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https://www.courtlistener.com/api/rest/v3/opinions/1589114/ | 61 S.W.3d 898 (2001)
76 Ark.App. 173
Clyde McWILLIAMS
v.
Karl W. SCHMIDT, et al.
No. CA 01-222.
Court of Appeals of Arkansas, Division IV.
December 5, 2001.
*903 Diana M. Maulding, Little Rock, for appellant.
Laser Law Firm, by Alfred F. Angulo, Jr., Little Rock, for separate appellees Karl Schmidt and Tanas Schmidt.
Matthews, Sanders & Sayes, by Doralee Idleman Chandler, Little Rock; Clark Brewster, Bryant; Terry Dugger; and Hugh L. Brown, Little Rock, for separate appellees Ronald Gangluff; Johnny Schmidt; Edward and Margaret Gangluff; David Gangluff; and Wrenetta Ritchie.
LARRY D. VAUGHT, Judge.
This is an appeal from a jury verdict entered in a case involving a boundary dispute. Appellant Clyde McWilliams also appeals from the entry of summary judgment for appellees in his malicious-prosecution claim. We affirm.
Procedural History
At issue is the ownership of approximately 5.9 acres of land. Appellant received a deed in 1965 to land in the southwest quarter of Section 12, Township 3 North, Range 12 West, in Pulaski County, Arkansas. To the east of his land, in the southeast quarter, lies property owned by the Gangluff and Schmidt families. The tracts owned by appellees Margaret Gangluff, Ronald Gangluff, and David Gangluff are north of the tracts owned by appellees Johnny Schmidt, Karl Schmidt, and Tanas Schmidt. In 1998, appellees Karl and Tanas Schmidt received a deed to a tract from Wrenetta Schmidt Ritchie and Jerry Ritchie. In 1995, appellee Edward Gangluff conveyed his interest in a tract to his wife, Margaret, to whom he gave a life estate, and to Ronald and David Gangluff, to whom he gave the remainder. According to the parties' deeds, their common boundary line divides the quarter-sections. Appellant claims that the quarter-section line should be located further east, along a meandering old fence line that was built in approximately 1941 and that was extended south in 1958. Appellees argue that the entire fence line was built to prevent cattle from roaming into the eastern area of their property and was never intended to mark the boundary line between the quarter-sections. Although appellant ran cattle and cut hay on the disputed area, appellees maintain that appellant did so with their permission. Appellees also contend that all parties had agreed that, when the need for a survey arose, a fence would be placed on the actual boundary line.
In 1998, appellees commissioned a survey that placed the boundary line considerably west of the old fence. Based on this survey, appellees built a new fence to demarcate the line dividing the southeast quarter from the southwest quarter of Section 12. After appellees built the new fence, appellant sued them in Pulaski County Circuit Court for ejectment, slander of title, and trespass. Appellees then initiated a quiet-title action in Pulaski County Chancery Court, which was dismissed *904 because of the pendency of this action. After the chancery action was dismissed, appellant amended his complaint to include the claim of malicious prosecution. Appellant's claims were bifurcated, and the malicious-prosecution claim was not tried to the jury with the other claims.
Although appellant claimed title to the disputed area by adverse possession, acquiescence, and an agreed boundary line, he testified without qualification that he claimed title only through his 1965 deed, which clearly conveyed land in the southwest quarter-section. Appellant admitted that, if the land in dispute is actually located within the southeast quarter-section, he does not claim it. Therefore, the central question at trial was whether the area in dispute lies within the southwest quarter or the southeast quarter of Section 12. Nevertheless, the jury was instructed on adverse possession, acquiescence, and boundary by agreement. In rendering their verdict for appellees, the jury specifically found that appellant does not own the area in dispute.
Appellant filed motions for directed verdict, judgment notwithstanding the verdict, and for new trial, all of which were denied. Appellees moved for summary judgment on the malicious-prosecution claim. In support of their motion, appellees filed affidavits indicating that they had relied upon the advice of counsel in filing the quiet-title action. The trial judge granted summary judgment to appellees on this claim. Appellant appeals from the trial judge's refusal to set aside the jury verdict and from the entry of summary judgment for appellees.
Appellant argues that the trial judge should have granted his motions for new trial, directed verdict, and judgment notwithstanding the verdict. A motion for directed verdict is a challenge to the sufficiency of the evidence. Sparks Reg'l Med. Ctr. v. Smith, 63 Ark.App. 131, 976 S.W.2d 396 (1998). When reviewing the denial of a motion for directed verdict, we affirm if the jury's verdict is supported by substantial evidence. Wal-Mart Stores, Inc. v. Binns, 341 Ark. 157, 15 S.W.3d 320 (2000); Wal-Mart Stores, Inc. v. Williams, 71 Ark.App. 211, 29 S.W.3d 754 (2000). The same standard applies when we review the denial of a motion for judgment notwithstanding the verdict. Home Mut. Fire Ins. Co. v. Jones, 63 Ark.App. 221, 977 S.W.2d 12 (1998). Substantial evidence is evidence that is of sufficient certainty and precision to compel a conclusion one way or another, forcing or inducing the mind to pass beyond suspicion or conjecture. Id. On appeal, only the evidence favorable to the appellee, and all reasonable inferences therefrom, will be considered. Id. In reviewing the evidence, the weight and value to be given the testimony of the witnesses is a matter within the exclusive province of the jury. Rathbun v. Ward, 315 Ark. 264, 866 S.W.2d 403 (1993). The appellate court does not try issues of fact. City of Caddo Valley v. George, 340 Ark. 203, 9 S.W.3d 481 (2000).
We will not reverse the denial of a motion for new trial if the verdict is supported by substantial evidence, giving the jury verdict the benefit of all reasonable inferences permissible under the proof. St. Louis S.W. Ry. Co. v. Grider, 321 Ark. 84, 900 S.W.2d 530 (1995). In determining whether the evidence is substantial, the court need only consider the evidence on behalf of the appellee and that part of the evidence that is most favorable to the appellee. Dixon Ticonderoga Co. v. Winburn Tile Mfg. Co., 324 Ark. 266, 920 S.W.2d 829 (1996).
Appellant attempted to prove that his deed included the land in dispute and, in the alternative, that he acquired it through an agreement as to the boundary, by acquiescence, *905 or by adverse possession. Appellant argues that the jury's finding that he does not own the disputed property is not supported by substantial evidence.
Acquiescence
As we stated in Summers v. Dietsch, 41 Ark.App. 52, 849 S.W.2d 3 (1993), boundaries are frequently found to exist at locations other than those shown by an accurate survey of the premises in question and may be affected by the concepts of acquiescence and adverse possession. A fence, by acquiescence, may become the accepted boundary even though it is contrary to the surveyed line. Id. When adjoining landowners silently acquiesce for many years in the location of a fence as the visible evidence of the division line and thus apparently consent to that line, the fence line becomes the boundary by acquiescence. Id. It is not required that there be an express agreement to treat a fence as a dividing line; such an agreement may be inferred by the actions of the parties. Id. Acquiescence need not occur over a specific length of time, although it must be for a long period of time. Lammey v. Eckel, 62 Ark.App. 208, 970 S.W.2d 307 (1998). A boundary line may be established by acquiescence whether or not it has been preceded by a dispute or uncertainty as to the boundary line. Jennings v. Burford, 60 Ark.App. 27, 958 S.W.2d 12 (1997). When a boundary line by acquiescence can be inferred from other facts presented in a particular case, a fence line, whatever its condition or location, is merely the visible means by which the acquiesced boundary line is located. Id. Whether a boundary line by acquiescence exists is to be determined upon the evidence in each individual case. Hedger Bros. Cement and Materials, Inc. v. Stump, 69 Ark.App. 219, 10 S.W.3d 926 (2000).
Boundary-Line Agreement
For there to be a valid boundary-line agreement, certain factors must be present: (1) there must be an uncertainty or dispute about the boundary line; (2) the agreement must be between the adjoining landowners; (3) the line fixed by the agreement must be definite and certain; (4) there must be possession following the agreement. Fields v. Griffen, 60 Ark.App. 186, 959 S.W.2d 759 (1998).
Adverse Possession
In order to establish title by adverse possession, appellant had the burden of proving that he had been in possession of the property in question continuously for more than seven years and that the possession was visible, notorious, distinct, exclusive, hostile, and with the intent to hold against the true owner. Anderson v. Holliday, 65 Ark.App. 165, 986 S.W.2d 116 (1999). Whether possession is adverse to the true owner is a question of fact. Id. Where possession of property is by permission, title is not acquired by adverse possession. McCulloch v. McCulloch, 213 Ark. 1004, 214 S.W.2d 209 (1948). Where the original entry on another's land was amicable or permissive, possession presumptively continues as it began, in the absence of an explicit disclaimer. Terral v. Brooks, 194 Ark. 311, 108 S.W.2d 489 (1937).
The Testimony
At trial, appellant testified that he and Otto Schmidt, one of appellees' predecessors in title, agreed in 1965 that the old fence line was the boundary. He said that, over the years since that time, he had bush-hogged the land in dispute, used it as pasture land, and planted grass there without asking anyone's permission to do so. However, appellant emphatically stated *906 that he believed the land in dispute to be in the southwest quarter of Section 12 and denied having any claim to land in the southeast quarter.
Appellees did not dispute appellant's use of the land. Nevertheless, they presented testimony demonstrating that he used it with their permission. Appellee Edward Gangluff testified that he had permitted appellant to graze cattle on the land and to cut hay there. He said that, on four or five occasions, appellant had acknowledged the need to eventually move the fence to the true boundary line. He also stated that he had used the old fence to contain cattle and that he had never considered it as the boundary line. Appellee Johnny Schmidt testified that his father, Otto Herman Schmidt (Otto Schmidt's son), had shown him the true boundary west of the old fence line. He said that, when he was eleven years old (he was sixty-three at the time of trial), the ends of the actual boundary line were marked by an old buggy axle and a steel pin. Appellee Margaret Gangluff testified that a steel pipe has marked the boundary since at least 1956, when she married into the family. She also stated that the old fence had been used to control cattle and that she had never considered it to be the actual boundary line. Appellee Karl Schmidt also testified that the old fence line had not been accepted as the boundary. Appellee David Gangluff stated that he had heard appellant acknowledge that the old fence was not on the true boundary line and that it would need to be straightened out someday with a survey.
Based on this testimony, there was more than substantial evidence for the jury to find that appellant failed to establish adverse possession, acquiescence, or a boundary by agreement.
Title By Deed
The parties relied on their deeds to establish their rights in the disputed land. The location of a boundary line is a question of fact. Ward v. Adams, 66 Ark.App. 208, 989 S.W.2d 550 (1999); Lammey v. Eckel, supra. A trial court may not substitute its own view of the evidence for that of the jury. Schrader v. Bell, 301 Ark. 38, 781 S.W.2d 466 (1989). The jury is the sole judge of the credibility of the witnesses and the weight and value of their evidence and may believe or disbelieve the testimony of any one or all of the witnesses, even though such evidence is uncontradicted or unimpeached. Kempner v. Schulte, 318 Ark. 433, 885 S.W.2d 892 (1994); Morton v. American Med. Int'l, Inc., 286 Ark. 88, 689 S.W.2d 535 (1985). The jury is free to assess a party's credibility and to determine whether or not to believe him or her. State Auto Prop. and Cas. Ins. Co. v. Swaim, 338 Ark. 49, 991 S.W.2d 555 (1999).
Both sides presented expert testimony to support their claims. As discussed above, appellant admitted that he did not claim any land in the southeast quarter of Section 12. Appellant offered the testimony of Steve Beadle, a surveyor, who testified that the Government Land Office (GLO) had completed the original survey of this section in 1818. He said that the old fence line is close to where the quarter-section line would be if the GLO measurements are followed and that the boundary line claimed by appellees is not accurate. According to Mr. Beadle, the quarter-section line lies approximately sixty-eight feet east of where appellees' experts have located it. He said that, according to the GLO's measurements, the disputed area lies within the southwest quarter of the section, in the land owned by appellant.
Appellees offered the expert testimony of James Bagwell, a surveyor, and John Pownall, a civil engineer and surveyor. *907 They stated that Mr. Bagwell performed a survey and, based on the information he provided, Mr. Pownall determined the boundary lines. They stated that the land in dispute is within the southeast quarter-section and agreed that appellant does not own it.
Appellant attacks the reliability of Mr. Bagwell's and Mr. Pownall's testimony and asserts that they did not follow the GLO's measurements. However, both men testified that they had consulted the GLO measurements and had found them to be less than accurate and reliable. It is true that the original United States Government survey is prima facie correct and that surveys must conform as nearly as possible with the original survey. Dicus v. Allen, 2 Ark.App. 204, 619 S.W.2d 306 (1981). Nevertheless, the weight and effect of the original survey is a question of fact. See Horne v. Howe Lumber Co., 209 Ark. 202, 190 S.W.2d 7 (1945). The supreme court has recognized that errors could have been made in an original government survey. See Missouri Pac. R.R. Co. v. Sale, 197 Ark. 1111, 127 S.W.2d 133 (1939).
Obviously, the jury did not believe Mr. Beadle's testimony that the disputed land lies within the southwest quarter-section, nor was it required to do so. Gibson Appliance Co. v. Nationwide Ins. Co., 341 Ark. 536, 20 S.W.3d 285 (2000). The jury's finding that appellant does not own the disputed land is supported by substantial evidence. Accordingly, the trial judge did not err in refusing to set the verdict aside.
Purported Irregularities at Trial
Appellant also argues that he is entitled to a new trial because of irregularities that occurred at trial. See Ark. R. Civ. P. 59(a)(1). A decision on whether to grant or deny a motion for new trial lies within the sound discretion of the trial judge. Dodson v. Allstate Ins. Co., 345 Ark. 430, 47 S.W.3d 866 (2001). We will not reverse a trial judge's order denying a new trial unless there is a manifest abuse of discretion, that is, discretion exercised thoughtlessly and without due consideration. Montgomery Ward & Co. v. Anderson, 334 Ark. 561, 976 S.W.2d 382 (1998).
Appellant contends that the trial judge unfairly prejudiced the jury by commenting that he might need to reduce an exhibit in size for the supreme court. We do not agree. Obviously, the reduction of the exhibit for the record on appeal would benefit all parties, regardless of who appeals. We see no prejudice in the trial judge's remarks. Further, appellant did not raise an objection about the remarks at trial. A judge's allegedly biased or harsh remarks are not subject to appellate review if the appellant failed to object to those statements or move for the judge's recusal. Dodson v. Allstate Ins. Co., supra. This is true even if the matter was raised in a motion for new trial. Id.
Arkansas Rule of Evidence 615
Appellant also argues that the trial judge should not have limited his cross-examination of Mr. Bagwell about his admission that he had, during a break in the trial, discussed Mr. Beadle's testimony with one of appellees' attorneys. Arkansas Rule of Evidence 615 governs the exclusion of witnesses from the courtroom so that they may not hear the testimony of other witnesses. Clark v. State, 323 Ark. 211, 913 S.W.2d 297 (1996). This rule is a valuable tool for discouraging and exposing fabrication, inaccuracy, and collusion and is a means of insuring that a witness's testimony will not be influenced by the testimony of other witnesses. Bayless v. State, 326 Ark. 869, 935 S.W.2d 534 (1996). There is a line that exists between perfectly *908 acceptable witness preparation on the one hand and impermissible influencing of the witness on the other hand. Id. Trial lawyers, in the course of preparing their witnesses, must not indicate specifically what other witnesses have testified. Id. However, attorneys are entitled to talk with witnesses before placing them upon the witness stand and to indicate the general nature of prior witnesses' testimony. Id. Whether an attorney violates Rule 615 in the course of preparing a witness must be determined on a case-by-case basis. Id.
The three possible methods of enforcement available to the trial judge when a violation of the sequestration rule has occurred are: (1) citing the witness for contempt; (2) permitting comment on the witness's noncompliance in order to reflect on her credibility; (3) refusing to allow her to testify. Lowe v. Ralph, 61 Ark.App. 231, 966 S.W.2d 283 (1998). A violation of the witness-exclusion rule is a matter that goes primarily to credibilitynot competency. Martin v. State, 22 Ark.App. 126, 736 S.W.2d 287 (1987). Even if there has been a clear violation of Rule 615, the trial judge does not abuse his discretion in permitting the witness's testimony when exercising his option of allowing comment on the witness's violation in order to reflect on his credibility. Swanigan v. State, 316 Ark. 16, 870 S.W.2d 712 (1994). Indeed, the trial judge's discretion is more readily abused by excluding the testimony than by admitting it. Id.
The record discloses that the trial judge permitted appellant's attorney to comment extensively on this alleged violation of Rule 615. Therefore, even if appellees' counsel violated the rule, the error was cured and provides no basis for a new trial. Error is no longer presumed to be prejudicial; unless the appellant demonstrates prejudice, we will not reverse. Lucas v. Grant, 61 Ark.App. 29, 962 S.W.2d 388 (1998); Jones v. Balentine, 44 Ark. App. 62, 866 S.W.2d 829 (1993).
Malicious Prosecution
Appellant also contends that the trial judge erred in granting summary judgment to appellees on his malicious-prosecution claim. In summary-judgment cases, we need only decide if the granting of summary judgment was appropriate based upon whether the evidentiary items presented by the moving party in support of the motion left a material question of fact unanswered. Inge v. Walker, 70 Ark. App. 114, 15 S.W.3d 348 (2000). Summary judgment is no longer considered a drastic remedy but is regarded simply as one of the tools in the trial court's efficiency arsenal. See Wallace v. Broyles, 332 Ark. 189, 961 S.W.2d 712 (1998). All proof submitted must be viewed in a light most favorable to the party resisting the motion, and any doubts and inferences must be resolved against the moving party. Inge v. Walker, supra. On a summary-judgment motion, once the moving party establishes a prima facie entitlement to summary judgment by affidavits or other supporting documents, the opposing party must meet proof with proof and demonstrate the existence of a material issue of fact. Welch Foods, Inc. v. Chicago Title Ins. Co., 341 Ark. 515, 17 S.W.3d 467 (2000).
An allegedly malicious prosecution can be a civil proceeding. Carmical v. McAfee, 68 Ark.App. 313, 7 S.W.3d 350 (1999). The essential elements of malicious prosecution are: (1) a proceeding instituted or continued by the defendant against the plaintiff; (2) termination of the proceeding in favor of the plaintiff; (3) absence of probable cause for the proceeding; (4) malice on the part of the defendant; (5) damages. McLaughlin v. Cox, 324 Ark. 361, 922 S.W.2d 327 (1996). *909 Where the defendant makes a full, fair, and truthful disclosure of all the facts known to him before competent counsel and then acts bona fide upon such advice, this will be a complete defense to a claim of malicious prosecution. Id.; Machen Ford-Lincoln-Mercury, Inc. v. Michaelis, 284 Ark. 255, 681 S.W.2d 326 (1984).
In Carmical v. McAfee, supra, we explained that whether probable cause was lacking may be decided by way of summary judgment:
Proof of absence of probable cause is an essential element in a claim for malicious prosecution. Harold McLaughlin Reliable Truck Brokers, Inc. v. Cox, supra; Smith v. Anderson, 259 Ark. 310, 532 S.W.2d 745 (1976).... In the context of malicious prosecution, probable cause means such a state of facts or credible information which would induce an ordinarily cautious person to believe that his lawsuit would be successful. See McLaughlin v. Cox, supra; Harmon v. Carco Carriage Corp., 320 Ark. 322, 895 S.W.2d 938 (1995).... In order to have a probable-cause basis to file a lawsuit, a person need only have the opinion that the chances are good that a court will decide the suit in his favor. RESTATEMENT (SECOND) OF TORTS § 675 comment (f) at 460 (1977). The question is not whether the person is correct in believing that his complaint is meritorious, but whether his opinion that his complaint is meritorious was a reasonable opinion. Id. A person need have only a reasonable opinion that his complaint is meritorious because, "[t]o hold that the person initiating civil proceedings is liable unless the claim proves to be valid would throw an undesirable burden upon those who by advancing claims not heretofore recognized nevertheless aid in making the law consistent with changing conditions and changing opinions." Id. A person's refusal to believe an improbable explanation from someone that he subsequently sues does not amount to substantial evidence that he lacked probable cause to file the lawsuit. See Kroger Co. v. Standard, 283 Ark. 44, 670 S.W.2d 803 (1984). The issue of lack of probable cause in a malicious-prosecution case may be decided as a matter of law on summary judgment only if both the facts relied upon to create probable cause and the reasonable inferences to be drawn from the facts are undisputed. Harmon v. Carco Carriage Corp., supra; Cox v. McLaughlin, 315 Ark. 338, 867 S.W.2d 460 (1993).
68 Ark.App. at 321-22, 7 S.W.3d at 356-57.
In his affidavit in support of the motion for summary judgment, attorney Hugh Brown stated:
1. That Karl W. Schmidt, Tanas N. Schmidt, Johnny Melvin Schmidt, Edward Bass Gangluff, Margaret Hodge Gangluff, David S. Gangluff, Ronald Gangluff, Wrenetta Sue Schmidt Ritchie, Jerry Ritchie retained my services to defend the above styled Circuit Court action.
2. That my clients disclosed to me all pertinent facts and papers, including deeds and surveys, regarding ownership of the disputed property. The information disclosed was essentially identical to the information that was testified to or introduced at the trial on allegations of ejectment, trespass and slander of title.
3. That based upon the information disclosed during my meetings with my clients I advised that a Petition to Quiet Title and for Injunction in the Chancery Court of Pulaski County should be filed.
4. That I filed said Petition to Quiet Title and for Injunction on behalf of Karl W. Schmidt, Tanas N. Schmidt, Johnny Melvin Schmidt, Edward Gangluff, *910 Margaret Gangluff, David Gangluff and Ronald Gangluff.
Additionally, appellee Ronald E. Gangluff stated in his affidavit:
1. That Karl W. Schmidt, Tanas N. Schmidt, Johnny Melvin Schmidt, Edward Bass Gangluff, Margaret Hodge Gangluff, David S. Gangluff, Wrenetta Sue Schmidt Ritchie, Jerry Ritchie and myself retained Hugh Brown to defend in the above styled Circuit Court action.
2. That all pertinent facts and papers, including deeds and surveys, regarding ownership of the disputed property were disclosed to High [sic] Brown. The information disclosed was the same information that was testified to or introduced at the trial on allegations of ejectment, trespass and slander of title.
3. That based upon the information disclosed to Hugh Brown, he advised that a Petition to Quiet Title and for Injunction in the Chancery Court of Pulaski County should be filed.
4. That said Petition to Quiet Title and for Injunction was filed on behalf of Karl W. Schmidt, Tanas N. Schmidt, Johnny Melvin Schmidt, Edward Gangluff, Margaret Gangluff, David Gangluff and myself by Hugh Brown, attorney of record.
5. That at all times I maintained a belief that the Petition to Quiet Title was meritorious.
6. That the Chancery Court action was filed upon the advise [sic] of my personal counsel.
The other appellees filed affidavits to the same effect.
Appellant argues that the trial judge erred in granting summary judgment to appellees before they answered appellant's interrogatories regarding the malicious-prosecution claim. Rule 56(f) provides that, when a party opposing the motion demonstrates by affidavit that he cannot present facts essential to justify his opposition, the court may refuse the application for summary judgment or order a continuance to permit further discovery. However, the decision on whether to grant a continuance is a matter of discretion with the trial judge. See Jenkins v. International Paper Co., 318 Ark. 663, 887 S.W.2d 300 (1994). If the appellant cannot demonstrate how additional discovery would have changed the outcome of the case, we cannot say that the trial judge abused his discretion. Id.
There is no question that appellant failed to rebut appellees' proof with proof. Further, appellant has not demonstrated how additional discovery would have altered the outcome of this claim. Given appellant's lack of diligence in seeking this discovery, we cannot say that the trial judge abused his discretion in refusing to delay his decision on the motion for summary judgment.
Affirmed.
HART and BAKER, JJ., agree. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588845/ | 14 So.3d 1035 (2009)
STATE of Florida, Appellant,
v.
Arthur Lee HUNT, a/k/a Arthur Lee Hunt, Jr., Appellee.
No. 2D08-2834.
District Court of Appeal of Florida, Second District.
May 22, 2009.
*1036 Bill McCollum, Attorney General, Tallahassee, and Elba Caridad Martin, Assistant Attorney General, Tampa, for Appellant.
James Marion Moorman, Public Defender, and Bruce P. Taylor, Assistant Public Defender, Bartow, for Appellee.
WALLACE, Judge.
The State appeals the circuit court's order suppressing statements made by the defendant, Arthur Lee Hunt, in response to a custodial interrogation conducted after Mr. Hunt had reinitiated dialogue with detectives following his initial invocation of his right to remain silent under Miranda v. Arizona, 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966).[1] Because the circuit court applied the incorrect law in determining whether the statements should be suppressed, we reverse and remand for further proceedings.
I. THE FACTUAL AND PROCEDURAL BACKGROUND
On October 31, 2007, Mr. Hunt, who had recently been released from prison, was arrested for an alleged violation of his probation. Following the arrest, Detective William Waldron and Detective Sam Levita of the Manatee County Sheriff's Office interviewed Mr. Hunt concerning a pending *1037 homicide investigation. The interview was interrupted and then reinitiated. Both the first and the second portions of the interview were recorded on videotape.
Before the interview began, Detective Levita advised Mr. Hunt of his Miranda rights, and Mr. Hunt executed a written waiver of those rights. The detectives then offered Mr. Hunt "water or coffee or anything." Mr. Hunt responded that he wanted a cigarette. Detective Levita told Mr. Hunt that they would go outside later and allow him to smoke then.
During the first portion of the interview, Mr. Hunt admitted to smoking "a little marijuana" between the date of his release from prison and the date of his arrest. After speaking with the detectives for approximately thirty minutes, Mr. Hunt declared, "I'm through talking, man." At this, the detectives stopped asking questions about the homicide investigation.
Immediately following Mr. Hunt's invocation of his right to remain silent, Detective Waldron asked Mr. Hunt: "You want to go have that cigarette now?" Mr. Hunt responded affirmatively. Detective Waldron then escorted Mr. Hunt downstairs to the outside of the building. Detective Levitawho was the lead detective on the pending homicide investigationdid not accompany them. While outside, Detective Waldron and Mr. Hunt each smoked two cigarettes. Detective Waldron estimated that he and Mr. Hunt were out of the building for approximately twenty minutes.
At the hearing on the motion to suppress, Detective Waldron testified that Mr. Hunt reinitiated the conversation concerning the pending homicide investigation while the two men were outside. Detective Waldron provided the only testimony concerning what occurred outside the building as follows:
Mr. Hunt initiated the conversation, kept telling me that, you know, he had nothing to do with this, you know; he was, being just recently getting out of state custody, he was worried that this was going to affect his status; and kept asking questions about the case. Said, you know, [the victim] was family and he would never do anything like this.
. . . .
He was just asking me questions about the case, telling me this was family, he would never do anything like this, he didn't know why he was being accused, kept talking about the case, asking me questions. I knew very little about the homicide investigation itself, since I had no active participation in it up until the point of this interview. And I explained to Mr. Hunt, I said if there's things that you want to talk to Detective Levita about that might assist in the homicide investigation, you know, might be in your best interest to talk to him.
And he kept asking more questions, I had reminded him a couple of times, you know, I said, Arthur, you asked for an attorney, you said you didn't want to talk any more, said, but you're asking me these questions. And he says, Well, I got to know, you know, I need to know what's going on here. And I said, When we get back upstairs, if you want to talk about this case and ask Detective Levita questions, you need to make that clear to Detective Levita, who's the lead investigator. And we can go back, but any questions you may ask or we may ask will have to be back on tape.
According to Detective Waldron, Mr. Hunt agreed to speak further with the detectives about the subject of the investigation.
After Detective Waldron and Mr. Hunt returned to the room where the interview had been taking place, Detective Waldron informed Detective Levita about what had *1038 occurred outside the building. Mr. Hunt confirmed that he wished to speak to the detectives further, and the interview resumed. The detectives did not repeat the Miranda warnings that they had previously given. During the course of the second portion of the interview, Mr. Hunt said that he had been in possession of a gun three days before the homicide occurred.[2] After additional conversation, Mr. Hunt once again invoked his right to remain silent, and the detectives terminated the interview.
The State subsequently charged Mr. Hunt with possession of a firearm by a convicted felon, section 790.23, Florida Statutes (2007). He filed motions to suppress his statements in both the case for which he was on probation and in the firearm possession case. After a hearing, the trial court denied the motion as to the first portion of the statement and granted the motion as to the second portion of the statement. On appeal, the State challenges the order to the extent that it suppressed the second portion of the statement.
II. THE STANDARD OF REVIEW
A lower court's ruling on a motion to suppress is presumptively correct and will be upheld if supported by the record. Cuervo v. State, 967 So.2d 155, 160 (Fla. 2007); State v. Shuttleworth, 927 So.2d 975, 978 (Fla. 2d DCA 2006). The reviewing court must interpret the evidence and reasonable inferences and deductions derived therefrom in a manner most favorable to sustaining the trial court's ruling. Doorbal v. State, 837 So.2d 940, 952 (Fla. 2003) (quoting Terry v. State, 668 So.2d 954, 958 (Fla.1996)). An appellate court is bound by the lower court's factual findings if they are supported by competent, substantial evidence. Cuervo, 967 So.2d at 160. However, the lower court's application of the law to the facts is reviewed de novo. Id.
III. THE APPLICABLE LAW
After a suspect invokes his or her right to remain silent during a custodial interrogation, "`the interrogation must cease.'" Michigan v. Mosley, 423 U.S. 96, 100, 96 S.Ct. 321, 46 L.Ed.2d 313 (1975) (quoting Miranda, 384 U.S. at 473-74, 86 S.Ct. 1602). It follows that after a suspect invokes his or her right to remain silent, the police must refrain from "any words or actions . . . (other than those normally attendant to arrest and custody) that the police should know are reasonably likely to elicit an incriminating response from the suspect." Rhode Island v. Innis, 446 U.S. 291, 301, 100 S.Ct. 1682, 64 L.Ed.2d 297 (1980) (footnote omitted). Any statements obtained thereafter are admissible only if the suspect's right was "scrupulously honored." Mosley, 423 U.S. at 104, 96 S.Ct. 321.
Where, as here, a suspect has made statements to the police after invoking his right to remain silent, the correct approach to determining whether the police have scrupulously honored the suspect's right to remain silent may require a two-step analysis. In the first step, courts must decide whether the police continued to interrogate the suspect despite his or her invocation of the right to remain silent. If the police continued the interrogation, then they failed to scrupulously honor the right to remain silent and the resulting statements are inadmissible. Cuervo, 967 So.2d at 166-67; Martin v. State, 987 So.2d 1240, 1241 (Fla. 2d DCA 2008). Under *1039 these circumstances, the court need not proceed to the second step.
On the other hand, if the interrogation ceased, the court must proceed to the second step of the analysis. In the second step, the court must determine who reinitiated the dialogue. The answer to this question determines what factors the court must examine in resolving the issue.
In cases where the police reinitiated the dialogue, courts must examine the following factors: (1) whether the suspect was informed of his or her Miranda rights at the outset of each interrogation, (2) whether the police immediately ceased questioning after the suspect invoked the right, (3) whether there was a sufficient lapse of time between the invocation of the right and the resumption of questioning, (4) whether questioning resumed at a different location, and (5) whether the two rounds of questioning concerned different crimes. See Mosley, 423 U.S. at 106, 96 S.Ct. 321; Globe v. State, 877 So.2d 663, 670 (Fla.2004), abrogation recognized on other grounds in State v. Hernandez, 875 So.2d 1271, 1273 (Fla. 3d DCA 2004); State v. Belcher, 520 So.2d 303, 304 (Fla. 3d DCA 1988); State v. Taylor, 838 So.2d 729, 739 (La.2003).
However, where it was the suspect who reinitiated the dialogue with the authorities, the inquiry is different. Under these circumstances, the courts consider whether the suspect's decision to change his or her mind and to waive his or her rights by speaking with the authorities was voluntary, knowing, and intelligent. See Welch v. State, 992 So.2d 206, 214-15 (Fla. 2008) (citing Oregon v. Bradshaw, 462 U.S. 1039, 1045-46, 103 S.Ct. 2830, 77 L.Ed.2d 405 (1983)); People v. Bell, 217 Ill.App.3d 985, 160 Ill.Dec. 657, 577 N.E.2d 1228, 1237-38 (1991); Taylor, 838 So.2d at 739-40.
[W]here the defendant initiates further communications, the passage of time after the invocation of Miranda rights is not a critical element. What is important is the fact that further communications were initiated by the defendant. This distinction was recognized in Mosley, where the Court characterized as "absurd" a reading of Miranda which would exclude from evidence statements made after the cessation of an interrogation even if those statements "were volunteered by the person in custody without further interrogation whatever." Mosley, 423 U.S. at 102, 96 S.Ct. 321. . . .
Bell, 577 N.E.2d at 1238.
