court has discussed foreseeability using the term "likelihood." In Rogers, the Supreme Court approved a jury finding where the probative facts supported the conclusion that "respondent [railroad] was or should have been aware of conditions which created a likelihood that petitioner, in performing the duties required of him, would suffer just such an injury as he did." Rogers, 352 U.S. at 503, 77 S.Ct. at 447 (footnote omitted); Ringhiser v. Chesapeake & Ohio Ry. Co., 354 U.S. 901, 903, 77 S.Ct. 1093, 1095, 1 L.Ed.2d 1268 (1957) (same, citing Rogers). While the Court in Gallick approved of this definition of foreseeability in Rogers, it went so far as to state that, in a Federal Employers' Liability Act case, "a tortfeasor must compensate his victim for even the improbable or unexpectedly severe consequences of his wrongful act." 372 U.S. at 121, 83 S.Ct. at 667. As this Court has observed, "[t]he test for foreseeability does not require that the negligent person should have been able to foresee the injury in the precise form in which it in fact occurred. Rather it is sufficient if the negligent person might reasonably have foreseen that an injury might occur...." Green, 763 F.2d at 808 (citing Miller v. Cincinnati New Orleans & Texas Pac. Ry. Co., 203 F.Supp. 107, 113 (E.D.Tenn.1962), aff'd, 317 F.2d 693 (6th Cir.1963)).
In this case the district court stated that
The test of foreseeability is whether, in light of all of the circumstances, a reasonably prudent railroad should or could reasonably have anticipated that some injury would result to an employee under the circumstances, at said time and place, from any act or negligence of the Defendant.
J.A. at 47 (emphasis added). The district court required a degree of certainty not found in the Supreme Court's statements regarding the nature of foreseeability in Federal Employers' Liability Act cases. Certainly, a railroad need not anticipate that an injury would result from its actions, but must only reasonably anticipate that the injury is likely to result. Aparicio has presented more than a scintilla of evidence tending to prove that Norfolk & Western could reasonably have anticipated that a track laborer such as Aparicio working with the tools he was assigned to use was likely to develop an upper extremity cumulative trauma injury.
Based on the foregoing, the district court erred in granting judgment as a matter of law to Norfolk & Western. Aparicio has presented more than a scintilla of evidence so as to create a jury question regarding each element of his Federal Employers' Liability Act claim.
II.
Our review of a district court's decision to grant summary judgment is de novo. Mickler v. Nimishillen & Tuscarawas Ry. Co., 13 F.3d 184, 186 (6th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 1835, 128 L.Ed.2d 463 (1994). The district court granted summary judgment to the railroad on two statute of limitations issues. Section 56 of the Federal Employers' Liability Act requires an employee to bring an action "within three years from the day the cause of action accrued." As the Seventh Circuit stated in Fries v. Chicago & Northwestern Transp. Co., 909 F.2d 1092 (7th Cir.1990),
[a]ccrual is defined in terms of two components, the injury and its cause, for [Federal Employers' Liability Act] statute of limitations purposes. In Urie v. Thompson, 337 U.S. 163, 69 S.Ct. 1018, 93 L.Ed. 1282 (1949), the Supreme Court stated that when the specific date of injury cannot be determined because an injury results from continual exposure to a harmful condition over a period of time a plaintiff's cause of action accrues when the injury manifests itself. Id. at 170, 69 S.Ct. at 1025.... In [United States v.] Kubrick, [444 U.S. 111, 100 S.Ct. 352, 62 L.Ed.2d 259 (1979) ] ... [t]he Court stated that once a plaintiff is in possession of the critical facts of both injury and governing cause of that injury the action accrues even though he may be unaware that a legal wrong has occurred. Id. at 122-23, 100 S.Ct. at 359-60.
Id. at 1095 (emphasis in original). The Seventh Circuit concluded that "a cause of action accrues for [Federal Employers' Liability Act] statute of limitations purposes when a reasonable person knows or in the exercise of reasonable diligence should have known of both the injury and its governing cause." Fries, 909 F.2d at 1095-96.
The district court ruled that Aparicio's claim for his 1987 injury was time-barred because he knew at that time that his injury was work-related. Indeed, in his deposition Aparicio stated that Dr. Osborne told him that his injury was work-related. Aparicio later submitted an affidavit stating that he was mistaken about what Dr. Osborne had told him and that in actuality he was unaware of the cause of his injury until 1992. Based on this Court's holding in Farrell v. Automobile Club, the district court properly struck the affidavit, leaving no material factual dispute regarding Aparicio's knowledge that his 1987 injury to his right hand was work-related. 870 F.2d 1129, 1132 (6th Cir.1989)(holding that a party who has been examined at length by deposition may not rely on an affidavit filed to contradict the deposition evidence to create a genuine issue of fact so as to defeat a motion for summary judgment) (citing Biechele v. Cedar Point, Inc., 747 F.2d 209, 215 (6th Cir.1984)). Summary judgment was properly granted on this issue in so far as it relates to any injury in his right hand and wrist from 1987.
The district court denied summary judgment to Norfolk & Western because Aparicio created a disputed issue of fact as to whether his 1992 injuries were a separate injury or a continuation of his 1987 injury. The affidavit of another physician, Dr. Cohen, opined that Aparicio's 1992 injuries were separate from his 1987 injury. We agree that this affidavit created a genuine issue on a material fact for trial. If Aparicio's injuries are a separate injury, then Aparicio's claim is not time-barred.
Finally, Aparicio claimed that even if the jury found that his 1992 injuries were a continuation of his 1987 injury, he should still be allowed to recover on the theory that Norfolk & Western negligently aggravated his 1987 injury in 1992, thus creating a severable claim for trial. Rejecting the argument that any aggravation of an injury is a severable cause of action in a Federal Employers' Liability Act case, the district court ruled that "if Plaintiff's carpal tunnel syndrome condition in 1992 was an aggravation of the condition in 1987, then the limitations period would bar the claim." In so holding, the district court rejected the position of the Third Circuit in Kichline v. Consolidated Rail Corp., 800 F.2d 356 (3d Cir.1986) (holding that a Federal Employers' Liability Act plaintiff may recover for damages for aggravation of his original pulmonary disease/injury if he could prove that the railroad was negligent in permitting him to continue to be exposed to diesel fumes). We agree that an aggravation of an original injury that is claimed to have been caused by an employer's negligence is not a severable action under the Federal Employers' Liability Act.
We believe that the Seventh Circuit has stated the better view. In Fries, the Seventh Circuit observed that the fact that an injury "has not reached its maximum severity ... but continues to progress" does not relieve the plaintiff of the duty to use reasonable diligence to discover the original injury and its cause. 909 F.2d at 1096. Any "aggravation" of the original negligently caused injury would only affect the plaintiff's damages, and would not require a separate determination of liability or causation. Furthermore, a rule permitting severability of a claim that an original, continuing injury has been aggravated would contravene the purpose of the discovery rule articulated in Urie requiring Federal Employers' Liability Act plaintiffs to use reasonable diligence to discover the cause of an injury once the injury manifests itself. Thus, we disagree with the Third Circuit that the aggravation of an original injury is a severable cause of action under Federal Employers' Liability Act.7
III.
Finally, we cannot review Aparicio's challenge to the district court's decision to exclude Dr. Andres to answer the question found at TR 177-79. Aparicio made no offer of proof after the court excluded the evidence as required by Federal Rule of Evidence 103. Thus, Aparicio may not bring this claim on appeal. Fed.R.Evid. 103(a) (stating that "[e]rror may not be predicated upon a ruling which admits or excludes evidence unless a substantial right of the party is affected, and ... [an offer of proof is made]").
Based on the foregoing, we REVERSE the district court's decision granting judgment as a matter of law to Norfolk & Western Railway Company and REMAND for retrial. As to the district court's summary judgment rulings, we AFFIRM.
*
The Honorable John G. Heyburn II, United States District Judge for the Western District of Kentucky, sitting by designation
1
The Seventh Circuit derived the rule that only slight evidence is required to create a jury question in a Federal Employer's Liability Act case from the substantive requirement that only slight negligence by the employer will permit a recovery under the Act. 921 F.2d at 131 (discussing Rogers, 352 U.S. at 506, 77 S.Ct. at 448)
2
The Fourth Circuit in Brown followed the Supreme Court's pre-Rogers opinion in Brady v. Southern Ry. Co. in holding that a Federal Employers' Liability Act plaintiff must present "substantial" evidence to create a jury question. The Fourth Circuit, thereby, equates Brady 's "more than a scintilla" of evidence with "substantial" evidence
3
The Supreme Court has stated that federal common law controls what constitutes negligence under the Federal Employers' Liability Act. Urie v. Thompson, 337 U.S. 163, 174, 69 S.Ct. 1018, 1027, 93 L.Ed. 1282 (1949) (footnote omitted)
4
In Gallick, the plaintiff was required to work near a stagnant pool infested with vermin and insects. Plaintiff received an insect bite which became infected and plaintiff was injured. The Supreme Court disapproved of a definition of "known dangers" or foreseeability requiring that a plaintiff's injury have resulted from a cause that had caused injuries to employees in the past. 372 U.S. at 121, 83 S.Ct. at 667
5
Ergonomics is the "science of people performing work" and the study of the stresses on the human body which cause injury at work. J.A. at 163-65
6
Q [Aparicio]: In [articles you read regarding carpal tunnel syndrome] that you referred to from the '70's, to your recollection, would they have referred to the possibilities of there being a connection between carpal tunnel syndrome and repetitive or forceful activities with the upper extremities?
A [Dr. Salb]: I think that was the feeling at that time. Although I can remember a couple of women who were homemakers that had carpal tunnel syndrome.
Q: During the period of time when you were with Norfolk [July 1987 through February 1994], ... did you ever implement through the medical department any type of plan or program to mitigate any risks of accumulative trauma disorders?
A: Yes. .... And I think specifically it was such that if an employee complained about carpal tunnel or if he would have had a motion condition, we would ... evaluate work habits in the position and so forth and make recommendations, and I may get a medical report, may have gotten medical reports from the attending physicians to what his opinions were.
And if we felt it was work oriented, changes might be made in the way the job was done and to create a better ergonomic condition or to put at that time laboratory sleeves on the machines or whatever they were using. So this was ongoing.
Q: What period in time did this program begin?
A: I think probably in the late '80's, early '90's.
J.A. at 354-55.
7
We note that a different case is presented where an employer subject to the Federal Employers' Liability Act aggravates an employee's non-work related condition, disease or injury. See Cutter v. Cincinnati Union Terminal Co., 361 F.2d 637, 638-39 (6th Cir.1966) | 01-03-2023 | 04-17-2012 |
https://www.courtlistener.com/api/rest/v3/opinions/1542266/ | 386 B.R. 611 (2008)
In re TACKLEY MILL, LLC, Debtor.
No. 06-820.
United States Bankruptcy Court, N.D. West Virginia.
February 8, 2008.
*612 Tackley Mill, L.L.C., James Paul Campbell, Campbell, Miller, Zimmerman, P.C., Leesburg, VA, for Debtor.
United States Trustee, Douglas A. Kilmer, U.S. Trustee's Office, Chaleston, WV, for U.S. Trustee.
Christopher J. Giaimo, Jr., Jeffrey N. Rothleder, Arent Fox LLP, Washington, DC, for Creditor Committee.
MEMORANDUM OPINION
PATRICK M. FLATLEY, Bankruptcy Judge.
The Official Committee of Unsecured Creditors for Tackley Mill, LLC (the "Committee"), requests entry of three orders. First, the Committee asks that the court approve its final fee application. Second, it seeks authorization to distribute $400,000 to pay: (a) the administrative claims of the Committee's professionals, (b) $25,000 to General Capital Partners, LLC, and (c) unsecured claims, pro rata, as defined by the Committee. Third, after entry of the above two orders, it asks that the case be dismissed.