IV. THE CIRCUIT COURT'S ORDER
After the hearing on the motion to suppress, the circuit court entered a lengthy order with detailed findings of facts and conclusions of law.[3] The pertinent portions of this order bear quoting at length:
G. In the case at bar the court finds the Detectives' conduct somewhat troublesome in light of the critical factors established for determining whether Mr. Hunt's invocation was "scrupulously honored[."] The Court finds it clear that the Detectives initially read Miranda, and that they appeared on video to have ceased all questioning upon Mr. Hunt's invocation. However, the Court also finds it is equally clear that the Detective's conduct in removing a handcuffed Mr. Hunt for a smoke, staying in his constant company instead of proceeding with normal arrest procedures could be interpreted as generally engaging in words or actions that they should *1040 have know[n] were reasonably likely to elicit an incriminating response. In fact, the court finds the Detectives' actions did not embrace the spirit of "scrupulously honoring" Mr. Hunt's invocation, but instead created an environment likely to entice Mr. Hunt into reinitiating contact. There was no evidence presented by the State that the Detectives complied with [several of the critical factors identified in Mosley]. Less than twenty minutes was not a significant passage of time, there was no rereading of Miranda and the second period of questioning related to the exact same homicide. However, the court also finds that while the Detective may have set the stage, there is no evidence [that] Detective Waldron specifically initiated conversations referenc[ing] the homicide with Mr. Hunt, nor that Mr. Hunt was unwilling to take a smoke break with the officer. Instead, the preponderance of the evidence is Mr. Hunt did in fact consent to go for a smoke and that he alone reinitiated contact reference the homicide.
. . . .
J. In the case at bar Mr. Hunt made an unequivocal invocation followed by Mr. Hunt reinitiated [sic] contact with Detective Waldron during the smoke break. The Detectives never reread Mr. Hunt his Miranda rights. The failure to reread Miranda coupled with the Detectives['] failure to "scrupulously honor" Mr. Hunt's invocation mandate suppression of all [of] Mr. Hunt's statements made in the [second] portion of his videotaped statement.
(Emphasis added.) Despite the obvious care and thought that went into the circuit court's order, we agree with the State that the circuit court's analysis of the issues went awry.
V. DISCUSSION
The correct resolution of the issues raised by Mr. Hunt's motion to dismiss required the application of the two-step analysis discussed above. In the first step, the circuit court found that the interrogation of Mr. Hunt ceased after he initially invoked his right to remain silent at the conclusion of the first portion of the videotaped statement. According to the circuit court's order, the detectives "appeared on video to have ceased all questioning upon Mr. Hunt's invocation." Indeed, there was no evidence to the contrary. The detectives did not continue the interrogation of Mr. Hunt following his initial invocation of the right to remain silent. Thus the circuit court properly proceeded to the second step of the analysis.
Under the second step of the analysis, the circuit court was required to determine who reinitiated the dialogue. The circuit court found that "there is no evidence [that] Detective Waldron specifically initiated conversations referenc[ing] the homicide with Mr. Hunt." In conjunction with that finding, the circuit court also made the critical finding that "the preponderance of the evidence is Mr. Hunt did in fact consent to go for a smoke and that he alone reinitiated contact reference the homicide." There is competent, substantial evidence in the record to support both of these findings.
Once the circuit court found that it was Mr. Hunt who reinitiated the dialogue with the detectives, the circuit court was required to consider whether Mr. Hunt's decision to change his mind and to once again waive his right to remain silent was voluntary, knowing, and intelligent. Instead, the circuit court relied heavily on Mosley to conclude that the detectives had not scrupulously honored Mr. Hunt's right to remain silent. But because it was Mr. *1041 Hunt who reinitiated the dialogue with the detectives after he had invoked his right to remain silent, Mosley and similar cases relating to the admissibility of statements made after the interrogation is terminated and then restarted by the police are inapplicable.
VI. CONCLUSION
It follows that the circuit court applied an incorrect standard in determining whether the second portion of Mr. Hunt's statement should be suppressed. Accordingly, we reverse the circuit court's order to the extent that it suppressed the second portion of the statement and remand this case to the circuit court for further consideration of this issue in light of this opinion. Of course, the State has not challenged the portion of the circuit court's order that denied the defendant's motion to suppress the first portion of Mr. Hunt's statement.
Since the circuit court must reconsider the issue of the admissibility of the second portion of Mr. Hunt's statement, we offer the following additional comments for the circuit court's guidance on remand. In reaching its ruling, the circuit court placed substantial weight on the detectives' failure to reread the Miranda warnings to Mr. Hunt before beginning the second portion of the interview. However, the Supreme Court of Florida has refused to "adhere to an overly mechanical application of Miranda" and has explained that "numerous state and federal courts have rejected the talismanic notion that a complete readvisement of Miranda warnings is necessary every time an accused undergoes additional custodial interrogation." Davis v. State, 698 So.2d 1182, 1189 (Fla. 1997) (citing Brown v. State, 661 P.2d 1024 (Wyo.1983)). Thus the failure to readvise a suspect of his or her Miranda rights, "in and of itself, does not mean that [the suspect's] waiver was invalid." Ahedo v. State, 842 So.2d 868, 871 (Fla. 2d DCA 2003). Here, Mr. Hunt was not readvised about his Miranda rights, but Detective Waldron reminded Mr. Hunt that he had said that he did not want to talk any further. Moreover, Detective Levita had advised Mr. Hunt about his Miranda rights less than an hour before the second portion of the interview began.
Reversed and remanded for further proceedings consistent with this opinion.
ALTENBERND and DAVIS, JJ., Concur.
NOTES
[1] We have jurisdiction under Florida Rule of Appellate Procedure 9.140(c)(1)(B).
[2] The detectives apparently believed that the gun Mr. Hunt referred to was the one that had been used in the homicide that they were investigating.
[3] The State filed a motion for rehearing. The circuit court denied this motion in a second order with additional findings of fact and conclusions of law. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588872/ | 972 So.2d 1151 (2008)
Larry and Rosie ADAMS
v.
RHODIA, INC. and Exxon Mobil Corporation.
No. 2007-C-2110.
Supreme Court of Louisiana.
January 7, 2008.
Granted. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588885/ | 972 So.2d 912 (2007)
Jeffery Scott SIPPLE, Appellant,
v.
STATE of Florida, Appellee.
No. 5D06-2861.
District Court of Appeal of Florida, Fifth District.
November 30, 2007.
Rehearing Denied January 30, 2008.
Kevin T. Beck of Cohen, Jayson & Foster, P.A., Tampa, for Appellant.
Bill McCollum, Attorney General, Tallahassee, and Jeffrey R. Casey, Assistant Attorney. General, Daytona Beach, for Appellee.
SAWAYA, J.
The issue we must resolve is whether the failure on the part of trial counsel to object to inclusion of the forcible felony exception in the jury instruction regarding self-defense constituted ineffective assistance of counsel where the defendant was charged with only one offense. The defendant, Jeffrey Sipple, who was convicted of manslaughter with a firearm, alleges in the motion he filed pursuant to Florida Rule of Criminal Procedure 3.850 that because his trial, counsel was ineffective for failing to object to the jury instruction, he is entitled *913 to a new trial. The trial court disagreed, concluding that Sipple's trial counsel had made a tactical decision to have the entire jury instruction on justifiable use of deadly force presented to the jury and that this decision was within the range of reasonable actions by a criminal defense attorney. We agree with Sipple and disagree with the trial court.
Discussion of the facts is not necessary to resolve the issue before us. Suffice it to say that Sipple gave a statement to the police describing how he became embroiled in a life and death struggle with the victim, who was his roommate, and explaining that he acted in self-defense when she was shot. Sipple was arrested and originally charged with second-degree murder. This was the only charge filed against him. During the trial, Sipple's statement to police was admitted into evidence. It was Sipple's position throughout the trial that he acted in self-defense.
At the close of the evidence, the trial court instructed the jury as to the forcible felony exception to self-defense:
However, the use of force likely to cause death or great bodily harm is not justifiable if you find, number one, Jeffery Sipple was attempting to commit or committing aggravated battery, murder, or manslaughter.
Despite the fact that Sipple was charged with only one crime, the instruction drew no objection.
The jury found Sipple guilty of manslaughter with a firearm, and he was sentenced to 12 years in the Department of Corrections to be followed by three years of probation, the first two years to be served under community control. In Sipple's direct appeal, this court rendered a per curiam affirmance. Sipple v. State, 894 So.2d 1088 (Fla. 5th DCA 2005). When this court first reviewed the denial of Sipple's rule 3.850 motion, we ordered that an evidentiary hearing be held. Sipple v. State, 928 So.2d 484 (Fla. 5th DCA 2006).
At the evidentiary hearing, Sipple's trial counsel testified that he had been a criminal defense attorney for 16 years. He had not objected to the giving of the forcible felony exception instruction because he had wanted the instruction given. He explained, "I wanted my client to have the benefit of that self-defense instruction. We were also alleging an accidental [shooting]. I wanted him to have both." He stated that he had not discussed the instruction with Sipple. Although counsel testified that he did not believe that the instruction emasculated the self-defense theory, he was aware that the appellate courts had found to the contrary. He had no doubt but that the facts supported a prima facie case of self-defense.
Interestingly, the trial court interjected during the hearing that it recalled that Sipple's counsel had requested the instruction and that is why no objection was made. In fact, however, the transcript of the charge conference shows that the State had requested the instruction, not Sipple's counsel. The trial court denied Sipple's motion, and this appeal followed.
The standard by which we determine whether a defendant is entitled to relief based on assertions of ineffective assistance of trial counsel derives from Strickland v. Washington, 466 U.S. 668, 104 S.Ct. 2052, 80 L.Ed.2d 674 (1984), which requires a defendant to prove two. elements: 1) counsel's performance was deficient; and 2) the deficient performance prejudiced the defense. Strickland, 466 U.S. at 687, 104 S.Ct. 2052; Sanders v. State, 946 So.2d 953 (Fla.2006). In order to satisfy the first element, the defendant must show that "counsel's representation fell below an objective standard of reasonableness." Strickland, 466 U.S. at 688, 104 S.Ct. 2052. To satisfy the second element, the defendant must show "a reasonable *914 probability that, but for counsel's unprofessional errors, the result of the proceeding would have been different." Id. at 694, 104 S.Ct. 2052; see also Sanders, 946 So.2d at 956 (quoting Strickland). "A reasonable: probability is a probability sufficient to undermine confidence in the outcome." Strickland, 466 U.S. at 694, 104 S.Ct. 2052.
As we begin our analysis of the first element, we must indulge "`a strong presumption that counsel's conduct falls within the wide range of reasonable professional assistance,'" and we must recognize that Sipple bears the "burden of proving that counsel's representation was unreasonable under prevailing professional norms and that the challenged action was not sound strategy." Brown v. State, 755 So.2d 616, 628 (Fla.2000) (quoting Strickland, 466 U.S. at 688-89, 104 S.Ct. 2052). Defense counsel's strategic choices do not constitute deficient conduct if alternative courses of action have been considered and rejected. See Sanders; Whitfield v. State, 923 So.2d 375 (Fla.2005); Shere v. State, 742 So.2d 215, 220 (Fla.1999); Rutherford v. State, 727 So.2d 216 (Fla.1998).
Sipple contends that this presumption has been overcome and that his trial counsel's representation fell below the prevailing norm because the jury instruction was erroneous and essentially vitiated his claim of self-defense. The erroneous jury instruction Sipple complains about emanates from a legislative enactment, section 776.041(1), Florida Statutes, which provides that the use of force likely to cause death or great bodily harm is not justifiable if the defendant is attempting to commit or committing a forcible felony. This court and others have previously held that presenting this instruction to the jury is erroneous if it is given in cases where the defendant is charged with only one offense. See Bertke v. State, 927 So.2d 76 (Fla. 5th DCA 2006); Hawk v. State, 902 So.2d 331 (Fla. 5th DCA 2005); Carter v. State, 889 So.2d 937 (Fla. 5th DCA 2004), review denied, 903 So.2d 190 (Fla.2005); Cleveland v. State, 887 So.2d 362, 363 (Fla. 5th DCA 2004); Velazquez v. State, 884 So.2d 377 (Fla. 2d DCA), review denied, 890 So.2d 1115 (Fla.2004); Dunnaway v. State, 883 So.2d 876 (Fla. 4th DCA), review denied, 891 So.2d 553 (Fla.2004); Rich v. State, 858 So.2d 1210, 1210 (Fla. 4th DCA 2003); Giles v. State, 831 So.2d 1263, 1265 (Fla. 4th DCA 2002). The reason it is erroneous to give the instruction in such instances is because it "improperly negates the self-defense claim." Hawk v. State, 902 So.2d 331, 333 (Fla. 5th DCA 2005). Thus, the forcible felony instruction is intended to be used only when the defendant "is charged with at least two criminal acts, the act for which the accused is claiming self-defense as well as a separate forcible felony." Cleveland, 887 So.2d at 363; see also Bertke; Carter. Sipple was charged with only one offense and his trial counsel testified that he was aware of the precedent we have just cited, but that he did not think that the instruction was erroneous. He also testified that he did not discuss this instruction with Sipple and indicated that he did not consider objecting to it or requesting that the erroneous part be deleted. Hence, we do not believe that it was a proper trial tactic to fail to object or to ask that the offensive part be deleted. Clearly, his failure to do so meets the deficiency element and, we note parenthetically, the State's declination from its usual practice to argue to the contrary implies that it too believes that the first element has been satisfied.[1]
*915 Turning to the second element, the State asserts that Sipple cannot establish prejudice from the giving of the instruction because the facts did not wholly support the claim of self-defense in the first place. Specifically, the State argues that Sipple's statement to the police identified the incident as an accidentthe gun had discharged when Sipple was struggling to get it pointed away from him. He, therefore, never claimed he had to kill the victim to prevent his own death or great bodily harm. The State cites Hopson v. State, 127 Fla. 243, 168 So. 810 (1936), wherein the defendant contended that his wife had been the aggressor and had assaulted him. While they were fighting, the wife pulled out the pistol and, when he tried to take it away from her, the gun went off "by accident and unintentionally." Id. at 811. The trial court instructed the jury on self-defense. The supreme court reversed on the ground that the evidence did not support the giving of that instruction, noting:
Self-defense is a plea in the nature of a confession and avoidance. In such cases the defendant confesses doing the act charged, but seeks to justify that act upon the claim that it was necessary to commit the act to save himself from death or great bodily harm:
A homicide committed in self-defense is justifiable. Where homicide is committed by accident or misfortune, the homicide is excusable, such as where, as was claimed in this case, a pistol was accidently [sic] and unintentionally discharged.
Id. Relying on Hopson, the State asserts self-defense was never a valid theory of defense and thus no prejudice could possibly stem from the giving of the forcible felony exception instruction.
We note that the State's assertion that Sipple was actually presenting a defense of accident is of very recent vintageappearing first at the evidentiary hearing. Nevertheless, the record belies that argument. The transcript of the rebuttal argument presented at trial shows Sipple's trial counsel's own statement that the case was one of self-defense, not accident. Trial counsel's questions to the venire, summation of evidence, and closing arguments focused exclusively on self-defense. Counsel even argued to the jury that self-defense applied to any lesser crimes.
As to the State's assertion that the evidence did not support a claim of self-defense, we disagree. When self-defense is asserted in a criminal case, the defendant only has the burden of presenting some evidence' to establish a prima facie case that the killing was justified. Murray v. State, 937 So.2d 277, 282 (Fla. 4th DCA 2006); Adams v. State, 727 So.2d 997, 999-1000 (Fla. 2d DCA 1999); Bolin v. State, 297 So.2d 317 (Fla. 3d DCA), cert. denied, 304 So.2d 452 (Fla.1974). The state must then prove beyond a reasonable doubt that the defendant did not act in self-defense. Jenkins v. State, 942 So.2d 910 (Fla. 2d DCA 2006), review denied, 950 So.2d 414 (Fla.2007); Fowler v. State, 921 So.2d 708, 711-12 (Fla. 2d DCA 2006); Romero v. State, 901 So.2d 260 (Fla. 4th DCA 2005); Andrews v. State, 577 So.2d 650, 652 (Fla. 1st DCA), review denied, 587 So.2d 1329 (Fla.1991). As long as there is any evidence of self-defense presented by the defendant, the instruction is warranted. See Cartegena v. State, 909 So.2d 414, 416 (Fla. 5th DCA 2005). As the court explained in Wright v. State, 705 So.2d 102 (Fla. 4th DCA 1998):
[i]t is not the quantum or the quality of the proof as to self-defense that determines the requirement for giving the charge. If any evidence of a substantial character is adduced, either upon cross-examination of State witnesses or upon *916 direct examination of the defendant and/or his witnesses, the element of self-defense becomes an issue, and the jury, as the trier of the facts, should be duly charged as to the law thereon, because it is the jury's function to determine that issue.
Id. at 104 (quoting Kilgore v. State, 271 So.2d 148, 152 (Fla. 2d DCA 1972)); see also Sundberg v. State, 888 So.2d 87, 88-89 (Fla. 5th DCA 2004), review denied, 906 So.2d 1059 (Fla.2005).
In order to establish a prima facie case of self-defense, the defendant does not have to testify at trial; his or her statement to the police admitted into evidence may be sufficient. See Peterka v. State, 890 So.2d 219, 229 (Fla.2004) ("We conclude that in light of Peterka's statement to police, trial counsel presented viable, coherent defense strategy of either self-defense or unintentional killing."), cert. denied, 545 U.S. 1118, 125 S.Ct. 2911, 162 L.Ed.2d 301 (2005); Henry v. State, 862 So.2d 679 (Fla.2003); Wright. Based on Sipple's statement to the police, which was admitted into evidence, we conclude that Sipple met his burden of presenting a prima facie case of self-defense, which required the trial judge to properly instruct the jury as to that defense.
Because the erroneous jury instruction vitiated Sipple's claim of self-defense and essentially relieved the State of its burden of proving beyond a reasonable doubt that Sipple did not act in self-defense, Sipple was clearly prejudiced. We believe that had the jury not been given the improper forcible felony instruction, there is a reasonable probability that Sipple would have been acquitted.
REVERSED AND REMANDED for a new trial.
PALMER, C.J., concurs.
LAWSON, J., dissents, with opinion.
LAWSON, J., dissenting.
For reasons explained in my concurring opinion in Granberry v. State, 967 So.2d 1044 (Fla. 5th DCA 2007), I do not believe that instructing the jury on the forcible felony exception was improper, or prejudiced Sipple in any way. Therefore, I would affirm.
NOTES
[1] This court and others have held that appellate counsel is ineffective when he or she fails to raise the erroneous jury instruction in appellate proceedings. Bertke v. State, 927 So.2d 76 (Fla. 5th DCA 2006); Davis v. State, 886 So.2d 332 (Fla. 5th DCA 2004), review denied, 898 So.2d 81 (Fla.2005); Estevez v. Crosby, 858 So.2d 376 (Fla. 4th DCA 2003). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588901/ | 14 So.3d 1058 (2009)
Raymond A. BRACERO, Appellant,
v.
STATE of Florida, Appellee.
Nos. 2D07-5763, 2D07-5764, 2D07-5765.
District Court of Appeal of Florida, Second District.
May 29, 2009.
*1059 James Marion Moorman, Public Defender, and Lynda B. Barack, Special Assistant Public Defender, Bartow, for Appellant.
Bill McCollum, Attorney General, Tallahassee, and Susan M. Shanahan, Assistant Attorney General, Tampa, for Appellee.
SILBERMAN, Judge.
In these consolidated appeals, Raymond A. Bracero challenges his sentences imposed upon revocation of probation in three circuit court cases regarding three separate charges of trafficking in cocaine. Bracero argues that the trial court erred in sentencing him to a period of incarceration greater than the suspended portion of his original true split sentences. We agree and reverse Bracero's sentences and remand for resentencing.
Bracero committed the trafficking offenses in 2002, and the trial court originally imposed concurrent sentences of 108 months in prison, suspended, with 108 months of probation. Upon revocation of probation, the trial court imposed concurrent sentences of 126 months in prison.
Bracero then filed a motion to correct sentencing error in the trial court and contended that his sentences were illegal because the trial court imposed a period of incarceration greater than the suspended portion of the original true split sentences. In denying the motion, the trial court stated that the cases Bracero relied upon, such as Poore v. State, 531 So.2d 161 (Fla.1988), superseded by statute on other grounds as recognized in Crews v. State, 779 So.2d 492, 493-94 (Fla. 2d DCA 2000), were inapplicable because they dealt with "Sentencing Guidelines" cases and not cases governed by the "Criminal Punishment Code." The court observed that Bracero's offenses were committed in 2002 and were governed by the Criminal Punishment Code. See § 921.002, Fla. Stat. (2002) (stating effective date of October 1, 1998, for the Criminal Punishment Code). The court stated that section 921.002(1)(g) allows "the Court to impose a sentence up to and including the statutory maximum for any offense before the Court due to a violation of probation" and denied Bracero's motion. The trial court did not address double jeopardy concerns in denying the motion and did not cite any cases to support its conclusion.
On appeal, the State all but concedes that the trial court erred in sentencing Bracero to a period of incarceration that exceeds the suspended portion of the true split sentence. The State draws our attention to Mack v. State, 823 So.2d 746, 748 n. 3 (Fla.2002), which Bracero had cited to the trial court. In Mack, the supreme court stated as follows:
In Poore v. State, 531 So.2d 161, 164 (Fla.1988), we explained that when a sentencing court imposes a true split sentence, the judge has effectively sentenced the defendant in advance for a probation violation and is not later permitted to change his or her mind. Upon revocation of probation, the court may not order the defendant incarcerated for a period exceeding the suspended portion because to do so would be a violation of the double jeopardy clause.
Id. The State cites to no cases that suggest that this double jeopardy issue does not apply to cases under the Criminal Punishment Code.
In a case in which the defendant was originally sentenced in July 2000, this court reiterated its statement in Crews that "[i]f a trial court intends to impose the *1060 maximum period of imprisonment for a violation of the probationary portion of a true split sentence, it should impose the full original sentence of incarceration with credit for time served." Pressly v. Tadlock, 968 So.2d 1057, 1058 (Fla. 2d DCA 2007) (quoting Crews, 779 So.2d at 493). Cases from other districts also reflect that the double jeopardy concerns explained in Poore remain an issue in sentencing.
In Ferrell v. Lamberti, 987 So.2d 771 (Fla. 4th DCA 2008), the defendant entered his plea and was originally sentenced in 2004. The Fourth District stated, "When a defendant violates probation after being sentenced to a true split sentence, the judge may not order new incarceration exceeding the remaining balance of the withheld or suspended portion of the original sentence." Id. at 772.
In Boone v. State, 967 So.2d 999 (Fla. 5th DCA 2007), the defendant entered into a plea bargain and was originally sentenced in 2000. The Fifth District stated, "Because Boone was initially given a `true split sentence,' he could not be sentenced upon revocation of his probation to a period that exceeded the original ten-year sentence, with credit for time served." Id. at 1000-01.
Here, the trial court erred in sentencing Bracero upon revocation of probation to sentences of 126 months when the original split sentences imposed only 108 months. Therefore, we reverse his sentences and remand for resentencing that does not exceed "the full original sentence of incarceration with credit for time served." Pressly, 968 So.2d at 1058 (quoting Crews, 779 So.2d at 493).
Sentences reversed and remanded.
DAVIS and WALLACE, JJ., Concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589897/ | 270 S.W.3d 320 (2008)
Niclas L. JONSSON, Appellant
v.
RAND RACING, L.L.C., a Texas Limited Liability Company and William Rand, an Individual, Jointly and Severally, Appellees.
No. 05-07-01763-CV.
Court of Appeals of Texas, Dallas.
November 17, 2008.
*322 Niclas L. Jonsson, Buford, GA, pro se.
Kevin A. Kinnan, David Reese Clouston, Christopher Robin Richie, Patton Boggs, L.L.P., Dallas, TX, for Appellee.
Before Justices MORRIS, WHITTINGTON, and O'NEILL.
OPINION
Opinion by Justice O'NEILL.
Appellant Niclas L. Jonsson filed an application and petition for entry of judgment on foreign judgment in Collin County. Appellees Rand Racing, L.L.C. and William Rand filed a motion to vacate judgment, which the trial court granted. On appeal, appellant contends the trial court erred in granting the motion to vacate because the California judgment is valid and enforceable under the Uniform Enforcement of Foreign Judgments Act. Specifically, he asserts the judgment is valid because appellees voluntarily submitted to jurisdiction in California despite their claims of lack of notice, and appellees' forum-related activities establish minimum *323 contacts sufficient to subject them to jurisdiction in California. We affirm.
Background
Appellant filed a claim with the California Labor Commission on September 5, 2003 alleging appellees owed him unpaid wages for car races and business expenses he incurred while employed as a professional race car driver for appellees. The record includes "certification of service by mail or certified mail" from the Commission executed on March 29, 2004 and states the Notice of Hearing, Complaint, and Answer was served "by placing a true copy thereof in an envelope addressed as follows:" to appellees at 6533 Riverside Dr., Plano, Texas, 75024. The record also shows the two notices sent to the Plano address were returned and stamped "unclaimed."
Appellees did not file an answer or any other document in regards to appellant's claim. However, a docket entry alleges defendant called the day before the conference and left a message "disputing claim." On June 24, 2004, the Commission awarded appellant $34,345.77, which included unpaid wages and expenses, interest, and penalties under the labor code.
Without further notice or hearing, the labor commissioner for California filed a "Request That Clerk Enter Judgment in the Superior Court of the state of California, Orange County." On that basis, a judgment was entered by the superior court in cause number 04CC01243 on August 4, 2004 in accordance with the award of the labor commissioner.
On September 14, 2007, appellant filed an application and petition for entry on foreign judgment in Collin County district court to recover the money awarded in California. Appellees assert they never received notice of appellant's claim against them until they received the application and petition for entry of judgment on foreign judgment. Appellees then filed a motion to vacate judgment alleging they were never properly served with process or notice of the hearing regarding the California proceedings and that California did not have jurisdiction over them to enter a judgment.
The trial court granted appellees' motion to vacate and noted "the filing of the foreign judgment is of no consequence or effect" and therefore, appellant's foreign judgment was not entitled to full faith and credit and was not enforceable in the State of Texas. Appellant appeals from this order.
Full Faith and Credit
Under the United States Constitution, a state must give the same force and effect to a judgment of a sister state that it would give to its own judgments. See U.S. CONST. art. IV, § 1; Karstetter v. Voss, 184 S.W.3d 396, 401 (Tex.App.-Dallas 2006, no pet.). The enforcement of foreign judgments is governed by the Texas version of the Uniform Enforcement of Foreign Judgments Act located in the Texas Civil Practice and Remedies Code. See TEX. CIV. PRAC. & REM.CODE ANN. § 35.002 (Vernon 2008).
When a judgment creditor files an authenticated copy of a foreign judgment, he satisfies his burden to present a prima facie case for enforcement of the judgment. Id. § 35.003(a), (b); Mindis Metals, Inc. v. Oilfield Motor & Control, Inc., 132 S.W.3d 477, 484 (Tex.App.-Houston [14th Dist.] 2004, pet. denied). This is true even if the foreign judgment is taken by default. Enviropower, L.L.C. v. Bear, Stearns & Co., 265 S.W.3d 16, 2008 WL 456491, at *2 (Tex.App.-Houston [1st Dist.] 2008, pet. filed). The burden then shifts to the judgment debtor to prove the foreign *324 judgment should not be given full faith and credit. Karstetter, 184 S.W.3d at 401; Mindis, 132 S.W.3d at 484.
The judgment debtor may try to prove an affirmative defense to the judgment. Karstetter, 184 S.W.3d at 401. Specifically, a judgment debtor may challenge the jurisdiction of a sister state to render a foreign judgment on two grounds: (1) the defendant may try to demonstrate that service of process was inadequate under the service of process rules of the sister state or (2) the defendant may assert the sister state's exercise of jurisdiction offends due process because he does not have minimum contacts with the sister state. Id. at 401-02.
The presumption of validity can only be overcome by clear and convincing evidence to the contrary. Mindis, 132 S.W.3d at 484. The laws of the state rendering judgment determine its validity. Id. In this case, when Jonsson filed an authenticated copy of the California judgment, he presented a prima facie case for its enforcement in Texas. The burden then shifted to appellees to prove by clear and convincing evidence why it should not be given full faith and credit.
Standard of Review
A motion contesting enforcement of a foreign judgment operates as a motion for new trial. Karstetter, 184 S.W.3d at 402; Mindis, 132 S.W.3d at 486. A trial court has broad discretion, and we may not disturb its ruling absent manifest abuse of discretion. Karstetter, 184 S.W.3d at 402. The test for abuse of discretion is whether the trial court acted without reference to any guiding rules or principles or whether the trial court's actions were arbitrary or unreasonable under the circumstances. Id.
We apply the abuse of discretion standard recognizing the law required the trial court to give full faith and credit to the California judgment unless appellees established an exception. Id. The determination of whether they established an exception to full faith and credit generally involves a factual inquiry, not resolution of a question of law. Id. The trial court has no discretion in applying the law to the established facts. Therefore, we review the record to determine whether the trial court misapplied the law to the established facts in concluding whether appellees established an exception to full faith and credit of enforcement of the California judgment. Id.
General Appearance
Appellees contend they may challenge the labor commissioner's order because service of process was inadequate under California service of process rules. Appellant, however, contends appellees entered a general appearance, which cured any alleged defect in service. See In re Marriage of Torres (1998) 73 Cal.Rptr.2d 344, 62 Cal.App.4th 1367, 1380 (noting even without proper notice, a general appearance will cure any defect in service).
A party makes an "appearance" under California Code of Civil Procedure section 1014 when he "... answers, demurs, files a notice of motion to transfer pursuant to Section 369b, moves for reclassification pursuant to Section 403.040, gives the plaintiff written notice of appearance, or when an attorney gives notice of appearance for the defendant." CAL.CIV. PROC.CODE § 1014 (2007); Sanchez v. Superior Court (1988) 250 Cal.Rptr. 787, 203 Cal.App.3d 1391, 1397; see also CAL.CIV. PROC.CODE § 410.50 (stating general appearance by a party is equivalent to personal service of summons on such party). Courts have generally agreed that this is *325 not exclusive; therefore, a general appearance need not be a formal, technical step, or act. Sanchez, 203 Cal.App.3d at 1397, 250 Cal.Rptr. 787. Rather, the term may apply to various acts which, under all the circumstances, are deemed to confer jurisdiction of the person. Id. What is determinative is whether the defendant takes a part in the particular action which in some manner recognizes the authority of the court to proceed. Id.; see also In re Marriage of Torres (1998) 62 Cal.App.4th at 1381, 73 Cal.Rptr.2d 344 (noting the long-standing rule that if the moving party does not confine himself to the objection of lack of jurisdiction over his person, but seeks affirmative relief on the merits, his application may be deemed a general appearance, regardless of its designation).
Under the facts of this case, we cannot conclude that a notation on the docket sheet alleging appellee called the court the day before a conference "disputing claim" as evidence of a general appearance. Although appellant argues a general appearance need not be a formal, technical step or act, and therefore, the telephone call shows appellees' acceptance of the court's jurisdiction, we disagree. First, we cannot conclude leaving a message is an answer, demur or written notice of an appearance, or an attorney's notice of appearance as required by code of civil procedure 1014. The statement alone of "disputing claim" does not necessarily indicate that appellees recognized the court's authority to proceed against him. Appellees could have been disputing appellant's claim of jurisdiction against them in a California court. Likewise, appellees did not seek any affirmative relief on the merits of the case from the court by leaving a message. See Cal. Overseas Bank v. French Am. Banking Corp. (1984) 201 Cal.Rptr. 400, 154 Cal.App.3d 179, 184 (noting appearance will be general in nature if the defendant acts in a manner with the purpose of obtaining any ruling or order of the court going to the merits of the case). Further, we have found no authority and appellant has provided none in which a California court determined a party's phone call to the court constituted a general appearance.
In reaching this conclusion, we reject appellant's argument that when the legislature enacted California Labor Code section 98(a) it determined there was no distinction between appearing or participating in a proceeding. Appellant specifically argues "the California legislature's use of the alternative terms `appear nor participate' expresses its appreciation of no real distinction between an appearance by `participating' in a proceeding (through attendance) and to simply `appear' by verbally expressing an intention to dispute the merits of the claim." No where within section 98(a) does it say "appear or participate," but rather in section 98(f) it does reference a defendant's failure to "appear or answer." As stated above, appellees did not file an answer or appear at the hearing, nor did the telephone call constitute an appearance. Thus, appellant's argument is without merit.
Further, appellant contends we should not rely on the code of civil procedure because section 98(g) of the labor code states "all hearings conducted pursuant to this chapter are governed by the division and by the rules of practice and procedure adopted by the Labor Commissioner." CAL. LABOR CODE § 98(g) (2007). Therefore, because there is no reference to the code of civil procedure for purposes of determining appearances, we should not rely on it for our analysis. First, we note section 98(g) states "all hearings" are governed by the labor commissioner's adopted rules, but does not specifically say it governs *326 all procedures outside of a hearing. Second, other portions of the labor code reference the code of civil procedure, which indicates the labor commissioner did not foreclose all reliance on it. See, e.g., CAL. LABOR CODE § 98(f) ("A defendant failing to appear or answer, ..., may apply to the Labor Commissioner for relief in accordance with Section 473 of the Code of Civil Procedure."); Id. § 98.1 ("Upon filing of the order, decision, or award, the Labor Commissioner shall serve a copy of the decision personally, by first-class mail, or in the manner specified in Section 415.20 of the Code of Civil Procedure on the parties."). Therefore, we conclude reliance on the code of civil procedure and case law in determining whether appellees made a general appearance is appropriate.
Having concluded appellees' telephone call did not constitute a general appearance and therefore did not cure any possible defects in service, we must now determine whether appellees established by clear and convincing evidence that appellant's service of process was inadequate under the California service of process rules.