Beazer Homes, Corp. ("Beazer"), and C. William Hetzer, Inc. ("Hetzer"), object to the Committee's fee application on the basis that the Committee's counsel billed too many hours for retention related issues, and the hourly rates requested for the Committee's professionals exceeds local standards. Thompson, Greenspan & Co., P.C. ("TG & C"), accountants to the estate, object to the Committee's professionals being paid when they are not. Beazer, Hetzer, and Jefferson Orchards, Inc. ("Jefferson Orchards"), object to the Committee's motion to distribute the $400,000 on the basis that the Committee has refused to include their claims in its proposed distribution to unsecured creditors. Once the above two objections are resolved, no party contests the dismissal of the Debtor's case.
The court held a telephonic hearing on these issues on January 14, 2008, at which time the court took all matters under advisement. For the reasons stated herein, the court will overrule the objections to the Committee's fee application, and will order that the unsecured claims of Beazer, Hetzer, and Jefferson Orchards be included in the proposed distribution to unsecured creditors.
I. BACKGROUND
Before filing its September 13, 2006 Chapter 11 bankruptcy petition, Tackley Mill, LLC (the "Debtor"), had purchased two tracts of land in Jefferson County, *613 West Virginia on which it proposed to build a housing development. One tract was 232 acres, and the other was 68 acres. S.F.C., LLC ("SFC") has a October 18, 2005 deed of trust on both properties securing a loan in the principal amount of $23,500,000. A related entity, S.F.C. II, LLC ("SFC II"), also has a October 18, 2005 deed of trust on both properties securing a loan in the principal amount of $4,200,000, and a corrected deed of trust dated April 19, 2006. Beazer, Hetzer, and Jefferson Orchards also claim various deeds of trust on the properties, all of which are junior to the lien of SFC, but some of which are purported to be senior to the deed of trust held by SFC II.
Pre-petition, the Debtor failed to meet the terms of its loan obligations to SFC and SFC II. Accordingly, SFC II noticed a foreclosure sale of both properties for July 26, 2006. SFC II was the only bidder at the foreclosure sale, and it purchased both tracts of land, subject to the existing deed of trust in favor of SFC, for $3.00. The Debtor filed its Chapter 11 bankruptcy petition after the foreclosure sale, but before foreclosure sale deed was recorded.
In the bankruptcy proceeding, the Debtor filed an adversary complaint to setaside the foreclosure sale conducted by SFC II on the basis that: (1) the transfer of the property was avoidable by the debtor pursuant to 11 U.S.C. § 544(a)(3); (2) the foreclosure sale price was grossly inadequate, and (3) the automatic stay prevented the recordation of the foreclosure sale deed. In turn, SFC filed a motion for relief from the automatic stay to allow the recordation of the foreclosure sale deed. The court consolidated the motion with the adversary proceeding.
Before the adversary complaint could be tried, the Committee elected to hire counsel, Arent Fox, LLP ("Arent Fox"), located in Washington, D.C. In its employment application, Arent Fox represented that it would bill a partner's time at hourly rates ranging from $395 to $760, associate's time from $240 to $490, and paraprofessional time from $140 to $235. The Debtor objected to the application to employ Arent Fox as counsel to the Committee on the grounds that the hourly rates being charged were excessive based on prevailing rates in the Northern District of West Virginia.[1] As an accommodation to the Debtor, Arent Fox, agreed not to bill partners at more than $490 per hour, and agreed to reduce the compensation paid to an associate working on the case by 10% to $320 per hour. At the April 10, 2007 hearing on Arent Fox's application for employment, the court stated that the requested fee range even as reduced was high in relation to prevailing hourly rates in the Northern District of West Virginia, but the court also noted that the attorneys working on the case were highly experienced in bankruptcy matters. The court indicated that it would scrutinize any fee application submitted by Committee counsel in due course, but counsel's hourly rates were not a basis by which the court would deny Arent Fox's application for employment.
Once Arent Fox was employed, the parties renewed their settlement negotiations concerning both the adversary proceeding and SFC's lift stay motion. The negotiations resulted in a June 28, 2007 motion to compromise, which was approved by the court on July 23, 2007 (the "Settlement Agreement"). In essence, the Settlement Agreement gave the Debtor a limited amount of time to refinance the properties and payoff an agreed amount to SFC and *614 SFC II. When the anticipated refinancing did not timely occur, SFC and SFC II obtained relief from the automatic stay, and SFC II recorded the deed of trust from the July 26, 2006 foreclosure sale.
In negotiating the Settlement Agreement, the Committee obtained an important concession from SFC:
4. Allocation of Collateral. If the Lift Stay Event occurs ... SFC agrees to allocate ... $400,000 of the Collateral, in cash, to satisfy, among other things, the claims of unsecured creditors and the fees of the Committee's professionals (the "Unsecured Creditor Allocation"), with such allocation to be made after SFC successfully receives title to the Collateral.
(Doc. No. 181).
At the time the Committee negotiated the terms of Paragraph 4, the total amount of unsecured claims filed against the Debtor's estate was about $645,905. In addition to this amount, Beazer had filed an unsecured claim relating to a breach of contract action against the Debtor in which it claimed to be owed $20,834,876. At the July 20, 2007 hearing on the motion to compromise, the Committee's counsel stated that the Unsecured Creditor Allocation was negotiated on the premise that the total amount of unsecured claims against the Debtor's bankruptcy estate was somewhere in the $900,000 range.
II. DISCUSSION
Two objections are before the court for adjudication: (A) whether the court should approve the final fee application of the Committee over the objections of Beazer, Hetzer, and TG & C; and (B) whether the term "unsecured creditor," as used in the Settlement. Agreement, is limited to the unsecured claims existing as of the time the settlement was reached, or whether it includes all unsecured claims against the estate regardless to when those unsecured claims arose.
A. Compensation for Arent Fox
Arent Fox's only fee application in this case requests approval for $133,231.50 in services performed from March 5, 2007 to October 31, 2007, plus expenses of $910.51. In support of its application, Arent Fox represents that it reduced "its customary hourly rates, and further reduced its fees and expenses by 35% as an accommodation to the Committee so that the return to unsecured creditors could be increased. Committee counsel also states that when it agreed to represent the Committee, a substantial risk existed that no estate money would be available to pay the fees of the Committee's professionals.
Beazer and Hetzer object to the fee application on two grounds. First, they contend that the legal issues in the case were not complex, and hourly rates of $320 for an associate with less than five years of experience, and $235 for a paralegal exceeds rates charged by local attorneys. Second, they assert that Arent Fox spent 80 hours on retention related issues, which, they argue, should be absorbed by Arent Fox as a cost of doing business. TG & C objects on the basis that it performed accounting services having a value of $3,502, and paying the Committee's counsel in-full while it remains unpaid is impermissibly favoring one priority creditor over another.
Importantly, under the terms of the Settlement Agreement, the funds being used to compensate the Committee's professionals is not estate money; the payment is being made by SFC. Pursuant to Fed. R. Bankr.P.2016(a), only those seeking compensation for services from the estate are required to file a fee application. Because non-estate funds are being used to pay the Committee's counsel, the court *615 is not required to approve of Arent Fox's hourly rates or review the services it rendered on behalf of the Committee. See, e.g., In re SPM Mfg. Corp., 984 F.2d 1305, 1313 (1st Cir.1993) ("The Code does not govern the rights of creditors to transfer or receive nonestate property.... [C]reditors are generally free to do whatever they wish with bankruptcy dividends they receive, including to share them with other creditors.").
For example, in World Health Alternatives, Inc., 344 B.R. 291, 297 (Bankr.D.Del. 2006), the United States Trustee objected to a settlement between the unsecured creditor's committee and a secured party whereby the secured party would transfer funds directly to the unsecured creditors without first paying priority debts. The bankruptcy court approved the settlement on the basis that no plan of reorganization was contemplated, and "although the general unsecured creditors will receive money before priority creditors, that money does not belong to the estate...." Id.; see also Motorola, Inc. v. Official Comm. of Unsecured Creditors (In re Iridium IP, LLC), 478 F.3d 452, 456 (2d Cir.2007) (indicating that it would approve of a settlement under Fed. R. Bankr.P. 9019 that violated the priority distribution scheme of the Bankruptcy Code even when the status of the secured creditor's lien was not determined so long as a justification existed for departing from the Bankruptcy Code's distribution scheme); cf., In re Armstrong World Indus., Inc., 432 F.3d 507 (3d Cir.2005) (concluding that a settlement proposed within the context of a plan of reorganization had to comply with the absolute priority rule of 11 U.S.C. § 1129(b)(2)).
In this case, the court approved the Settlement Agreement on July 23, 2007; therefore, SFC and the Committee have already obtained the court's permission to pay the $400,000 Unsecured Creditor Allocation outside of the estate, and outside of the requirements of the Bankruptcy Code. Because the Unsecured Creditor Allocation is not being made with estate funds, § 330 is not an applicable standard by which to adjudicate the value of the Committee's services. In the court's view, the amount of compensation allowable to the Committee's counsel is a matter of contract between Arent Fox and the Committee, and the objections filed by Beazer and Hetzer will be overruled.[2] Likewise, TG & C has no basis to complain that a private party has agreed to pay the fees of the Committee's professionals.
B. "Unsecured Creditors"
Beazer, Hetzer, and Jefferson Orchards argue that their secured claims are now unsecured due to the lifting of the automatic stay in favor of SFC and SFC II, and SFC II's completion of the foreclosure sale.[3] The Committee asserts that the term "unsecured creditors," as used in the Settlement Agreement, is limited to those unsecured creditors that existed at *616 the time the Settlement Agreement was executed. In support of its argument, the Committee contends that the claims of Beazer, Hetzer, and Jefferson Orchards were specifically considered in two separate paragraphs of the Settlement Agreement:
9. Claims of Objecting Creditors. Upon the occurrence of the Lift Stay Event, the claims of the Objecting Creditors, other than the Committee, shall be preserved and enforceable against the Property and SFC to the extent allowable under applicable law.
. . . .
21. This Agreement is without prejudice to the claims of Beazer Home Corp., C. William Hetzer, Inc., Jefferson Orchards, Inc., and Centex Homes.
(Document No. 181).
Pursuant to Paragraph 20 of the Settlement Agreement, West Virginia law governs its interpretation. Under West Virginia law, "contracts containing unambiguous language must be construed according to their plain and natural meaning." FOP, Lodge No. 69 v. City of Fairmont, 196 W.Va. 97, 468 S.E.2d 712, 716 (1996); see also Cotiga Dev. Co. v. United Fuel Gas Co., 147 W.Va. 484, 128 S.E.2d 626 (1962) ("It is not the right or province of a court to alter, pervert, or destroy the clear meaning of an intent of the parties as expressed in unambiguous language in their written contract or to make a new or different contract for them.") (Syllabus Pt. 3). Generally, a contract is to be construed as of the date and time on which it was made. See Lowe v. Guyan Eagle Coals, 166 W.Va. 265, 273 S.E.2d 91 (1980) (interpreting a contract as of the time and place of the contract's execution) (Syllabus Pt. 1). Also, contracts should not be fragmented for interpretative purposes; rather, "`where the whole can be read to give significance to each part, that reading is preferred.'" FOP, Lodge No. 69, 468 S.E.2d at 718 (citation omitted). Language in "[a] contract is ambiguous when it is reasonably susceptible to more than one meaning in light of the surrounding circumstances and after applying the established rules of construction." Id. at 716 (emphasis in original). However, the "mere fact that parties do not agree to the construction of a contract does not render it ambiguous." Berkeley Co. Pub. Ser. Dist. v. Vitro Corp., 152 W.Va. 252, 162 S.E.2d 189 (W.Va.1968) (Syllabus Pt. 1).