Service of Process
Section 98(a) of the California Labor Code gives the labor commissioner authority to investigate employee complaints. Under labor code section 98(b), when a hearing on a complaint is set, a copy of the complaint, together with a notice of time and place of the hearing, "shall be served on all parties, personally or by certified mail, or in the manner specified by Section 415.20 of the Code of Civil Procedure." CAL. LABOR CODE § 98(b) (2007). Here, the commission did not serve appellees personally; however, the record shows it attempted to serve them by certified mail. But, the two notices were returned and stamped as "unclaimed" on the envelope. Further, appellees filed an affidavit with their motion to vacate judgment in which William Rand denied receiving any notice of the hearing. Thus, appellees rebutted any presumption that they received the notices. See, e.g., Bear Creek Master Ass'n v. Edwards (2005) 31 Cal.Rptr.3d 337, 130 Cal.App.4th 1470 (noting a presumption of receipt is rebutted upon testimony denying receipt); Slater v. Kehoe (1974) 113 Cal.Rptr. 790, 38 Cal.App.3d 819, 832 fn. 12 (discussing rules of evidence 606 and 641 presumptions and noting that if party denies receipt of letter, the presumption of receipt is gone from the case). Thus, appellees were not served by certified mail or personal service as required by section 98(b).
Under section 98(b), the only method left for the commission to use was the requirements of code of civil procedure section 415.20. Id.
Section 415.20(a) states the following:
In lieu of personal delivery of a copy of the summons and complaint to a person to be served in Section 416.10, 416.20, 416.30, 416.40, or 416.50, a summons may be served by leaving a copy of the summons and complaint during usual office hours in his or her office or, if no physical address is known, at his or her usual mailing address, other than a United States Postal Service post office box, with the person who is apparently in charge thereof, and by thereafter mailing a copy of the summons and complaint by first-class mail, postage prepaid to the person to be served at the place where a copy of the summons and complaint were left.
CAL.CIV.PROC.CODE § 415.20 (2007). The record is void of any attempts by the commission to serve a copy of the notice of hearing by leaving it at appellees' office or usual mailing address. The record does indicate the commission sent notice by regular *327 U.S. mail; however, section 415.20 allows service by this method only after the party has been served by leaving the summons at an office or usual mailing address. Thus, the commission failed to comply with section 415.20, as required under labor code section 98(b) for serving notice of the hearing. Id.; CAL. LABOR CODE § 98(b).
Having reached this conclusion, we reject appellant's argument that appellees were served under the general service by mail sections of the code of civil procedure. See CAL.CIV.PROC.CODE §§ 1012, 1013 (2007). Labor code section 98(b) provides specific methods of service, and sections 1012 and 1013 are not included as service options under the statute. Therefore, any reliance on these sections to prove service is inapplicable.
After considering the evidence, we conclude appellees provided clear and convincing evidence to overcome the presumption of validity that the California judgment should be given full faith and credit in Texas. Because appellees established an exception to the California court's jurisdiction, specifically that service of process was inadequate under the California service of process rules, the trial court did not misapply the law to the established facts of this case. Thus, it properly granted appellees' motion to vacate judgment, and we overrule appellant's first issue.
Because his first issue is dispositive and establishes an exception to the court's jurisdiction, we need not consider whether exercise of jurisdiction in California offends due process because of a lack of minimum contacts with the state. See Karstetter, 184 S.W.3d at 401-402 (noting party may challenge jurisdiction of foreign state to render judgement because service of process was inadequate or because exercise of jurisdiction offends due process) (emphasis added); see also TEX.R.APP. P. 47.1 (court must hand down opinion that is as brief as practicable but that addresses every issue raised and necessary to final disposition of appeal).
Finally, we note that in his reply brief appellant argues the right to administrative relief under labor code section 98(f) must be exercised and exhausted prior to seeking relief in Texas. CAL. LABOR CODE § 98(f) ("No right to relief, including the claim that the findings or award of the Labor Commission or judgment entered thereon are void upon their face, shall accrue to the defendant in any court unless prior application is made to the Labor Commissioner in accordance with this chapter."). Appellant failed to raise this argument to the trial court in his opposition to defendants' motion to vacate judgment; therefore, we may not consider it on appeal. Brown v. Lanier Worldwide, Inc., 124 S.W.3d 883, 906 (Tex.App.-Houston [14th Dist.] 2004, no pet.) (review is limited to those issues raised in the trial court regarding enforcement of foreign judgment). We acknowledge he stated in one sentence that "defendants had twenty days written notice of their right to appeal the Order on any grounds, but failed to do so." However, this statement alone, without any further explanation or citation to labor code section 98(f), was not sufficient to make the trial court aware of any possible argument challenging appellees' failure to exhaust their administrative remedies. As such, appellant's argument is waived.[1]
*328 Having overruled appellant's arguments, we affirm the trial court's order.
NOTES
[1] Although we construe pro se pleadings liberally, we hold pro se litigants to the same standards as licensed attorneys and require them to comply with applicable laws and rules of procedure. Mansfield State Bank v. Cohn, 573 S.W.2d 181, 184-85 (Tex. 1978); Amir-Sharif v. Hawkins, 246 S.W.3d 267, 270 (Tex.App.-Dallas 2007, pet. dism'd w.o.j.). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3035749/ | FILED
NOT FOR PUBLICATION MAR 30 2010
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
FREDERICK MARC COOLEY, No. 09-15719
Plaintiff - Appellant, D.C. No. 2:07-cv-00509-KJD-RJJ
v.
MEMORANDUM *
R. MCNABB; et al.,
Defendants - Appellees.
Appeal from the United States District Court
for the District of Nevada
Kent J. Dawson, District Judge, Presiding
Submitted March 16, 2010 **
Before: SCHROEDER, PREGERSON, and RAWLINSON, Circuit Judges.
Frederick Marc Cooley appeals pro se from the district court’s summary
judgment in his 42 U.S.C. § 1983 action alleging that police officers violated his
*
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).
tk/Research
Fourth Amendment rights. We have jurisdiction under 28 U.S.C. § 1291. We
review de novo. Blankenhorn v. City of Orange, 485 F.3d 463, 470 (9th Cir. 2007)
(per curiam). We affirm in part, reverse in part, and remand.
The district court properly granted summary judgment to defendants on
Cooley’s search and seizure claim because reasonable suspicion supported the
initial detention and frisking of Cooley. See United States v. Vaughan, 718 F.2d
332, 335-36 (9th Cir. 1983) (explaining that it was reasonable for officers to briefly
detain and frisk an individual for weapons based on the arrest, pursuant to
warrants, of his two companions); see also United States v. Diaz-Juarez, 299 F.3d
1138, 1142 (9th Cir. 2002) (noting that presence in a high-crime area is relevant to
the reasonable suspicion analysis).
The district court concluded that the force used to effectuate Cooley’s arrest
was not excessive given that Cooley had been argumentative and had run from the
officers. We agree and affirm the district court’s ruling as to the force used to
secure Cooley. See Graham v. Connor, 490 U.S. 386, 397 (1989) (explaining that
there is no Fourth Amendment violation where the officers’ actions are objectively
reasonable in light of the facts and circumstances confronting them). However,
Cooley testified at his deposition that after he was handcuffed and lying prone,
Officer Embrey “nick-kicked” him in the head and then stepped on his neck,
tk/Research 2 09-15719
causing him to feel like he was choking and causing the skin to be scraped off his
cheek. This evidence, viewed in the light most favorable to Cooley, raises a triable
issue as to whether Embrey used excessive force. See Tekle v. United States, 511
F.3d 839, 844-45 (9th Cir. 2007) (discussing factors for determining whether the
force used was excessive and stating that the most important factor is the need for
force). Further, Officer Embrey is not entitled to qualified immunity because it
was clearly established at the time that “force is only justified when there is a need
for force.” Blankenhorn, 485 F.3d at 481. Accordingly, we reverse summary
judgment on Cooley’s excessive force claim against Officer Embrey and remand
for further proceedings.
The district court did not abuse its discretion by denying Cooley’s motion to
amend his complaint. See Moore v. Kayport Package Express, Inc., 885 F.2d 531,
538 (9th Cir. 1989) (“Leave to amend need not be given if a complaint, as
amended, is subject to dismissal.”).
The parties shall bear their own costs on appeal.
AFFIRMED in part, REVERSED in part, and REMANDED.
tk/Research 3 09-15719 | 01-03-2023 | 10-13-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1589207/ | 972 So.2d 1197 (2007)
STATE of Louisiana In the Interest of J.M., Plaintiff-Appellee
v.
Robin BROOKS and Ted Malant, Defendant-Appellant.
No. 42,846-JAC.
Court of Appeal of Louisiana, Second Circuit.
December 5, 2007.
*1198 Michael D. Cox, Lake Charles, for Appellant, Theodore J. Malant.
Legal Services of North, Louisiana, Inc. by David K. Handelman, Margherita McWilliams, Shreveport, for Appellee, Robin Brooks.
Wilbert Pryor, for J.M.
Before BROWN, STEWART and GASKINS, JJ.
GASKINS, J.
The appellant, Ted Malant, appeals from a decision by the juvenile court denying his motion to have Robin Brooks found in contempt. The contempt issue arose out of the court's order regarding custody issues concerning the couple's child, J.M. For the following reasons, we affirm.
FACTS
Ted Malant and Robin Brooks are the parents of J.M., born May 23, 2000. The parties were never married. They have been before the court on several other occasions.
Mr. Malant was convicted of sexual assault of a child in Texas in 1991 and was placed on probation for seven years. The parties originally had joint custody of J.M. and Ms. Brooks was named domiciliary parent. This was followed by complaints of abuse by J.M., claiming that his mother bit him, inflicted a closed head injury and, along with her brother, touched him inappropriately. Mr. Malant filed for a change of custody. In 2005, a judgment was entered designating Mr. Malant as domiciliary parent during the school year and granting the same to Ms. Brooks during the summer. The judgment set forth a visitation schedule for the noncustodial parent and ordered that Ms. Brooks' brother have no contact with the child.
In 2006, Mr. Malant filed a motion for contempt alleging that Ms. Brooks had again beaten the child and had allowed her brother to be around J.M. Joint custody was maintained and no decision was made as to contempt. That judgment was appealed by. Mr. Malant. In 2006, while that ruling was on appeal, Mr. Malant filed a complaint with the Louisiana Department of Social Services (DSS) alleging physical *1199 and sexual abuse by Ms. Brooks. DSS filed an affidavit asserting physical abuse by Ms. Brooks and emotional abuse by Mr. Malant. J.M. was taken into state custody and was adjudicated a child in need of care. The child was in foster care for several months.
This court ruled on Mr. Malant's appeal, holding that the juvenile court did not err in considering his conviction in Texas, in refusing to allow him to call J.M. as a witness in the proceedings, in determining that Mr. Malant emotionally abused the child and in finding that the child was in need of care. State ex rel. J.M. v. Malant, 41,670 (La.App.2d Cir.12/13/06), 945 So.2d 189.
In August 2006, while the appeal in the prior case was pending, the juvenile court held a case review and modified the judgment, removing J.M. from state custody and placing him in the custody of Mr. Malant, with visitation to Ms. Brooks. The judgment included a protective order specifying that the parents were not to abuse or neglect the child. Ms. Brooks was ordered not to use corporal punishment on the child, not to sleep with him or to bathe him, and not to allow her brother to have any contact with the child. The custody judgment also ordered that the parents are entitled to speak with the child by telephone at reasonable times and intervals when the child is with the other parent. The court specified that Mr. Malant was responsible for ensuring that the minor child attend counseling with Dr. Susan Vigen for as long as Dr. Vigen deems necessary.
The DSS and Ms. Brooks appealed that decision. See State ex rel. J.M. v. Brooks, 41,952 (La.App.2d Cir.12/20/06), 946 So.2d 302. This court found that the juvenile court did not err in granting custody to Mr. Malant and in lifting a protective order prohibiting the father from making recorded interviews with the child for purposes of showing that Ms. Brooks was abusing the child.
In January 2007, Mr. Malant filed the present rule to show cause why Ms. Brooks should not be found to be in contempt of the protective order. Mr. Malant claimed that Ms. Brooks was sleeping with the child, not permitting phone calls, threatening to beat the child if he did not misbehave and perform poorly in school, and threatening to return him to foster care.
In February 2007, Ms. Brooks filed her own rule for contempt, alleging that Mr. Malant has failed to abide by the court's custody award which required Mr. Malant to ensure that the child attend counseling sessions with Dr. Vigen.
When the rules for contempt were originally brought before the court for hearing, Mr. Malant tried to introduce evidence of other incidents not alleged in his rule for contempt. The matter was continued by the trial court. Mr. Malant filed an amended rule to show cause why Ms. Brooks should not be held in contempt. He alleged that on February 3, 2007, Ms. Brooks hit the child in the groin. According to Mr. Malant, the child had a cold and he took him to a doctor on February 5, 2007. During that appointment, the child stated that Ms. Brooks hit him in the groin. Later, while drying J.M.'s hair, Mr. Malant noted a small bruise on the child's head. J.M. claimed that Ms. Brooks hit him in the head while he was . . . sleeping. Mr. Malant alleged that this occurred on February 16, 2007. He took the child to the doctor on February 21, 2007.
At the conclusion of the hearing, the juvenile court denied the rule to show *1200 cause and the amended rule to show cause for contempt filed by Mr. Malant against Ms. Brooks. On April 17, 2007, the judgment was filed denying Mr. Malant's claims. Mr. Malant appealed.
CONTEMPT
Mr. Malant argues that the juvenile court erred in not finding that the child was intentionally abused by his mother when she slept in the same bed with him, and hit him in the head and the groin. He also argues that the juvenile court erred in failing to consider the best interest of the child when it denied the motion for contempt against Ms. Brooks. These arguments are without merit.
Legal Principles
The wilful disobedience of any lawful judgment or order of the court constitutes a constructive contempt of court. La. C.C.P. art. 224(2). To find a person guilty of constructive contempt, it is necessary to find that he or she violated the order of the court intentionally, knowingly, and purposely, without justification. In re S.L.G., 40,858 (La.App.2d Cir.1/25/06), 920 So.2d 363; Midyett v. Midyett, 32,208 (La. App.2d Cir.9/22/99), 744 So.2d 669.
The trial court is vested with great discretion in determining whether a party should be held in contempt for disobeying the court's order and its decision will only be reversed when the appellate court can discern an abuse of that discretion. In re S.L.G., supra; Midyett v. Midyett, supra; Martin v. Martin, 37,958 (La.App.2d Cir.12/10/03), 862 So.2d 1081, writ not considered, XXXX-XXXX (La.3/12/04), 869 So.2d 807. A proceeding for contempt in refusing to obey the court's orders is not designed for the benefit of the litigant, though infliction of a punishment may inure to the benefit of the mover in the rule. The object of the proceeding is to vindicate the dignity of the court. Smith v. Smith, 35,378 (La.App.2d Cir.9/26/01), 796 So.2d 726; In re S.L.G., supra. Proceedings for contempt are strictly construed and extending their scope is not favored. Arrington v. Arrington, 41,012 (La.App.2d Cir.4/26/06), 930 So.2d 1068; Smith v. Smith, supra
La. C.C. art. 136 provides in pertinent part that a parent not granted custody or joint custody of a child is entitled to reasonable visitation rights unless the court finds, after a hearing, that visitation would not be in the best interest of the child. Jurisprudence emphasizes that the best interest of the child is the sole criterion for determining a noncustodial parent's right to visitation. Because each case depends on its own facts, the determination regarding visitation is made on a case-by-case basis. Great weight is given to the trial court's determination, and the court's judgment will not be overturned unless a clear abuse of discretion is shown. Smith v. Smith, 41,871 (La.App.2d Cir.1/24/07), 948 So.2d 386, writ not considered, XXXX-XXXX (La.4/20/07), 954 So.2d 149.
Discussion
According to Mr. Malant, the child has been alleging physical abuse by the mother from the time he was able to speak in short phrases. Mr. Malant outlined the extensive court proceedings in this matter and maintained that he has consistently documented, through photos and physicians' reports, the abuse by Ms. Brooks. He contends that in the present matter, the court had before it for the first time the child's own testimony to prove abuse by the mother. Mr. Malant noted that Ms. Brooks chose not to testify at the hearing.
Mr. Malant maintains that the juvenile court in this matter failed to consider the *1201 best interest of the child in allowing the mother unfettered access to the child. He contends that the juvenile court should have found the mother in contempt and should have ordered that she have only supervised visitation with the child. He claims that the prejudice against him by prior counselors has been so severe that greater injury has been caused to J.M. Mr. Malant argues that every time a legal action has been instituted, "J.M. has been given back to his mother only to be hurt again and again and again." Mr. Malant urges that the best interest of the mother continues to take precedence over the best interest of the child.[1]
The issues before the court for decision were whether Ms. Brooks violated the court's custody order by refusing to allow the child to speak on the phone with Mr. Malant, sleeping in the bed with the child, and hitting the child in the groin and head on separate occasions. Mr. Malant testified that the issue with phone calls improved after he filed his original rule alleging contempt. In a subsequent hearing, the juvenile court ordered Mr. Malant to schedule a counseling session for the child immediately, thereby addressing Ms. Brooks' allegations seeking to have Mr. Malant found in contempt for failing to take the child to counseling.
When Mr. Malant was questioned at trial about Ms. Brooks sleeping in the bed with the child, it was revealed that the child told Dr. Vigen that he had gotten into the bed with his mother on one occasion. Mr. Malant speculated that the child was threatened to make that statement to Dr. Vigen.
Much of the evidence at trial concerned the allegations of physical abuse by Ms. Brooks against J.M. The child's physician, Dr. William Maranto, testified by deposition that on February 5, 2007, the child was brought in for treatment of a cold. Mr. Malant told the doctor that Ms. Brooks hit the child in the groin and asked that J.M. be examined for bruises. The doctor asked J.M. about the allegation and the child stated that his mother hit him. The doctor's examination revealed only some tenderness in the area. There was no bruising or other objective findings of injury or trauma.
On February 21, 2007, the child was again brought to Dr. Maranto, based on J.M.'s complaint that his mother hit him in the head several days before. The doctor detected a very faint bruise on the child's head. The physician concluded that whatever trauma was sustained was not major. Dr. Maranto stated that Mr. Malant seemed very concerned for the child. The child had a very happy affect. The doctor said the encounter was very businesslike and not "super emotional."
After the complaint that Ms. Brooks hit him in the groin, J.M. was interviewed at Gingerbread House by a forensic interviewer who testified at the hearing. She said the child related that he called Ms. Brooks by her given name, which angered her, and she hit him in the groin. The interviewer noted that the child recited his version of the incident by rote. The interviewer testified that J.M. was very serious and straightforward during the interview. He made a two- or three-sentence statement about what happened, but could not answer questions about the surrounding *1202 details. The interviewer stated that she was very concerned that the child had been coached as to what to say.
A letter from Dr. Vigen, dated March 19, 2007, was filed into evidence at the hearing. Dr. Vigen observed that J.M. is noncompliant and highly oppositional at the start of visits with Ms. Brooks and he is much better behaved with Mr. Malant. According to Dr. Vigen, J.M. is untruthful. On one occasion, the child told Mr. Malant that he stayed at home all day with Ms. Brooks when, in fact, he went skating and out to eat. According to Dr. Vigen, J.M. tells Mr. Malant that Ms. Brooks is lying when she says that he has been good at her house. Dr. Vigen stated that J.M. does not want Mr. Malant to, think that he has positive feelings for his mother. Dr. Vigen opined that it is likely that J.M. is accusing Ms. Brooks of hitting him in the hope that visitation will be stopped.
Mr. Malant testified that he did not take the child to court-ordered counseling in spite of all the problems he claimed were occurring. He said that he was having trouble getting in touch with Dr. Vigen to set up counseling sessions. He also claimed that he did not report any of the alleged incidents of abuse to child protection services because he thought Gingerbread House would report the incidents and because he did not want the state to take custody of the child again.
The juvenile court allowed J.M. to testify. The judge had to instruct the child not to look at Mr. Malant's attorney when answering questions. He questioned the child with only the attorneys for the parties present. The child repeatedly recited that he did not want to go to his mother's house anymore because she beats, bites, and chokes him. The child stated that the last time Ms. Brooks hit him was when she struck him in the groin. The prior testimony shows that this incident was reported prior to the alleged blow to the head.
J.M. related that he has a good relationship with Ms. Brooks' foster mother, Joanne Ross, with whom she lives, and whom the child calls "Gammy." He stated that, in spite of the alleged abuse by his mother, he never told Gammy about any of it. J.M. seemed somewhat confused when asked about why he never tells his grandmother about the alleged abuse. The child insisted that he hated his mother and wished that she was in jail.
Ms. Ross denied any abuse of the child by Ms. Brooks and stated that if the abuse really occurred, J.M. would tell her about it. Ms. Ross said that the child seems glad to see them on visitation, but that Ms. Brooks is afraid to try to discipline the child.
Based upon the evidence and testimony presented at the hearing, we do not find that the trial court erred in denying Mr. Malant's request that Ms. Brooks be found in contempt of court for failure to abide by the court's order for custody and visitation. Also, the juvenile court did not fail to consider the best interest of the child in its decision. The juvenile court judge heard the testimony in this matter and personally questioned J.M. about the allegations against Ms. Brooks. The record shows that Mr. Malant has a history of encouraging a poor relationship between Ms. Brooks and J.M. According to Dr. Vigen, the child does not want Mr. Malant to think he has any positive feelings for his mother. Mr. Malant encourages the child to call Ms. Brooks by her first name instead of referring to her as his mother, and has the child call his wife "Mom." Dr. Vigen's letter stated that J.M. can be untruthful and was capable of fabricating allegations of abuse in order to stop visitation with his mother. According to the interviewer from Gingerbread House, J.M. *1203 appeared to have been coached in making his allegations. The medical evidence shows that whatever trauma the child may have incurred was very minor. These factors cast doubt upon the allegations raised in this matter that the mother was sleeping in the child's bed and struck him on two occasions. The record supports the juvenile court decision to deny Mr. Malant's request to hold Ms. Brooks in contempt.[2]
CONCLUSION
For the reasons stated above, we affirm the judgment of the trial court denying the rule to show cause and the amended rule to show cause filed by Ted Malant, urging that Robin Brooks be held in contempt of court. Costs in this court are assessed to Ted Malant.
AFFIRMED.
NOTES
[1] Mr. Malant argues many factors which are not in the record and were not before the juvenile court. Accordingly, those factors are not properly before this court for consideration.
[2] Mr. Malant urges that the facts of this case are very similar to those in Arrington v. Campbell, XXXX-XXXX (La.App. 3d Cir.3/9/05), 898 So.2d 611, in which the third circuit found that the lower court failed to consider the best interest of the child. In Arrington v. Campbell, supra, there was significant proof of physical and sexual abuse of the child by the mother and her family. The third circuit awarded sole custody to the father and ordered that the mother have supervised visitation. Contrary to Mr. Malant's argument, we find that the present case is more similar to S.J. v. S.M., 550 So.2d 918 (La.App. 2d Cir. 1989), writ denied, 552 So.2d 398 (La.1989). In S.J. v. S.M., this court maintained sole custody of the child with the mother, finding that there was insufficient evidence to establish that the child had been the victim of sexual abuse and denying the father's request that the child undergo further medical evaluation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/4558361/ | Fourth Court of Appeals
San Antonio, Texas
August 21, 2020
No. 04-20-00247-CR
The STATE of Texas,
Appellant
v.
David MARTIN III,
Appellee
From the County Court, Kinney County, Texas
Trial Court No. 10165CR
Honorable Tully Shahan, Judge Presiding
ORDER
On July 27, 2020, the State filed a motion for extension of time to file the State’s brief
until August 31, 2020 on the basis that the State was awaiting a supplemental clerk’s record. On
August 17, 2020, this court ordered the trial court clerk to file the supplemental clerk’s record by
August 31, 2020. In light of this court’s prior order, the State’s motion for extension is
GRANTED as follows: the State’s brief is due no later than September 30, 2020. Further
requests for extension of time to file the State’s brief will be disfavored.
_________________________________
Sandee Bryan Marion, Chief Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 21st day of August, 2020.
___________________________________
MICHAEL A. CRUZ,
Clerk of Court | 01-03-2023 | 08-25-2020 |
https://www.courtlistener.com/api/rest/v3/opinions/1588929/ | 14 So. 3d 300 (2009)
C. Thomas PETERSEN, Appellant,
v.
Edmund S. WHITSON, Jr., Appellee.
No. 2D09-877.
District Court of Appeal of Florida, Second District.
August 19, 2009.
*301 William H. Phelan, Jr., of Bond, Arnett, Phelan, Smith & Craggs, P.A., Ocala, for Appellant.
William H. Walker and Adam S. Rubenfield of The Law Office of William H. Walker, Chartered, St. Petersburg, for Appellee.
WALLACE, Judge.
This nonfinal appeal arises out of an action to renew a judgment brought by Edmund S. Whitson, Jr. (the judgment creditor), against C. Thomas Petersen (the judgment debtor). The judgment debtor, a Georgia resident, challenges the circuit court's order denying his motion to dismiss the action for lack of personal jurisdiction.[1] Because an action to renew a judgment is merely a continuation of the original proceeding, the circuit court had continuing jurisdiction over the nonresident judgment debtor for the purpose of the judgment creditor's action. Accordingly, we affirm the circuit court's order.
THE FACTS AND PROCEDURAL BACKGROUND
In September 1988, Whitson & Whitson, P.A., a Florida professional association, filed an action in the Pinellas County Circuit Court against the judgment debtor.[2] When the original action was commenced, the judgment debtor was a resident of Florida, conducted business in Florida, and maintained an office in Florida. The judgment debtor was served with process and appeared pro se in the original action. He did not contest the circuit court's jurisdiction over his person. On December 6, 1988, the circuit court entered a final summary judgment in favor of Whitson & Whitson, P.A., and against the judgment debtor for damages in the amount of $434,514.96. Subsequently, Whitson & Whitson, P.A., assigned the judgment to the judgment creditor.
In June 2007, the judgment debtor left Florida and moved to Georgia. The judgment debtor has been a resident of Georgia since he left Florida.
On April 25, 2008, the judgment creditor filed an action in the Pinellas County Circuit Court to renew the original judgment. In his complaint, the judgment creditor alleged the following pertinent matters: (1) the entry of the original judgment; (2) the judgment creditor's ownership of the judgment by assignment from Whitson & Whitson, P.A.; (3) nonpayment of the judgment; (4) the amount of the balance *302 due on the judgment with accrued interest; (5) the judgment debtor's residence in Pinellas County when the original judgment was entered; (6) the judgment debtor's current residence in Georgia; and (7) allegations supporting service on the judgment debtor outside the State of Florida under section 48.193, Florida Statutes (2007).
After the judgment debtor was served with process in Georgia, he filed a motion to dismiss for lack of jurisdiction over the person and a supporting affidavit. The judgment debtor's affidavit recited the facts concerning his relocation to Georgia and his current lack of any substantial contacts with Florida. In his motion, the judgment debtor argued that he was not a Florida resident and that he had not "done any act which would submit himself to the jurisdiction of the courts of the State of Florida[ ] pursuant to § 48.193, Fla. Stat. (2007)[,] or otherwise."
After a hearing, the circuit court ruled that it had jurisdiction over the judgment debtor at the time of the original action "and such jurisdiction continued to the filing of the instant (renewal ...) action." Finding service against the judgment debtor under section 48.193 to be valid, the circuit court denied the judgment debtor's motion to dismiss. This appeal followed.
DISCUSSION
"[A] judgment, whether domestic or foreign, constitutes a cause of action upon which a new and independent action may be based." Crane v. Nuta, 157 Fla. 613, 26 So. 2d 670, 671 (1946). "[T]he main purpose of an action on a judgment is to obtain a new judgment which will facilitate the ultimate goal of securing satisfaction of the original cause of action." Adams v. Adams, 691 So. 2d 10, 11 (Fla. 4th DCA 1997) (citing 47 Am.Jur.2d Judgments § 945 (1995)). The statute of limitations applicable to an action on a judgment or decree of a court of record in Florida is twenty years. § 95.11(1), Fla. Stat. (2007); Commercebank, N.A. v. Taylor, 964 So. 2d 817, 818 (Fla. 3d DCA 2007); Marsh v. Patchett, 788 So. 2d 353, 354 (Fla. 3d DCA 2001). "`[I]f the statute of limitation period has almost run on the judgment ... the judgment creditor can start the limitation period anew by bringing an action upon the judgment and obtaining a new judgment.'" Adams, 691 So.2d at 11 (alterations in original) (quoting Koerber v. Middlesex College, 136 Vt. 4, 383 A.2d 1054, 1057 (1978)). By bringing a new action on the judgment, the life of the original judgment may be extended. See Marsh, 788 So.2d at 355 (citing Adams, 691 So.2d at 11).
The writ of scire facias was formerly used in Florida to revive a dormant judgment so that execution could issue.[3]See Burshan v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 805 So. 2d 835, 841 (Fla. 4th DCA 2001) (citing Spurway v. Dyer, 48 F. Supp. 255, 258 (S.D.Fla.1942)). See generally Henry P. Trawick, Jr., Florida Practice and Procedure §§ 25:16, 37:9 (2008-09) (explaining the function of the writ of scire facias). A proceeding by writ of scire facias to revive a judgment was regarded not as a new proceeding but rather as a continuation of the original action. See B.A. Lott, Inc. v. Padgett, 153 Fla. 304, 14 So. 2d 667, 669 (1943); Massey v. Pineapple Orange Co., 87 Fla. 374, 100 So. 170, 171 (1924).
In our view, an action on a judgment, whether under a new complaint or *303 by a writ of scire facias, is a continuation of the original action. See McGraw v. Parsons, 142 Mich.App. 22, 369 N.W.2d 251, 252 (1985). From this premise, it follows that the court that rendered the judgment in the original action has continuing jurisdiction over the defendant in an action to renew the judgment. See Huff v. Pharr, 748 F.2d 1553, 1555 (11th Cir.1984); Cadle Co. II, Inc. v. Fiscus, 163 Cal. App. 4th 1232, 78 Cal. Rptr. 3d 238, 244 (2008); Kaylor v. Turner, 210 Ga.App. 2, 435 S.E.2d 233, 235 (1993), disapproved on other grounds by Okekpe v. Commerce Funding Corp., 218 Ga.App. 705, 463 S.E.2d 23, 25 (1995); Bank of Edwardsville v. Raffaelle, 381 Ill. 486, 45 N.E.2d 651, 653 (1942); Bahan v. Youngstown Sheet & Tube Co., 191 So. 2d 668, 671-72 (La.Ct.App.1966); Ewing v. Bolden, 194 Mich.App. 95, 486 N.W.2d 96, 99 (1992); McGraw, 369 N.W.2d at 252; Duffy v. Hartsock, 187 Va. 406, 46 S.E.2d 570, 574 (1948). Thus the circuit court had continuing jurisdiction over the judgment debtor and properly denied his motion to dismiss.
Affirmed.
WHATLEY and LaROSE, JJ., Concur.
NOTES
[1] This court has jurisdiction in accordance with Florida Rule of Appellate Procedure 9.130(a)(3)(c)(i).
[2] The statement of the facts and procedural background is taken from the circuit court's order and the documents provided by the judgment debtor in the appendix to his initial brief.
[3] Relief that was formerly available by scire facias may now be obtained by motion after notice. See Fla. R. Civ. P. 1.100(d). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588949/ | 972 So. 2d 187 (2008)
VEGA
v.
STATE.
No. 2D07-1258.
District Court of Appeal of Florida, Second District.
January 4, 2008.
Decision without published opinion. Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588956/ | 14 So. 3d 1063 (2009)
Larry Eugene SHORTER, Jr., Appellant,
v.
STATE of Florida, Appellee.
No. 2D08-2076.
District Court of Appeal of Florida, Second District.
May 29, 2009.
James Marion Moorman, Public Defender, and Judith Ellis, Assistant Public Defender, Bartow, for Appellant.
Bill McCollum, Attorney General, Tallahassee, and Ronald Napolitano, Assistant Attorney General, Tampa, for Appellee.
SILBERMAN, Judge.
Larry Eugene Shorter, Jr., appeals his sentence for child abuse entered after the trial court revoked his probation. Because the trial court improperly included victim injury points on the scoresheet for a crime that was not before the court for sentencing, which the State concedes, we reverse and remand for resentencing with a corrected scoresheet.
The trial court revoked Shorter's probation based upon new law offenses and sentenced him to 53.7 months in prison. The Criminal Punishment Code scoresheet showed 53.7 months as the lowest permissible prison sentence. The scoresheet included forty points for severe victim injury. Those points were assessed, however, for victim injury resulting from the new law offense of leaving the scene of an accident with injury, which was not before the court for sentencing.
Shorter brought this issue to the trial court's attention in a motion to correct sentencing error pursuant to Florida Rule of Criminal Procedure 3.800(b)(2). See Jackson v. State, 983 So. 2d 562, 572 (Fla. 2008) (recognizing inaccurate scoresheets as "sentencing errors" subject to preservation *1064 by rule 3.800(b)(2)); State v. Anderson, 905 So. 2d 111, 118 (Fla.2005) (stating that a rule 3.800(b) motion is a method to correct scoresheet error); Harper v. State, 5 So. 3d 765, 765-66 (Fla. 2d DCA 2009) (stating that scoresheet error was preserved for review by rule 3.800(b)(2) motion). Our record reflects that the trial court did not rule on the motion within sixty days; thus, we deem the motion denied. See Harper, 5 So.3d at 766 n. 1.