In this regard, the court finds the language in Paragraph 4 of the Settlement Agreement unambiguous: "SFC agrees to allocate ... $400,000 of the collateral, in cash, to satisfy ... the claims of unsecured creditors." Outside a bankruptcy context, an "unsecured creditor" is "[a] creditor who, upon giving credit, takes no rights against specific property of the debtor." Black's Law Dictionary, 397 (8th ed.2004). As the term is used in the Bankruptcy Code, however, a creditor that takes rights against specific property may nevertheless be deemed an "unsecured creditor" to the extent that "the value of such creditor's interest" exceeds the estate's interest in the secured property. 11 U.S.C. § 506(a)(1). As such, under the commonly understood meaning of "unsecured creditors" in bankruptcy proceedings, which is the context in which the Settlement Agreement was executed, any creditor holding an unsecured claim whether it be one that took no rights against specific property, or one that is rendered an unsecured creditor via a property valuation determination is an "unsecured creditor." The Settlement Agreement does not define "unsecured claims" in a manner that limits the class of unsecured creditors to those in existence at the time of the execution of the Settlement Agreement, and without such an express limitation, the court will *617 not impose one. Indeed, the court doubts that the Committee would argue that the unsecured claimants existing as of the execution of the Settlement Agreement would still be entitled to a distribution from the Unsecured Creditor Allocation if subsequent events resulted in the withdraw or disallowance of an unsecured creditor's claim.
Moreover, Beazer, Hetzer, and Jefferson Orchards all had filed secured claims against the Debtor's estate based on various deeds of trust that were junior to the lien of SFC, and that were either senior or junior to the lien of SFC II. The valuation of the Debtor's property was an issue in the main bankruptcy and the adversary proceeding. Depending on the outcome of that determination, Beazer, Hetzer, and/or Jefferson Orchards could have fully secured claims, partially secured claims, or wholly unsecured claims. The final determination as to each claimant's classification had not been made as of the time the parties executed the Settlement Agreement. Consequently, from the prospective of those creditors, the Settlement Agreement would have to account for each possibility, which it did. In Paragraph 9, Beazer, Hetzer, and Jefferson Orchards preserved their claims against the property of the Debtor "to the extent allowed by applicable law," and in Paragraph 21, those creditors solidified that the Settlement Agreement did not prejudice their claims against the Debtor's estate. Of course, the Committee had already negotiated the Unsecured Creditor Allocation by haggling a concession from SFC in the event of the lift stay event. It would have been odd for Beazer, Hetzer, and Jefferson Orchards to negotiate their own carveout agreement with SFC, to the exclusion of existing unsecured creditors, in the event subsequent events transformed their secured claims into unsecured claims. Furthermore, no support exists for the Committee's assertion that it would have negotiated a greater carveout with SFC had it known that Beazer, Hetzer, and Jefferson Orchards were unsecured claimants because there is no indication that SFC would have agreed to such an arrangement.
Therefore, the court does not read into the Settlement Agreement a non-existent definition of "unsecured creditors" that limits the identification of such creditors to those existing as of the time the Settlement Agreement was executed. As written, the contract is unrestricted as to when a claim of an unsecured creditor must be filed, and a plain reading of the Settlement Agreement that is consonant with both the terms of the Agreement as a whole, and with the ordinary understanding of "unsecured creditors" within the context of a bankruptcy proceeding, dictates that Beazer, Hetzer, and Jefferson Orchards are to be included in the Unsecured Creditor Allocation to the extent to which they are unsecured creditors.[4]
III. CONCLUSION
For the above-stated reasons, the court will overrule the objections to the fee application of the Committee's professionals, and sustain the objections of Beazer, Hetzer, and Jefferson Orchards to the Committee's motion to approve the distribution of $400,000 to the extent to which those entities have unsecured claims against the estate that are not included in the pool of creditors to be paid the Unsecured Creditor Allocation under the Settlement Agreement. *618 The court will give all creditors 30 days to file amended proofs of claim in this case designating their status as unsecured creditors, will allow an additional 30 days for objections to those proofs of claim to be filed, if any, and will dismiss this case after resolution of any filed objection. The court will enter a separate order pursuant to Fed. R. Bankr.P. 9021.
NOTES
[1] By comparison, local counsel to the Committee, Phillips, Gardill, Kaiser & Altmeyer, PLLC, disclosed their hourly rates for partners as $175 to $240, associates as $90 to $130, and paraprofessionals as $60 to $90.
[2] In this case there is no evidence of abuse of process or overreaching by the Committee's professionals. The record in this case was developed in a transparent process that allowed parties in interest the opportunity to object. Thus, without limiting its prerogative to do so in the future, the court sees no reason in this case to invoke its power under 11 U.S.C. § 105(a) to knuckle down on the fees charged by the Committee's professionals.
[3] Beazer, Hetzer, and Jefferson Orchards may have secured claims that are senior to that foreclosed upon by SFC II. No determination of the relative priority of the secured claims against the estate are being made in this Memorandum Opinion; rather, to the extent that either Beazer, Hetzer, or Jefferson Orchards has an unsecured claim, the court is determining whether or not those entities are entitled to a share of the $400,000 pool of funds payable to unsecured creditors.
[4] The court has listened to the recording of the hearing held upon the Settlement Agreement on July 20, 2007. Nothing was spread upon the record at that time that provides the court with any reason to depart from its plain reading interpretation of the Settlement Agreement. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917482/ | 835 So.2d 1224 (2003)
Alvin KING, Appellant,
v.
STATE of Florida, Appellee.
No. 2D02-4545.
District Court of Appeal of Florida, Second District.
January 29, 2003.
*1225 DAVIS, Judge.
Alvin King was convicted at jury trial of armed robbery and attempted murder in the second degree in 1981. The trial court sentenced King to ninety-nine years' incarceration on the armed robbery charge and to thirty years on the attempted murder charge, the sentences to run consecutively. The trial judge retained jurisdiction over the first one-third of each sentence pursuant to section 947.16, Florida Statutes (1979). To support the retention of jurisdiction, the trial court gave the following reasons:
1. The use of a firearm in the commission of the robbery,
2. The discharge of the weapon and the shooting of the victim in the course of the robbery, and
3. King's extensive prior criminal record "as disclosed by the rap sheet handed to the Court by the State."
King challenged the sufficiency of the court's reasons by filing a motion to correct illegal sentence pursuant to Florida Rule of Criminal Procedure 3.800(a). We observe first that rule 3.800(a) was the proper vehicle to challenge the court's reservation of jurisdiction since the reservation effectively imposed a "harsher penalty" upon King, resulting in a potentially *1226 improper sentence enhancement. See State v. Williams, 397 So.2d 663 (Fla. 1981); Hampton v. State, 764 So.2d 829 (Fla. 1st DCA 2000).
King contends that the first two reasons given for reserving jurisdiction were insufficient because each one uses an essential element of the offense charged to enhance the sentence. The first reason offered for the enhancement, King's use of a firearm in committing the robbery, is an essential element of King's armed robbery conviction. Likewise, the second reason, King's discharge of the weapon and shooting of the victim, is an essential element of King's attempted second-degree murder conviction.
King is correct. An element of the offense cannot be used to enhance the penalty because the elements of the offense already have been factored into the sentencing scheme by increasing the level of the offense charged. See Harris v. State, 533 So.2d 1187 (Fla. 2d DCA 1988). Although Harris concerns a departure sentence under the guidelines, not a reservation of jurisdiction as here, the reasoning of Harris applies here by analogy because in both situations the trial court must justify the sentence enhancement with "individual particularity." Because each of the first two reasons given for the enhancement use essential elements of King's convictions, they are insufficient.
Finally, the third reason offered, King's extensive prior criminal record, is also insufficient. In order to use the defendant's prior criminal history as a reason to retain jurisdiction, the court must make the history a "matter of record." Robinson v. State, 458 So.2d 1132 (Fla. 4th DCA 1984). The record in this case does not disclose whether the "rap sheet" referred to by the trial judge at sentencing was made a part of the record or what that rap sheet disclosed. Although the trial court did later reduce the reasons to writing, this record does not include that written order. Accordingly, in the absence of the criminal history, on this record we cannot determine that this is a sufficient reason to justify the retention of jurisdiction. We therefore reverse and remand for resentencing, at which time the trial court should either vacate its retention of jurisdiction over the sentence or state its justification for retention with sufficient specificity as required by the statute. See Cahill v. State, 489 So.2d 1219 (Fla. 2d DCA 1986).
Reversed and remanded.
FULMER and COVINGTON, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1001414/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
RUTH L. HENDERSON,
Plaintiff-Appellant,
v.
No. 99-2123
COLUMBIA NATURAL RESOURCES, a
corporation; EDISON L. CASTO,
Defendants-Appellees.
Appeal from the United States District Court
for the Southern District of West Virginia, at Charleston.
Charles H. Haden II, Chief District Judge.
(CA-98-447-2)
Submitted: March 31, 2000
Decided: April 18, 2000
Before WILKINS, MICHAEL, and TRAXLER, Circuit Judges.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
Theodore R. Dues, Jr., THEODORE R. DUES, JR., L.C., Charleston,
West Virginia, Sharon M. Mullens, Charleston, West Virginia, for
Appellant. William E. Robinson, Michael A. Kawash, ROBINSON &
MCELWEE, L.L.P., Charleston, West Virginia, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Ruth L. Henderson appeals the district court's order granting sum-
mary judgment in favor of Columbia Natural Resources (Columbia),
and dismissing her claims of age and race discrimination in violation
of Title VII, see 42 U.S.C. § 2000e (1994), and the West Virginia
Human Rights Act. See W. Va. Code § 5-11-13 (1994). Henderson
filed this suit following her termination from her position as Place-
ment and EEO Administrator for Columbia. Although her termination
came as part of an on-going reduction in force, Henderson believed
that her treatment in the company and eventual termination were the
result of impermissible age and racial discrimination.
On this belief, Henderson filed this suit in state court. After
removal to the federal district court and significant discovery, Colum-
bia filed a motion for summary judgment. The district court found
that Henderson's Title VII claims were untimely and that she had
failed to establish a prima facie case of discrimination with respect to
her claims under the West Virginia Human Rights Act. As a result of
this finding, the district court granted summary judgment in favor of
Columbia and dismissed the action. Henderson appealed this final
order.
This Court reviews the grant of summary judgment in discrimina-
tion cases de novo. See Henson v. Liggett Group , 61 F.3d 270, 274
(4th Cir. 1995). The district court correctly dismissed Henderson's
cause of action under Title VII as untimely filed despite the timely
nature of her claims under the West Virginia Human Rights Act. See
42 U.S.C. § 2000e-5(f)(1) (1994); Watts-Means v. Prince George's
Family Crisis Ctr., 7 F.3d 40, 42 (4th Cir. 1993). Similarly, we find
no error in the district court's treatment of Henderson's evidence in
reaching the conclusion that Henderson failed to establish a prima
facie case of discrimination under the West Virginia Human Rights
2
Act. See Dawson v. Allstate Ins. Co., 433 S.E.2d 268, 274 (W. Va.
1993). Henderson failed to establish the necessary link between the
Columbia's employment decisions and her status as a member of the
protected class "to give rise to an inference that the employment deci-
sion was based on an illegal discriminatory criterion." Conaway v.
Eastern Assoc. Coal Corp., 358 S.E.2d 423, 429 (W. Va. 1986).
Finally, we find no merit to Henderson's claim that the district court
applied an inappropriately stringent standard in analyzing her prima
facie case. See Hanlon v. Chambers, 464 S.E.2d 741, 748 (W. Va.
1995).
Because Henderson failed to establish a prima facie case of
employment discrimination under the West Virginia Human Rights
Act and failed to act on her rights under Title VII in a timely fashion,
we conclude that the district court did not err in granting summary
judgment in favor of Columbia and dismissing Henderson's civil
action. The district court's order is hereby affirmed. We dispense with
oral argument because the facts and legal contentions are adequately
presented in the materials before the court and argument would not
aid the decisional process.
AFFIRMED
3 | 01-03-2023 | 07-04-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2460302/ | 255 P.3d 1228 (2011)
JETZ SERVICE CO., INC.
v.
K. DOUGLAS, INC.
No. 105154.
Court of Appeals of Kansas.
July 22, 2011.
Decision Without Published Opinion
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2584829/ | 187 P.3d 608 (2008)
TULEY
v.
TULEY.
No. 98616.
Court of Appeals of Kansas.
July 18, 2008.
Decision without published opinion. Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1040767/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-6946
KEITH E. GODWIN, a/k/a Keith E. Goodwin,
Petitioner - Appellant,
v.
HAROLD W. CLARKE, Director of the Virginia Department of
Corrections,
Respondent - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk. Raymond A. Jackson, District
Judge. (2:10-cv-00491-RAJ-DEM)
Submitted: September 6, 2013 Decided: September 13, 2013
Before MOTZ, GREGORY, and SHEDD, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Keith Earl Godwin, Appellant Pro Se. Richard Carson Vorhis,
Senior Assistant Attorney General, Richmond, Virginia, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Keith Earl Godwin seeks to appeal the district court’s
order denying his Fed. R. Civ. P. 60(b)(3) motion for relief
from the district court’s order dismissing his 28 U.S.C. § 2254
(2006) petition. The order is not appealable unless a circuit
justice or judge issues a certificate of appealability.
28 U.S.C. § 2253(c)(1)(A) (2006); Reid v. Angelone, 369 F.3d
363, 369 (4th Cir. 2004). A certificate of appealability will
not issue absent “a substantial showing of the denial of a
constitutional right.” 28 U.S.C. § 2253(c)(2). When the
district court denies relief on the merits, a prisoner satisfies
this standard by demonstrating that reasonable jurists would
find that the district court’s assessment of the constitutional
claims is debatable or wrong. Slack v. McDaniel, 529 U.S. 473,
484 (2000); see Miller-El v. Cockrell, 537 U.S. 322, 336-38
(2003). When the district court denies relief on procedural
grounds, the prisoner must demonstrate both that the dispositive
procedural ruling is debatable, and that the petition states a
debatable claim of the denial of a constitutional right. Slack,
529 U.S. at 484-85.
We have independently reviewed the record and conclude
that Godwin has not made the requisite showing. Accordingly, we
deny a certificate of appealability, deny leave to proceed in
forma pauperis, and dismiss the appeal. We dispense with oral
2
argument because the facts and legal contentions are adequately
presented in the materials before this court and argument would
not aid the decisional process.
DISMISSED
3 | 01-03-2023 | 09-13-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2319002/ | 30 A.3d 545 (2011)
TRO AVE. OF THE ARTS
v.
THE ART INSTITUTE OF PHILADELPHIA.
No. 1730 EDA 2010.
Superior Court of Pennsylvania.
May 23, 2011.
Affirmed, Reversed and Remanded. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2475585/ | 766 F.Supp.2d 941 (2011)
Reggie WHITE, Michael Buck, Hardy Nickerson, Vann McElroy and Dave Duerson, Plaintiffs,
v.
NATIONAL FOOTBALL LEAGUE; The Five Smiths, Inc.; Buffalo Bills, Inc.; Chicago Bears Football Club, Inc.; Cincinnati Bengals, Inc.; Cleveland Browns, Inc.; The Dallas Cowboys Football Club, Ltd.; PDB Sports, Ltd.; The Detroit Lions, Inc.; The Green Bay Packers, Inc.; Houston Oilers, Inc.; Indianapolis Colts, Inc.; Kansas City Chiefs Football Club, Inc.; The Los Angeles Raiders, Ltd.; Los Angeles Rams Football Company, Inc.; Miami Dolphins, Ltd.; Minnesota Vikings Football Club, Inc.; KMS Patriots Limited Partnership; The New Orleans Saints Limited Partnership; New York Football Giants, Inc.; New York Jets Football Club, Inc.; The Philadelphia Eagles Football Club, Inc.; B & B Holdings, Inc.; Pittsburgh Steelers Sports, Inc.; The Chargers Football Company; The San Francisco Forty-Niners, Ltd.; The Seattle Seahawks, Inc.; Tampa Bay Area NFL Football Club, Inc.; and Pro-Football, Inc.; Defendants.
Civil No. 4-92-906(DSD).
United States District Court, D. Minnesota.
March 1, 2011.
*943 Thomas J. Heiden, Esq., Latham & Watkins, Chicago, IL, David A. Barrett, Esq., Latham & Watkins, Heather McPhee, Esq., NFL Players Association, Washington, DC, Anthony N. Kirwin, Esq., Lindquist & Vennum, Timothy R. Thornton, Esq., Briggs & Morgan, Minneapohs, MN, David G. Feher, Esq., Jeffrey L. Kessler, Esq., David L. Greenspan, Esq., Eva W. Cole, Esq., Dewey & Le-Boeuf LLP, James W. Quinn, Esq., Weil, Gotshal & Manges, New York, NY, for plaintiffs.
Daniel J. Connolly, Esq., Aaron D. Van Oort, Esq., Faegre & Benson, Minneapohs, MN, Gregg H. Levy, Esq., Benjamin *944 Block, Esq., Neil K. Roman, Esq., Covington & Burling, Washington, D.C., Shepard Goldfein, Esq., Skadden, Arps, Slate, Meagher & Flom, New York, NY, for defendants.
ORDER
DAVID S. DOTY, District Judge.
This matter is before the court upon the objection in part by Class Counsel and the National Football League Players' Association (collectively, Players or NFLPA) to the February 1, 2011, opinion of Special Master Stephen B. Burbank. Based on a review of the file, record and proceedings before the court, and for the reasons stated, the court adopts in part and overrules in part the recommendation of the special master.
BACKGROUND
This appeal arises out of a proceeding commenced by the Players pursuant to Article XXII of the White Stipulation and Settlement Agreement (SSA).[1]See ECF No. 524. The Players allege that the National Football League, its member clubs and the National Football League Management Council (collectively, NFL) violated the SSA by ignoring the obligation to act in good faith and use best efforts to maximize total revenues for both the NFL and the Players for each SSA playing season. In this appeal, the court must, in considering the special master's opinion, determine (1) what the SSA requires of the parties; and (2) whether the NFL violated the SSA when it extended and renegotiated broadcast contracts with DirecTV, CBS, FOX, NBC and ESPN (collectively, broadcasters).
I. Historical Context
On September 10, 1992, following a ten-week trial, a jury found the NFL in violation § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. See McNeil v. Nat'l Football League (Plan B Free Agency), No. 4-90-476, 1992 WL 315292, at *1 (D.Minn. Sept. 10, 1992). Following the verdict, individual players sought injunctive relief to become free agents for the 1992 season. See Jackson v. Nat'l Football League, 802 F.Supp. 226, 228 (D.Minn.1992). Based on the McNeil verdict, the court temporarily enjoined enforcement of Plan B. Id. at 235. Less than two weeks after the McNeil verdict, players Reggie White, Michael Buck, Hardy Nickerson, Vann McElroy and Dave Duerson brought an antitrust class action seeking injunctive relief in the form of total or modified free agency. See White v. Nat'l Football League, 822 F.Supp. 1389 (D.Minn.1993). The parties decided to settle their financial and labor disputes, and a mandatory settlement class was certified for damages and injunctive relief. The NFLPA became the official exclusive bargaining authority for football players in March 1993. The NFL and the Players formed the SSA to bring an end to a wide range of litigation. On April 30, 1993, the court approved the SSA. The parties also entered into a Collective Bargaining Agreement (CBA) that mirrors the SSA. The parties amended and extended the CBA in 1996 and 1998. In 2006, the parties renegotiated the CBA for 2006-2012.
On May 20, 2008, the NFL opted out of the final two years of the current CBA and SSA because, among other reasons, it believed that the current agreement "does not adequately recognize the costs of generating the revenues of which the players receive the largest share," and other elements of the deal "simply are not working." Ex. 77.[2] As a result, the SSA and *945 CBA expire on March 4, 2011. The NFL recognized that a lockout was "realistically" possible in order to achieve a new agreement more favorable to its interests. Tr. 771; see Ex. 221.
Soon after opting out of the CBA, the NFL began to negotiate extensions of its broadcast contracts. Rights fees in the broadcast contracts generate approximately half of the NFL's total revenues. Goodell Direct Test. 4. Existing broadcast contracts effectively prevented the NFL from collecting revenue during a lockout in 2011 because the contracts did not require broadcasters to pay rights fees during a lockout or required the NFL to repay lockout fees in 2011. Op. 20-21, ¶¶ 12-22; Ex. 228, at 00065812. Moreover, some of the NFL's loan obligations include "average media revenues" covenants which provide that an "event of default" occurs if average annual league media revenues fall below a specified value. Op. 20, ¶ 9; id. at 21, ¶ 11; Siclare Direct Test. 1, 3. The NFL worried that its creditors could argue that a default event had occurred if the NFL locked out the Players in 2011, the same year that some broadcast contracts were set to expire, and that a default would give the Players bargaining power in labor negotiations. Op. 21, ¶ 23; Goodell Direct Test. 3. In light of "market conditions and strategic considerations," the NFL understood that it was "prudent to consider [broadcast contract] extension alternatives today." Ex. 228, at 00065812.
II. Broadcast Contracts
In May 2008, the NFL had broadcast contracts with DirecTV for the 2006-2010 seasons, with CBS, FOX and NBC, respectively, for the 2006-2011 seasons, and with ESPN for the 2006-2013 seasons (collectively, previous contracts).
A. DirecTV
The NFL's contract with DirecTV was to expire at the end of the 2010 season. The previous contract had no work-stoppage provision. As a result, the NFL would receive no revenue if it locked out the Players. DirecTV had the exclusive right to broadcast a "Red Zone" channel featuring scoring opportunities from every regular-season Sunday afternoon game. The NFL wanted to offer its own version of the Red Zone. Op. 22, ¶ 31; Rolapp Direct Test. 4.
The NFL and DirecTV began negotiations in July 2008. The extended contract provides that DirecTV will pay a substantial fee if the 2011 season is not cancelled and up to 9% more, at the NFL's discretion, if the 2011 season is cancelled. Of the total amount payable in the event of a cancelled season, 42% of that fee is nonrefundable and the remainder would be credited to the following season. Op. 27, ¶¶ 71-72; Goodell Direct Test. 11. As a result, the NFL could receive substantially more from DirecTV in 2011 if it locks out the Players then if it does not. DirecTV would have considered paying more in 2009 and 2010 "to have [the work-stoppage provision] go away." Tr. 410.
In the extended contract, DirecTV: (1) gained the right to distribute Sunday Ticket via broadband; (2) gained packaging flexibility; (3) maintained the exclusive right to carry out-of-market games (Sunday Ticket); and (4) maintained the nonexclusive right to carry programming that features year-round, 24-hour football programming (the NFL Network) through the end of the 2014 season. Op. 27, ¶ 74; Tr. 379; Goodell Direct Test. 15. The NFL gained the immediate right to distribute "look-ins" of Sunday Ticket games *946 as part of its Red Zone channel. Op. 27, ¶ 74; Tr. 381. DirecTV agreed to pay an increased average rights fee for 2011 through 2014. The NFL did not seek an increase in rights fees for the 2009 and 2010 seasons, and those fees remained unchanged. Op. 26, ¶ 62; Goodell Direct Test. 7.