Because Shorter was not before the court for sentencing on the leaving the scene of an accident charge, it was improper to consider those victim injury points in sentencing Shorter for child abuse. See § 921.0021(7)(a), Fla. Stat. (2002) ("`Victim injury' means the physical injury or death suffered by a person as a direct result of the primary offense, or any additional offense, for which an offender is convicted and which is pending before the court for sentencing at the time of the primary offense."). Shorter argues that the trial court clearly intended to sentence him to the lowest permissible prison sentence on the scoresheet and that we should reverse and remand for the trial court to resentence him to the lowest permissible prison sentence based on a corrected scoresheet that does not include the forty victim injury points. The State contends that resentencing is required to determine whether the trial court would impose the same sentence of 53.7 months under a corrected scoresheet.
The Florida Supreme Court has determined that the test to be applied on a direct appeal regarding whether scoresheet error requires resentencing is the "would-have-been imposed" test. See Anderson, 905 So.2d at 118. "If the reviewing court cannot determine conclusively from the record that the trial court would have imposed the same sentence despite the erroneous scoresheet, remand for resentencing is required." Id. at 116. Based on our record, including the transcript of the sentencing hearing, we cannot say conclusively what the trial court would have done had the forty victim injury points not been included on the scoresheet. See id.; Budd v. State, 939 So. 2d 1158, 1159 (Fla. 2d DCA 2006). Thus, we reverse Shorter's sentence and remand for resentencing based on a corrected scoresheet that does not include the forty victim injury points.
Sentence reversed and remanded.
DAVIS and WALLACE, JJ., Concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2586319/ | 162 P.3d 65 (2007)
RODRIGUEZ
v.
STATE.
No. 96477.
Court of Appeals of Kansas.
July 20, 2007.
Decision without published opinion. Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1548096/ | 9 B.R. 314 (1981)
In re James Edward TERRY, Debtor.
Bankruptcy No. 80 B 05375 K.
United States Bankruptcy Court, D. Colorado.
February 25, 1981.
Edward I. Cohen, Denver, Colo., for debtor.
Steven R. Rider, Aurora, Colo., for First Nat. Bank of Denver.
Janet G. MacFarlane, Denver, Colo., Chapter 13 Standing Trustee.
MEMORANDUM OPINION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER DENYING CONFIRMATION
GLEN E. KELLER, Jr., Bankruptcy Judge.
THIS MATTER came on for hearing upon confirmation of the Debtor's plan under Chapter 13 of Title 11, United States Code. A creditor, First National Bank of Denver, objected to confirmation pursuant to 11 U.S.C. § 1324 alleging that the Debtor's plan was not proposed in good faith under 11 U.S.C. § 1325(a)(3).
The evidence disclosed that the Debtor, James Terry, was formerly an employee of the First National Bank of Denver and was assigned to its Master Charge-Visa department. In that capacity, he had become familiar with the operation of the Bank's credit card system and was himself the holder of a Master Charge and a Visa credit card. He was forced to resign from the Bank in March of 1980 apparently because of poor attendance. He was unemployed *315 thereafter until June 9th, when he obtained his current position as a customer service representative in the credit card division of Diner's Club International.
At the time Debtor left the First National Bank, he owed Master Charge $556.27 and Visa $1,060.36. On March 31, 1980, Debtor issued two checks totaling $2,256.27 on an account at the United Bank of Lakewood to Master Charge. The account had been closed since October, 1978. Significantly, both checks were credited to Debtor's account on the very day they were received in accordance with the standard procedure then in effect at the Bank. On April 2 and 3, Mr. Terry obtained cash advances from Master Charge in the amount of $1,725.00. Cash advances are basically loans made available by Master Charge to customers in good standing. Mr. Terry was entitled to $1,000.00 line of credit as a card holder. However, because his "payments" to Master Charge exceeded the amount due, he was able to obtain additional moneys based on his apparent credit balance. On April 22, the United Bank of Lakewood returned both checks because of the status of the account. Before Master Charge was able to charge Debtor's account for the $2,256.27, he had obtained some $1,875.00 in cash advances and made numerous purchases of merchandise with the charge card.
A strikingly similar series of events occurred with respect to Visa. On March 31 and April 4, 1980, Debtor paid his Visa bill with two checks totaling $2,576.21. Like the Master Charge payments, these checks were drawn on Debtor's former account at United Bank of Lakewood. On April 10, Mr. Terry borrowed $1,500.00 using Visa's cash advance system. Once again, Debtor was able to obtain money in excess of the usual $1,000.00 limit because his recent "payments", which were credited to his account upon receipt, created an apparent balance in his favor. The checks were returned by United Bank of Lakewood, and Visa charged the amounts back to Debtor on April 23.
Mr. Terry continued to use both credit cards until June of 1980. Interestingly, the objecting creditor produced at the confirmation hearing a written statement signed by the Debtor in which he represented that the cards had been destroyed by April 25. At the time the four checks were written on the United Bank of Lakewood, Debtor's account with that Bank had been closed for a year and a half. No deposits had been made therein since October of 1978. These facts require denial of confirmation. The evidence is conclusive that the Debtor has used his knowledge of the credit card operation to manipulate the Bank. Mr. Terry was able to obtain over $3,200.00 in cash within 10 days by creating false credit balances with Master Charge and Visa. The Debtor's scheme worked because he took advantage of two facts: (1) Payments by check are apparently credited to a customer's account upon receipt, well prior to the time Master Charge and Visa are able to verify that the check has been honored by the drawee bank; (2) there is an inevitable delay in the check collection process when the card company is dealing with a smaller, more remote bank. This explains why Debtor did not write the bogus checks against his account at the First of Denver. Such an "in-house" check would have been collected faster, thus shortening the time Mr. Terry would have available to create the false credit balances and obtain cash advances against those balances. Mr. Terry testified that he thought the United Bank of Lakewood checks would be honored. The absence of any deposits for over a year and a half makes this claim inherently implausible.
Now the Debtor seeks to invoke the bankruptcy law to discharge these unsecured obligations for $1.00 apiece. It is true that a Chapter 13 plan is not necessarily lacking in good faith just because it deals with debts that might be nondischargeable under Chapter 7. In re Jenkins, 4 B.R. 278 (Bkrtcy., D.Colo. 1980). The mandate in 11 U.S.C. § 1328 is quite explicit that many debts nondischargeable under Chapter 7 can be discharged in Chapter 13. This case does not turn on whether a Chapter 13 plan that *316 proposes to pay nominal amounts on claims that would be nondischargeable in Chapter 7 is in good faith. This Court has previously found "good faith" to be lacking in a case similar to the one at hand. See, In re Tanke, 4 B.R. 339 (Bkrtcy., D. Colo. 1980). In Tanke it was noted at 340 that
[t]his case couples recent egregious fraud with no good faith effort to repay the victim. To confirm this plan would, in effect, make the bankruptcy court the Debtors' instrument for perpetrating a fraud. . . . [I]t would ignore the plain meaning of the statute requiring that a plan be proposed in good faith.
There is no proof in this case that Mr. Terry obtained the cash advances from Master Charge and Visa with bankruptcy in mind. Such a finding is not necessary for good faith to be lacking. The Debtor's conduct evinces a continuum of bad faith that began with fraudulently obtaining credit and culminated in the filing of this case. Mr. Terry admitted under cross-examination that he misrepresented the nature of his obligations to Master Charge and Visa in his bankruptcy schedules. He described them as debts for purchases of merchandise in 1978 and 1979. The evidence clearly showed this to be untrue. In short, this Chapter 13 plan is so tainted with bad faith conduct that confirmation cannot be allowed. Now, therefore, it is
ORDERED that confirmation of the proposed plan of the Debtor, James Edward Terry, is denied.
FURTHER ORDERED that a hearing shall be held on March 9, 1981, at the hour of 8:30 a.m., in Courtroom B, United States Bankruptcy Court, 400 Columbine Building, 1845 Sherman Street, Denver, Colorado to determine whether this case should be dismissed or converted pursuant to 11 U.S.C. § 1307. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1548048/ | 152 Pa. Commw. 540 (1993)
620 A.2d 76
TOWNSHIP OF BENSALEM, Appellant,
v.
Shelly A. MOORE, Appellee.
Commonwealth Court of Pennsylvania.
Argued November 17, 1992.
Decided January 7, 1993.
Reargument Denied March 11, 1993.
*542 Neil A. Morris, for appellant.
No appearance for appellee.
Before PALLADINO and FRIEDMAN, JJ., and SILVESTRI, Senior Judge.
SILVESTRI, Senior Judge.
The Township of Bensalem (Township) appeals from an order of the Court of Common Pleas of Bucks County which entered summary judgment in favor of Shelly Moore (Moore). The Township argues that questions of material fact exist as to whether Moore was entitled to protection under the Act of June 15, 1951, P.L. 586, § 2, as amended, 53 P.S. § 812 (commonly known as the Police Tenure Act). The Township concludes that entry of summary judgment in favor of Moore was improper. The Township also argues that Moore's action in mandamus is barred by the doctrine of laches, by the appropriate statute of limitations and because Moore had an alternative adequate remedy at law. We agree that entry of summary judgment in favor of Moore was improper because this action is barred by the statute of limitations of 42 Pa.C.S. § 5522(b)(1).
Our standard of review in this case is clear. Summary judgment is only proper where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Pa.R.Civ.P. 1035(b). The *543 moving party bears the burden of proving the absence of any material disputed facts. Thompson Coal Co. v. Pike Coal Co., 488 Pa. 198, 412 A.2d 466 (1979). The record must be read in the light most favorable to the non-moving party, which is entitled to the benefit of all reasonable inferences. Marks v. Tasman, 527 Pa. 132, 589 A.2d 205 (1991). Any doubt as to the existence of a material factual issue must be resolved against the moving party; summary judgment is proper only in the clearest of cases. Thompson Coal Co. When confronted with a motion for summary judgment, a trial court must not decide the factual dispute, it must confine its inquiry to the question of whether a material factual dispute exists. Mylett v. Adamsky, 139 Pa.Commonwealth Ct. 637, 591 A.2d 341 (1991).
The undisputed facts of this case are summarized as follows. Moore began work as a police officer for the Township on April 2, 1987. At that time, Moore signed a contract which provided that she could be terminated from her position with the Township at any time without liability. Subsequent to her hiring, Moore joined the Bensalem Township Police Benevolent Association (PBA). The police officer position is within a bargaining unit and was subject to the 1987 collective bargaining agreement which did not specifically provide for the position of probationary police officer. The 1987 bargaining agreement does, however, provide that after completion of probation, all officers who do not reside within the Township must establish such residency within ninety days. Moore worked as a police officer from April 2, 1987 until March 30, 1988, she never resided in Bensalem Township during that period.
Moore was terminated after a follow-up psychological evaluation and review of her first year performance on the job. She filed a grievance regarding her termination. The Township refused to follow the grievance procedure claiming that, because she was a probationary police officer, Moore was not entitled to invoke the grievance procedures under the collective bargaining agreement. On November 16, 1989, Moore filed a complaint seeking mandamus relief to compel the *544 Township to reinstate her to the position of police officer and an award of back pay.
In opposition to Moore's motion for summary judgment, the Township presented affidavits from all other officers hired with Moore in April, 1987, which state that those officers understood that they were hired as probationary police officers. Additionally, the Township presented the affidavit of Carmen Raddi, Township Manager, which states that all officers, including Moore, are on a one year probationary status when initially hired. Likewise, the affidavits of Police Captains Traenkle and Robinson, as well as that of the evaluating psychologist, Dr. Grossman, state that all officers were subject to a one year probationary period.
Moore's complaint in mandamus alleges that the Township's action in terminating her employment on March 30, 1988 violates 53 P.S. § 812 which provides as follows:
No person employed as a regular full time police officer in any police department of any township of the second class, or any borough or township of the first class within the scope of this act, with the exception of policemen appointed for a probationary period of one year or less, shall be suspended, removed or reduced in rank except for the following reasons: (1) physical or mental disability affecting his ability to continue in service, in which case the person shall receive an honorable discharge from service; (2) neglect or violation of any official duty; (3) violating of (sic) any law which provides that such violation constitutes a misdemeanor or felony; (4) inefficiency, neglect, intemperance, disobedience of orders, or conduct unbecoming an officer; (5) intoxication while on duty. A person so employed shall not be removed for religious, racial or political reasons. A written statement of any charges made against any person so employed shall be furnished to such person within five days after the same are filed.
An officer covered by the provisions of the Police Tenure Act may not be dismissed without prior notice of charges and a hearing on the existence of one or more of the enumerated *545 grounds for dismissal. Nuss v. Township of Falls, 89 Pa.Commonwealth Ct. 97, 491 A.2d 971 (1985).
In essence, Moore claims that she was a full time police officer who was terminated without prior notice of charges and without a hearing. The question of Moore's status on the date she was terminated, i.e., was she a full time police officer or probationary police officer who had been appointed one year or less, is crucial to her case. As per the language quoted above, the protections of the Police Tenure Act do not extend to a probationary police officer employed for one year or less.
The trial court used the following analysis to decide that Moore was a full time police officer entitled to the protections of the Police Tenure Act. Moore was hired pursuant to the provisions of the 1987 collective bargaining agreement between the Township and the PBA. The 1987 bargaining agreement does not provide for probationary police officers, only patrolmen, sergeants and detectives. The 1988 bargaining agreement, however, does specifically provide for probationary officers. Because the 1987 agreement did not specifically provide for probationary officers, Moore was a patrolman entitled to utilize the grievance procedure. The Township's refusal to follow the grievance procedure of the collective bargaining agreement was a failure to respond and results in a conclusive finding for Moore, the grievant. Because the finding on the grievance establishes Moore as a full time police officer, she is entitled to the protections of the Police Tenure Act. The Township admits that Moore was terminated without notice of charges or prior hearing and thus, the trial court concludes that summary judgment follows as a matter of law.
In its analysis, the trial court improperly decided two factual questions rather than merely determining whether factual questions exist. The trial court analysis begins with the proposition that Moore was hired pursuant to the 1987 collective bargaining agreement between the Township and the PBA. The Township has offered numerous affidavits in support of its contention that Moore, like the other officers hired in 1987, was not hired pursuant to the 1987 bargaining *546 agreement but pursuant to an at-will contract. The trial court decided this question in favor of Moore.
Even assuming that the trial court could decide as a matter of law that, because Moore was a member of the bargaining unit from her date of hire, her employment was governed by the 1987 bargaining agreement rather than the at-will contract she admittedly signed, the trial court erred when it determined that the agreement did not contemplate probationary officers. Article I. A. of the 1987 agreement, governing wages, provides three different ranks for officers: Sergeant, Detective and Patrolman. While this article does not include a rank of probationary police officer, the wages for a first year patrolman are $5,000.00 less than the wage paid a second year patrolmen. Article XI. A. 1. of the 1987 agreement provides as follows: "All members of the DEPARTMENT hired subsequent to January 1, 1985 shall be required to establish a bona-fide residency in the Township of Bensalem within three (3) months after the expiration of their probationary period." By its own terms, the 1987 agreement acknowledges that some police officers will serve a probationary period.
The 1987 bargaining agreement is ambiguous as to whether Moore, like all other newly hired officers, was a probationary police officer. The existence of an ambiguity presents a question of fact which the trial court should not decide as a matter of law. Pines Plaza Bowling, Inc. v. Rossview, Inc., 394 Pa. 124, 145 A.2d 672 (1958). Because the disputed fact, whether Moore was a full time or probationary police officer, is material to this case summary judgment was improper. Mylett. Accordingly, we will reverse the portion of the order which granted summary judgment in favor of Moore.
The Township also argues that it was entitled to summary judgment due to the bar of the statute of limitations in 42 Pa.C.S. § 5522(b)(1). We agree. In denying the Township's motion for summary judgment based on Section 5522(b)(1), the trial court cited Paz v. Commonwealth, Department of Corrections, 135 Pa.Commonwealth Ct. 162, 580 A.2d 452 (1990), for the proposition that, when a complaint brings an *547 action against a governmental unit rather than against government officers, the six-month statute of limitations of Section 5522(b)(1) does not apply. We find Paz distinguishable because of the difference between the nature of the complaint asserted there and the mandamus action presented here.
The petitioner in Paz asserted that the Pennsylvania Board of Probation and Parole had violated his constitutional right to due process by increasing his sentence without notice or prior hearing. Nowhere in Paz is there any mention of mandamus, the precise relief sought here. "Mandamus is an extraordinary writ which lies to compel the performance of a ministerial act or mandatory duty where there is a clear legal right in the plaintiff, a corresponding duty in the defendant, and a lack of any other adequate and appropriate remedy at law." Darney v. West Mifflin Borough, 23 Pa.Commonwealth Ct. 267, 269, 351 A.2d 317, 317-18 (1976) (citations omitted). A mandamus against a municipality properly lies against the municipal officer whose duty it is to perform the act commanded to be done. Commonwealth ex rel v. Schmidt, 287 Pa. 150, 134 A. 478 (1926). In a mandamus action brought against a municipality, Pa.R.Civ.P. 1094(a) requires that the proper officers and officials of the municipality be made party defendants. Commonwealth ex rel. McBride v. City of Wilkes-Barre, 72 Dauph. 327, 16 Pa.D. & C.2d 762 (1958).[1] The trial court should have required Moore to join the Township officials who would be ordered to perform the ministerial acts if she prevailed in her claim for mandamus relief.
Once Moore had joined the Township officials, as required by law, it is clear that her action in mandamus would *548 be barred by the statute of limitations in 42 Pa.C.S. § 5522(b)(1). This court has previously held, in a case virtually on all fours with the facts presented here, that Section 5522(b)(1) applies to an action in mandamus to compel a municipality to comply with the provisions of the Police Tenure Act. Fleming v. Rockwell, 93 Pa.Commonwealth Ct. 91, 500 A.2d 517 (1985). The plaintiffs in Fleming had been dismissed from positions as police officers by the Borough of Troy without prior notice and hearing; the Borough denied the plaintiffs' request for a hearing alleging that they were not full time police officers entitled to the protections of the Act; plaintiffs brought an action in mandamus seeking to compel the Borough to comply with the Act; the Mayor and Borough Council Members, as well as the Borough itself, were named defendants. Fleming, 93 Pa.Commonwealth Ct. at 93, 500 A.2d at 518-19. In upholding the trial court's action in dismissing the case because it was brought more than a year after the plaintiffs were dismissed from their positions we stated: the six-month limitation period was controlling in the instant suit, because it was commenced as an action in mandamus." Fleming, 93 Pa.Commonwealth Ct. at 95, 500 A.2d at 519 (emphasis added).
Similarly here, Moore has chosen to pursue an action in mandamus to compel a municipality to comply with the Police Tenure Act. The nature of the relief she seeks requires her to join the appropriate Township officials under Rule 1094(a). Fleming is clear that her action must be commenced within six-months of the date of her termination. Moore was terminated from her position on March 30, 1988. She did not file her complaint until November 16, 1989. Moore cannot avoid the applicable limitations period by failing to name as party defendants those required to be named in a mandamus proceeding. This action is clearly barred by 42 Pa.C.S. § 5522(b)(1).[2]
*549 We will reverse the portion of the order which denied the Township's motion for summary judgment and remand to the trial court with directions to enter summary judgment for the Township.
ORDER
AND NOW, this 7th day of January, 1993, it is ORDERED as follows:
1. The order of the trial court granting Shelly A. Moore's motion for summary judgment is reversed.
2. The order of the trial court denying the motion of the Township of Bensalem for summary judgment is reversed and the matter is remanded to the trial court to enter summary judgment in favor of the Township of Bensalem.
Jurisdiction relinquished.
NOTES
[1] Pittenger v. Union Area School Board, 24 Pa.Commonwealth Ct. 442, 356 A.2d 866 (1976), a plurality decision holding that individual members of a school board need not be named as defendants in a mandamus action, is distinguishable. Pittenger cites Pa.R.Civ.P. 1094(c), which provides that it is only necessary to name the administrative board, department or commission when a mandamus action is brought against an executive or administrative department, board or commission of the Commonwealth or political subdivision. Here, Moore has brought her action against the Township as a whole, not a board or body of the Township, and Rule 1094(a), not Rule 1094(c), applies.
[2] Because we hold that Moore's action is barred by the appropriate statute of limitations, we need not address the Township's arguments that the action is barred by laches and/or the existence of an adequate alternative remedy at law. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1593183/ | 453 So.2d 871 (1984)
John S. GATINS, etc., Appellant,
v.
SEBASTIAN INLET TAX DISTRICT, et al., Appellees.
No. 83-706.
District Court of Appeal of Florida, Fifth District.
August 2, 1984.
*872 Barbara J. Compiani of Montgomery, Lytal, Reiter, Denney & Searcy, P.A., and Edna L. Caruso, P.A., West Palm Beach, for appellant.
George A. Meier, III, and Craig L. Brams of Pitts, Eubanks, & Ross, P.A., Orlando, for appellees Beindorf & Associates and Reliance Ins. Co.
No appearance for appellee Sebastian Inlet Tax Dist.
FRANK D. UPCHURCH, Jr., Judge.
In July, 1981, John S. Gatins, individually and as personal representative of his daughter's estate, sued to recover damages for her wrongful death. His daughter, Mary Ellen Gatins, was killed on September 1, 1980, when she fell through an opening in a guardrail on a pier at the Sebastian Inlet State Park. It was alleged that Sebastian Inlet Tax District owned, maintained and controlled the pier. On August 16, 1982, Gatins filed a second amended complaint, adding Doctors Sarnowski and Lozito as defendants and alleging that his daughter had been provided with improper or inadequate medical care following her fall.
On August 31, 1982, just one day before expiration of the two year statute of limitations for wrongful death, the District answered the second amended complaint and filed a third party complaint against Beindorf and Associates, Inc., an engineering and construction firm which had constructed the pier. The District alleged that Beindorf had failed to properly carry out the District's instructions concerning the erection of a barrier across the opening in the pier railing.
Beindorf answered and denied liability and on December 2, 1982, with leave of court, Gatins filed a third amended complaint adding Beindorf as a party defendant. On February 11, 1983, Gatins moved to amend to add as a defendant Beindorf's insurer, Reliance Insurance Company.
Beindorf answered the third amended complaint, denied any negligence and raised as an affirmative defense the statute *873 of limitations. Beindorf subsequently moved for summary judgment based on expiration of the limitations period. The trial court entered summary judgment in favor of Beindorf and denied Gatins' motion to add Reliance as a party defendant.
The precise question raised here is whether the statute of limitations operates as a bar to the direct claim brought by Gatins against Beindorf after the limitations period had expired, even though Beindorf was impleaded as a third party defendant by the District within the limitations period.
Research has revealed no cases in Florida directly on point. Of the jurisdictions that have considered the issue, most have held that such claim is barred despite the fact that the party sought to be added was impleaded as a third party defendant within the limitation period. See Laliberte v. Providence Redevelopment Agency, 109 R.I. 565, 288 A.2d 502 (1972); J.G. Boyd's Good Housekeeping Shops, Inc. v. General Sec. Serv., 483 S.W.2d 826 (Tex.Civ.App. 1972); Higginbotham v. Fearer Leasing, Inc., 32 Mich. App. 664, 189 N.W.2d 125 (1971); Trybus v. Nipark Realty Corp., 26 App.Div.2d 563, 271 N.Y.S.2d 5 (1966); Abate v. Barkers of Wallingford, Inc., 27 Conn. Supp. 46, 229 A.2d 366 (1967); Holmes v. Capital Transit Co., 148 A.2d 788 (D.C. 1959); Hankinson v. Pennsylvania Railroad Co., 160 F. Supp. 709 (E.D.Pa. 1958).[1] Some of these cases, however, are distinguishable from the instant case. For instance, in Higginbotham, the Michigan appellate court emphasized that the plaintiff knew of the third party defendant's involvement in the automobile accident but failed to name him as a principal defendant until after the limitation period had expired. Here, the record indicates that Gatins was unaware of Beindorf's potential liability until the District filed its answer which was one day before expiration of the period. Likewise, in Capital Transit, the plaintiff only sought to add the defendant after trial when the jury found for the original defendant and by special interrogatory found that the third party defendant was negligent. Nevertheless, in most of these cases, the courts indicated that the plaintiff's desire to amend to add a third party defendant as a party defendant was tantamount to stating a new cause of action which was barred by the statute of limitations. See, e.g., Hankinson v. Pennsylvania Railroad Co. ("The amended complaint began the plaintiff's action on his claim against the [third party defendant] too late. It is of no avail to the plaintiff that the [defendant] began its action on its claim against the [third party defendant] in time").
Gatins relies on what appears to be the minority view in this area, which consists of a series of New Jersey cases. The first of these cases, DeSisto v. City of Linden, 80 N.J. Super. 398, 193 A.2d 870 (Law.Div. 1963), involved a suit by the plaintiff against the City of Linden for injuries suffered when the plaintiff's car struck a protruding manhole cover. Within the limitation period, the City filed a third party complaint against DiIorio, the contractor doing paving and sewer repairs for the City. Just before trial and outside of the limitation period, plaintiff's counsel sought and was granted leave to amend to join DiIorio as a party defendant. On appeal, the New Jersey appellate court approved with the following observations:
[P]laintiff is not seeking to add a new cause of action, for the essential ground or object of the action and the wrong alleged are the same. Nor is a new party being added, for third-party defendant is already a party defending against plaintiff's claim on all of the same issues. The one difference is that plaintiff never asserted a claim directly *874 against third-party defendant until after the running of the statutory period. Third-party defendant was notified of the claim by process and a pleading in time... .
* * * * * *
A new party may not be added after the statute has run. A new claim different in character arising out of other circumstances than those set forth in the original pleading may not be added. However, a new claim based on the occurrences and the same wrong against an existing party may be asserted when that party has become a party and has been alerted to the claim before the running of the statute. While the question is a troublesome one and by no means clear, it would seem that the amendment in this case constitutes a mere amendment of legal theory and should be allowed.
193 A.2d at 874-75.
In Greco v. Valley Fair Enterprises, 105 N.J. Super. 582, 253 A.2d 814 (App.Div. 1969), the court followed DeSisto and held that a third-party defendant who is joined as such prior to expiration of the limitation period may, on plaintiff's motion to amend, be made a direct defendant after the expiration of that period provided the amended complaint is based on the same occurrence and the same wrong referred to in the pending third-party complaint against him. The Greco court added:
[T]his holding accords with the spirit of our rules and is consistent with the objectives of repose and freedom from the burden of defending stale claims sought to be achieved by statutes of limitation.... As is readily apparent, when defendant has had timely notice that the plaintiff sets up and is seeking to enforce a claim against him because of specified conduct in which he has participated the reason for the statutory limitation no longer exists.
253 A.2d at 816.
In Lawlor v. Cloverleaf Mem. Park, 56 N.J. 326, 266 A.2d 569 (1970), the New Jersey Supreme Court approved the holdings of DeSisto and Greco and held that the amendment to the complaint must be deemed to relate back at least to the time of the filing of the third-party complaint. The court explained that:
When the third-party complaint was filed, the [third-party defendants] were made formally aware that they were being charged with negligence in the care of [plaintiff] and that they were being sought to be held liable for the damages suffered by [plaintiff] as the result of their negligence. From that point on they could not lie in repose but were called upon to prepare and defend. They had full and timely opportunity to do so and at no point did the negligence claims against them become stale. Though the plaintiff did not amend the complaint at the time of the filing of the third-party complaint so as to join the [third-party defendants] as direct defendants, the court rules and DeSisto were in the books and later amendment of the complaint with relation back should readily have been anticipated. The plaintiff's delay in amending the complaint did not in anywise prejudice the [third-party defendants] and we see no reason why it should now bar a just adjudication on the merits of the plaintiff's claims against them.
266 A.2d at 578.
Finally, in the later case of Ioannou v. Ivy Hill Park Section Four, Inc., 112 N.J. Super. 28, 270 A.2d 295 (Law.Div. 1970), the New Jersey appellate court was confronted with a situation where service of the third-party complaint was not made on the third-party defendants until after the expiration of the limitation period. The court held that neither actual service nor filing of the third party complaint within the statutory period was essential and the making of a motion to serve the third-party complaint within the limitation period rendered the Lawlor doctrine applicable, despite the fact that the third-party defendants may have actually been unaware of the plaintiff's action during the statutory period. The court rejected any claim that Lawlor and *875 its predecessors were founded on the existence of notice. Rather the court declared:
The basic premise upon which the Lawlor, DeSisto and Greco holdings rest is that the third-party action had been "commenced" and that the third-party defendant was a "party" to the overall litigation within the meaning of our rules of civil practice prior to the expiration of the statutory period. Having concluded that this was so in each instance, the court held in each case that the policy of the statute of limitations was satisfied and that the third-party defendant was therefore subject to the broad provisions of the rules without any qualification or limitation upon the plain meaning thereof imposed by the statute. It was held in each instance that the plaintiff's new direct claim against the third-party defendant was deemed to have arisen out of the "same transaction or occurrence" that was the subject matter of the plaintiff's claim against the third-party plaintiff, within the meaning of R.4:8-1(b) or its predecessor rule, and that it was deemed to have arisen out of the "conduct, transaction or occurrence set forth or attempted to be set forth in the original pleading" so that there was relation back, at least to the third-party complaint as an "original pleading," pursuant to the general rule as to relation back contained in the [rules of civil practice].
The important thing was that the third-party action had been commenced, as far as the third-party defendant was concerned, prior to the expiration of the statutory period, in accordance with our court rules, and that there was an original pleading, i.e., the third-party complaint, which antedated the running of the statute, to which there was relation back. There is no indication that actual service or notice were deemed to have supplanted the objective standards as to commencement of actions contained in the rules.
270 A.2d at 299-300.
We conclude that the New Jersey view is consistent with the principles governing limitations of actions in our state and with the philosophy behind our rules of civil procedure.
Case law in this state indicates that our limitation periods are designed to protect defendants against unusually long delays in filing of lawsuits and to prevent unexpected enforcement of stale claims. Nardone v. Reynolds, 333 So.2d 25 (Fla. 1976); Employers Fire Ins. Co. v. Continental Ins. Co., 326 So.2d 177 (Fla. 1976). If a third party complaint is filed within the applicable limitation period and the third party defendant is made aware that it may be held liable for the plaintiff's damages, these purposes are satisfied and the fact that the plaintiff is permitted to amend outside the limitation period to formally make the third party defendant a party defendant is not inconsistent with these purposes, at least where, as here, the plaintiff's claim concerns the same issues as are raised in the third party complaint.
As in Ioannou, we find that our "relations back" of amendments to pleadings provision, Florida Rule of Civil Procedure 1.190(c),[2] supports our conclusion here. We emphasize that the amended pleading here did not actually introduce a new defendant but rather adjusted the status of an existing party. See I. Epstein & Bros. v. First Nat. Bank of Tampa, 92 Fla. 796, 110 So. 354 (1926).
Finally, in light of our conclusion above, Gatins was entitled to add Beindorf's insurer, Reliance, as a party defendant. See Clemons v. Flagler Hospital, Inc., 385 So.2d 1134 (Fla. 5th DCA 1980) (cause of action against insurer whose liability is purely derivative does not accrue *876 for limitations purposes until entry of judgment against tortfeasor).[3]
REVERSED.
COBB, C.J., and ORFINGER, J., concur.
NOTES
[1] Beindorf contends that Peneschi v. National Steel Corp., 295 S.E.2d 1 (W.V. 1982) also supports this view but in that case the court, while affirming the denial of the plaintiff's motion to amend to add a claim against the third party defendant, declared that had the cause of action against the third party defendant only been discovered during the development of the lawsuit, it would be within the trial judge's discretion to determine whether the amendment should be allowed.
[2] Florida Rule of Civil Procedure 1.190(c), provides as follows:
Relation Back of Amendments. When the claim or defense asserted in the amended pleading arose out of the conduct, transaction or occurrence set forth or attempted to be set forth in the original pleading, the amendment shall relate back to the date of the original pleading.
[3] Because Ms. Gatins' death occurred prior to October 1, 1982, section 627.7262, Florida Statutes, which deals with nonjoinder of insurers is inapplicable here. VanBibber v. Hartford Accident and Indemnity Ins. Co., 439 So.2d 880 (Fla. 1983). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589020/ | 61 S.W.3d 493 (2001)
Thomas R. HELM and Lisa Helm, Individually and on behalf of Minor Children, Diana Hera Helm, Christina Elaine Helm, and Sarah Marie Helm, Appellants,
v.
J. Thomas SWAN, M.D., Delbert L. Chumley, M.D., Gastroenterology Consultants of San Antonio, P.C., and Methodist Healthcare System of San Antonio, Ltd., Appellees.
No. 04-00-00365-CV.
Court of Appeals of Texas, San Antonio.
June 27, 2001.
*494 Chris Cessac, Jay K. Gray, J. Mark Sudderth, Noteboom and Gray, Hurst, for Appellant.
Bertina Buran York, Strasburger & Price, L.L.P., Harold J. Lotz, Jr., Lotz & Associates, P.C., Edward C. Mainz, Jr., Thornton, Summers, Biechlin, Dunham & Brown, L.C., San Antonio, for Appellee.
Sitting: PHIL HARDBERGER, Chief Justice, TOM RICKHOFF, Justice, and CATHERINE STONE, Justice.
OPINION
PHIL HARDBERGER, Chief Justice.
Thomas R. Helm and Lisa Helm, individually and on behalf of minor children Diana Hera Helm, Christina Elaine Helm, and Sarah Marie Helm, (the "Helms") appeal the summary judgments granted by the trial court after the trial court granted the appellees' motions to exclude the testimony of the Helms's expert witnesses. The Helms present two issues contending that the trial court erred in excluding their expert witnesses and in granting the motions for summary judgment. We overrule the Helms's issues and affirm the trial court's judgments.