B. CBS & FOX
The NFL's contracts with CBS and FOX were to expire at the end of the 2011 season. Under the previous contracts, CBS and FOX had to pay rights fees in the event of a work stoppage. The NFL and the networks would then negotiate a refund and, if necessary, resolve disputes through arbitration. If refunds were due, the NFL had to repay fees for the first three cancelled games during the affected season, with the remainder due the following season. If a work stoppage occurred in 2011, the final year of the contract, the NFL had to repay CBS and FOX that same year. The NFL began simultaneous negotiations with CBS and FOX in April 2009.
The NFL and CBS and FOX, respectively, extended the contracts through the 2013 season. Under the extended contracts, the new work-stoppage provision: (1) eliminates the requirement that the NFL repay rights fees attributable to the first three lost games in the affected season; (2) allows the NFL to request less than the full rights fee; and (3) allows the NFL to repay the funds, plus money-market interest, over the term of the contract. Op. 32, ¶ 126. If an entire season is cancelled, the contracts extend for an additional season. Id. ¶ 127. Initially, FOX expressed reluctance to pay rights fees during a work stoppage. Goodell Direct Test. 19. The NFL considered opposition to the work-stoppage provision a "deal breaker[ ]." Ex. 163.
CBS and FOX gained highlight rights, streaming rights and advertising flexibility for the 2009-2010 seasons. See Op. 30, ¶¶ 106, 107-08, 119; Goodell Direct Test. 21; Rolapp Direct Test. 11. The NFL gained the immediate right to distribute "look-ins" of CBS and FOX games for its Red Zone channel and the right to distribute highlights through its wireless provider. See Op. 30, ¶ 103; Rolapp Direct Test. 11. CBS and Fox agreed to pay increased rights fees for the 2012 and 2013 seasons. The NFL did not seek increased rights fees for the 2009, 2010 and 2011 seasons, and they remained unchanged. CBS, FOX and the NFL approved the respective contract extensions in May 2009.
C. NBC
The NFL's broadcast contract with NBC was to expire at the end of the 2011 season. The previous contract contained a work-stoppage provision identical to the provisions in the previous CBS and FOX contracts. The NFL and NBC began negotiations in March 2009.
The NFL extended NBC's contract through the 2013 season. Under the extended contract, the new work-stoppage provision: (1) eliminates the requirement that the NFL repay rights fees attributable to the first three lost games in the affected season; (2) allows the NFL to request less than the full rights fee; and (3) allows the NFL to repay the funds, plus money-market interest, over the term of the contract. Op. 39, ¶ 190; Goodell Direct Test. 21, 24. If an entire season is cancelled, the contract extends for one year with the right to broadcast the Super Bowl that year. Op. 39, ¶ 191; Goodell Direct Test. 24.
In extension negotiations, NBC felt that the NFL was "hosing" it by its rights fees demand. Op. 39, ¶ 185; Tr. 1339. To "bridg[e] the gap," the NFL agreed to *947 award NBC an additional regular-season game for the 2010-2013 seasons. Op. 38, ¶ 181; Tr. 1048-1050, 1339. The NFL did not seek additional rights fees for the 2009, 2010 and 2011 seasons, and they remained unchanged. NBC agreed to pay increased rights fees for the 2012 and 2013 seasons.
NBC gained limited digital and advertising rights for the 2009-2010 seasons. The NFL gained the immediate right to stream Sunday Night Football via its wireless partner and certain "lookin" rights. The NFL and NBC approved the contract extension in May 2010.
D. ESPN
The NFL's contract with ESPN for Monday Night Football was to expire in 2013. This contract was not extended, but the work-stoppage provision was amended. Op. 40, ¶ 194; id. at 41, ¶¶ 204-05; Goodell Direct Test. 25-26. The previous contract contained a work-stoppage provision similar to the provisions in the previous CBS, FOX and NBC contracts, except that the NFL could be required to repay damages incurred by ESPN due to lost subscription fees. ESPN wanted to obtain additional digital rights from the NFL. Op. 40, ¶ 195. The NFL and ESPN negotiated digital rights and a new work-stoppage provision in fall 2009. Op. 40, ¶¶ 198-200; Goodell Direct Test. 25.
In the event of a cancelled season, the new work-stoppage provision provides that: (1) ESPN would, at the NFL's discretion, pay up to the full rights fee; (2) a credit for the first three games of the season would be applied the same year; (3) the NFL may request less than the full rights fee; and (4) the NFL would repay the funds, with LIBOR interest plus 100 basis points, over the term of the contract. Op. 42, ¶¶ 214-15; Tr. 302-03. If an entire season is cancelled, the contract extends for an additional season. Op. 42, ¶ 213; Rolapp Direct Test. 17. The NFL is not liable to repay more than ESPN's yearly rights fee.
ESPN gained (1) the right to use NFL footage in linear distribution of regular programming across digital platforms (excluding the right to distribute live Monday Night Football wirelessly); (2) the right to stream live Monday Night Football highlights on its website; (3) the right to show game highlights online; (4) incremental international rights; and (5) broad wireless rights. Op. 40, ¶ 199; Rolapp Direct Test. 16-17. The NFL gained the right to distribute in-progress highlights of ESPN's Monday Night Football game on NFL.com and wireless devices.
ESPN agreed to pay rights fees for July 2010 through July 2014. Op. 40, ¶ 198; Goodell Direct Test. 25. ESPN requested that the fee not be payable in the event of a work stoppage, but the NFL rejected the request. Goodell Direct Test. 25. The NFL stated that the digital deal and the work-stoppage provisions were "linked." Op. 41, ¶ 208; Tr. 889-90. To secure ESPN's agreement to the work-stoppage provision, the NFL granted the right to a Monday Night Football "simulcast" via the wireless partner. Op. 41, ¶ 209; Tr. 891-92.
E. Comcast & Verizon
In 2008, the NFL was engaged in litigation with cable provider Comcast over limited carriage of the NFL Network. Op. 34, ¶ 141; Goodell Direct Test. 12. After securing contract extensions with CBS and Fox, the NFL concluded a carriage agreement with Comcast, whereby Comcast agreed to carry the NFL Network on an expanded digital tier, leading to an 8-million subscriber increase in distribution. Op. 34, ¶¶ 1447-48; id. at 35, ¶ 150; Goodell Direct Test. 22; Tr. 1038. As a result, the NFL Network revenue increased substantially *948 from 2008 to 2009. Op. 35, ¶ 150; Siclare Direct Test. 14.
In February 2010, Verizon Wireless (Verizon) became the NFL's wireless partner. Op. 43, ¶ 220; Rolapp Direct Test. 15. Verizon agreed to pay higher fees than the NFL's previous wireless partner, resulting in large increases in direct and indirect value. Op. 43, ¶¶ 223, 225; Rolapp Direct Test. 15. Access to the NFL's Red Zone channel, Sunday night football streaming, in-progress highlights, and post-season live audio helped the Verizon deal move forward. Op. 43, ¶ 228; Rolapp Direct Test. 15-16. In the event of a work stoppage, Verizon is obligated to pay a non-refundable rights fee. Op. 44, ¶ 230; Rolapp Direct Test. 3.
In total, the NFL negotiated access to over $4 billion in rights fees in 2011 if it locks out the Players. Of that sum, it has no obligation to repay $421 million to the broadcasters.
III. Present Action
On June 9, 2010, the Players sought a declaration that the NFL violated Article X, § 1(a)(i) and Article XIX, § 6 of the SSA when it extended and renegotiated broadcast contracts without satisfying its duty to maximize total revenues in SSA years 2009 and 2010, which would inure to the benefit of both the Players and the NFL. The special master held a trial on January 4-7 and 13, 2011. On February 1, 2011, the special master found that the NFL violated Article X, § 1(a)(i) when it granted NBC an additional regular-season game in the 2010 season and granted ESPN an additional right in the 2010 season in exchange for an amended workstoppage provision. Op. 46, ¶¶ 15-16. The special master granted the Players $6.9 million in damages for the NBC violation, and determined that the Players had not met their burden of demonstrating damages with respect to the ESPN violation. Op. 47-48. The special master found that the NFL did not otherwise breach the SSA. The Players objected in part to the special master's opinion. The court now considers the objection.
DISCUSSION
On appeal, the special master's conclusions of law are reviewed de novo and factual findings are reviewed under the clearly erroneous standard. See White v. Nat'l Football League (Rob Moore), 88 F.Supp.2d 993, 995 (D.Minn.2000); see also Fed.R.Civ.P. 53(f)(3)(A)-(4) (factual findings reviewed for clear error and legal conclusions reviewed de novo). New York law governs interpretation of the SSA. As the court has previously stated:
Under New York law, the terms of a contract must be construed so as to give effect to the intent of the parties as indicated by the language of the contract. The objective in any question of the interpretation of a written contract, of course, is to determine what is the intention of the parties as derived from the language employed. The court should also give the words in a contract their plain and ordinary meaning unless the context mandates a different interpretation.
See White v. Nat'l Football League (30% Rule), 899 F.Supp. 410, 414 (D.Minn.1995). Further, the court must give effect and meaning to each term of the contract, making every reasonable effort to harmonize all of its terms. See Reda v. Eastman Kodak Co., 233 A.D.2d 914, 649 N.Y.S.2d 555, 557 (N.Y.App.Div.1996). The court must also interpret the contract so as to effectuate, not nullify, its primary purpose. See id. Here, the primary purpose of the SSA was to settle numerous labor and financial disputes between the Players and the NFL, and to secure revenue for their mutual benefit. The SSA and the CBA *949 have been amended several times to continue labor harmony between the parties.
I. Alleged SSA Violations
Article X, § 1(a)(i) of the SSA provides that:
The NFL and each NFL team shall in good faith act and use their best efforts, consistent with sound business judgment, so as to maximize Total Revenues for each playing season during the term of this Agreement. . . .
SSA Art. X, § 1(a)(i). The SSA defines total revenues as:
"Total Revenues" ("TR") means the aggregate revenues received or to be received on an accrual basis, for or with respect to a League Year during the term of this Agreement, by the NFL and all NFL Teams (and their designees), from all sources, whether known or unknown, derived from, relating to or arising out of the performance of players in NFL football games . . . .
Id.
The Players argue that the special master erred by concluding that the NFL did not breach the SSA, finding that the goodfaith requirement adds nothing to the SSA, erroneously interpreting "sound business judgment" and total revenues, and declining to issue an injunction. The Players "bear the burden of demonstrating by a clear preponderance of the evidence that the challenged conduct was in violation of Article X." SSA Art. XV, § 3.
A. Consistent with Sound Business Judgment
The court first considers the meaning of the words "consistent with sound business judgment" because this language is essential to interpreting the meaning of "good faith" and "best efforts" in Article X. The special master found that "consistent with sound business judgment" qualifies the duty to act in good faith and use best efforts to maximize total revenues, thereby rejecting the Players' argument that it imposes an additional obligation. Op. 14.
The language of § 1(a)(i) cannot be construed by looking at each word in isolation. See Dore v. La Pierre, 226 N.Y.S.2d 949, 952 (N.Y.Sup.Ct.1962) ("In interpreting a contract, particular words should not be considered as isolated from the context."). The court looks to the entire sentence and the words surrounding the phrase for guidance. See Popkin v. Sec. Mut. Ins. Co. of N.Y., 48 A.D.2d 46, 367 N.Y.S.2d 492, 495 (N.Y.App.Div.1975). In this case, applying the principle of noscitur a sociis and considering punctuation and grammatical structure, the court agrees with the special master that "consistent with sound business judgment" qualifies the duties to act in good faith and use best efforts.