BACKGROUND
The Helms brought a medical malpractice action against J. Thomas Swan, M.D. ("Swan"), Delbert L. Chumley, M.D. ("Chumley"), Gastroenterology Consultants of San Antonio, P.A. (the "Association"), and Methodist Healthcare System of San Antonio, Ltd. ("Methodist") for damages caused by the pancreatitis Thomas Helm developed after undergoing an endoscopic retrograde cholangiopancreatography ("ERCP") with sphincter of Oddi manometry and sphincterotomy. The only live claims at the time of the summary judgment hearing were against Swan for negligence, against the Association for vicarious liability based on Swan's negligence, and against Methodist for the negligence of its nurses.
On May 12, 1995, Chumley performed the ERCP with sphincter of Oddi manometry and sphincterotomy on Thomas. The Helms have not alleged any complaints with regard to the performance of the operation. Around 12:30 p.m., Thomas was admitted to the hospital for observation. Chumley left orders for Thomas's diet to be advanced as tolerated, Thomas was to receive oral pain medication (Darvocet) and medication for nausea (Phenergan) as needed, and his vital signs were to be taken.
*495 Around 2:30 p.m., Thomas ate two trays of food and vomitted. The nurses administered the Darvocet and Phenergan. At 5:00 p.m., the nurses phoned Swan, who was on call for Chumley, and informed him that Thomas was continuing to have pain and nausea despite the medicines they had administered. Swan prescribed a stronger pain medicine (Demerol) and Phenergan to be given every four to six hours as needed. Swan believed that Thomas had overeaten and his pain was due to the insertion of gas into his stomach as part of the ERCP procedure.
In accordance with the orders, the nurses administered the Demerol at 5:00 p.m. and 8:45 p.m. At 9:27 p.m., Thomas complained of abdominal pain. At 11:10 p.m., the nurses noted that Thomas was sleeping. At midnight, Thomas complained of pain and vomitted. He was given both the Demerol and the Phenergan. At 1:00 a.m., the nurses noted that Thomas was sleeping "with apparent relief." At 2:00 a.m., Thomas walked to the nurses station complaining of pain. Because the nurses could not give him an additional dose of Demerol, they gave him two Darvocet tablets. At 4:00 a.m., Thomas was given the Demerol. At 5:39 a.m., the nurses noted that Thomas was sleeping. At 8:00 a.m., the nurses noted that Thomas was still in pain. Swan ordered laboratory tests and IV fluid. After receiving the test results, Swan ordered additional tests and increased the IV fluids.
Over the next two days, Thomas was diagnosed with severe necrotizing pancreatitis, resulting in renal failure, adult respiratory distress syndrome, multiple infections, many surgical interventions, amputation of the fingers on his right hand, tracheotomy, splenectomy, partial pancreatectomy, enterocutaneous fistuals, acute myocardial infarction secondary to thrombosis, and multiple small bowel fistulas. The Helms subsequently sued for medical malpractice and sought to introduce the opinions of two experts, Chris Yiantsou, M.D. and Myles Keroack, M.D., in support of their position. Swan (together with the Association) and Methodist filed motions to exclude the testimony of both experts as unreliable. They also filed motions for summary judgment claiming that the Helms did not have any expert testimony to prove breach or causation if the testimony of Yiantsou and Keroack was stricken. The trial court struck the expert witnesses and granted the summary judgments.
STANDARD OF REVIEW
The trial court granted no-evidence summary judgments. We apply the same legal sufficiency standard in reviewing a no-evidence summary judgment as we apply in reviewing a directed verdict. Moore v. K Mart Corp., 981 S.W.2d 266, 269 (Tex.App.-San Antonio 1998, pet. denied). We look at the evidence in the light most favorable to the respondent against whom the summary judgment was rendered, disregarding all contrary evidence and inferences. Moore, 981 S.W.2d at 269. A no-evidence summary judgment is improperly granted if the respondent brings forth more than a scintilla of probative evidence to raise a genuine issue of material fact. Id. Less than a scintilla of evidence exists when the evidence is "so weak as to do no more than create a mere surmise or suspicion" of a fact. Id. More than a scintilla of evidence exists when the evidence rises to a level that would enable reasonable and fair-minded people to differ in their conclusions. Id.
A trial court's exclusion of expert testimony is reviewed under an abuse of discretion standard. E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W.2d 549, 558 (Tex.1995); Ford Motor Co. v. Aguiniga, 9 S.W.3d 252, 262 (Tex.App.-San *496 Antonio 1999, pet. denied). A trial court abuses its discretion in admitting an expert's testimony that lacks a reliable scientific basis. Aguiniga, 9 S.W.3d at 262. All expert testimony must be determined to be both reliable and relevant before it is admitted into evidence. Id. To assist a court in determining the reliability of expert testimony, the Texas Supreme Court in Robinson set forth the following factors to consider: (1) the extent to which the theory has been tested; (2) the extent to which the technique relies upon the subjective interpretation of the expert; (3) whether the theory has been subjected to peer review and/or publication; (4) the technique's potential rate of error; (5) whether the underlying theory or technique has been generally accepted as valid by the relevant scientific community; and (6) the non-judicial uses which have been made of the theory. Id.
DISCUSSION
The primary criticism both Dr. Yiantsou and Dr. Keroack leveled against the Methodist nurses was their failure to notify Swan of Thomas's persistent pain. In addition, Dr. Keroack criticized Swan for failing to suspect the possibility of pancreatitis at 5:00 p.m. and for failing to aggressively institute fluid resuscitation. Dr. Yiantsou and Dr. Keroack opine that the failure to institute aggressive fluid resuscitation therapy increased the severity of Thomas's complications.
The scientific article that Dr. Yiantsou and Dr. Keroack rely upon to support their opinions states that it is important to distinguish mild from severe pancreatitis as early as possible to maximize therapy and prevent or minimize organ dysfunction and local complications. With regard to fluid resuscitation, the article states, "An essential component of treatment of severe acute pancreatitis is correction of intravascular volume loss. Fluid resuscitation helps prevent hypotension and renal insufficiency and may help in the protection of the microcirculation of the pancreas." With regard to the prevention of pancreatic necrosis, the article states, "Although helpful in counteracting shock and renal failure, aggressive fluid resuscitation alone may not be capable of preventing pancreatic necrosis."
Both experts agreed that some patients will develop severe pancreatitis no matter what is done for the patient. Dr. Keroack stated in his deposition that some patients are destined for severe necrotizing pancreatitis no matter how quickly they are diagnosed and no matter how aggressively they are treated. Dr. Keroack stated that it was within the realm of possibility that Thomas was one of the unlucky patients destined to develop severe necrotizing pancreatitis. Dr. Keroack stated that he could not say with medical certainty that Thomas would have been better with early diagnosis and fluids. Dr. Keroack could only state that Thomas had a better chance of getting better.
Dr. Yiantsou stated in his deposition that early hydration would have altered Thomas's course with a reasonable degree of medical probability. Dr. Yiantsou stated that Thomas had a sixty to seventy percent chance of responding. However, Dr. Yiantsou also stated that he did not know if fluids would have helped Thomas; however, by not providing the hydration earlier, Thomas was deprived of the chance that his pancreatitis would be limited to simple interstitial pancreatitis as opposed to severe necrotizing pancreatitis. Dr. Yiantsou agreed that if the pancreatitis is diagnosed within 1-2 hours after the ERCP, there is no way to predict which patients will do well and which patients will develop serious necrotizing pancreatitis like Thomas. Dr. Yiantsou also agreed *497 that some patients will develop necrotizing pancreatitis regardless of how early the pancreatitis is diagnosed and regardless of how early fluid resuscitation is started. Dr. Yiantsou concluded that hydration is all there is to offer a patient who develops pancreatitis, and although there is no way to know if it would have worked for Thomas, he was deprived of his only chance.
In Kramer v. Lewisville Memorial Hospital, 858 S.W.2d 397 (Tex.1993), the Texas Supreme Court held that Texas does not recognize a common law cause of action for lost chance of survival in a medical malpractice case. There is no liability for negligent medical treatment "that decreases a patient's chance of avoiding death or other medical conditions in cases where the adverse result probably would have occurred anyway." Id. at 398. Even if this court disagrees with the holding in Kramer, we are bound to follow it.
In an effort to avoid the holding in Kramer and to detract from their references to the loss of chance in their depositions, Dr. Yiantsou and Dr. Keroack filed supplemental affidavits stating:
Thus, it is not my opinion or testimony that the lack of proper treatment merely increased the probability of something which was "likely to happen anyway," or that it merely deprived Mr. Helm of "a chance" to avoid complications that were already probably. On the contrary, given proper therapy, Mr. Helm's complications were statistically unlikely to occur. If he had received aggressive fluid therapy early onrather than hours after he was already obviously hypovolemicin reasonable medical probability he would have done much better. (Dr. Yiantsou) It is not my opinion or testimony that the lack of proper treatment merely increased the probability of something which was "likely to happen anyway," or that it merely deprived Mr. Helm of "a chance" to avoid complications that were already probably. On the contrary, given proper therapy, Mr. Helm's complications were statistically unlikely to occur. If he had received timely, aggressive fluid therapy in reasonable medical probability he would have done much better (Dr. Keroack)
Nothing in the medical literature, however, supports this opinion. The medical literature supports, and all of the experts agree, that fluid resuscitation is a support measure that should be given to patients with pancreatitis. However, no medical literature supports the opinion that an eight or thirteen hour delay in giving fluid therapy prevents or lessens the complications of severe necrotizing pancreatitis. Therefore, the theory developed by Dr. Yiantsou and Dr. Keroack has: (1) not been tested; (2) relies upon the subjective interpretation of the experts; (3) has not been subjected to peer review and/or publication; (4) has an unknown potential rate of error; and (5) has not been generally accepted as valid by the relevant scientific community. Although non-judicial uses have been made of the theory, since all patients are given the support measure when pancreatitis is diagnosed, there is no support for the timing issue which is critical to the experts' liability theory.
In addition, neither Dr. Yiantsou nor Dr. Keroack are able to exclude the possibility that even with prompt fluid resuscitation, Thomas would have suffered the same complications. See Robinson, 923 S.W.2d at 559 (plaintiff must rule out other possible causes with reasonable certainty); Weiss v. Mechanical Associated Servs., 989 S.W.2d 120, 125-26 (Tex.App.-San Antonio 1999, pet. denied) (same). Without proof that Thomas was not one of the unlucky patients destined to develop severe necrotizing pancreatitis no matter what was done, the experts were unable to *498 rule out the possibility that the nature of Thomas's illness following the surgical procedure caused the complications to develop independent of any inaction by Swan and the nurses. Without testimony to rule out Thomas's illness following the surgical procedure as a possible cause, the experts' testimony that the complications were caused by the delay in fluid resuscitation is mere speculation.
CONCLUSION
This case illustrates the harshness of the rule that has developed in Texas restricting expert testimony. Based on their clinical experience and practice, two qualified experts testified that the standard of care was breached by the failure to provide prompt fluid resuscitation. This is not junk science. There is no dispute among the experts and medical literature that prompt fluid resuscitation is the best chance to avoid necrotizing pancreatitis. However, because no medical professional would intentionally delay providing the fluid therapy, there are no studies regarding the effect of the delay. For this reason, Thomas can only prove that he lost the only opportunity he had to avoid complications-a loss the Texas Supreme Court is unwilling to recognize as having value. Kramer, 858 S.W.2d at 404-407.
Based on existing precedent, the trial judge did not abuse its discretion in excluding the experts' testimony, and the trial court's judgments are affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589024/ | 972 So.2d 188 (2008)
CALZADA
v.
STATE.
No. 3D07-2602.
District Court of Appeal of Florida, Third District.
December 5, 2007.
Decision without published opinion. Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589029/ | 783 N.W.2d 872 (2010)
STATE
v.
McGOWAN.
No. 2009AP0291-CR.
Court of Appeals of Wisconsin.
January 12, 2010.
Petition for review denied.
(ABRAHAMSON, C.J., dissents). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589032/ | 783 N.W.2d 871 (2010)
STATE
v.
SALAZAR-WETZEL.
No. 2008AP1827-CRNM.
Court of Appeals of Wisconsin.
January 12, 2010.
Petition for review denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588961/ | 14 So. 3d 1013 (2009)
STEWART
v.
STATE.
No. 2D09-752.
District Court of Appeal of Florida, Second District.
July 31, 2009.
Decision without published opinion Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588974/ | 972 So. 2d 224 (2007)
William Scott BARTLETT, Appellant,
v.
STATE of Florida, Appellee.
No. 4D07-3074.
District Court of Appeal of Florida, Fourth District.
December 12, 2007.
*225 Fred Haddad of Fred Haddad, P.A., Fort Lauderdale, for appellant.
Bill McCollum, Attorney General, Tallahassee, and Katherine Y. McIntire, Assistant Attorney General, West Palm Beach, for appellee.
PER CURIAM.
The appellant sought postconviction relief, pursuant to rule 3.850. Therein, the appellant raised two grounds for relief. We affirm the summary denial, without comment, as to ground one. However, we reverse on ground two, related to the suppression issues, and remand for a limited evidentiary hearing or attachment of record evidence that conclusively refutes the allegation of error.
The State charged Bartlett with felony cruelty to animals, in violation of section 828.12(2), Florida Statutes. In summary, officers responded to a location and saw Bartlett standing over an injured animal, holding a loaded BB gun. The animal had "countless amounts of pellets or BB's" embedded within its body and the officers heard several "popping" noises prior to seeing Bartlett standing over the animal. Bartlett gave a statement to police claiming he was defending himself from the animal in the wake of the hurricanes. Thereafter, Bartlett began "name-dropping" in an effort to be relieved of the charges. At trial, a police officer testified as to the content of the statement.
In his motion for postconviction relief, Bartlett claims his trial attorney provided ineffective assistance by failing to move to suppress this statement. Bartlett claims he was never properly warned of his right to assistance of counsel during the interrogation. Bartlett also claims that he would never have testified, consistent with his statement to police, had the attorney successfully moved to suppress that statement. Bartlett relies upon Roberts v. State, 874 So. 2d 1225 (Fla. 4th DCA 2004), and related cases which allow for suppression where the defendant is not warned of his right to assistance of counsel during an interrogation.
During the trial, the interrogating officer began to describe the warnings given to Bartlett prior to his statement, but the officer did not testify whether Bartlett was informed of his right to have an attorney present during the interrogation. It appears the officer did not complete his testimony concerning the full warnings provided to Bartlett, as the prosecutor moved on to other topics before the full pre-printed card was read. As such, the claim that Bartlett was not properly warned of his right to an attorney during the interrogation was not conclusively refuted by the record before the trial court.
The State's contention that the attorney's failure to move to suppress the statement did not prejudice Bartlett is unconvincing. The State points to the argument that Bartlett testified, at trial, consistent with his statement to police, thus there is no prejudice. This misses the point of the allegation of error, as Bartlett alleges he would never have testified had the statement been suppressed. Further, the State's argument fails to understand the prejudicial impact of the "name-dropping" Bartlett engaged in, in an effort to make the charge go away. See generally McGill v. State, 964 So. 2d 183 (Fla. 4th DCA 2007) (granting postconviction relief where an attorney failed to move to suppress "exculpatory" statements, given in violation of *226 Miranda, where the prejudice went to the credibility of the defendant's current line of defense).
We reverse, in part, the summary denial of this motion as the record does not conclusively refute the legally sufficient ground for relief. We remand for a limited evidentiary hearing as to the Roberts-issue or the attachment of records which conclusively refute the allegations.
Affirm, in part, reverse, in part, and remand.
WARNER, STEVENSON and MAY, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588963/ | 61 S.W.3d 235 (2001)
76 Ark.App. 225
WHITE RIVER LEVEE DISTRICT
v.
John and Christie REIDHAR.
No. CA 01-466.
Court of Appeals of Arkansas, Division IV.
December 12, 2001.
*236 John H. Bell, Searcy, for appellant.
Gammill & Gammill, by: Randall L. Gammill, Hazen, for appellees.
JOHN B. ROBBINS, Judge.
This appeal comes from a decree dismissing appellant's complaint for ejectment and unlawful detainer and quieting title to approximately forty-four acres of property in appellees. We affirm.
In the 1940s and 1950s, appellant White River Levee District built a levee east of the White River in Prairie, Woodruff, and Monroe Counties. The right-of-way necessary for the Prairie County construction was acquired through deeds from various grantors. The deeds relevant to this case encompassed two particular sections in Township 5 North, Range 4 West: Section 29 and the section directly above it, Section 20. The river ran, for the most part, along the western edge of Section 29 and through the western half of Section 20. The levee ran in a north-south direction through the eastern halves of Section 29 and Section 20. A substantial amount of land all along the western edge of the levee was used by the District as a "borrow pit" to acquire dirt used in construction.
In 1965 and 1966, appellees' predecessor, Franklin Collier[1], purchased property that lay between the White River and the District's levee property. Collier cleared the property from the river to the borrow pit and began farming it. He did so until 1993, when the property was sold to appellees. Appellees continued to farm the property until 1996, without protest by the District. In that year, appellees commissioned a survey of their property for reasons unrelated to this litigation. The survey indicated that the District's right-of-way actually extended a short distance west of the borrow pit. The extension, though not of great width, ran all along the length of the levee and borrow pit and measured 44.4 acres in area.
When the District discovered the result of the survey, it claimed that appellees and their predecessor had been wrongfully farming the area between the borrow pit and the true right-of-way line. It demanded and received a rental payment from appellees' tenant farmer. On December 7, 1998, the District filed suit against appellees *237 seeking possession of the disputed area. Appellees answered that they and their predecessor had adversely possessed the area for more than seven years, and they asked the court to quiet title in them. The chancellor found that the land descriptions in the deeds under which appellant claimed title were "indeterminate" and did not constitute constructive notice of appellant's claimed ownership of the property in dispute. Further, he found that appellees met their burden of proving adverse possession of the property in dispute, and he quieted title in them.
The District raises two issues on appeal. First, it challenges the chancellor's finding that the deeds by which the District claimed ownership contained indefinite descriptions. Second, it argues that the chancellor erred in finding that appellees proved adverse possession. We need not address the first issue because, even if the deeds contained no defect whatsoever, title to the disputed area was properly quieted in appellees by virtue of their adverse possession claim.[2]
Chancery cases are reviewed de novo on appeal. Anderson v. Holliday, 65 Ark.App. 165, 986 S.W.2d 116 (1999). We do not reverse the chancery court's findings unless they are clearly erroneous. Id. A finding of fact is clearly erroneous when, although there is evidence to support it, we are left with the definite and firm conviction that a mistake has been committed. Dillard v. Pickler, 68 Ark.App. 256, 6 S.W.3d 128 (1999).
To prove the common-law elements of adverse possession, the claimant must show that he has been in possession of the property continuously for more than seven years and that his possession has been visible, notorious, distinct, exclusive, hostile, and with the intent to hold against the true owner. Anderson v. Holliday, supra. It is ordinarily sufficient proof of adverse possession that the claimant's acts of ownership are of such a nature as one would exercise over his own property and would not exercise over the land of another. See id. Whether possession is adverse to the true owner is a question of fact. Id. We also note that a claimant may "tack on" the adverse-possession time of an immediate predecessor in title. See Pollins v. Pettus, 249 Ark. 67, 458 S.W.2d 724 (1970).
The appellees showed that they and their predecessor had cleared the property in question and cultivated much of it as farm land beginning in the late 1960s and continuing through the mid-1990s. There was no evidence that this clearing and cultivation was anything other than open, notorious, exclusive, and hostile, in the sense that it was not in recognition of or subservient to another's right to the property. See Barclay v. Tussey, 259 Ark. 238, 532 S.W.2d 193 (1976). In fact, the evidence showed that landowners all along the levee had farmed to the edge of the borrow pit for a number of years without complaint from the District. There was *238 also testimony that none of the District's board members actually knew where the right-of-way line was located. Further, a letter from the board's secretary to the attorney general's office in 1996 acknowledged that "the property lines were not marked and maintained to the extent that they would be recognizable by the adjacent landowners or the public at large" and asked if there were "any steps we could take to regain title." In light of this evidence, we cannot say that the chancellor's finding of adverse possession was clearly erroneous.
The District argues that appellees' and their predecessor's use of the disputed property was permissive as opposed to adverse. It bases this argument on the testimony of T.W. Vincent, the District's secretary, that he considered the farming of the property permissive because it benefitted the District to have the land cleared and cultivated. The District also relies on a purported offer by appellee John Reidhar at a 1996 District board meeting to pay rent on the property and the actual payment of rent to the District by appellees' tenant in 1996.
It is generally recognized that occupation of property is not adverse where a claimant has the owner's permission to enter the property, although it may become adverse under certain circumstances. See Tolson v. Dunn, 48 Ark.App. 219, 893 S.W.2d 354 (1995). The District admits in its brief that there was no evidence it gave Franklin Collier, appellees' predecessor, express permission to clear and cultivate the land in dispute. Instead, it argues that the mere existence of a benefit accruing to the District by virtue of Collier's and appellees' occupation implied the existence of permission. No authority is cited for this proposition, nor are we aware of any. Regardless, we are unwilling to hold that a collateral benefit that results to the owner from a possessor's use is sufficient to declare the use permissive.
As for the argument that John Reidhar offered to pay rent on the property at a District meeting, that evidence was disputed. The chancellor was entitled to resolve that conflict in favor of appellees. See McNamara v. Bohn, 69 Ark.App. 337, 13 S.W.3d 185 (2000). Further, there was evidence that the 1996 rental payment was made by appellees' tenant without their prior knowledge and in an attempt by the tenant to avoid going to court.
The District's final argument is that appellees are not entitled to adverse possession of the entire 44.4 acres in dispute but, at most, to that part of the disputed area that is actually cultivated as farm land. The record, as abstracted, does not reveal that the District asked the chancellor, either during trial or in a posttrial motion, to restrict any adverse possession by appellees to a lesser amount of acreage than the 44.4 acres they described in their answer. In any event, appellees and their predecessor asserted possession of the entire area between the right-of-way line and the borrow ditch, regardless of whether it was farmed. Further, they evidenced possession of the areas that were not cultivated by demonstrating that they had posted such areas. We cannot say that the District has made a sufficient showing on appeal that appellees' adverse possession should be restricted to the cultivated areas.
Affirmed.
GRIFFEN and ROAF, JJ., agree.
NOTES
[1] Collier purchased the land in partnership with James McAlexander. In the 1970s, Collier deeded his interest to McAlexander, who later deeded the property to appellees. However, Collier continued to farm the property as a tenant until 1993, so, for the sake of convenience, we will refer to him as appellees' predecessor in interest.
[2] The District contends that appellees were not entitled to have title quieted in them by virtue of their adverse possession claim because they raised adverse possession as a defense in their answer, not as a counterclaim. Although appellees did not designate their adverse possession action as a counterclaim, they asked that title be quieted in them, and the case was tried by them, without objection, as though affirmative relief were sought. See Hempel v. Bragg, 313 Ark. 486, 856 S.W.2d 293 (1993); Shinn v. First Nat'l Bank of Hope, 270 Ark. 774, 606 S.W.2d 154 (1980). Pleadings should be liberally construed so that effect is given to the substance of the pleading rather than the form; a pleading is not judged entirely by what it is labeled but by what it contains. Cornett v. Prather, 293 Ark. 108, 737 S.W.2d 159 (1987). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589289/ | 61 S.W.3d 589 (2001)
Leonor MARTINEZ, Appellant,
v.
Julia MARTINEZ, Appellee.
No. 04-00-00514-CV.
Court of Appeals of Texas, San Antonio.
August 29, 2001.
*590 Rafael Leal, San Antonio, for Appellant.
Carmen Ramirez, San Antonio, for Appellee.
Sitting: TOM RICKHOFF, Justice, ALMA L. LOPEZ, Justice, and SARAH B. DUNCAN, Justice.
Opinion by: SARAH B. DUNCAN, Justice.
Leonor Martinez has filed a restricted appeal challenging the trial court's award of $33,600 in child support arrearages. Because we agree with Leonor that the pleadings do not support a judgment for child support "arrearages," we modify the trial court's judgment to delete the award. As modified, the judgment is affirmed.
FACTUAL AND PROCEDURAL BACKGROUND
It appears from Julia Martinez's petition, filed September 2, 1999, that she and Leonor were married May 18, 1980 and separated January 6, 1986; and the couple had two daughters, who were 17 and 14 when the divorce petition was filed. Julia's petition asked the court to: (1) grant a divorce; (2) appoint Julia and Leonor joint managing conservators of their two daughters; and (3) approve the Martinezes' agreement regarding the division of their community property or, failing agreement, to order a division of their estate.
In response to Julia's petition, on October 26, 1999, Leonor filed a notarized waiver of citation. See Tex.Fam.Code Ann. § 6.4035 (Vernon 1998). In the waiver, Leonor acknowledged receipt of a copy of Julia's original petition; stated he had read and understood it; entered a general appearance; waived the issuance, service, and return of citation; and waived the making of a reporter's record. The waiver included Leonor's current mailing address.
On February 10, 2000, the trial court signed a final decree of divorce. The decree states Julia appeared in person and by and through her attorney, and Leonor had filed a waiver of citation but did not otherwise appear for trial. The decree further states that the parties, with the court's consent, had waived a jury and the making of a reporter's record. The decree names Julia and Leonor joint managing conservators of their two daughters and contains standard possession, medical, and health insurance orders. The decree then orders Leonor to pay child support of $300 each month and $33,600 in "arrearages." On August 2, 2000, Leonor filed a notice of restricted appeal.
ADEQUACY OF PLEADINGS
Leonor contends the trial court erred in awarding a judgment for "arrearages" in the absence of a pleading requesting that relief. We agree. "Specific notice is required when retroactive child support is being sought." In re J.G.Z., 963 S.W.2d 144, 148 (Tex.App.-Texarkana *591 1998, no pet.);[1]cf. Clements v. Barnes, 834 S.W.2d 45, 46 47 (Tex.1992) (holding that inadequate pleading would not support default judgment and was error apparent on the face of the record).
Conclusion
Because Julia's petition did not provide Leonor with specific notice that she was seeking retroactive child support, we modify the trial court's decree to delete the award to Julia Martinez of a money judgment against Leonor Martinez for $33,600 in child support "arrearages." As modified, the trial court's decree is affirmed.
ALMA L. LOPEZ, Justice, concurs in judgment only.
NOTES
[1] We recognize the trial court's decree purports to award the $36,600 as "arrearages." However, there cannot be a judgment for arrearages absent the failure to comply with an existing support order. See In re J.G.Z., 963 S.W.2d at 148. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588991/ | 783 N.W.2d 871 (2010)
STATE
v.
FECHT.
No. 2008AP2419.
Court of Appeals of Wisconsin.
February 23, 2010.
Petition for review denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588980/ | 14 So. 3d 166 (2009)
C.E.W.
v.
P.J.G.
2070934.
Court of Civil Appeals of Alabama.
January 30, 2009.
*167 James P. Atkinson, Florence, for appellant.
Patricia M. Miles, Florence, for appellee.
THOMPSON, Presiding Judge.
C.E.W. ("the father") appeals a judgment terminating his parental rights to K.B.T. ("the child"). The allegations in the pleadings filed in this matter indicate that the child's mother was killed in an automobile accident and that the child has been in the custody of P.J.G. ("the great-aunt") since September 2005. In April 2007, the father filed a petition seeking to have his paternity of the child adjudicated. On June 14, 2007, the juvenile court entered an order adjudicating the father's paternity.
Thereafter, the parties reached an agreement allowing the father supervised visitation with the child and requiring him to pay child support. On August 3, 2007, the juvenile court entered an order incorporating the terms of that visitation and support agreement. In its August 3, 2007, order, the juvenile court also required the father to meet certain conditions before the next 90-day review hearing in the matter. Those conditions included that the father obtain stable employment, find a stable residence, have no further arrests or problems with the law, and submit to random drug testing.
On August 28, 2007, S.B. ("the paternal grandmother") moved to intervene in the matter; in that motion, the paternal grandmother also sought an award of custody of the child. In September 2007, the great-aunt filed a petition seeking to terminate the father's parental rights. The father responded by denying the material allegations of that petition.
On October 16, 2007, the juvenile court entered an order granting the paternal grandmother's motion to intervene. However, in its October 16, 2007, order, the juvenile court suspended the father's visitation rights because of the father's failure to comply with the conditions for visitation set forth in the August 3, 2007, order. The juvenile court later awarded the paternal grandmother visitation with the child. Thereafter, the paternal grandmother filed a motion seeking to have the great-aunt held in contempt; in that motion, the paternal grandmother alleged that the great-aunt had interfered with her *168 court-ordered visitation. In response, the great-aunt moved to suspend the paternal grandmother's visitation, arguing that the paternal grandmother had violated certain conditions for her visitation.
The juvenile court conducted an ore tenus hearing on the great-aunt's petition to terminate the father's parental rights. On June 16, 2008, the juvenile court entered a judgment terminating the father's parental rights. In that judgment, the juvenile court found that the child was dependent, that the father had failed to provide necessary care and support for the child, that the father had abandoned the child, and that the father had failed to maintain any relationship with the child. The juvenile court also concluded that no viable alternatives to the termination of the father's parental rights existed and that the best interest of the child would be served by the termination of the father's parental rights. The father timely appealed.[1]
The father was the only witness who testified at the termination hearing. The father testified that he had not visited the child pursuant to the August 3, 2007, order because he thought the parties were still negotiating the terms of the agreement upon which the order was based and that he did not believe that that order had "got put through." The father's testimony indicates that he objected to the imposition of the child-support portion of the August 3, 2007, order. The father was unemployed, and he testified that he had not had a job in many years. The father stated that he could not support himself or the child.
The father's attorney objected to a question inquiring whether the father had difficulty finding employment because he was a convicted felon, and the juvenile court sustained that objection. The father then answered a number of questions, including some from his own attorney, concerning his previous incarcerations. That testimony indicated that the father had been incarcerated for three years in the juvenile system, apparently in Alabama. When the father was 18 years old, he began serving time in a correctional facility in Tennessee, and he was incarcerated in that facility for 4 ½ years. After his release from the Tennessee prison, the father returned to Alabama. The father testified that he was incarcerated in the Lauderdale County detention center for approximately two months in 2007 and was again incarcerated in February 2008. The father testified that, at the time of the termination hearing, he was again serving time in the Lauderdale County detention center. The father explained that he was incarcerated for failure to appear on outstanding warrants, one of which pertained to a domestic-violence charge. The record contains no evidence pertaining to the nature of the other charges for which the father had been incarcerated during his lifetime.
The father testified that he had known the child's mother for approximately one month before he was sent to prison in Tennessee; he stated that, during the time he was in prison, the child's mother had sent him a letter informing him she was pregnant. The father testified that he had *169 never seen the child, but he stated that he had been prevented from doing so. The father acknowledged that he had not complied with the conditions in the August 3, 2007, order; he explained that "I have not adjusted. I've not had an easy time adjusting to society. No, it's not going too good."
The father also testified that he has another child, the half brother of the child at issue in this matter, who is in the custody of that child's mother. The father had seen that child before, but he stated that he did not see that child regularly. The father stated that he wanted to see the child at issue in this case and to have her know her half brother. The father was supportive of the paternal grandmother's request to visit the child, and he stated that the paternal grandmother is "great with the kids." The father then acknowledged that he is "not a very family-oriented person."
On appeal, the father first raises an evidentiary issue. The father argues that the juvenile court erred in allowing the great-aunt's attorney to question him regarding his incarcerations. Numerous questions were asked of the father on the subject of his previous incarcerations. However, the father's attorney objected to the questioning only twice. In those objections, the attorney stated only that the questions were "improper," and he did not specify the grounds upon which he was objecting. See Rule 103(a), Ala. R. Evid. (requiring a timely objection that specifies the specific ground on which it is based). Regardless, the juvenile court sustained the objections the father made. However, the great-aunt's attorney asked additional questions concerning the father's history of incarcerations, and the father did not object to those questions. The father did not file a motion in limine regarding, or seek a continuing objection with regard to the subject of, the father's incarcerations.[2] Accordingly, we conclude that any challenge to the testimony to which the father failed to object was waived. See Dutton v. Dutton, 490 So. 2d 1249, 1250 (Ala.Civ.App. 1986) ("Generally, matters not objected to at trial cannot be raised for the first time on appeal."); Costarides v. Miller, 374 So. 2d 1335, 1337 (Ala.1979) (same).
The father also argues that the juvenile court erred in concluding that there were no viable alternatives to the termination of his parental rights.
"In order to terminate parental rights upon a nonparent's petition, a court must make several findings: First, the court must determine that the child is dependent according to clear and convincing evidence. Second, the court must find that there exists no viable alternative to termination of the parental rights. Ex parte Beasley, 564 So. 2d 950 (Ala.1990)."
A.N.S. v. K.C., 628 So. 2d 734, 735 (Ala.Civ. App.1993); see also C.J. v. Marion County Dep't of Human Res., 5 So. 3d 1259 (Ala. Civ.App.2008) (same).
The father relies on Ex parte Beasley, supra, in which our supreme court held:
"The two-prong test that a court must apply in a parental rights termination case brought by a custodial parent consists of the following: First, the court must find that there are grounds for the termination of parental rights, including, but not limited to, those specifically set forth in § 26-18-7. Second, after the court has found that there exist grounds *170 to order the termination of parental rights, the court must inquire as to whether all viable alternatives to a termination of parental rights have been considered. (As earlier discussed, if a nonparent [such as the great-aunt in this case], including the State, is the petitioner, then such a petitioner must meet the further threshold proof of dependency.)
"Once the court has complied with this two-prong testthat is, once it has determined that the petitioner has met the statutory burden of proof and that, having considered and rejected other alternatives, a termination of parental rights is in the best interest of the childit can order the termination of parental rights. Such a construction of the Uniform 1984 Child Protection Act clearly comports with the stated purpose for the Act."
Ex parte Beasley, 564 So.2d at 954-55
Our supreme court recently reiterated that the party seeking to terminate parental rights has the burden of proving both prongs of the test set forth in Ex parte Beasley, supra. Ex parte T.V., 971 So. 2d 1, 4-5 (Ala.2007). In that case, our supreme court explained:
"Justice Smith's dissent suggests that we have ignored the trial court's factual findings regarding T.V.'s past and present inability to care for her child. 971 So.2d at 17-20. In fact, it is these factual findings that form the basis of our holding that N.V. continues to be a dependent child. However, this Court must review not only whether N.V. remains dependent, but also whether the trial court considered and rejected, based on clear and convincing evidence, the possible viable alternatives before terminating T.V.'s parental rights. See Ex parte Ogle, 516 So.2d [243] at 247 [(Ala.1987)] (holding that the party attempting to terminate a parent's parental rights has the burden to prove, by clear and convincing evidence, that there are no viable alternatives); J.D. v. Tuscaloosa County Dep't of Human Res., 923 So. 2d 303, 307 n. 1 (Ala.Civ.App. 2005) (`When a nonparent such as DHR seeks to terminate parental rights, it must establish by clear and convincing evidence not only that the children are dependent but also that no viable alternative to termination of the parental rights exists.'); D.O. v. Calhoun County Dep't of Human Res., 859 So.2d [439] at 443 [(Ala.Civ.App.2003)] (`A nonparent who seeks to terminate a parent's parental rights must prove by clear and convincing evidence that the children are dependent and that there are no viable alternatives to the termination of parental rights.'); A.M. v. Lamar County Dep't of Human Res., 848 So. 2d 258, 259 (Ala.Civ.App.2002) (same). The need to consider all viable alternatives is rooted, in part, in the recognition that the termination of parental rights is a drastic step that once taken cannot be withdrawn and that implicates due process. Thus, the Beasley two-pronged test is designed to protect the welfare of the child while also protecting the rights of parents. [Ex parte] Beasley, 564 So.2d [950] at 952 [(Ala.1990)]. The requirement that clear and convincing evidence support the determination to terminate parental rights is based on the need to protect the due-process rights of the parents. Santosky v. Kramer, 455 U.S. 745, 769, 102 S. Ct. 1388, 71 L. Ed. 2d 599 (1982). The party seeking to terminate a person's parental rights thus has the burden of producing clear and convincing evidence that there are no viable alternatives to the termination of parental rights. Ex parte Ogle, 516 So.2d at 247; see also K.W. v. J.G., 856 So. 2d 859, 874 (Ala.Civ.App.2003) (holding that the party seeking to terminate the parental rights of another bears the burden *171 of proving that termination of those rights is the appropriate remedy).
"Further, as noted above, the Court of Civil Appeals has `consistently held that the existence of evidence of current conditions or conduct relating to a parent's inability or unwillingness to care for his or her children is implicit in the requirement that termination of parental rights is based on clear and convincing evidence.' D.O., 859 So.2d at 444. It is because the termination of parental rights implicates `[t]he fundamental liberty interest of natural parents in the care, custody, and management of their child,' Santosky, 455 U.S. at 753, 102 S. Ct. 1388, that such an exacting level of certainty based on evidence of the parent's current situation is required. Thus, while we must presume under the ore tenus rule that the trial court's factual findings are correct, that rule does not relieve this Court of its responsibility to ensure that those facts clearly and convincingly warrant the termination of parental rights."
971 So.2d at 8-9 (emphasis added).
In this case, the burden was on the great-aunt, as the party petitioning to terminate parental rights, to present evidence in support of each part of the two-pronged test discussed in Ex parte Beasley, supra. Ex parte T.V., supra. The only evidence presented at the termination hearing was the testimony of the father. That testimony concerned only the issue whether grounds existed pursuant to § 26-18-7, Ala.Code 1975, to warrant the termination of the father's parental rights. The record contains no evidence on the issue whether there existed viable alternatives to the termination of the father's parental rights. Thus, the record does not support a conclusion that the great-aunt met her burden with regard to the two-pronged test for the termination of parental rights, nor does it indicate that there was any evidence upon which the juvenile court could evaluate alternatives to the termination of the father's parental rights. See Ex parte Beasley, supra; Ex parte T.V., supra. Based on the foregoing, we must reverse the juvenile court's judgment terminating the father's parental rights.
REVERSED AND REMANDED.
PITTMAN and THOMAS, JJ., concur.
BRYAN and MOORE, JJ., concur in the result, without writing.
NOTES
[1] After the entry of the June 16, 2008, judgment, the father sent a June 23, 2008, handwritten letter to the juvenile court stating, in part, that he was "writing to [the court] to appeal this final [judgment] terminating my parental rights." The letter contains a notation from the juvenile court purporting to "deny" the filing on that same date, June 23, 2008. The father then, on July 7, 2008, filed a second document, titled "notice of appeal," indicating his desire to appeal the termination judgment and requesting a court-appointed attorney to represent him in the appeal. Both notices of appeal filed by the father are timely. The record also contains an untimely notice of appeal form, filed on July 11, 2008, by the father's court-appointed attorney.
[2] We do not express an opinion whether the testimony on the subject of the father's incarcerations was properly admissible. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1588988/ | 706 F. Supp. 708 (1989)
The POLICE RETIREMENT SYSTEM OF ST. LOUIS, Plaintiff,
v.
MIDWEST INVESTMENT ADVISORY SERVICES, INC., et al., Defendants.
No. 87-1076 C (5).
United States District Court, E.D. Missouri.
February 10, 1989.
*709 *710 The Stolar Partnership, Charles Alan Seigel, Andrew F. Puzder, St. Louis, Mo., for plaintiff.
Albert A. Michenfelder Jr., Steven W. Koslovsky, St. Louis, Mo., for Guar. Trust and Finch.
Byron E. Francis, Catherine D. Perry, Armstrong, Teasdale, Kramer, Vaughan & Schlafly, St. Louis, Mo., for E.F. Hutton & Co., Inc.
Thomas J. DeGroot, Alan Popkin, Susan Sherberg, Popkin & Stern, Clayton, Mo., for James Bridges, and Midwest Inv.
Barry A. Short and Richard B. Walsh Jr., Lewis & Rice, St. Louis, Mo., for I.M. Simon & Co., Inc.
David V. Capes, Rosenblum, Goldenhersh, Silverstein & Zafft, St. Louis, Mo., for Angelo Parato.
Edward L. Dowd, Dowd & Dowd, St. Louis, Mo., for Thomas D. Pixley.
Kenton E. Kickmeyer, Thompson & Mitchell, St. Louis, Mo., for Paine Webber, Jackson & Curtis.
Arthur S. Margulis, Richard Eisen, Margulis & Grant, St. Louis, Mo., for Diversified Consultants, Donald Anton and Dotto Enterprises.
Thomas Flynn, St. Louis, Mo., for Klein.
Lewis C. Green, St. Louis, Mo., for U.S. A. Continental.
James J. Maloney, New York City, Donald L. Wolff, Clayton, Mo., for Anthony Daniele.
Susan L. Seigel, Memphis, Tenn., for Vining-Sparks.
MEMORANDUM
LIMBAUGH, District Judge.
Plaintiff, The Police Retirement System of St. Louis (Retirement System), filed a 21-count amended complaint on September 7, 1988, alleging that the 17 defendants participated in various schemes to defraud the Retirement System and divert its assets *711 to certain individuals and entities. The complaint includes allegations of RICO violations, securites fraud, churning, fraud, breach of fiduciary duty and breach of contract. The federal law claims are brought under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (Counts 1 through 3) and Section 27 of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78aa (Counts 4 through 8). The remainder of the complaint is premised on the Court's pendent jurisdiction over state claims. The Court has before it for disposition the motions to dismiss of 13 defendants and three motions to compel.
The Court is bound by a stringent standard in passing on a motion to dismiss. A complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-102, 2 L. Ed. 2d 80 (1957). The complaint must be viewed in the light most favorable to the plaintiff and should not be dismissed merely because the court doubts that a plaintiff will be able to prove all the necessary factual allegations. Bennett v. Berg, 685 F.2d 1053, 1058 (8th Cir.1982). "Thus, as a practical matter, a dismissal under Rule 12(b)(6) is likely to be granted only in the unusual case in which a plaintiff includes allegation that show on the face of the complaint that there is some insuperable bar to relief." Fusco v. Xerox Corp., 676 F.2d 332, 334 (8th Cir.1982).
I. The RICO Claims.
Section 1964(c) of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968, authorizes civil recovery for violations of § 1962 of that Act. Plaintiff alleges in Counts 1, 2 and 3 that defendants (excluding Paine Webber, Daniele and Vining-Sparks) violated 18 U.S.C. §§ 1962(c) and (d). The RICO Act makes it unlawful for a person associated with an enterprise to conduct the affairs of an enterprise through a pattern of racketeering activity. 18 U.S.C. § 1962(c). Section 1962(d) makes it illegal for any person to conspire to violate § 1962(c). In their motions to dismiss, defendants argue that plaintiff has failed to state a RICO claim and that it has not been pled with the particularity required by Fed.R.Civ.P. 9(b).
A. Enterprise Requirement.
To state a claim under RICO, plaintiff must allege that the racketeering activity is connected with an "enterprise." The RICO statute defines "enterprise" to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4).
In United States v. Lemm, 680 F.2d 1193 (8th Cir.1982), cert. denied, 459 U.S. 1110, 103 S. Ct. 739, 74 L. Ed. 2d 960 (1983), the Eighth Circuit outlined the three basic characteristics of a RICO enterprise: "(1) common or shared purpose; (2) some continuity of structure and personnel; and (3) an ascertainable structure distinct from that inherent in the conduct of a pattern of racketeering." Id. at 1198. The Retirement System is a statutorily created pension trust which provides retirement and death benefits to City of St. Louis police officers and their beneficiaries. It has a legitimate, legal purpose separate and apart from the fraudulent acts alleged in plaintiff's complaint. The Court holds, therefore, that the Retirement System is an "enterprise" within the meaning of 18 U.S. C. § 1961(4).
B. Pattern of Racketeering Activity.
The Eighth Circuit has taken an extremely narrow view of what constitutes a pattern of racketeering activity. The court discussed this element in Superior Oil Co. v. Fulmer, 785 F.2d 252 (8th Cir.1986). Drawing from language in the landmark Supreme Court case Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985), the court held that "proof of a `pattern of racketeering activity' requires more than one `racketeering activity' and the threat of continued activity to be effective. It is this factor of continuity plus relationship which combines *712 to produce a pattern." Superior Oil, 785 F.2d at 257 (citing Sedima, 473 U.S. 496 n. 14, 105 S. Ct. 3285 n. 14) (emphasis in original).
Since the court's decision in Superior Oil, the Eighth Circuit has consistently held that where all the predicate acts were committed in furtherance of a single scheme, there is not sufficient continuity among the acts to meet the pattern requirement. Holmberg v. Morrisette, 800 F.2d 205, 209-10 (8th Cir.1986), cert. denied, 481 U.S. 1028, 107 S. Ct. 1953, 95 L. Ed. 2d 526 (1987). The test formulated by the Eighth Circuit is whether defendants have engaged in similar endeavors in the past, whether they were engaged in similar activities elsewhere, or whether they have been engaged in other criminal activities. Terre Du Lac Assoc. v. Terre Du Lac, Inc., 834 F.2d 148, 150 (8th Cir.1987), petition for cert. filed, (April 21, 1988); Deviries v. Prudential-Bache Securities, 805 F.2d 326, 329 (8th Cir.1986).[1]
Plaintiff's complaint alleges a pattern of racketeering as follows:
On information and belief, the pattern of fraudulent schemes included, without limitation, schemes to generate money through churning, making and/or receiving kickback payments and/or benefits and charging excessive fees and commissions (the Monetary Benefit Schemes") for the benefit of Defendants ... and to the detriment of the Retirement Systems and a scheme to improperly generate political contributions (the `Political Contribution Scheme').
Amended Complaint, Count I, ¶ 135, Count II, ¶ 148, Count III, ¶ 161.
Plaintiff's RICO case statement and other pleadings have set forth in greater detail the four different schemes it believes establish a pattern of racketeering activity:
(1) The Midwest/I.M. Simon Scheme;
(2) The Guaranty/I.M. Simon Scheme;
(3) The Guaranty/U.S.A. Continental/Vining-Sparks Scheme; and
(4) The Midwest/E.F. Hutton/PaineWebber Scheme.
Further, plaintiff alleges that defendants Midwest, Guaranty, I.M. Simon, Anton, U.S.A. Continental, Vining-Sparks and others were involved in similar schemes to defraud the Firemen's Retirement System, thereby satisfying the requirement set forth in Terre Du Lac and Deviries that defendants engaged in similar activities in the past, engaged in similar activities elsewhere or engaged in other criminal activities.
Recognizing the Eighth Circuit's strict holdings in civil RICO cases, plaintiff has artfully pleaded and alleged numerous fraudulent schemes and criminal activities in an attempt to show a pattern of racketeering activity. In some circuits, perhaps plaintiff's RICO claims would be allowed to stand. In the Eighth Circuit and in this Court, they cannot.
Plaintiff alleges that defendants participated in four or five different schemes to defraud the Retirement System, thereby establishing the requisite but elusive pattern of racketeering activity. Following Superior Oil and its progeny, the Court does not find a pattern to exist. The most that can be inferred from plaintiff's pleadings is that the Retirement System's investment advisors, Midwest and Guaranty, each attempted to defraud the Retirement System. This was accomplished by making deals with the other defendants to direct business their way at higher commissions in exchange for kickbacks or soft dollar *713 benefits. Although the Court must accept as true the allegations of plaintiff's complaint, defendants' activities do not establish the pattern of racketeering activity that is required to state a claim under 18 U.S.C. § 1962(c).
C. Conspiracy Under § 1962(d)
Plaintiff also contends that defendants violated 18 U.S.C. § 1962(d), which makes it unlawful "for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section." The Eighth Circuit has not addressed the elements of a conspiracy claim under § 1962(d), but the Court believes the requirements have been adequately discussed by other courts. In United States v. Boldin, 772 F.2d 719 (11th Cir.1985), the court established the following criteria for a § 1962(d) claim: "(1) the existence of an agreement, (2) an overt act in furtherance of the conspiracy, (3) the existence of an enterprise affecting interstate or foreign commerce, (4) the defendant's association with the enterprise, (5) the defendant's participation in conducting the enterprise's affairs, and (6) that the defendant's participation was through a pattern of racketeering activity, indicated by the commission of at least two racketeering acts." Id. at 727. See also United States v. Cauble, 706 F.2d 1322, 1341 n. 64 (5th Cir.1983), cert. denied, 465 U.S. 1005, 104 S. Ct. 996, 79 L. Ed. 2d 229 (1984) ("agreement involved must include the vital element of agreeing to commit the predicate acts of racketeering").
These cases establish that a conspiracy claim under § 1962(d) will not lie when the Court has determined that the plaintiff has failed to state a claim under § 1962(c). Plaintiff's failure to establish a pattern of racketeering activity mandates the dismissal of its RICO claims under 18 U.S.C. §§ 1962(c) and 1962(d).
II. Securities Fraud.
Counts 4 through 7 of plaintiff's complaint allege violations of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b)[2] and SEC rule 10b-5, 17 C.F.R. § 240.10b-5.[3] The Eighth Circuit has established five elements a plaintiff must prove in a private action under rule 10b-5: 1) prohibited conduct by the defendant, whether it be that the defendant employed a device, scheme or artifice to defraud, made misrepresentations or omissions of material fact, or engaged in acts, practices, or courses of business that operate as a fraud or deceit; (2) scienter, or an intent to deceive, manipulate or defraud; 3) that the fraudulent activity occurred in connection with the purchase and sale of a security; 4) causation, often analyzed in terms of materiality and reliance; and 5) damages. Harris v. Union Elec. Co., 787 F.2d 355, 362 (8th Cir.), cert. denied, 479 U.S. 823, 107 S. Ct. 94, 93 L. Ed. 2d 45 (1986). Defendants advance numerous arguments in support of their contention that plaintiff has failed to state a claim for violation of federal securities laws, principally relating to the third and fourth elements above.
A. Purchaser or Seller of a Security.
The Supreme Court held in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S. Ct. 1917, 44 L. Ed. 2d 539 *714 (1975), that only purchasers and sellers of securities are entitled to maintain actions for violations of § 10(b) and rule 10b-5. Defendants' motions to dismiss the securities fraud counts rely heavily on the argument that plaintiff was not a purchaser or seller of securities.
Defendants contend that plaintiff vested Midwest and Guaranty with sole investment authority and that the Retirement System did not retain control over investment decisions, thereby forfeiting the right to bring a claim under § 10(b). Defendants' argument rests upon the allegation in paragraph 24 of plaintiff's complaint, which states:
During the period of time that Midwest and Guaranty served as Investment Advisors for the Board, the Trustees were unsophisticated with respect to stock and bond investments and the stock and bond markets in general, did not fully understand the risks involved and, therefore, relied upon Midwest and Guaranty with respect to investment decisions concerning the assets they managed, and further relied upon Midwest's and Guaranty's fiduciary obligations and purported special expertise. Midwest and Guaranty initiated each trade and assumed de facto control of trading in each such account. (emphasis added)
Defendants urge the Court to follow the ruling of the Seventh Circuit Court of Appeals in O'Brien v. Continental Illinois Nat'l. Bank & Trust Co., 593 F.2d 54 (7th Cir.1979). In that case, the funds of a pension trust were turned over to the defendant bank for investment. The bank had sole discretion to make investments as it saw fit. Plaintiffs had the power to terminate the investment agreements with the bank at will, but plaintiffs had no right to receive notice of, or to be consulted about, proposed investments and no right to veto investment decisions. Given this total divestment of authority to purchase or sell securities, the court upheld the dismissal of plaintiffs' 10b-5 claims. "When the trustee or agent alone makes the investment decision to purchase or sell, his failure to disclose information about the purchase or sale to the beneficiary or agent does not satisfy the `in connection with' requirement of § 10(b)." O'Brien, 593 F.2d at 63.
Defendants Midwest and Bridges acknowledge that the Investment Advisor Agreement "may be interpreted contrary to plaintiff's allegations" that Midwest and Guaranty assumed de facto control of trading. Nevertheless, defendants observe that the Court is bound in passing on a motion to dismiss to consider as true the allegations of plaintiff's complaint. Thus, the Court must determine whether plaintiff's allegations amount to an admission that the Retirement System was not a purchaser or seller of securities.
The Court does not believe such an inference is warranted. Paragraph 24 of plaintiff's complaint, where it alleges that Midwest and Guaranty initiated each trade and assumed de facto control of trading, is within the preliminary statement of the complaint and only alleges facts that apply generally to the entire complaint. As plaintiff correctly states, control of accounts is an essential element of a churning claim. Karlen v. Ray E. Friedman & Co. Commodities, 688 F.2d 1193, 1203 (8th Cir.1982). "To establish unlawful churning, the plaintiff need not show that he vested in the broker or its representative formal discretion over the account; effective control is sufficient particularly when the customer is relatively inexperienced and unsophisticated in commodity trading." Id.
The Court believes paragraph 24 was included only for the purpose of pleading churning. Where plaintiff has not alleged that it relinquished total control over investment decisions to Midwest and Guaranty, the Court does not feel it proper to infer that Midwest and Guaranty had such control. Plaintiff's complaint adequately pleads that the Retirement System was a purchaser and seller of securities for the purposes of § 10(b).
B. "In Connection With" Purchase or Sale.
Closely related to the issue just considered, the defendant's prohibited conduct *715 must have occurred "in connection with" the purchase or sale of a security. This requirement was addressed by the Supreme Court in Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6, 92 S. Ct. 165, 30 L. Ed. 2d 128 (1971). In that case, the Court held that plaintiffs must show that the fraudulent conduct "touches" the purchase or sale of the securities. Id. at 12-13, 92 S.Ct. at 168-169. The Bankers Life court did not explain what constitutes "touching" a security transaction, and the courts of appeals appear to disagree about the level of conduct required.
The diversity of court interpretations of Bankers Life is seen in decisions by the Fifth and Second Circuit Courts of Appeals. In Alley v. Miramon, 614 F.2d 1372 (5th Cir.1980), the court held that "in connection with" is to be flexibly applied, but requires that there be a nexus between the defendant's fraud and the securities sale. However, the "plaintiff in a Rule 10b-5 case need not establish a direct or close relationship between the fraudulent transaction and the purchase or sale, but only that the transaction involving the sale `touch' the transaction involving the defendant's fraud." Id. at 1378 n. 11 (citing Bankers Life). The "touching" requirement may be satisfied "when the proscribed conduct and the sale are part of the same fraudulent scheme." Id. (citing Smallwood v. Pearl Brewing Co., 489 F.2d 579, 595 (5th Cir.), cert. denied, 419 U.S. 873, 95 S. Ct. 134, 42 L. Ed. 2d 113 (1974)). See also Brown v. Ivie, 661 F.2d 62, 65 (5th Cir. 1981), cert. denied, 455 U.S. 990, 102 S. Ct. 1614, 71 L. Ed. 2d 850 (1982).
The Second Circuit has adopted a more restrictive view of when a misrepresentation is made "in connection with" the purchase or sale of a security. In Chemical Bank v. Arthur Andersen & Co., 726 F.2d 930 (2d Cir.), cert. denied, 469 U.S. 884, 105 S. Ct. 253, 83 L. Ed. 2d 190 (1984), the court observed that § 10(b) of the 1934 Act was drawn from § 17(a) of the 1933 Act, which covered frauds "in the offer, sale or purchase" of a security. "Although arguably `in connection with' has a somewhat broader sweep than `in', it may be just as true that the `in connection with' phraseology simply fit better with the rest of § 10(b)." Id. at 942. The court in Chemical Bank felt the Supreme Court did not intend to expand the scope of 10b-5 by using the word "touching" in its Bankers Life decision. "We are inclined to agree with Professor Loss, that `there is no reason to believe that the Justice's use of "touching" was anything more than his variation of "in connection with" as a matter of literary style.'" Chemical Bank, 726 F.2d at 942 (quoting Loss, Fundamentals of Securities Regulation, at 903-04 (1983)).
The Eighth Circuit has not addressed the "in connection with" requirement as thoroughly as have other courts. For example, in Harris v. Union Elec. Co., 787 F.2d 355 (8th Cir.), cert. denied, 479 U.S. 823, 107 S. Ct. 94, 93 L. Ed. 2d 45 (1986), the court merely reiterated the Bankers Life standard: "Plaintiffs must show that the fraudulent conduct `touches' the purchase or sale of the securities." Id. at 368. Like the courts of appeals, the nation's district courts are also spread across the board on the "touching" requirement. Regardless of their interpretation of the requirement, however, the courts agree on one issue: "It is important that the standard be fleshed out by a cautious case-by-case approach." Smallwood, 489 F.2d at 595. Accord, Chemical Bank, 726 F.2d at 942-43; Ketchum v. Green, 557 F.2d 1022, 1027 (3d Cir.), cert. denied, 434 U.S. 940, 98 S. Ct. 431, 54 L. Ed. 2d 300 (1977).
Plaintiff's complaint alleges 10b-5 violations against 14 of the 17 defendants. Looking to the allegations against each defendant, the Court believes the "in connection with" requirement is satisfied against all defendants except E.F. Hutton and PaineWebber. The allegations against these two defendants primarily concern the charging of excessive commissions and the soft dollar relationships they had with Midwest. In addition, plaintiff alleges that E.F. Hutton assisted Midwest with developing certain political contacts that would help Midwest control the Retirement System. The allegations form the basis for other common law claims against these defendants, *716 but the Court does not believe these are the types of activities that were intended to be regulated by § 10(b) or rule 10b-5. Accordingly, Count 5 will be dismissed against defendant E.F. Hutton and Count 6 will be dismissed against defendant PaineWebber.
C. Causation.
To satisfy the causation element, the plaintiff must show some causal nexus between the defendant's conduct and the plaintiff's loss. St. Louis Union Trust Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 562 F.2d 1040, 1048 (8th Cir.1977), cert. denied, 435 U.S. 925, 98 S. Ct. 1490, 55 L. Ed. 2d 519 (1978). Causation is often analyzed in terms of materiality and reliance. When the alleged fraudulent conduct consists of misrepresentations, the plaintiff is required to show that the fact was material and that plaintiff relied upon it in making its investment decision. Id. When the alleged fraudulent conduct involves primarily a failure to disclose, however, the plaintiff is not required to prove reliance. Harris v. Union Elec. Co., 787 F.2d at 366. Instead, reliance is inferred from materiality; that is, the causation element is established if the facts that were withheld are material. Id.
Several defendants contend that plaintiff has failed to satisfy the causation requirement because plaintiff has not shown that it relied on the alleged misrepresentations or omissions in its decision to purchase or sell any particular security. The Court does not agree. Plaintiff's complaint alleges that the Retirement System relied on defendants' misrepresentations and omissions in making investment decisions. Whether the evidence supports plaintiff's claim or reliance will be an issue for the trier of fact, but the allegations are sufficient to withstand a motion to dismiss.
D. Pleading with Particularity.
Defendants also contend plaintiff has failed to plead fraud with particularity as required by Fed.R.Civ.P. 9(b). This argument is apparently based on the fact that plaintiff's complaint does not allege specific fraudulent statements or misrepresentations by defendants, but this is not what rule 9(b) requires. "The obligation to plead circumstances need not be treated as requiring allegations of facts in the pleading, and neither Rule 8 nor Rule 9(b) requires fact pleading." 5 C. Wright & A. Miller, Federal Practice and Procedure § 1298 at 410 (1969). "Perhaps the most basic consideration in making a judgment as to the sufficiency of a pleading is the determination of how much detail is necessary to give adequate notice to an adverse party and enable him to prepare a responsive pleading." Id. at 415. The 55 pages of general allegations in plaintiff's complaint are sufficient to satisfy the particularity requirement of rule 9(b).
III. Churning.
The essence of the fraud of churning is that the frequency of the trades is unjustified by the particular circumstances of the case. Karlen v. Ray E. Friedman & Co. Commodities, 688 F.2d 1193, 1203 (8th Cir.1982). The plaintiff is required to prove control of the account by the defendant and excessive trading. Id. Effective control of the account is sufficient to establish unlawful churning. Id.
Count 8 of plaintiff's complaint alleges that defendants Midwest and Bridges "engaged in ... excessive trading and churning in the Retirement System's account in order to generate direct and indirect benefits to Midwest and Bridges." (Amended Complaint ¶ 206). Defendants contend plaintiff's complaint fails to state a claim because the fee Midwest received was based on the assets of the Retirement System fund it managed rather than commissions generated by the purchase or sale of securities.
Two types of losses can result from churning: (1) loss of commissions, interest and fees paid by the customer; and (2) loss of the value of the account. McGinn v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 736 F.2d 1254, 1257 (8th Cir.1984). Thus, "excessive trading can not only create unjustified commissions, but also cause losses to a customer's account that would *717 not have occurred if the account had not been churned." Id. Plaintiff's churning claim is based on the latter type of loss. Defendants' Midwest and Bridges' motion to dismiss Count 8 will be denied.
IV. Fraud.
Counts 9 through 13 of plaintiff's complaint allege common law fraud. The elements of fraud are:
(1) a false, material representation;
(2) the speaker's knowledge of its falsity or his ignorance of its truth;
(3) the speaker's intent that it be acted upon by the hearer in a manner reasonably contemplated;
(4) the hearer's ignorance of the falsity of the statement;
(5) the hearer's reliance on its truth, and the right to rely thereon; and
(6) proximate injury.
Gast v. Ebert, 739 S.W.2d 545, 547 (Mo. banc 1987); Sofka v. Thal, 662 S.W.2d 502, 506 (Mo. banc 1983). Plaintiff has adequately pleaded these elements.
In addition, defendants contend that plaintiff has failed to plead fraud with particularity as required by Fed.R.Civ.P. 9(b). As previously determined, however, the Court finds that the particularity requirement has been satisfied.
Defendant E.F. Hutton further argues that plaintiff has failed to state a fraud claim against it because E.F. Hutton owed no duty of disclosure to plaintiff. In Missouri, a failure to disclose a material fact is considered to be "an implicit representation of the nonexistence of such fact on which a party may rely, but only if the alleged fraudfeasor has a duty to speak." McMahon v. Meredith Corp., 595 F.2d 433, 438 (8th Cir.1979); Walsh v. Ingersoll-Rand Co., 656 F.2d 367, 369 (8th Cir.1981). The duty to disclose may arise under any of the following conditions: (1) where there is a relationship of confidence between the parties; (2) where there is an inequality of condition between the parties; or (3) where one party has superior knowledge not within the fair and reasonable reach of the other party. Id.
Plaintiff cites Roth v. Roth, 571 S.W.2d 659 (Mo.App.1978), for the proposition that a broker owes a fiduciary duty to his customer. E.F. Hutton does not dispute this principle, but contends that it owed no duty to the Retirement System because the investment advisors (Midwest and Guaranty) determined what stocks to buy or sell. Plaintiff argues that the involvement of an investment advisor does not relieve a broker of its fiduciary obligation. Relying on Rolf v. Blyth Eastman Dillon & Co., 424 F. Supp. 1021 (S.D.N.Y.1977), aff'd in part and remanded on other grounds, 570 F.2d 38 (2d Cir.1978), plaintiff contends that "a broker owes a fiduciary duty to the client even if the client has retained an investment advisor who exercises discretionary power over the account and who simply places orders through the broker." Plaintiff's Opposition to E.F. Hutton & Company, Inc.'s Motion to Dismiss, at 45. Rolf seems to hinge on the level of involvement of the broker in supervising the customer's investments. Here, the Court cannot say as a matter of law that plaintiff's allegations against E.F. Hutton do not rise to the level of involvement required to impose a duty of disclosure that is actionable in a claim for common law fraud. That issue will be left for the trier of fact.
V. Breach of Fiduciary Duty and Conspiracy.
Plaintiff alleges in Counts 14 through 18 that defendants Midwest and Guaranty breached fiduciary duties owed to plaintiff and that various other defendants conspired with Midwest and Guaranty to breach those fiduciary duties. Defendant E.F. Hutton correctly states the elements of a cause of action for civil conspiracy: (1) an agreement or understanding by the defendants to do an unlawful act; (2) the performance of the unlawful act pursuant to the agreement or understanding; and (3) resulting damage to the plaintiff. These elements all have been pleaded in plaintiff's complaint. The motions to dismiss plaintiff's claims for breach of fiduciary duty and conspiracy to breach a fiduciary duty will be denied.
*718 VI. Breach of Contract and Conspiracy.
Similarly, plaintiff alleges in Counts 19 through 21 that defendants Midwest and Bridges breached contracts with the Retirement System and that various other defendants conspired with Midwest and Bridges to breach those contracts. As the elements for conspiracy have already been determined, the Court finds that plaintiff's complaint states claims for breach of contract and conspiracy to breach a contract.
VII. PaineWebber Motion to Strike.
Paragraph 99 of plaintiff's amended complaint alleges:
Defendant Paine Webber's average commission charges to the Retirement System (22 per share) even exceed those charged by Defendant I.M. Simon (averaging 21 per share), whose commissions in a criminal indictment now pending against certain other Defendants in this lawsuit, were described as "excessive" and inflated." [sic] Nonetheless, each confirmation slip the Retirement System received from Paine Webber contained the blatantly false statement, in bold face type, `PREFERENTIAL RATE.' Midwest had no idea how the rates Paine Webber charged were preferential in comparison to anything else.
PaineWebber has moved the Court to strike the words "blatantly false" from ¶ 99. Defendant contends the characterization of its statements as "blatantly false" is inaccurate and "casts a derogatory light on PaineWebber." Memorandum of PaineWebber, Inc. in support of its Motion to Strike and to Dismiss, at 5.
The Court noted in a previous order that motions to strike are viewed with disfavor and will only be sustained when there is a compelling reason to do so. The Court does not believe the allegation that confirmation slips received from defendant contained a "blatantly false" statement is so scandalous that it should be stricken. Accordingly, the motion will be denied.
VII. Motions to Compel.
Several months ago, plaintiff filed two motions to compel that the Court held in abeyance until ruling on the motions to dismiss. On July 20, 1988, plaintiff filed a motion to compel production of documents from defendant E.F. Hutton. On August 5, 1988, plaintiff filed a motion to compel production of documents from defendant PaineWebber. Because those motions concern identical requests, they will be addressed jointly. In addition, defendant PaineWebber recently filed a motion to compel interrogatory answers from plaintiff.
A. Production of Documents from E.F. Hutton and PaineWebber.
Plaintiff's motions to compel concern four requests for production of documents. First, plaintiff seeks documents which evidence bills or statements issued by E.F. Hutton and PaineWebber to Midwest. Second, plaintiff requests documents which evidence commission rates charged by E.F. Hutton and PaineWebber for stock transactions directed to them by Centerre Bank, Boatmen's Bank and Mercantile Bank Trust Departments between January 1, 1983 and December 31, 1985. Third, plaintiff seeks documents which evidence commission rates charged by E.F. Hutton and PaineWebber for stock transactions handled for all public pension trusts in the State of Missouri. Fourth, plaintiff requests documents which evidence commission rates charged by E.F. Hutton and PaineWebber for transactions directed to them by Midwest for clients other than the Retirement System.