The special master erred, however, in his application and analysis of "consistent with sound business judgment." He reasoned that "it would be absurd and commercially unreasonable" to allow the Players to substitute their own business judgment for that of the NFL, Op. 13-14, because he relied on cases that interpret the business-judgment rule as it applies to fiduciary duties of corporate directors. See In re Lipper Holdings, LLC, 1 A.D.3d 170, 766 N.Y.S.2d 561, 562 (N.Y.App.Div.2003) (reviewing limited partnership agreement); Auerbach v. Bennett, 47 N.Y.2d 619, 629-30, 419 N.Y.S.2d 920, 393 N.E.2d 994 (N.Y.1979) (reviewing corporate action). The rationale for the business-judgment rule does not apply here. In a corporate context, the business-judgment rule exists to insulate corporate directors from personal liability when they take good-faith risks on behalf of a corporation. The rule protects directors from actions by stockholders (owners) and others. Unlike corporate directors and stockholders, whose interests generally align, the interests of *950 management (owners) and labor are adversarial. Therefore, in the SSA, the words "sound business judgment" do not grant the same discretion enjoyed by corporate directors.
The special master should have considered the intent of the parties and the context from which this language arose. The NFL and Players formed the SSA to avoid the consequences of the jury verdict finding the NFL in violation of antitrust law. The level of discretion allowed by the SSA is constrained by the context and hard bargaining which establish the intent of the parties and the meaning of that language.
The court must construe the SSA in light of the language agreed to by the parties and New York law. The phrase "consistent with sound business judgment" qualifies, and is qualified by, the SSA requirement that the parties act in good faith and use best efforts to maximize total revenues for the joint benefit of the Players and the NFL. Indeed, "consistent with sound business judgment" allows the NFL to consider its long-term interests provided it does so while acting in good faith and using best efforts to maximize total revenues for each SSA playing season. Accord Dist. Lodge 26 of Int'l Ass'n of Machinists & Aerospace Workers, AFL-CIO v. United Techs. Corp., 689 F.Supp.2d 219, 242 (D.Conn.2010) (considering contract's "every reasonable effort" provision).[3] "Sound business judgment" does not allow the NFL to pursue its own interests at the expense of maximizing total revenues during the SSA. Therefore, the special master committed legal error in his interpretation of "sound business judgment," which effectively nullified pertinent terms of the SSA.
B. Good Faith
Good faith and best efforts are distinct obligations:
Good faith is a standard that has honesty and fairness at its core and that is imposed on every party to a contract. Best efforts is a standard that has diligence at its essence and is imposed on those contracting parties that have undertaken such performance. The two standards are distinct, and that of best efforts is the more exacting . . . .
2 E. Allan Farnsworth, Farnsworth on Contracts § 7.17c (3d ed. 2004) (citation omitted); see also Grossman v. Melinda Lowell, Attorney at Law, P.A., 703 F.Supp. 282, 284 (S.D.N.Y.1989) (best efforts imposes additional obligation); Ashokan Water Servs., Inc. v. New Start, LLC, 11 Misc.3d 686, 807 N.Y.S.2d 550, 556 (N.Y.Civ.Ct.2006) ("A best efforts requirement must be reconciled with other clauses in the contract to the extent possible, not used as a basis for negating them.") (citation and internal quotation marks omitted). The special master correctly stated that best efforts imposes a "higher obligation" than good faith. Op. 12-13 (citing Ashokan Water Servs., 807 N.Y.S.2d at 555); see also Kroboth v. Brent, 215 A.D.2d 813, 814, 625 N.Y.S.2d 748 (N.Y.App.Div.1995) ("`best efforts' requires more than `good faith'"). However, the special master then declined to analyze the SSA's good faith obligation because he reasoned that "under New York law, any breach of the duty of good faith will also constitute a failure to exert best efforts, although the converse is not always true." Op. 12-13. The failure to separately analyze good faith constitutes legal error.
Good faith "connotes an actual state of mind . . . motivated by proper motive" and "encompasses, among other *951 things, an honest belief, the absence of malice and the absence of a design to defraud or to seek an unconscionable advantage." Ashokan Water Servs., 807 N.Y.S.2d at 554 (citation and internal quotation marks omitted). In addition, good faith requires that "neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 746 N.Y.S.2d 131, 773 N.E.2d 496, 500 (2002) (citation omitted).
Broadcast contracts are an enormous source of shared revenue for the Players and the NFL. Under the SSA, the Players rely on the NFL to negotiate these contracts on behalf of both the NFL's own interests and the interests of the Players. In May 2008, the NFL opted out of the final two years of the CBA, and recognized that a lockout in 2011 would help achieve a more favorable CBA. Thereafter, the NFL sought to renegotiate broadcast contracts to ensure revenue for itself in the event of a lockout. See, e.g., Exs. 98, 102, 110, 131, 228. The record shows that the NFL undertook contract renegotiations to advance its own interests and harm the interests of the players.[4] The NFL argues that the SSA does not require it to act in good faith in 2011 or subsequent seasons, that lockouts are recognized bargaining tools and that it is entitled to maximize its post-SSA leverage. The court agrees.[5] However, under the terms of the SSA, the NFL is not entitled to obtain leverage by renegotiating shared revenue contracts, during the SSA, to generate post-SSA leverage and revenue to advance its own interests and harm the interests of the Players. Here, the NFL renegotiated the broadcast contracts to benefit its exclusive interest at the expense of, and contrary to, the joint interests of the NFL and the Players. This conduct constitutes "a design . . . to seek an unconscionable advantage" and is inconsistent with good faith. See Ashokan Water Servs., 807 N.Y.S.2d at 554 (citation and internal quotation marks omitted).
The NFL next argues that any injury to the Players' interests will occur after the termination of the SSA. The court disagrees. As a result of the broadcast contract renegotiations, the NFL demanded and received "material[ly]" different, immediately effective work-stoppage agreements. See, e.g., Bornstein Dep. 168-69. Moreover, at least one broadcaster would have considered paying more in the 2009-2010 seasons "to have [the work-stoppage provision] go away," Tr. 410, indicating that the NFL's inflexibility with respect to lockout provisions resulted in less total revenues for the 2009-2010 seasons. The NFL also argues that the broadcast contracts were renegotiated to avoid defaulting under certain loan covenants. That fact alone substantiates value to the NFL without a corresponding increase in total revenues. Moreover, the value of the renegotiated contracts far exceeds the amount needed to satisfy loan covenants, and the DirecTV contract creates a financial incentive to institute a lockout. Further, the decision to lockout *952 the Players is entirely within the control of the NFL, thereby rendering a debt default also entirely within its control. Lastly, the debt covenants are of the NFL's own making. The risk of debt default brought about by a lockout does not excuse or justify a breach of the SSA. Therefore, construing the good faith obligation as modified by "consistent with sound business judgment," the NFL breached the SSA by failing to act in good faith so as to maximize total revenues for each SSA playing season.[6] The special master committed legal error by failing to properly interpret the good faith provision and by finding no breach.[7]
C. Best Efforts
"There is, of course, no more significant context for a `best efforts' obligation than the agreement of which it is a part or is made so." Ashokan Water Servs., 807 N.Y.S.2d at 556. Best efforts "necessarily takes its meaning from the circumstances." Bloor v. Falstaff Brewing Corp., 454 F.Supp. 258, 266 (S.D.N.Y.1978) (citation and internal quotation marks omitted). Under New York law "a best efforts clause imposes an obligation to act with good faith in light of one's own capabilities." Bloor v. Falstaff Brewing Corp., 601 F.2d 609, 613 n. 7 (2d Cir.1979) (internal quotation marks omitted). Capability "is a far broader term than financial ability" and "must take into account [the promisor's] abilities and opportunities which it created or faced." Bloor, 454 F.Supp. at 267 (internal quotation marks omitted).
A party obligated to give best efforts maintains the "right to give reasonable consideration to its own interests," Bloor, 601 F.2d at 614, and is allowed a "reasonable variance . . . in the exercise of sound business judgment," Bloor, 454 F.Supp. at 269. Although a best-efforts provision does "not require [a promisor] to spend itself into bankruptcy," it does prohibit a promisor from "emphasizing profit uber alles without fair consideration of the effect" on the promisee. Bloor, 601 F.2d at 614. A best-efforts clause requires the promisor to do more than treat a promisee's interest "as well as its own." Id.
The special master failed to analyze the total capabilities and the market power of the NFL because he found it "difficult to believe that" the parties intended best efforts to "require the NFL to seek additional consideration for rights already under contract." Op. 15. This is another example of importing corporate law to a sui generis agreement that was forged at the anvil of litigation, threatened repercussions and hard bargaining.[8]
*953 Moreover, although the rights fees for the 2009-2010 seasons were already agreed upon, the renegotiated contracts materially changed almost every other aspect of the previous contracts. Further, the NFL gave digital rights in 2009 and 2010 without incremental payments to convince two broadcasters to agree to work-stoppage provisions. See Op. 46, ¶ 16; Exs. 160, 163, 170; Tr. 866-77. The NFL gave digital and other rights in 2009 and 2010 without incremental payments to convince other broadcasters to pay increased rights fees in 2012 and subsequent seasons. See Op. 46, ¶ 15; Ex. 167, at 00003736. The NFL made no effort to maximize total revenues in 2009-2010 in exchange for those rights.
The court agrees with the special master that the best-efforts clause does not require the NFL to "constantly badger[ ] its broadcast . . . partners for more money" without offering anything in return. Op. 15. However, the SSA requires the NFL to use best efforts to maximize total revenues for the 2009-2010 seasons when it enters into widespread and lucrative contract renegotiations.[9] As the special master noted, the law disfavors "those who come to regret deals they have made and seek to switch the locus of risk ex post." Op. 15. However, by actively renegotiating broadcast contracts to ensure favorable changes for itself and disadvantage the Players, the NFL did precisely that. As a result, the failure of the NFL to seek revenue for modifications to the broadcast contracts in the 2009-2010 seasons is inconsistent with best efforts.
In applying the total-capabilities analysis, the court finds that the NFL's capabilities are formidable and extensive. "Capability is a far broader term than financial ability" and includes the NFL's market power and "the opportunities which it created or faced." Bloor, 454 F.Supp. at 267. Along with favorable lockout protection and digital rights agreements, the NFL secured annual rights fees increases large enough to be considered an "enormous accomplishment." Goodell Direct Test. 10, 20-21, 24; see Op. 22, ¶¶ 25-26. According to one network executive, "[y]ou know you've reached the absolute limits of your power as a major network . . . [when] the commissioner of the National Football League calls you . . . and says . . . [w]e're done, pay this or move on . . . . [the NFL has] market power like no one else, and at a certain point in time, they'll tell you to pack it up or pay the piper." Tr. 1346. The record indicates that, using its market power, the NFL had substantial capability to maximize total revenues for the 2009 and 2010 playing seasons when it entered into broadcast contract renegotiations.
To the extent that "consistent with sound business judgment" modifies the best efforts requirement, the NFL may consider its long-term interests but not at the expense of maximizing total revenues for each SSA season for the joint benefit of itself and the Players. A promisor's consideration of its own interests becomes unreasonable when it is manifestly harmful to the party to which it has obligations. See Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Pub. Co., 30 *954 N.Y.2d 34, 330 N.Y.S.2d 329, 281 N.E.2d 142, 145 (1972); accord Dist. Lodge 26, 689 F.Supp.2d at 242. "Consistent with sound business judgment" does not permit the NFL to enhance its long-term interests at the expense of its present obligations.[10] The record shows, however, that the NFL did just that. In considering broadcast contract renegotiations, the NFL consistently characterized gaining control over labor as a short-term objective and maximizing revenue as a long-term objective. See, e.g., Exs. 142, 201, 228. The NFL used best efforts to advance its CBA negotiating position at the expense of using best efforts to maximize total revenues for the joint benefit of the NFL and the Players for each SSA playing season. Moreover, at least three networks expressed some degree of resistance to the lockout payments. As it renegotiated the contracts, the NFL characterized network opposition to lockout provisions to be a deal breaker and "clearly a deal" it would not consider. Ex. 163. To the contrary, the evidence shows that maximizing total revenues for SSA seasons was, at best, a minor consideration in contract renegotiations. Therefore, the court finds that the NFL breached Article X, § 1(a)(i) in extending or renegotiating its broadcast contracts. Accordingly, the special master committed legal error in failing to properly interpret the SSA's requirement to act in good faith and use best efforts, consistent with sound business judgment, to maximize total revenues for each SSA playing season, and thus finding no breach.