Defendants object to the production requests principally on the ground that they are neither relevant nor calculated to lead to the discovery of admissible evidence. Defendants characterize the issue in terms of whether they owed plaintiff a duty to charge certain rates for their services. But the allegations of plaintiff's complaint go much further than defendants would suggest; E.F. Hutton and PaineWebber are also charged with fraud and conspiring with defendant Midwest and others to breach a fiduciary duty and to breach a contract. Thus, the Court's focus is not whether defendants owed plaintiff a duty to charge certain rates, but whether plaintiff's discovery requests are relevant to *719 any of the claims stated in plaintiff's complaint.
As discussed above, a cause of action for civil conspiracy requires that there be an agreement to do an unlawful act, the performance of the unlawful act pursuant to the agreement, and damages to the plaintiff. The relevancy of the requested documents is demonstrated by examining the breach of contract and related conspiracy claims. Plaintiff's contract with Midwest required Midwest to "use reasonable efforts to obtain the most favorable price, execution and other services from" the brokers it utilized. To prove that Midwest conspired with E.F. Hutton and PaineWebber to breach this contract provision, plaintiff must establish that the rates charged by E.F. Hutton and PaineWebber were not the most favorable rates available. There are at least two ways this may be shown: first, by comparing rates charged for Retirement System transactions with those charged on other E.F. Hutton and PaineWebber accounts; and second, by comparing rates charged by E.F. Hutton and PaineWebber with rates charged by other brokers. The Court finds, therefore, that the documents sought by plaintiff are relevant not only to the claims against E.F. Hutton and PaineWebber, but also to plaintiff's claims against other defendants.
Plaintiff's requests seeking commission rates charged on transactions from Centerre, Boatmen's and Mercantile are limited to a three-year period. The other requests should contain a similar restriction. Because the documents relate to claims against Midwest and other defendants, the production of documents should not be limited to the time that E.F. Hutton and PaineWebber acted as brokers on Retirement System accounts, but to the three-year period during which Midwest served as an investment advisor for the Retirement System. These documents should be produced within twenty (20) days from the date of this order.
B. PaineWebber's Motion to Compel Answers to Interrogatories.
In its motion to compel filed December 5, 1988, defendant PaineWebber contends that plaintiff has not responded fully to its interrogatory relating to the identification of expert witnesses. In that interrogatory, defendant requested the substance of the facts and opinions to which plaintiff's experts are expected to testify and the grounds for each opinion. Plaintiff filed its identification of expert witnesses on November 1, 1988, in which plaintiff named four experts and gave a very short synopsis of the nature of each person's testimony. On November 23, 1988, plaintiff supplemented its response by stating in greater detail the basis for each expert's opinion. Finally, on December 16, 1988, plaintiff filed a second supplemental response to the expert witness interrogatory. This final response gives specific details of the experts' testimony. The Court believes plaintiff's responses are adequate. The motion to compel will be denied.
ORDER
In accordance with the Memorandum filed herein today,
IT IS HEREBY ORDERED that the motions of defendants Midwest Investment Advisory Services, Inc., James F. Bridges, Guaranty Trust Co., Angelo J. Parato, James A. Finch, I.M. Simon & Co., Inc., Thomas D. Pixley, E.F. Hutton & Co., Inc., PaineWebber, Inc., Diversified Consultants, Inc., Donald C. Anton and Walter P. Klein to dismiss plaintiff's amended complaint are SUSTAINED in part and DENIED in part.
IT IS FURTHER ORDERED that the motion of defendant Vining-Sparks Securities, Inc. to dismiss plaintiff's amended complaint is DENIED.
IT IS FURTHER ORDERED that Counts 1, 2 and 3 of plaintiff's amended complaint are DISMISSED with prejudice for failure to state a claim upon which relief can be granted.
IT IS FURTHER ORDERED that Count 5 of plaintiff's amended complaint is DISMISSED with prejudice against defendant E.F. Hutton & Co., Inc. for failure to state a claim upon which relief can be granted.
*720 IT IS FURTHER ORDERED that Count 6 of plaintiff's amended complaint is DISMISSED with prejudice against defendant PaineWebber, Inc. for failure to state a claim upon which relief can be granted.
IT IS FURTHER ORDERED that the motion of defendant PaineWebber, Inc. to strike portions of plaintiff's amended complaint is DENIED.
IT IS FURTHER ORDERED that plaintiff's motions to compel production of documents from defendants E.F. Hutton and PaineWebber are SUSTAINED. Defendants shall produce the requested documents within twenty (20) days, but the requests shall be limited to the three-year period between January 1, 1983 through December 31, 1985.
IT IS FINALLY ORDERED that defendant PaineWebber, Inc.'s motion to compel is DENIED.
NOTES
[1] The Court has been unable to find a single case since Superior Oil in which the Eighth Circuit has found a pattern of racketeering activity in a civil RICO claim. The Eighth Circuit held in the following cases that a pattern did not exist: Phenix Fed. Sav. & Loan Assoc. v. Shearson Loeb Rhoades, 856 F.2d 1125 (8th Cir.1988), petition for cert. filed, (Dec. 8, 1988); Terre Du Lac Assoc. v. Terre Du Lac, Inc., 834 F.2d 148 (8th Cir.1987), petition for cert. filed, (Apr. 21, 1988); H.J. Inc. v. Northwestern Bell Tel. Co., 829 F.2d 648 (8th Cir.1987), cert. granted, ___ U.S. ___, 108 S. Ct. 1219, 99 L. Ed. 2d 420 (1988); Allright Mo., Inc. v. Billeter, 829 F.2d 631 (8th Cir.1987); Ornest v. Delaware North Cos., 818 F.2d 651 (8th Cir.1987); Madden v. Gluck, 815 F.2d 1163 (8th Cir.), cert. denied, ___ U.S. ___, 108 S. Ct. 86, 98 L. Ed. 2d 48 (1987); Deviries v. Prudential-Bache Securities, 805 F.2d 326 (8th Cir.1986); Holmberg v. Morrisette, 800 F.2d 205 (8th Cir.1986) cert. denied 481 U.S. 1028, 107 S. Ct. 1953, 95 L. Ed. 2d 526 (1987).
[2] 15 U.S.C. § 78j(b) provides:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
[3] 17 C.F.R. § 240.10b-5 provides:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589060/ | 783 N.W.2d 877 (2010)
2010 WI App 64
Curt ANDERSEN, John Hermanson, Rebecca Leighton Katers, Christine Fossen Rades, Thomas Sydow, National Wildlife Federation and Clean Water Action Council of Northeastern Wisconsin, Inc., Petitioners-Appellants,
v.
DEPARTMENT OF NATURAL RESOURCES, Respondent-Respondent.[]
No. 2008AP3235.
Court of Appeals of Wisconsin.
Submitted on Briefs December 10, 2009.
Opinion Filed April 13, 2010.
*878 On behalf of the petitioners-appellants, the cause was submitted on the briefs of Elizabeth R. Lawton of Midwest Environmental Advocates, Inc., Madison.
On behalf of the respondent-respondent, the cause was submitted on the brief of *879 J.V. Van Hollen, attorney general, and Joanne F. Kloppenburg, assistant attorney general.
Before HOOVER, P.J., PETERSON and BRUNNER, JJ.
¶ 1 BRUNNER, J.
Curt Andersen, John Hermanson, Rebecca Leighton Katers, Christine Fossen Rades, Thomas Sydow, National Wildlife Federation and Clean Water Action Council of Northeastern Wisconsin, Inc. (collectively, the Council) appeal a judgment affirming a Department of Natural Resources (DNR) decision denying a hearing on a majority of their objections to a state-issued wastewater discharge permit. The Council claims the DNR and circuit court (1) incorrectly interpreted WIS. STAT. § 283.63[1] to require that contested issues be raised during the public comment period to preserve them for consideration during later proceedings; and (2) improperly concluded the DNR lacks authority to determine whether the permit violates federal law. We agree with both contentions and remand for a public hearing on the Council's objections, to be conducted in accordance with the procedures set forth in § 283.63.
BACKGROUND
¶ 2 On May 27, 2005, the DNR issued a public notice of its intent to reissue a Wisconsin Pollutant Discharge Elimination System (WPDES) permit to Fort James Operating Company in Green Bay. A copy of the proposed permit accompanied the public notice. In lieu of limiting mercury discharges, the proposed permit required mercury sampling under an alternative limitation plan authorized by WIS. ADMIN. CODE § NR 106.145 (May 2005). The proposed permit also included a phosphorus effluent limitation, compliance with which was to be determined as a rolling twelve-month average. The DNR instructed interested citizens to submit written comments or request a public hearing on the proposed permit within thirty days.[2]
¶ 3 The Council objected to the proposed phosphorus limitations. It claimed the DNR failed to conduct a "reasonable potential analysis" required by federal law to determine the impact of additional phosphorus discharges on water quality.[3] The comment also alleged state rules permitting expression of phosphorus effluent limitations as a rolling twelve-month average violated federal law. Finally, the Council claimed the DNR violated state law by failing to perform an anti-degradation analysis. The Council did not contest the permit terms governing mercury sampling.
¶ 4 On August 24, 2005, the DNR issued a final decision on the permit. It determined none of the Council's objections merited further action.[4] The permit was reissued without substantive changes.
*880 ¶ 5 The Council petitioned the DNR for review pursuant to WIS. STAT. § 283.63(1) and requested a public hearing.[5] The Council renewed its earlier assertions and raised new objections, including that the permit required mercury sampling too infrequently and that a reasonable potential analysis was also required for mercury discharges.
¶ 6 The DNR denied the petition in part on March 16, 2006. Interpreting Village of Thiensville v. DNR, 130 Wis. 2d 276, 386 N.W.2d 519 (Ct.App.1986), the DNR determined "that an issue may be raised at a contested case hearing [only] if it had been aired during the public comment period, even if the ultimate petitioners for the contested case hearing were not involved in the discussions." The DNR denied the Council a hearing on its recent objections to the mercury provisions, citing its failure to receive any comments contesting them. However, the DNR concluded the Council adequately preserved its objections to the phosphorus effluent limitations.
¶ 7 The Council was nonetheless denied a public hearing on many of its challenges to permitted phosphorus discharges. The DNR summarily concluded it lacked authority to resolve any challenges based on federal law. Because all the Council's objections to the phosphorus provisions invoked federal law, the DNR's decision effectively denied the Council a hearing on all claims except its assertion that state law required an anti-degradation analysis for phosphorus.
¶ 8 On April 13, 2006, the Council petitioned for judicial review of the DNR's March 16 decision. In addition, the Council requested a judgment declaring the availability of a WIS. STAT. § 283.63 public hearing is not conditioned upon having raised issues during the public comment period. It also sought judgments declaring the DNR was required to comply with federal regulations and invalidating several state administrative code provisions relating to phosphorus and mercury discharges as conflicting with federal law.
¶ 9 The circuit court dismissed the Council's petition and affirmed the DNR's decision. Relying on both its interpretation of statutory language and the exhaustion of administrative remedies doctrine articulated in Village of Thiensville, the court concluded any contested issues must be raised during the public comment period. The court also rejected the Council's federal law challenges, reasoning the Environmental Protection Agency (EPA) possessed ultimate authority over the state's issuance of permits, did not object to the permit, and could not be joined as a party.
*881 DISCUSSION
¶ 10 We have distilled two primary questions from those presented by the Council. The first is whether the DNR's failure to receive submissions disputing the permit's mercury monitoring requirements bars the Council from challenging them in a WIS. STAT. § 283.63 public hearing. The second is whether the DNR correctly limited the scope of the hearing to state law challenges. This question requires us to review the DNR's conclusion that it lacked authority to determine whether state law complies with federal environmental legislation and rules. We consider each issue separately and resolve the remaining contested issues in the final section of this opinion.
1. Public Comment as a Prerequisite to a WIS. STAT. § 283.63 Hearing
¶ 11 The circuit court offered two alternative rationales for its conclusion that the allegations contained in a WIS. STAT. § 283.63 petition must first be raised during the public comment period. First, the court emphasized statutory language directing the DNR to "consider anew all matters concerning [the challenged administrative action]." See WIS. STAT. § 283.63(1)(b). Statutory interpretation is a matter of law we review de novo, regardless whether the analysis was conducted by the circuit court, see State v. Long, 2009 WI 36, ¶ 20, 317 Wis. 2d 92, 765 N.W.2d 557, or an administrative agency, see WIS. STAT. § 227.57(5). The court also applied the exhaustion of administrative remedies doctrine as described in Village of Thiensville. Although the standard of review in deciding whether the exhaustion doctrine applies in a particular case is a murky matter, see Metz v. Veterinary Exam'g Bd., 2007 WI App 220, ¶¶ 16-18, 305 Wis. 2d 788, 741 N.W.2d 244, we conduct an independent analysis because this case involves application of well-established exhaustion principles to undisputed facts.
¶ 12 WISCONSIN STAT. § 283.63 provides individuals aggrieved by a wastewater discharge permit one of the few opportunities to challenge the permit after its issuance.[6] Within sixty days of the DNR's action on a permit, "5 or more persons may secure a review by the department of any permit denial, modification, suspension or revocation, [or] the reasonableness of or necessity for any term or condition of any issued, reissued or modified permit...." WIS. STAT. § 283.63(1). Upon receipt of a petition, the DNR must schedule a public hearing at which "the petitioner shall present evidence to the department which is in support of the allegation made in the petition. All interested persons ... shall be afforded an opportunity to present facts, views or arguments relevant to the issues raised by the petitioners, and cross-examination shall be allowed." WIS. STAT. § 283.63(1)(b). The DNR must "consider anew all matters concerning the permit denial, modification, suspension or revocation." Id.
¶ 13 The DNR suggests the words "review" and "anew" plainly evince a legislative intent to limit the hearing to matters previously raised but not yet resolved to a commenter's satisfaction through the informal public comment process. The DNR places more weight on these words than they can reasonably bear. "Review," as *882 used in WIS. STAT. § 283.63, does not refer to an issue raised during the public comment period, but to a prior action taken by the DNRin this case the reissuance of Fort James' permit.[7] "Review" does not limit the § 283.63 hearing to matters previously raised.
¶ 14 Nor does the legislature's use of the word "anew" manifest, as the DNR claims, an unambiguous legislative intent to restrict the scope of a WIS. STAT. § 283.63 hearing. As the Council cogently observes, the legislature replaced the phrase "de novo" with the term "anew" when removing Latin terms from the statutes. 1979 Wis. Laws, ch. 110, Introduction and § 27. "Anew" therefore refers to the standard of review by which the DNR must analyze its prior action concerning a permit denial, modification, suspension or revocation. See WIS. STAT. § 283.63(1)(b). "Anew" does not suggest a limitation upon the DNR's ability to review matters not raised before a final permit issues. Consequently, nothing in § 283.63 expressly limits the hearing to matters considered during public comment.
¶ 15 When interpreting a statute, the context in which it appears is important. State ex rel. Kalal v. Circuit Court for Dane County, 2004 WI 58, ¶ 46, 271 Wis. 2d 633, 681 N.W.2d 110. The legislature's desire to achieve significant public participation in the permit process is evident throughout WIS. STAT. ch. 283. WISCONSIN STAT. § 283.39 requires the DNR to give public notice of "each complete application for a permit." Moreover, "[t]he department shall provide a period of not less than 30 days following the date of the public notice during which time interested persons may submit their written views" on a permit application. WIS. STAT. § 283.39(2). WISCONSIN STAT. § 283.43 mandates public access to forms, fact sheets, draft permits and other public documents, and WIS. STAT. § 283.49 allows any interested person to request a public hearing on the application. To the extent it would penalize members of the public for their failure to participate earlier in the process, the DNR's suggestion that the permit scheme contemplates a progressive narrowing of issues is inconsistent with the legislature's goal of encouraging public involvement.
¶ 16 The DNR has implicitly recognized this legislative goal in regulations facilitating public participation. Public notice of a completed permit application "is intended to inform interested and potentially interested members of the public of a completed application, [the DNR's] tentative determination to issue or deny the permit... and the public's right to obtain additional information, submit written comments, or request a public hearing." WIS. ADMIN. CODE § NR 203.02(1) (Nov. 1996). Public informational hearings are intended "to give all interested persons an additional opportunity to make a statement with respect to a proposed permit ... and to have such statement considered in the final determination." WIS. ADMIN. CODE § NR 203.04 (Nov. 1996). Even the DNR's statement of intent with respect to WIS. STAT. § 283.63 hearings reflects a desire *883 for public involvement: "The purpose of this subchapter is to provide adequate procedures to insure as broad a degree of public participation in administrative adjudication of WPDES permits and their conditions as is consistent with procedural due process to the parties involved in the proceeding." WIS. ADMIN. CODE § NR 203.14 (Nov. 1996). These provisions demonstrate an intent to encourage public participation, not to progressively limit it.
¶ 17 The DNR argues our decision in Village of Thiensville requires that we accept its interpretation of WIS. STAT. § 283.63. In that case, we considered the scope of review in a § 283.63 hearing where the DNR modified portions of a permit based on events occurring after it was issued. Village of Thiensville, 130 Wis.2d at 278, 386 N.W.2d 519. Although the opportunity to timely challenge the unmodified portions of the permit had long passed, the Village of Thiensville claimed § 283.63's predecessor statute, WIS. STAT. § 147.20 (1985-86), allowed review of the original permit as a whole, not just its modifications. Id. at 278-79, 386 N.W.2d 519. A hearing examiner from the Department of Administration's Division of Hearings and Appeals concluded only review of the modified permit terms was appropriate and found them reasonable. Id. The issue before this court was whether the hearing examiner erred by refusing to review unaltered terms of the original permit. Id. at 279, 386 N.W.2d 519.
¶ 18 In Village of Thiensville, we held Wis. STAT. § 147.20(1) (1985-86), barred review and concluded the statute did not "[open] the door to review of unmodified, as well as modified, portions of a modified permit." Id. We rejected the Village's argument that "a timely review of a modified permit reopens for consideration those unmodified portions of the permit upon which the time for review has passed." See id. While we offered several reasons for this conclusion, the DNR argues only our discussion of the exhaustion of administrative remedies doctrine controls here.[8]
¶ 19 "The exhaustion doctrine is typically applied when a party seeks judicial intervention before completing all the steps in the administrative process." Metz, 305 Wis. 2d 788, ¶ 13, 741 N.W.2d 244. It is a doctrine of judicial restraint, drawn by the legislature and the courts, setting the boundary line between administrative and judicial spheres of activity. Nodell Invest. Corp. v. City of Glendale, 78 Wis. 2d 416, 424, 254 N.W.2d 310 (1977). Although classic application of the doctrine occurs when a party begins judicial proceedings before completing previously initiated administrative action, see Metz, 305 Wis. 2d 788, ¶ 12, 741 N.W.2d 244, in Village of Thiensville we extended the doctrine to administrative review of an agency decision:
Functionally, [Thiensville's interpretation] would result in a hearing examiner from the Department of Administration reviewing permit terms which might well be years old and which might never have been timely challenged at the basic DNR level.... [I]t is more appropriate for that initial reconsideration to be made by the DNR, rather than by the Division of Hearings and Appeals.
....
We are persuaded that the [administrative exhaustion] doctrine is as apt when applied to different administrative agencies as it is in its conventional usagean agency versus a reviewing court. We *884 believe the spirit of the exhaustion of remedies doctrine is served by allowing the agency with the expertise and experience to retain the right of first review.
Village of Thiensville, 130 Wis.2d at 281-82, 386 N.W.2d 519 (footnote omitted).
¶ 20 We do not read Village of Thiensville as controlling. In that case, the Village attempted to use WIS. STAT. § 283.63 to obtain review of permit terms for which the sixty-day period had long passed. Here, the Council sought review within the sixty-day period.[9] Thus, the Council had no prior opportunity to petition for review of permit terms it considered unreasonable. The DNR apparently believes the Council's prior opportunity came during the public comment period, but nothing in our discussion in Village of Thiensville supports this position. In fact, Village of Thiensville does not mention the public comment period. As a result, the facts of this case do not implicate our concern in Village of Thiensville that the hearing examiner will be "reviewing permit terms which might well be years old and which might never have been timely challenged at the basic DNR level." See id. at 281, 386 N.W.2d 519.
¶ 21 That the DNR may initially review a petitioner's claims further undermines its assertion of the administrative exhaustion doctrine. WISCONSIN STAT. § 283.63 identifies the DNR as the reviewing department, not the Division of Hearings and Appeals. The administrator of the division must assign a hearing examiner only if the DNR secretary does not conduct the hearing. WIS. STAT. § 227.43(1)(b). Moreover, the DNR secretary may direct an administrative law judge to conduct the hearing, but certify the record to a DNR official for decision. WIS. STAT. § 227.46(3)(b); WIS. ADMIN. CODE § NR 2.155(2)(a) (Sept. 2004). Because the DNR may initially adjudicate a petitioner's claims, our concern in Village of Thiensvillethat the agency with the expertise and experience should retain the right of first reviewappears unfounded outside the specific context of that case.[10]
¶ 22 Neither WIS. STAT. § 283.63's language nor our decision in Village of Thiensville supports the DNR's position. The availability of a § 283.63 hearing is not dependent on whether the DNR has received notice of the petitioner's claims during the public comment period. The DNR and circuit court improperly denied the Council an opportunity to demonstrate the unreasonableness of the permit terms governing mercury discharges.
2. DNR's Authority to Determine Whether Proposed Permit Terms Comply with Federal Law
¶ 23 The scope of review in an administrative appeal is identical to that in proceedings before a circuit court. City of La Crosse v. DNR, 120 Wis. 2d 168, 179, 353 N.W.2d 68 (Ct.App.1984). The Council sought judicial review of the DNR's conclusion that it had no authority to determine whether proposed permit terms, and the regulations upon which they are based, comply with federal law. "The extent of the DNR's statutory authority is a question of law." Rusk County Citizen Action Group, Inc. v. DNR, 203 Wis. 2d 1, 6, 552 *885 N.W.2d 110 (Ct.App.1996). We may substitute our own judgment for that of the agency. WIS. STAT. § 227.57(5). However, our review is limited to the record before the agency. WIS. STAT. § 227.57(1). In addition, we afford due weight to the "experience, technical competence, and specialized knowledge of the [DNR], as well as discretionary authority conferred upon it." WIS. STAT. § 227.57(10).
¶ 24 The DNR claims it lacks authority to determine whether permit conditions established by state regulations comply with federal law. The DNR provided scant justification for its position in its March 16, 2006, decision letter rejecting the Council's hearing petition:
The sole authority for the [DNR] to administer the WPDES permit program appears in WIS. STAT. chs. 281 and 283, and Wisconsin Administrative Codes adopted pursuant to those authorities. To the extent that a challenge to a WPDES permit term or condition is made pursuant to WIS. STAT. § 283.63, the challenge must be based on Wisconsin law.
The DNR acknowledged in its decision letter that WIS. STAT. ch. 283 directs the DNR to conduct certain activities in accordance with federal law. The DNR makes the same concession on appeal, but argues only the EPA may determine whether permit provisions comply with federal requirements. The DNR's position requires us to analyze the precise balance between federal and state authority struck by federal water pollution legislation.
¶ 25 The Federal Water Pollution Control Act Amendments of 1972, "joined the Environmental Protection Agency and the fifty states in a delicate partnership charged with controlling and eventually eliminating water pollution throughout the United States." Save the Bay, Inc. v. Administrator of EPA, 556 F.2d 1282, 1284 (5th Cir.1977). The Amendments prohibited all pollutant discharges except those made pursuant to permits obtained from the EPA under a National Pollutant Discharge Elimination System (NPDES). Federal Water Pollution Control Act Amendments of 1972, Pub.L. No. 92-500, Sec. 2, §§ 301(a), 402(a)(1), 86 Stat. 844, 880 (codified as amended at 33 U.S.C. §§ 1311(a), 1342(a)(1)). As an initial matter, the EPA is vested with discretion to issue permits. Section 402(a)(1). However, the Amendments also reserved to states the right to establish their own permit program by submitting a proposal to the EPA. Section 402(b). "The state must demonstrate that it will apply the effluent limitations and the Amendments' other requirements in the permits it grants and that it will monitor and enforce the terms of those permits." Save the Bay, Inc., 556 F.2d at 1285. Wisconsin obtained EPA approval for its permit program in 1974 and the DNR has administered the program since that time.
¶ 26 The EPA's involvement in the permit process does not end when its permitting authority is delegated to the state. Section 402(c)(1). The state must submit to the EPA a copy of each application for a state permit. Section 402(d)(1). The EPA then has ninety days to object to the state permit, and may exercise its veto "on the grounds that [the proposed permit terms] are `outside the guidelines and requirements' of the Amendments." Save the Bay, Inc., 556 F.2d at 1294. Despite the EPA's continuing supervisory role over state permit programs, "[p]ermits granted under state NPDES programs are state-issued permits, not EPA-issued." Id. at 1291.
¶ 27 The legislative history of the Amendments makes clear Congress envisioned the EPA would use its veto power judiciously. As the United States Court of Appeals for the Fifth Circuit noted in Save *886 the Bay, Inc., the public works committee expected that "after delegation, the Administrator will withhold his review of proposed permits which are not of major significance." Id. at 1286 (quoting S.REP. NO. 92-414 (1971), as reprinted in 1972 U.S.C.C.A.N. 3668, 3737). The conference committee on the legislation likewise believed the EPA would "not take such action except upon a clear showing of failure on the part of the State to follow the guidelines or otherwise to comply with the law." Id. at 1287 (quoting 118 CONG. REC. 33750 (1972)). As the Fifth Circuit put it, the legislative history suggests "not every permit out of compliance with the guidelines need be vetoed." Id. at 1294. The broad discretion given the EPA led the court to hold the "EPA's decision not to veto a particular permit takes on a breadth that in our judgment renders ... that decision unreviewable in the federal courts." Id. at 1295.
¶ 28 The DNR suggests EPA's failure to object is outcome determinative, at least with respect to the Council's federal law claims. In the DNR's view, "Any permit challenges must be based on state law only, because neither DNR nor the Division of Hearings and Appeals has the authority to overrule the EPA's prior determination that this permit's provisions are not objectionable under federal law." As shown, the EPA's failure to object does not mean it has found no reason to do so. While the lack of objection may indicate the EPA has found no violation of federal law, it may also mean the EPA has found a violation it does not deem substantial enough to warrant a veto, or it may mean the EPA has abdicated its oversight duties altogether. See Federal Water Pollution Control Act Amendments of 1972, § 402(d)(3); Mianus River Pres. Comm. v. Administrator, E.P.A., 541 F.2d 899 (2d Cir.1976). The state's theory would allow the DNR to promulgate rules and issue permits violating federal law as long as it can successfully skirt the EPA's discretionary review. We reject this contention.
¶ 29 "An administrative agency has only those powers which are expressly conferred or can be fairly implied from the statutes under which it operates." Oneida County v. Converse, 180 Wis. 2d 120, 125, 508 N.W.2d 416 (1993). The DNR has been granted broad authority to manage this state's waters, including an obligation to "formulate plans and programs for the prevention and abatement of water pollution and for the maintenance and improvement of water quality." WIS. STAT. § 281.12(1). The stated purpose of WIS. STAT. ch. 283 is to "grant to the department of natural resources all authority necessary to establish, administer and maintain a state pollutant discharge elimination system ... consistent with all the requirements of the federal water pollution control act amendments of 1972...." WIS. STAT. § 283.001(2). In addition, the legislature has directed that all rules promulgated by the DNR under ch. 283 "shall comply with and not exceed the requirements of the federal water pollution control act... and regulations adopted under that act." WIS. STAT. § 283.11(2). The DNR may issue a discharge permit only if "such discharges will meet ... [a]ny more stringent limitations ... [n]ecessary to comply with any applicable federal law or regulation[.]" WIS. STAT. § 283.31(3)(d)2. Collectively, these statutes require the DNR to assess whether proposed permit provisions violate federal law. A contrary interpretation would allow the DNR to determine whether rules or permit terms comply with federal law at the time of their creation, but not when challenged. We decline to interpret the statutes in such an illogical fashion.
¶ 30 That the Council's desired review will occur in a state administrative hearing under WIS. STAT. ch. 283 is irrelevant. As *887 the DNR concedes, nothing in WIS. STAT. § 283.63 restricts the scope of the hearing to challenges grounded in state law. The DNR argues, however, that the statutory scheme leading up to this section reserves to the EPA the exclusive right to review a permit for consistency with federal law. The statutory scheme merely requires the DNR to provide the EPA with notice of a proposed permit and prohibits the DNR from issuing any permit the EPA has objected to. See WIS. STAT. §§ 283.41(1), (2), 283.31(2)(c). These statutory notice-and-approval sections do no more than that required by federal law and in no way defer to the EPA the exclusive right to determine state compliance with federal law.
¶ 31 Our conclusion is consistent with case law suggesting state administrative agencies and courts may determine the requirements of, and state compliance with, federal law. In Northern States Power Co. v. Bugher, 189 Wis. 2d 541, 525 N.W.2d 723 (1995), our supreme court held claim preclusion barred the plaintiff's federal claims in a second suit because they could have been, but were not, raised during state administrative proceedings. The court reached the same conclusion in Sewerage Commission of Milwaukee v. DNR, 102 Wis. 2d 613, 627-28, 307 N.W.2d 189 (1981), when noting that, had the petitioners timely challenged their permit, the DNR could have determined whether it complied with federal requirements.[11] Finally, the court has acknowledged that state "agencies would become ineffectual if they lost their authority to review a case every time a [federal] constitutional claim was asserted." Hogan v. Musolf, 163 Wis. 2d 1, 21-22, 471 N.W.2d 216 (1991). In Hogan, the court rejected the plaintiff's attempt to escape application of the administrative exhaustion doctrine, concluding "the Department [of Revenue] and the [Tax Appeals] Commission have the authority to determine whether the continued application of the Wisconsin taxing scheme also violates federal law or the constitution." Id. at 21, 471 N.W.2d 216.
¶ 32 The United States Court of Appeals for the Seventh Circuit has also suggested both the DNR and state courts possess authority to measure state regulatory action against the requirements of federal law. In Froebel v. Meyer, 217 F.3d 928, 930-32 (7th Cir.2000), a state resident brought suit against the DNR and Waukesha County in federal court, alleging the DNR's removal of a dam violated state environmental laws. The Seventh Circuit concluded the plaintiff's claims against the DNR were precluded because he previously challenged the dam removal in a series of state proceedings culminating in this court's decision in Froebel v. DNR, 217 Wis. 2d 652, 579 N.W.2d 774 (Ct.App.1998). The Seventh Circuit's analysis included its observation that had the plaintiff "asked the Wisconsin administrative or judicial tribunals to entertain his [federal Clean Water Act] claims, ... they could have done so." Froebel, 217 F.3d at 935. In addition, the court expressed "no doubt that Wisconsin cannot give discretion to its administrative agencies to violate federal law, since such a statute would run contrary to the Supremacy Clause." Id. at 936. Thus, the court "presume[d] that Wisconsin officials and courts would have faithfully applied federal standards if [the plaintiff] had given them the chance." Id.
*888 ¶ 33 We conclude the DNR possesses authority to determine whether provisions within a state-issued wastewater discharge permit comply with federal law. Contrary to the DNR's claims, no authority we have reviewed reserves to the EPA the exclusive right to determine state compliance with federal environmental legislation or rules. Our legislature has directed that all rules promulgated, and permits issued, comply with federal law, and the DNR acts within its statutory authority when determining whether they do so.
3. Remaining Contested Issues
¶ 34 Our formulation of the critical issues has left unresolved several arguments raised by the Council, which we now address.
¶ 35 The Council argues the circuit court erroneously dismissed its declaratory judgment action for absence of a necessary party under WIS. STAT. § 803.03. According to the Council's description of its request, it merely sought a declaration that the "DNR must impose effluent limits and conditions in all WPDES permits that comply with federal law." The circuit court properly dismissed the action. There is no dispute state law already requires the declaration sought by the Council. See WIS. STAT. § 283.31(3)(d)2. (authorizing the DNR to issue a discharge permit upon condition that any discharges "comply with any applicable federal law or regulation"). "[D]eclaratory relief is appropriate wherever it will serve a useful purpose...." Lister v. Board of Regents, 72 Wis. 2d 282, 307, 240 N.W.2d 610 (1976). We discern no useful purpose the Council's desired declaratory judgment would serve. We therefore affirm the dismissal, albeit on other grounds. See State v. King, 120 Wis. 2d 285, 292, 354 N.W.2d 742 (Ct.App.1984).
¶ 36 We need not address whether the circuit court properly dismissed the Council's declaratory judgment action challenging the validity of WIS. ADMIN. CODE §§ NR 106.145 and 217.04(1)(a)2. (May 2005). The Council has supplied no argument on appeal regarding the challenged rules' validity, and notes in its reply brief that these declaratory judgment requests "were not pursued and not before the court when it rendered its decision." See M.C.I., Inc. v. Elbin, 146 Wis. 2d 239, 244-45, 430 N.W.2d 366 (Ct.App.1988) (we need not consider undeveloped arguments); Evjen v. Evjen, 171 Wis. 2d 677, 688, 492 N.W.2d 361 (Ct.App.1992) (issues not properly raised are waived on appeal).
¶ 37 We decline to take judicial notice of a February 17, 2009, letter in which the EPA allegedly disapproved portions of WIS. ADMIN. CODE § NR 106.145 (May 2005), as inconsistent with federal law. We agree with the DNR that the letter would have no bearing on whether the DNR properly denied the Council's request for a hearing under state law. The letter would therefore be irrelevant to the resolution of this appeal.
¶ 38 Finally, the Council claims any requirement that it submit objections during public comment to preserve review is an invalid unpromulgated rule for which the DNR failed to follow rulemaking procedures. Because the Council has not responded to the DNR's argument to the contrary, we deem the matter conceded. See Charolais Breeding Ranches, Ltd. v. FPC Secs. Corp., 90 Wis. 2d 97, 109, 279 N.W.2d 493 (Ct.App.1979).