II. Remedies
In his "recommendations of relief," the special master did not consider injunctive relief. See Op. 46-48. The special master's failure to consider injunctive relief constitutes legal error. The court considers four factors in determining whether an injunction should issue: (1) the threat of irreparable harm to the movant in the absence of relief, (2) the balance between that harm and the harm that the relief may cause the non-moving party, (3) the likelihood of the movant's ultimate success on the merits and (4) the public interest. Dataphase Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109, 114 (8th Cir.1981) (en banc).[11] Irreparable harm occurs when a party has no adequate remedy at law because its injuries cannot be fully compensated through money damages. See Gen. Motors Corp. v. Harry Brown's, LLC, 563 F.3d 312, 319 (8th Cir.2009). The issue of the extent to which, and whether, money damages can compensate the Players has not been fully briefed or argued before the court. Therefore, the court determines that additional briefing and a hearing concerning remedies are warranted before it issues its final order.
CONCLUSION
IT IS HEREBY ORDERED that:
*955 1. The court adopts the special master's "recommendations for relief" paragraphs 1 and 2, see Op. 47, as there is no objection to these findings and recommendations before the court;
2. The court overrules the special master's findings as to the NFL's breach of the SSA relating to its contracts with DirecTV, CBS, FOX, NBC and ESPN, and holds that the NFL breached the SSA as to those contracts; and
3. The court orders that a hearing be held concerning relief to be granted to the Players arising from the NFL's breach of the SSA. The hearing shall consider the award of both money damages and equitable relief, including injunction. District of Minnesota Local Rule 7.1(b) will dictate briefing schedules and related procedures.
NOTES
[1] The parties amended the SSA in 1993, 1996, 2002 and 2006.
[2] "Ex." refers to joint trial exhibits submitted at the hearing before the special master. "Tr." refers to the transcript of the hearing before the special master. "Direct Test." refers to direct testimony declarations. "Op." refers to the special master's February 1, 2011, opinion.
[3] "New York courts use the term reasonable efforts interchangeably with best efforts." Monex Fin. Servs. Ltd. v. Nova Info. Sys., Inc., 657 F.Supp.2d 447, 454 (S.D.N.Y.2009) (citation and internal quotation marks omitted).
[4] The NFL's "Decision Tree" is one glaring example of the NFL's intent and consideration of its own interests above the interests of the Players. See Ex. 216, at 00081969. Moving forward with a deal depended on the answer to the question: "Does Deal Completion Advance CBA Negotiating Dynamics?" If yes, the NFL should "Do Deal Now"; if no, the NFL should "Deal When Opportune." Id.
[5] The court notes, however, that a lockout is usually an economic weapon employed in response to a strike. See 48B Am.Jur.2d Labor & Labor Relations § 2652 ("A lockout is a legitimate move by an employer in the face of a strike. . . .").
[6] The NFL rankles under the restriction to its enormous market power imposed by the White settlement after the jury in McNeil found that the NFL had abused its power in unlawful restraint of trade. The facts underlying this proceeding illustrate another abuse of that market power wherein various broadcasters of NFL games were "convinced" to grant lucrative work-stoppage payments to the NFL if the NFL decides to institute a lockout. Typical work-stoppage provisions anticipate a strike by players, not a work stoppage created by the NFL itself. Whether the contract provisions insuring these payments might ultimately be deemed unenforceable because of their potentially collusive nature is not an issue before this court, but the court does consider the abuse of the NFL's market power when finding that it did not act in good faith to benefit both itself and the Players, as required by the SSA.
[7] As a result, the court need not analyze whether the NFL also violated SSA Article XIX, § 6.
[8] The special master noted that "a signed writing is sufficient to overcome the traditional refusal to enforce a promise to pay more in the absence of additional consideration." Op. 15. The special master erred in relying on the preexisting duty rule. The rule does not apply where, as here, the parties do, or promise to do, something in addition to their preexisting duties. See, e.g., Care Travel Co., Ltd. v. Pan Am. World Airways, Inc., 944 F.2d 983, 990 (2nd Cir. 1991) (airline promised that it would not terminate contract within 90 days, even though it had right to do so, and agency agreed to operate as nonexclusive agent).
[9] The court rejects the argument that such an interpretation hypothetically requires the NFL to sell tickets or sponsorship rights for a future season in 2009 or 2010. Unlike the hypothetical scenario, here the NFL renegotiated contracts for years within the term of the SSA and obtained immediate benefits from those renegotiations.
[10] The NFL urges the court to follow an unpublished Fourth Circuit case, which held that the duty to use best efforts "consistent with its overall business objectives" allows the defendant "to act in accordance with its own objectives if they conflict with those of [plaintiff]." Mylan Pharm., Inc. v. Am. Cyanamid Co., Nos. 94-1502, 94-1472, 1995 WL 86437, at *6 (4th Cir.1995). This unpublished case is not persuasive or controlling authority. See 8th Cir. R. 32.1A; 2d Cir. R. 32.1. Moreover, it provides no analysis or substantive reasoning for its interpretation.
[11] The factors are the same for a permanent injunction except that the movant must show actual success on the merits. See Vonage Holdings Corp. v. Minn. Pub. Util. Comm'n, 290 F.Supp.2d 993, 996 (D.Minn.2003) (citing Amoco Prod. Co. v. Vill. of Gambell, 480 U.S. 531, 546 n. 12, 107 S.Ct. 1396, 94 L.Ed.2d 542 (1987)). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2694965/ | [Cite as Vandegrift v. Ohio Dept. of Transp., 2011-Ohio-6967.]
Court of Claims of Ohio
The Ohio Judicial Center
65 South Front Street, Third Floor
Columbus, OH 43215
614.387.9800 or 1.800.824.8263
www.cco.state.oh.us
CHERYL VANDEGRIFT
Plaintiff
v.
OHIO DEPT. OF TRANSPORTATION
Defendant
Case No. 2011-08300-AD
Deputy Clerk Daniel R. Borchert
MEMORANDUM DECISION
{¶1} Plaintiff, Cheryl Vandegrift, filed this action against defendant, Ohio
Department of Transportation (ODOT), contending that her vehicle was damaged as a
proximate result of negligence on the part of ODOT in maintaining a hazardous
condition on Route 30 in East Canton, Ohio. In her complaint, plaintiff described the
particular damage event noting that she was traveling east on Route 30 when she
struck a pothole. Plaintiff recalled this incident occurred on May 15, 2011, at
approximately 9:30 p.m. Plaintiff seeks recovery of damages in the amount of $503.29,
the stated total amount for a replacement tire, rim, and reimbursement of the filing fee.
The $25.00 filing fee was paid.
{¶2} Defendant denied liability based on the contention that no ODOT
personnel had any knowledge of the particular damage-causing pothole prior to
plaintiff’s incident. Defendant located plaintiff’s incident “at milepost 20.39 on US 30
and milepost 19.18 on SR 172 in Stark County.”1 Defendant denied receiving any prior
1
Defendant explained that US 30 and SR 172 overlap at the section of roadway where plaintiff’s
incident occurred.
calls or complaints about a pothole or potholes in the vicinity of that location. Defendant
asserted that plaintiff did not offer any evidence to establish the length of time that any
pothole existed in the vicinity of milepost 20.39 on US 30 prior to plaintiff’s incident.
Defendant suggested that “it is more likely than not that the pothole existed in that
location for only a relatively short amount of time before plaintiff’s incident.”
{¶3} Additionally, defendant contended that plaintiff did not offer any evidence
to prove that the roadway was negligently maintained. Defendant advised that the
ODOT “Stark County Manager conducts roadway inspections on all state roadways
within the county on a routine basis, at least one to two times a month.” Apparently, no
potholes were discovered in the vicinity of plaintiff’s incident the last time that section of
roadway was inspected prior to May 15, 2011. Defendant argued that plaintiff has failed
to offer any evidence to prove her property damage was attributable to any conduct on
the part of ODOT personnel. Defendant stated that, “[a] review of the six-month
maintenance history [record submitted] for the area in question reveals that five (5)
pothole patching operations were conducted in the eastbound direction of US 30.”
{¶4} Plaintiff filed a response arguing that the pothole was so big that it “should
have been detected by ODOT.” In addition, plaintiff contended that the pothole had
been reported to the East Canton Police Department. Plaintiff submitted a notation that
merely reads “9:05 John checked pot hole in front of Neidle’s. Hole is filled–5/18/2011.
Guy comes in said that he hit a large chuck hole on St Rt 30 near Green Farms.” The
second report submitted by plaintiff indicates that on May 16, 2011, at 12:30 p.m.,
Robert Newman reported that he hit a pothole in front of Neidle’s Rest on State Route
30. Referred Mr. Newman to ODOT.” Both reports are signed by the fiscal officer for
the Village of East Canton, Barbara Hall.
{¶5} For plaintiff to prevail on a claim of negligence, she must prove, by a
preponderance of the evidence, that defendant owed her a duty, that it breached that
duty, and that the breach proximately caused her injuries. Armstrong v. Best Buy
Company, Inc., 99 Ohio St. 3d 79, 2003-Ohio-2573,¶8 citing Menifee v. Ohio Welding
Products, Inc. (1984), 15 Ohio St. 3d 75, 77, 15 OBR 179, 472 N.E. 2d 707. However,
“[i]t is the duty of a party on whom the burden of proof rests to produce evidence which
furnishes a reasonable basis for sustaining his claim. If the evidence so produced
furnishes only a basis for a choice among different possibilities as to any issue in the
case, he fails to sustain such burden.” Paragraph three of the syllabus in Steven v.
Indus. Comm. (1945), 145 Ohio St. 198, 30 O.O. 415, 61 N.E. 2d 198, approved and
followed.
{¶6} Defendant has the duty to maintain its highways in a reasonably safe
condition for the motoring public. Knickel v. Ohio Department of Transportation (1976),
49 Ohio App. 2d 335, 3 O.O. 3d 413, 361 N.E. 2d 486. However, defendant is not an
insurer of the safety of its highways. See Kniskern v. Township of Somerford (1996),
112 Ohio App. 3d 189, 678 N.E. 2d 273; Rhodus v. Ohio Dept. of Transp. (1990), 67
Ohio App. 3d 723, 588 N.E. 2d 864.
{¶7} In order to prove a breach of the duty to maintain the highways, plaintiff
must prove, by a preponderance of the evidence, that defendant had actual or
constructive notice of the precise conditions or defects alleged to have caused the
accident. McClellan v. ODOT (1986), 34 Ohio App. 3d 247, 517 N.E. 2d 1388.
Defendant is only liable for roadway conditions of which it has notice, but fails to
reasonably correct. Bussard v. Dept. of Transp. (1986), 31 Ohio Misc. 2d 1, 31 OBR
64, 507 N.E. 2d 1179. Despite the documentation presented in the response, there is
insufficient evidence to establish that defendant had actual notice of the pothole on US
30 prior to May 15, 2011.
{¶8} Therefore, to find liability, plaintiff must prove that ODOT had constructive
notice of the defect. The trier of fact is precluded from making an inference of
defendant’s constructive notice, unless evidence is presented in respect to the time that
the defective condition developed. Spires v. Ohio Highway Department (1988), 61 Ohio
Misc. 2d 262, 577 N.E. 2d 458.
{¶9} In order for there to be constructive notice, plaintiff must show that
sufficient time has elapsed after the dangerous condition appears, so that under the
circumstances defendant should have acquired knowledge of its existence. Guiher v.
Dept. of Transportation (1978), 78-0126-AD . Size of the defect is insufficient to show
notice or duration of existence. O’Neil v. Department of Transportation (1988), 61 Ohio
Misc. 2d 287, 587 N.E. 2d 891. “A finding of constructive notice is a determination the
court must make on the facts of each case not simply by applying a pre-set time
standard for the discovery of certain road hazards.” Bussard at 4. “Obviously, the
requisite length of time sufficient to constitute constructive notice varies with each
specific situation.” Danko v. Ohio Dept. of Transp. (Feb. 4, 1993), Franklin App. 92AP-
1183. Insufficient evidence has been submitted to show that ODOT had constructive
notice of the pothole.
{¶10} Generally, in order to recover in a suit involving damage proximately
caused by roadway conditions including potholes, plaintiff must prove that either: 1)
defendant had actual or constructive notice of the potholes and failed to respond in a
reasonable time or responded in a negligent manner, or 2) that defendant, in a general
sense, maintains its highways negligently. Denis v. Department of Transportation
(1976), 75-0287-AD. Plaintiff has not produced any evidence to infer that defendant, in
a general sense, maintains its highways negligently or that defendant’s acts caused the
defective conditions. Herlihy v. Ohio Department of Transportation (1999), 99-07011-
AD. Therefore, defendant is not liable for any damage plaintiff may have suffered from
the pothole.
{¶11} In the instant claim, plaintiff has failed to introduce sufficient evidence to
prove that defendant maintained known hazardous roadway conditions. Plaintiff failed
to prove that her property damage was connected to any conduct under the control of
defendant, or that defendant was negligent in maintaining the roadway area, or that
there was any actionable negligence on the part of defendant. Taylor v. Transportation
Dept. (1998), 97-10898-AD; Weininger v. Department of Transportation (1999), 99-
10909-AD; Witherell v. Ohio Dept. of Transportation (2000), 2000-04758-AD.
Consequently, plaintiff’s claim is denied.
Court of Claims of Ohio
The Ohio Judicial Center
65 South Front Street, Third Floor
Columbus, OH 43215
614.387.9800 or 1.800.824.8263
www.cco.state.oh.us
CHERYL VANDEGRIFT
Plaintiff
v.
OHIO DEPT. OF TRANSPORTATION
Defendant
Case No. 2011-08300-AD
Deputy Clerk Daniel R. Borchert
ENTRY OF ADMINISTRATIVE DETERMINATION
Having considered all the evidence in the claim file and, for the reasons set forth
in the memorandum decision filed concurrently herewith, judgment is rendered in favor
of defendant. Court costs are assessed against plaintiff.
________________________________
DANIEL R. BORCHERT
Deputy Clerk
Entry cc:
Cheryl Vandergrift Jerry Wray, Director
1460 Fox Avenue SE Department of Transportation
Paris, Ohio 44669 1980 West Broad Street
Columbus, Ohio 43223
9/14
Filed 9/21/11
Sent to S.C. reporter 1/27/12 | 01-03-2023 | 08-02-2014 |
https://www.courtlistener.com/api/rest/v3/opinions/2474752/ | 508 F. Supp. 2d 227 (2007)
Phillip JEAN-LAURENT, Plaintiff,
v.
C.O. WILKERSON, et al., Defendants.
No. 05 Civ. 0583.
United States District Court, S.D. New York.
September 12, 2007.
Phillip Jean-Laurent, Gouveneur, NY, pro se.
Sarah Beth Evans, NYC Law Department, Office of the Corporation Counsel, New York, NY, for Defendants.
DECISION AND ORDER
MARRERO, District Judge.
I. BACKGROUND
By Order dated August 17, 2007, Magistrate Judge Douglas Eaton, to whom this matter had been referred for supervision of pretrial proceedings, issued an Order (the "Order") denying the motion of plaintiff Phillip Jean-Laurent ("Jean-Laurent") to compel defendants herein to answer further interrogatories and document requests. Jean-Laurent requested reconsideration, which Magistrate Judge Eaton denied by further Order on September 5, 2007. Jean-Laurent has appealed those rulings to this Court. For the reasons stated below, the Court adopts the Order in its entirety, as well as the Magistrate Judge's denial of reconsideration.
II. STANDARD OF REVIEW
A district court evaluating a Magistrate Judge's order with respect to a matter not dispositive of a claim or defense may adopt the Magistrate Judge's findings and conclusions as long as the factual and legal bases supporting the ruling are not clearly erroneous or contrary to law. See 28 U.S.C. 636(b)(1)(A); Fed.R.Civ.P. 72(b); Thomas v. Arn, 474 U.S. 140, 149, 106 S. Ct. 466, 88 L. Ed. 2d 435 (1985). A district judge, after considering any objections by the parties, may accept, set aside, or modify, in whole or in part, the findings and recommendations of the Magistrate Judge with regard to such matters. See Fed.R.Civ.P. 72(a); see also DeLuca v. Lord, 858 F. Supp. 1330, 1345 (S.D.N.Y. 1994).
III. DISCUSSION
Having conducted a review of the full factual record in this litigation, including the pleadings, and the parties' respective papers submitted in connection with the matter before the Court in this proceeding, as well as the Order and applicable legal authorities, the Court concludes that the findings, reasoning, and legal support for the recommendations made in Order are not clearly erroneous or contrary to law and are thus warranted. Accordingly, for substantially the reasons set forth in the Order the Court adopts the Order in its entirety, as well as the denial of its reconsideration.
IV. ORDER
For the reasons discussed above, it is hereby
*228 ORDERED that the Orders of Magistrate Judge Douglas Eaton dated August 17, 2007 and September 5, 2007 (Docket Nos. 79 and 81) are adopted in their entirety, and the appeal of plaintiff Phillip Jean-Laurent objecting to these Orders is DENIED.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1020896/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-4482
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
SHAWN ELIELY,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Newport News. Raymond A. Jackson,
District Judge. (4:04-cr-00078)
Submitted: September 29, 2006 Decided: October 31, 2006
Before NIEMEYER and MOTZ, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Affirmed by unpublished per curiam opinion.
James S. Ellenson, LAW OFFICE OF JAMES S. ELLENSON, Newport News,
Virginia, for Appellant. Chuck Rosenberg, United States Attorney,
Scott W. Putney, Assistant United States Attorney, Newport News,
Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
A jury convicted Shawn Eliely on one count of conspiracy
to cause another person to make false statements to a federal
firearms dealer, in violation of 18 U.S.C. § 371 (2000), and three
counts of causing another to make a false statement to a federal
firearms dealer, in violation of 18 U.S.C. §§ 2, 924(a)(1)(A)
(2000). The district court sentenced Eliely to concurrent terms of
fifty months’ imprisonment on all counts. Eliely appealed and
asserts insufficient evidence supported his convictions.*
A defendant challenging the sufficiency of the evidence
faces a heavy burden. United States v. Beidler, 110 F.3d 1064,
1067 (4th Cir. 1997). “[A]n appellate court’s reversal of a
conviction on grounds of insufficient evidence should be confined
to cases where the prosecution’s failure is clear.” United
States v. Jones, 735 F.2d 785, 791 (4th Cir. 1984). A jury’s
verdict must be upheld on appeal if there is substantial evidence
in the record to support it. Glasser v. United States, 315 U.S.
60, 80 (1942). In determining whether the evidence in the record
is substantial, we view the evidence in the light most favorable to
the Government and inquire whether there is evidence that a
reasonable finder of fact could accept as adequate and sufficient
to establish a defendant’s guilt beyond a reasonable doubt. United
States v. Burgos, 94 F.3d 849, 862 (4th Cir. 1996) (en banc). In
*
Eliely does not challenge his sentence on appeal.
- 2 -
evaluating the sufficiency of the evidence, we do not review the
credibility of the witnesses and assume that the jury resolved all
contradictions in the testimony in favor of the government. United
States v. Romer, 148 F.3d 359, 364 (4th Cir. 1998).
Nothwithstanding these principles, Eliely urges us to
review the credibility of a trial witness, Demetrial Stewart. At
the sentencing hearing, Stewart gave testimony that conflicted with
her testimony before the grand jury; consequently, the district
court found Stewart’s testimony concerning a sentencing enhancement
for possession of firearms in connection with another felony lacked
credibility, and it sustained Eliely’s objection to the
enhancement. On this basis, Eliely contends that Stewart wholly
lacked credibility. Because Stewart was an important witness to
the prosecution, Eliely’s argument follows, her lack of credibility
renders the evidence against him insufficient to sustain the
convictions.
The guilty verdicts indicate that the jury as factfinder
found Stewart’s testimony credible. While the district court found
Stewart’s conflicting and uncorroborated testimony did not support
one sentencing enhancement, the court also found Stewart’s
testimony sufficiently credible to support a separate enhancement
for obstruction of justice. Nothing in the record indicates
Stewart’s testimony at trial lacked credibility, and we decline to
- 3 -
upset the jury’s obvious finding that Stewart was a credible
witness.
After reviewing the trial transcript, we conclude
substantial evidence supports Eliely’s jury convictions; therefore,
we affirm the convictions. We dispense with oral argument because
the facts and legal contentions are adequately presented in the
materials before the court and argument would not aid the
decisional process.
AFFIRMED
- 4 - | 01-03-2023 | 07-04-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1020976/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-6039
DEMETRIC GRAY PEARSON,
Plaintiff - Appellant,
versus
PATRICIA K. CUSHWA, Chairperson of Parole and
Probation; WILLIAM SONDERVAN,
Defendants - Appellees.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Richard D. Bennett, District Judge. (CA-
03-1603-RDB)
Submitted: October 18, 2006 Decided: November 6, 2006
Before TRAXLER and SHEDD, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Affirmed by unpublished per curiam opinion.
Demetric Gray Pearson, Appellant Pro Se. John Joseph Curran, Jr.,
Attorney General, David Phelps Kennedy, OFFICE OF THE ATTORNEY
GENERAL OF MARYLAND, Baltimore, Maryland, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Demetric Pearson appeals the district court’s order
denying relief on his civil rights complaint. On appeal, Pearson
challenges only the denial of relief with respect to his claims
under the Americans with Disabilities Act (ADA), 42 U.S.C.
§§ 12101-12213 (2000). We have reviewed the record and find no
reversible error. Accordingly, we affirm the district court’s
order on the ground that Pearson failed to state a claim under the
ADA.* See Pearson v. Cushwa, No. CA-03-1603-RDB (D. Md. Dec. 20,
2004). We dispense with oral argument because the facts and legal
contentions are adequately presented in the materials before the
court and argument would not aid the decisional process.
AFFIRMED
*
The district court dismissed Pearson’s ADA claim based on
Eleventh Amendment immunity and did not reach the merits of the
claim. However, in Constantine v. Rectors & Visitors of George
Mason Univ., 411 F.3d 474 (4th Cir. 2005), this court ruled that
Congress effectively and intentionally abrogated the States’
Eleventh Amendment immunity from suit under Title II of the ADA.
Thus, the Eleventh Amendment did not bar Pearson from bringing suit
against Maryland prison officials. Nevertheless, because Pearson
did not state a claim under the ADA, summary judgment for the
Defendants was proper. We offer no criticism of the district
judge, who resolved this issue without the benefit of our decision
in Constantine.
- 2 - | 01-03-2023 | 07-04-2013 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.