CONCLUSION
¶ 39 We conclude the circuit court incorrectly interpreted WIS. STAT. § 283.63 and hold that the DNR must conduct a public hearing regardless of whether it received comments on the contested matter prior to a final decision on the permit application. We also conclude the DNR has authority to determine whether discharge permit *889 provisions authorized by state regulations comply with federal law. We therefore reverse the circuit court and remand for entry of an order requiring the DNR to conduct a public hearing in accordance with the procedure set out in § 283.63.
Judgment reversed and cause remanded with directions.
NOTES
[] Petition for review filed.
[1] All references to the Wisconsin Statutes are to the 2007-08 version unless otherwise noted.
[2] WISCONSIN STAT. § 283.39(2) mandates the DNR "provide a period of not less than 30 days following the date of the public notice during which time interested persons may submit their written views on the tentative determinations with respect to the permit application." WISCONSIN STAT. § 283.49(1)(a) requires the DNR to "provide an opportunity for . . . any interested . . . person or group of persons to request a public hearing with respect to a permit application."
[3] According to the Council, the proposed permit increased the total volume of wastewater discharged by 19%. The Council noted, "While the 1.0 mg/l effluent limitation for phosphorus has not changed, an increase in volume without a corresponding decrease in concentration results in an increase in the pollutant load."
[4] The DNR agreed the "mass loading of phosphorus discharged to the Fox River increased from an average of 42.6 pounds per day to 69.9 [pounds] per day," but concluded a reasonable potential analysiswhich would determine whether phosphorus discharges exceeded water quality standardscould not be performed "due to the lack of water quality criteria for phosphorus." The DNR also rejected the Council's contention that federal law required expression of phosphorus limits as average monthly and maximum daily values, concluding that doing so would be impracticable because state law did not require it. Finally, the DNR concluded its obligation to conduct an anti-degradation analysis was not triggered because the increased phosphorus discharge did not exceed permit limits.
[5] WISCONSIN STAT. § 283.63(1) allows
[a]ny 5 or more persons [to] secure a review by [the DNR] of any permit denial, modification, suspension or revocation, the reasonableness of or necessity for any term or condition of any issued, reissued or modified permit, any proposed thermal effluent limitation established under s. 283.17 or any water quality based effluent limitation established under s. 283.13(5).
After receiving a verified petition, § 283.63(1)(b) obligates the DNR to hold a public hearing at which the petitioner may present evidence in support of his or her petition. The DNR must issue its decision within ninety days after the close of the hearing. WIS. STAT. § 283.63(1)(d).
[6] WISCONSIN STAT. § 283.53(2)(b) allows the DNR, on its own initiative, to modify, suspend or revoke a permit whenever it finds cause based on any information available to it. While we have recognized this statute may provide a remedy for those aggrieved by a DNR permit decision but who fail, for whatever reason, to object within the times set forth in WIS. STAT. ch. 283, aggrieved parties have no right to reconsideration under this paragraph. See Village of Thiensville v. DNR, 130 Wis. 2d 276, 280-81, 386 N.W.2d 519 (Ct.App.1986).
[7] The DNR relies on our statement in Village of Thiensville that, by its use of the word "review," the legislature "envision[ed] a process repetitive of an earlier process, rather than a process which breaks new ground in terms of its scope." Village of Thiensville, 130 Wis.2d at 283, 386 N.W.2d 519. The DNR fails to note the context of this statement, which was in response to the Village's argument that the hearing examiner erred in refusing to examine events occurring after the permit modification. Id. at 282-83, 386 N.W.2d 519. We merely interpreted the statute to require that the validity of the DNR's permitting action, or the reasonableness of a permit provision, must be assessed based upon information or events available to the DNR at the time of its decision.
[8] Our other rationales concerned the fact that the Village's interpretation would render certain statutory language superfluous and the existence of the DNR's discretionary review authority under WIS. STAT. § 283.53(2)(b). Village of Thiensville, 130 Wis.2d at 280-81, 386 N.W.2d 519.
[9] The permit reissued on August 30, 2005. The Council filed its petition on October 28, 2005.
[10] The relationship between the DNR and the division of hearings and appeals is more nuanced than Village of Thiensville suggests. An agency may contract with the division to provide hearing services. WIS. STAT. § 227.43(1m). Where an administrative law judge presides over a hearing, the judges decision is, by rule, the final decision of the DNR, unless the DNR petitions for judicial review. WIS. ADMIN. CODE § NR 2.155(1) (Sept. 2004). The DNR may nonetheless review the administrative law judges decision upon petition by an adversely affected party. WIS. ADMIN. CODE § NR 2.20(1) (Sept. 2004).
[11] The DNR makes much of a stipulation in Sewerage Commission of Milwaukee v. DNR, 102 Wis. 2d 613, 627-28, 307 N.W.2d 189 (1981), that authorized the state courts to determine the scope of the DNR's authority. The DNR is unclear what significance the absence of such a stipulation has in this case. The stipulation in Sewerage Commission of Milwaukee said nothing about the authority of the DNR to determine state compliance with federal law; it merely determined the forum in which that dispute would be litigated. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589049/ | 706 F. Supp. 1309 (1989)
Donald NICHOLS, et al.
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH, et al.
No. 3-86-0486.
United States District Court, M.D. Tennessee, Nashville Division.
January 19, 1989.
*1310 *1311 *1312 Nader Baydoun, Harris & Baydoun, and Kenneth Jones, O'Hare, Sherrard & Roe, Nashville, Tenn., for plaintiffs.
Anthony Iannacio, Baker Worthington Crossley Stansberry Woolf, Nashville, Tenn., A. Inge Selden, Maynard, Cooper, Frierson & Gale, P.C., Birmingham, Ala., for Merrill Lynch.
Leo Bearman, Jr., Roy Keathley, Heiskell, Donelson, Bearman, Adams, Williams & Kirsch, Memphis, Tenn., for Merrill Lynch, Sandestin Beach Hotel, Frank Flautt, Jr., William Mann, Wilton Hill, Sandestin Innkeepers, Fred and William Alias, and Robert Kamm.
William R. Willis, Jr., Willis & Knight, Nashville, Tenn., for Merrill Lynch, Sandestin Beach Hotel, Frank Flautt, Jr., William Mann and Wilton Hill.
Byron R. Trauger, Paul C. Ney, Jr., Doramus, Gideon & Trauger, Nashville, Tenn., Robert I. Chaskes, Frank, Bernstein, Conaway & Goldman, Tysons Corner, Va., for Dominion Federal Sav. & Loan Ass'n.
Thomas H. Peebles, III, Nashville, Tenn., Michael Edwards, Patricia A. McGee, Balch & Bingham, Birmingham, Ala., for Laventhol & Horwath.
Robert A. Heeken, Jacksonville, Fla., Robert Kamm, Memphis, Tenn., for Peter Bos.
Perry Allen Craft, Steven A. Hart, Asst. Atty. Gen., Nashville, Tenn., for amicus curiae the State of Tenn.
Winston S. Evans, Evans, Jones & Reynolds, Nashville, Tenn., for defendants.
MEMORANDUM
HIGGINS, District Judge.
This is an action alleging fraud and other unlawful acts incident to the sale of securities in violation of federal securities laws, state blue-sky laws, the Racketeer Influence and Corrupt Organization Act (RICO), the Tennessee Consumer Protection Act *1313 (TCPA), and various theories of common law liability discussed in more detail below. Plaintiff Donald Nichols and 112 others filed their original complaint in this Court on May 30, 1986.[1] The complaint names fourteen persons as defendants in this action. Those defendants which have filed motions presently under review are identified in the complaint as follows:
Defendant Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) is a broker-dealer and a Delaware corporation with its principal place of business in New York, New York. Pursuant to an agreement with the Sandestin Beach Hotel, Merrill Lynch acted as the exclusive selling agent for the sale of hotel interests to all investors. Merrill Lynch substantially participated in preparing the Private Placement Memorandum (PPM) and the sales presentations made to the plaintiffs to induce them to purchase hotel interests.
Defendant Sandestin Beach Hotel (Sandestin) is a Florida corporation with its principal business office in Destin, Florida. Sandestin was incorporated for the express purpose of developing the resort hotel that became the focus of the litigation. It was to be responsible for setting up the hotel on a condominium basis and for all aspects of the resort's development, construction, and financing.
Defendant Dominion Federal Savings & Loan Association (Dominion) is a savings and loan association with its principal place of business in Tysons Corner, Virginia. Before any plaintiffs had bought their hotel interests, Dominion, Sandestin and Merrill Lynch agreed that Dominion would lend to people seeking money to finance the purchase of their hotel interests.
Defendant Laventhol & Horwath (Laventhol) is a partnership of certified public accountants having its principal place of business in Tampa, Florida. Before either the sale of hotel interests to the plaintiffs or the preparation of the PPM, Sandestin or its affiliates retained Laventhol to prepare financial projections and a market study to determine whether it was feasible to build the hotel and finance it through the sale of hotel interests. Laventhol played a significant role in preparing the financial projections set forth in the PPM.
Defendant Morton Olshan is a resident of New York. Since at least February 1983, he has been Vice President, a director and shareholder of Sandestin. The plaintiffs allege that Mr. Olshan owns more shares of Sandestin stock than any other shareholder. He provided funds to Sandestin to initiate the development of the hotel, thereby making it possible for Sandestin and its affiliates to proceed with the project.
In addition to these defendants who have filed motions to dismiss, plaintiffs have filed a motion to dismiss the counterclaim of certain individual defendants. These defendants/counterplaintiffs are:
1. Frank L. Flautt, Jr., a resident of Memphis, Tennessee, and since at least February 1983, he has served as President, a director and shareholder of both Sandestin and Sandcastle.[2] Mr. Flautt is alleged to be the individual chiefly responsible for developing the hotel, including formulating the financing plan, offering and selling hotel interests, and managing the entire development project.
2. William Jeffries Mann, a resident of Memphis, Tennessee. Since at least February 1983, he has been Vice President, a director and a shareholder of Sandestin.
3. Wilton D. Hill, a resident of Memphis, Tennessee. Since at least February *1314 1983, he has been the Secretary/Treasurer, a director and a shareholder of Sandestin.
4. Fred V. Alias, a resident of Destin, Florida. Since at least February 1983, he has been a shareholder, an officer and a director of Sandcastle and Sandestin Beach Resort, Inc., both of which corporations are affiliated with Sandestin.
5. William Alias, Jr., a resident of Destin, Florida. Since at least February 1983, he has been a shareholder, an officer and a director of Sandcastle and Sandestin Beach Resort, Inc.
6. Robert Kamm, a resident of Memphis, Tennessee. Mr. Kamm is Vice President of Sandcastle and is also the Vice President of Financial for Flautt Properties, formerly Flautt and Mann Properties, a corporation controlled by defendant Frank Flautt and operated for the purpose of developing and managing real property.
Disparate as these defendants are, they all had one thing in common. All were involved in some way in the development and promotion of a Gulf Coast resort in Destin, Florida. The resort was called the Sandestin Beach Hilton Hotel (the Hotel). The Hotel was to be a sizable affair, with fifteen stories and four hundred rooms. Like many such projects in recent years, it was planned to be a condominium complex. Each buyer acquired fee simple title to his own room and received an undivided interest in the resort's common areas. The plaintiffs allege that they bought such interests in the Hotel in December 1984.
The plaintiffs allege that they were induced to buy rooms by the defendants' attractive Private Placement Memorandum, which described the resort and its potential in somewhat rosy terms. The PPM had three parts: (1) the "legal document," a formal disclosure document that purports to contain the disclosures required by the securities laws; (2) a collection of exhibits to the legal document; and (3) a brochure containing photographs, drawings, and narrative descriptions of various aspects of the Hotel.
The alleged deficiencies generally concern (1) statements about the position, orientation, and location of the Hotel on the beach and the view from each hotel room; (2) statements concerning the profits realized by the developers from the sale of hotel interests; (3) financial projections concerning the expected profitability of the Hotel; (4) the adequacy of the Hotel's structural facilities; and (5) miscellaneous internal inconsistencies and inadequacies in the sales presentation materials. In addition to these specific inadequacies of the PPM, plaintiffs also allege oral misrepresentations made to them concerning the same subject matter.
The Honorable Thomas Wiseman, Jr., United States District Judge for the Middle District of Tennessee, recused himself in this action on August 6, 1986. The action was then transferred to this Court and on March 12, 1987, this Court referred the following motions to the Honorable Kent Sandidge III, United States Magistrate: (1) motion (filed March 6, 1987) of defendant Morton Olshan to dismiss; (2) motion (filed March 6, 1987) of defendant Dominion to dismiss or alternatively for summary judgment; (3) motion (filed March 6, 1987) of defendant Michael D. Williams to dismiss; (4) motion (filed March 6, 1987) of defendant Laventhol to dismiss; (5) motion (filed March 6, 1987) of defendant Merrill Lynch to dismiss or alternatively for summary judgment; and (6) motion (filed March 6, 1987) of defendants Sandestin Beach Hotel, Inc., Sandcastle, Frank Flautt, Jr., William Jeffries Mann, Milton D. Hill, Fred V. Alias, William Alias and Robert Kamm for summary judgment.[3]
A hearing on the motions was held before the Magistrate on March 3, 1988. On *1315 July 1, 1988, the Magistrate filed his Report and Recommendation, in which he concluded that
(1) all of the plaintiffs' complaints against all defendants should be dismissed under Rule 12(b)(6), Fed.R.Civ.P., insofar as they were based on (a) Section 17(a) of the Securities Act of 1933, (b) the Tennessee Consumer Protection Act, and/or (c) RICO;
(2) the complaint against Merrill Lynch for vicarious liability based on the conduct of Michael Williams should be dismissed;
(3) the claims against defendant Morton Olshan for breach of contract and breach of warranty should be dismissed;
(4) the defendants' counterclaim against the plaintiffs should be dismissed; and
(5) in all other respects, the motions to dismiss should be reserved pending ninety days of discovery and the filing of an amended complaint.
So the matter stands now. This Court has jurisdiction over the controversy by virtue of 28 U.S.C. § 1331, 15 U.S.C. §§ 77v and 78aa, and 18 U.S.C. § 1964.
The Court will consider the objections to the Magistrate's Report seriatim.
I. PRIVATE CAUSE OF ACTION UNDER § 17(a)
The complaint alleges a violation of § 17(a) of the Securities Act of 1933. 15 U.S.C. § 77q(a). That section provides:
It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly
1) to employ any device, scheme, or artifice or defraud, or
2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.
In his Report, the Magistrate recommended that all claims predicated on § 17(a) be dismissed on the ground that this section did not create a private cause of action for aggrieved purchasers of securities.
This question is one that has been agitated for some time in the courts. The face of the statute is silent as to the existence of a private cause of action, and the circuit courts of appeal are divided on the question. The Second, Fourth, Seventh and Ninth Circuits have found that a private cause of action under § 17(a) does exist. Stephenson v. Calpine Conifers II, Ltd., 652 F.2d 808, 815 (9th Cir.1981); Kirshner v. U.S., 603 F.2d 234, 241 (2d Cir.1978); Daniel v. International Brotherhood of Teamsters, 561 F.2d 1223, 1244-46 (7th Cir.1977); Newman v. Prior, 518 F.2d 97, 99 (4th Cir.1975). On the other hand, the Fifth and Eighth Circuits have rejected arguments for a private cause. Landry v. All-American Assurance Co., 688 F.2d 381, 391 (5th Cir.1983); Shull v. Dain, Kalman & Quail, Inc., 561 F.2d 152, 159 (8th Cir.1977). The Sixth Circuit has, in the past, issued opinions that seemed to presume the existence of a private cause. E.g., Gutter v. Merrill Lynch, Pierce, Fenner & Smith, 644 F.2d 1194, 1196 (6th Cir.1981); Nickels v. Koehler Mgmt. Corp., 541 F.2d 611, 614 (6th Cir. 1976). However, in a more recent case, the Sixth Circuit refused to decide the issue squarely in view of the inter-circuit conflict. Herm v. Stafford, 663 F.2d 669, 678 (6th Cir.1981). A decision in this district held against a private cause. Akers v. Bonifasi, 629 F. Supp. 1212, 1222 (M.D. Tenn.1984).
The Supreme Court is aware of the running battle between the circuits on the question, but has apparently decided to sit back and enjoy it for awhile. On several occasions, it has refused to decide the issue. E.g., Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 304, 105 S. Ct. 2622, 2625, 86 L. Ed. 2d 215 (1985); Herman & Maclean v. Huddleston, 459 *1316 U.S. 375, 378, 103 S. Ct. 683, 685, 74 L. Ed. 2d 548 (1983); Int'l Brotherhood of Teamsters v. Daniel, 439 U.S. 551, 557, 99 S. Ct. 790, 795, 58 L. Ed. 2d 808 (1979); Blue Chip Stamps v. Manor Drugstores, 421 U.S. 723, 733, 95 S. Ct. 1917, 1924, 44 L. Ed. 2d 539 (1975).
Plaintiffs urge this Court to recognize a private cause under § 17(a) because a majority of the circuits that have considered the issue have held that such a private cause exists. That factor alone, however, cannot be decisive. Authorities must be weighed as well as counted, and the majority of the circuits recognizing a private cause under § 17(a) have done so after little or no analysis.[4]
The issue is also affected by one other consideration: it is not as easy for plaintiffs to claim an implied private cause of action as it used to be. That is the practical result of the Supreme Court's decision in Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975), which laid down a four-part test for determining whether a statute has created an implied private action. The affected court must ask:
First is the plaintiff "one of the class for whose special benefit the statute was enacted," ... that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? ... Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? ... And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?
Cort, 422 U.S. at 78, 95 S.Ct. at 2087 (cites omitted).
It is significant that of the four circuits recognizing the private cause, none did so after considering the Cort test. The principal decision analyzing the Cort factors was the Fifth Circuit case of Landry v. All-American Assurance Co., supra. The Fifth Circuit believed that post-Cort decisions of the Supreme Court[5] had imposed even more strict limits on the implication of private causes. In applying the modified Cort analysis, the Landry court found that the face of the statute does not indicate Congressional intent to establish a private cause. Further, the legislative history of the 1933 Act indicates that Congressional discussion of civil liability centered on §§ 11 and 12. Thus, in the Landry court's view, the proposed private cause failed the first two points of the Cort test. As to the third (consistent with the Act's underlying purpose), the court noted that the other sections of the 1933 Act require that "strict procedural requirements" be met before a private cause of action could be supported. To allow a private cause of action under § 17(a) without these procedural hurdles would "effectively frustrate the carefully *1317 laid framework of the Act." The Landry court was of the opinion that the cause of action was not a part of the states' traditional domain, but since that satisfied only one of the four tests of Cort (and that one the least important), the court concluded that no private cause existed under § 17(a).
Given its implications for their position, it is not surprising that the present plaintiffs have plenty to say about Landry, not much of it good. Some of their criticisms are well founded. It does seem, for example, that the Landry court misunderstood the first prong of the Cort test. The key question of that prong is whether the plaintiffs are part of a class for whose "special benefit" the statute was enacted. The plaintiffs are purchasers of securities. If they are not members of the class the authors of the Securities Act of 1933 intended to protect, it is hard to imagine who would be. But instead of drawing the obvious conclusion, the Fifth Circuit went off on a tangent, examining the face of the statute in an apparent search for language which would not make sense if Congress had not intended a private cause. Such an inquiry is not relevant, let alone essential, to a determination of the threshold question. Indeed, the first prong of the Cort test will ordinarily be the easiest hurdle for a buyer of securities.
With regard to the second prong, the Landry court was on much firmer ground. The provision of express causes in other sections of the Act makes the omission of such provisions in § 17(a) all the more glaring. The normal inference would be that Congress intended the other sections for private cause, leaving it to the SEC to enforce § 17(a). The weakness of the plaintiffs' position on this question may be seen from the fact that they are reduced to an argument from Congressional inertia. Congress, we are told, "ratified" the private cause by refusing to amend the Act to reject any private cause under § 17(a) after some courts implied one. Relying on legislative inactivity to prove legislative intent is, at best, a risky business. Very often it literally amounts to making something out of nothing. This case does not appear to be one of the few exceptions. Since Congress did nothing while the lower federal courts divided on the issue, it seems more reasonable to believe that it was waiting to see how the Supreme Court would dispose of the question just like the rest of us.
The third Cort factor is the potential relation of the private cause to the statute's underlying purpose. In some ways this is the trickiest prong for courts to consider, since it will almost always be possible for plaintiffs to argue that a private cause would further the purpose of the statute, at least in the sense of being consistent with it. Time-honored language about the "remedial purpose" of the statute militating against its strict construction often makes its appearance here. (Not surprisingly, the present plaintiffs urge both of these arguments upon this Court.)
The Supreme Court's post-Cort decisions, however, seem to require something more. Their sense is that it is not enough that a private cause be consistent with the underlying purpose of the statute in some general way. The cases seem to point to the conclusion that a private cause should be implied only if the statutory purpose would be frustrated without it. In the present context, this would involve an implicit finding that a regulatory scheme providing for SEC enforcement of § 17(a) combined with private remedies under other sections of the Act is patently inadequate. This Court cannot, with confidence, make such a finding. Rather, the Court is persuaded by these comments on the structure of the Act by a distinguished commentator:
It is one thing to imply a private right of action under § 10(b) or the other provisions of the 1934 act, because the specific liabilities created by §§ 9(e), 16(b) and 18 do not cover all the variegated activities with which that act is concerned. But it is quite another thing to add an implied remedy under § 17(a) of the 1933 act to the detailed remedies specifically created by §§ 11 and 12. The 1933 act is a much narrower statute. It deals only with disclosure and fraud in the sale of securities. It has but two important substantive provisions, §§ 5 and 17(a). Noncompliance with § 5 results in civil liability *1318 under § 12(1). Faulty compliance results in liability under § 11. And § 17(a) has its counterpart in § 12(2). It all makes a rather neat pattern. Within the area of §§ 5 and 17(a), §§ 11 and 12 (unlike §§ 9(e), 16(b) and 18 of the 1934 act) are all-embracing. This is not to say that the remedies afforded by §§ 11 and 12 are complete. But the very restrictions contained in those sections and the differences between them for example, the fact that § 11 but not § 12 imposes liability on certain persons connected with the issuer without regard to their participation in the offering and the fact that § 12(2) does not go so far in relation to § 17(a) as § 12(1) goes in relation to § 5 make it seem the less justifiable to permit plaintiffs to circumvent the limitations of § 12 by resort to § 17(a). Particularly is this so in view of the fact that § 11, together with the statute of limitations in § 13, was actually tightened in the 1934 amendments to the Securities Act.
3 L. Loss, Securities Regulation 1785 (2d. ed. 1961).
This Court agrees with the Fifth Circuit that the cause is not one "traditionally relegated to state law," but in view of the analysis under the other Cort factors, that conclusion is of little practical consequence.
Suffice it to say that this Court agrees with and adopts the Magistrate's conclusion that there is no private cause of action under § 17(a) of the Securities Act of 1933.
II. APPROPRIATE STATUTE OF LIMITATIONS FOR PLAINTIFFS' § 10(b) CLAIMS
Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)) states:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange
(b) to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities Exchange] Commission may prescribe....
S.E.C. Rule 10b-5, promulgated by authority of this statute reads:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange,
(1) to employ any device, scheme, or artifice to defraud.
(2) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(3) to engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security.
It has long been settled that an action under SEC Rule 10b-5 is available to private plaintiffs. E.g., Herman & Maclean v. Huddleston, 459 U.S. 375, 387, 103 S. Ct. 683, 690, 74 L. Ed. 2d 548 (1983); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 196, 96 S. Ct. 1375, 1382, 47 L. Ed. 2d 668 (1976); Kardon v. National Gypsum Co., 69 F. Supp. 512, 513 (E.D.Pa.1946).
But since this cause of action is implied rather than expressly granted by the terms of the Act, no statute of limitations is specified for it in the Act or the Rule. In such circumstances, it is the practice of the federal courts to "borrow" the statute of limitations of the statute of the forum state most analogous to the federal law under which the action proceeds. E.g., Ernst & Ernst v. Hochfelder, supra, 425 U.S. at 210, 96 S.Ct. at 1389; Carothers v. Rice, 633 F.2d 7, 12 (6th Cir.1980). Over the years, the question of which state statute is "more analogous" has spawned much litigation. Usually it has come down to a choice between the forum state's blue-sky law and the statute of limitations for common-law actions based on fraud or deceit. *1319 Plaintiffs tend to prefer the latter, since it is usually longer.
Such is the situation in the present case. Tennessee's statute of limitations for common-law fraud actions is three years. Tennessee's blue-sky statute, on the other hand, provides that no action may be brought under it more than one year after the discovery of the alleged fraud, and in no event more than two years after the commission of the alleged fraud. Tenn. Code Ann. § 48-2-122(h).
The parties have different theories about the nature and sequence of their dealings. The initial complaint was filed on May 30, 1986. According to the defendants, the "purchase" of the security occurs when a "binding commitment to undertake the transaction" is formed, regardless of the date of actual transfer. Defendants allege that the plaintiffs had all made such commitments, at the latest, by closingSeptember 6, 1983. The plaintiffs, however, insist that the securities were not "sold" for purposes of the statute until the deals were consummated in December, 1984.
Obviously, if the defendants' theory of the meaning of the word "sale" is correct, then the plaintiffs' action would be time-barred under either of the two statutes of limitations in the Tennessee blue-sky laws. On the other hand, if the "sale" occurred at the moment of actual transfer in December, 1984, such claims as allege the "discovery" of fraud after May 30, 1985, would survive, regardless of which statute of limitations was applied. Finally, if the proper limitations period for borrowing is the three-year statute of limitations for fraud, all of the plaintiffs' claims survive even if the defendants' version of the facts is accepted.
The Magistrate concluded that the date of the statute of limitations began to run on the plaintiffs' claims is an issue of fact and cannot be properly adjudicated on a motion to dismiss. However, since one of the competing theories as to the applicable statute has the potential for obviating any consideration of such matters, it would be well to consider that issue first. The best place to start is with a look at the Tennessee blue-sky law.
The Tennessee Securities Act of 1980, Tenn.Code Ann. § 48-2-101 et seq., closely resembles the blue-sky laws of a number of other states.[6] The anti-fraud section of the Act is Tenn.Code Ann. § 48-2-122, subsection (h), which states:
"No action shall be maintained under this section unless commenced before the expiration of two (2) years after the act or transaction constituting the violation or the expiration of one (1) year after the discovery of the violation, or after such discovery should have been made by the exercise of reasonable diligence, whichever first expires."
The Magistrate remarks that the question of when the statute began to run is a question of fact and thus not susceptible to being resolved on a motion to dismiss. That is true, so far as it goes. It seems to this Court, however, that the dispositive issue here is really a mixed question of fact and law. If the defendants' theory of the meaning of "sale" is correct, and this Court determines that the statute of limitations must be borrowed from the Tennessee blue-sky laws, then the plaintiffs' claims must be dismissed as a matter of law, since no set of facts available to them would keep their actions from being time-barred. Therefore, the matter cannot be sidestepped.
Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876 (2d Cir.1972), cited by the defendants, is not really on point because it is an insider trading case. In that situation, the important time to be considered is the time that illicit use was made of the forbidden information, and that will often have little to do with the actual date the security changed hands. However, there is a good deal of other authority supporting a broad interpretation of the *1320 word "sale" to include various kinds of agreements to sell. A contract for the transfer of stock is a "sale" for SEC Rule 10b-5 purposes, even if the actual transfer never takes place, or even if it is subject to specified conditions. Yoder v. Orthomolecular Nutrition Inst., 751 F.2d 555, 559 (2d Cir.1985); International Controls Corp. v. Vesco, 593 F.2d 166, 181 (2d. Cir.), cert. denied, 442 U.S. 941, 99 S. Ct. 2884, 61 L. Ed. 2d 311 (1979). A pledge of stock "is equivalent to a sale for purposes of the antifraud provisions of the federal securities laws." Marine Bank v. Weaver, 455 U.S. 551, 554, 102 S. Ct. 1220, 1222, 71 L. Ed. 2d 409 (1982). In short, there is at least a possibility that in the present case a "sale" of securities occurred before December 1984. But the key word here is "possibility."
In spite of all this, the Magistrate's practical conclusion was correct. This Court cannot determine from the pleadings whether such "agreements" as existed before closing were contracts to sell, and thus "sales" within the meaning of Rule 10b-5. That is an issue for trial. This Court therefore adopts the Magistrate's conclusion and will deny the motions to dismiss on this issue.
But since the matter cannot be finally resolved until the proper statute of limitations is selected, and that issue has been placed before the Court, it is expedient to decide it without further delay.
The Sixth Circuit has not yet spoken to the issue of which Tennessee statute of limitations should be borrowed for SEC Rule 10b-5 purposes, but the federal district courts of the State of Tennessee are split. In Media General, Inc. v. Tanner, 625 F. Supp. 237 (W.D.Tenn.1985), it was held that the most analogous limitation was that governing actions for fraud. The Media General court was influenced by the similarity of the elements of proof between a Tennessee common-law fraud claim and a SEC Rule 10b-5 claim, and also by the policy consideration that where two or more state law remedies more or less resemble SEC Rule 10b-5, courts should borrow the longer limitations period in order to effect the remedial purpose of the federal securities laws. 625 F.Supp. at 246-47.
Decisions to the contrary have been rendered in the other two federal districts of this state. A recent decision in this district criticized Media General, noting that the wording of SEC Rule 10b-5 and the corresponding section of the Tennessee blue-sky law, Tenn.Code Ann. § 48-2-121(a) is virtually the same, a circumstance which in Judge Nixon's view outweighed the similarities in the proof between SEC Rule 10b-5 and a fraud action. He therefore held that the appropriate limitations period was that of Tenn.Code Ann. § 48-2-122(h), which allows actions within two years of the "transaction constituting the violation" or one year after the discovery of the violation, whichever comes first. Ockerman v. May Zima Co., 694 F. Supp. 414, 416 (M.D.Tenn. 1988). In an unreported decision in the remaining district of Tennessee, the court reached the same conclusion. Haney v. Dean Witter Reynolds, Inc., No. CIV-1-85-531 (E.D.Tenn. August 20, 1986) [available on Westlaw, 1986 WL 21340].
A survey of federal court decisions in states with blue-sky statutes comparable to Tennessee's reveals that the great weight of authority favors the position taken by the Ockerman court. Among the pertinent circuit courts, only the Fifth Circuit has taken Media General's position. McNeal v. Paine, Webber, Jackson, Curtis, Inc., 598 F.2d 888 (5th Cir.1979) (Georgia law). Two district courts in Georgia have done the same Friedlander v. Troutman, Sanders, Lockerman, & Ashmore, 595 F. Supp. 1442 (N.D.Ga.1984); In re North American Acceptance Corp., 513 F. Supp. 608 (N.D.Ga.1981) but their decisions became dead letters when the Eleventh Circuit reversed Friedlander. 788 F.2d 1500 (11 Cir.1986). A handful of other district courts have applied the statute of limitations for common-law fraud. Upton v. Trinidad Petroleum Corp., 468 F. Supp. 330 (N.D.Ala.1979); First Federal Savings & Loan Ass'n. of Miami v. Mortgage Corp. of the South, 467 F. Supp. 943 (N.D. Ala.1979); Felts v. Nat'l. Account Systems *1321 Ass'n., Inc., 469 F. Supp. 54 (N.D.Miss. 1978).
The Fifth Circuit has since modified its position, essentially limiting McNeal, supra, to its facts and ruling that, under Alabama's statutory scheme, the limitations period should be taken from the blue-sky statute. White v. Sanders, 650 F.2d 627 (5th Cir.1981) (Alabama law).[7] The result in other circuits has been the same. Gurley v. Documation, Inc., 674 F.2d 253 (4th Cir.1982) (Virginia law); Morris v. Stifel, Nicolaus & Co., Inc., 600 F.2d 139 (8th Cir.1979).
Fifteen decisions of the district courts in the pertinent states have adhered to the doctrines of Ockerman and Haney. To list them all would take more space than is necessary to make the point.
Nevertheless, the Court is not at liberty to decide the issue on a mere head-count of participating judges. Tennessee is a Sixth Circuit state, and it appears that that circuit has developed a distinctive approach to the question, one closer to Media General than to Ockerman. While the Magistrate is surely right in pronouncing uniformity within a given district an important consideration, it is at least as important that district courts adhere to the doctrines most consistent with the rules and policies of the circuit above them.
Of the states listed as having "comparable" statutes, only Kentucky is in the Sixth Circuit. The Kentucky statutes have given rise to two important cases about the borrowing of statutes of limitations.
Carothers v. Rice, 633 F.2d 7 (6th Cir. 1980) involved alleged fraudulent misrepresentations during a tender offer. The court held that the limitations period of the Kentucky blue-sky statute rather than that for common-law fraud was applicable to a SEC Rule 10b-5 action on the claim. But it did so for an interesting reason:
[T]he broad remedial purposes of the federal securities laws are best served by longer, not shorter, statute [sic] of limitations ... But the reason for using the longer statute of limitations for a federal securities claim is to give the person with a federal claim at least as long an opportunity to sue as a person with a state claim ... The Kentucky Supreme Court has held that its blue-sky law is the exclusive remedy for fraud in the sale of securities. [City of Owensboro v. First U.S. Corp., 534 S.W.2d 789, 791 (Ky.1975)] The strict requirements of misrepresentation have been relaxed and the price exacted is a shortened statute of limitations ... A plaintiff is also relieved from proving all the elements of misrepresentation with his rule 10b-5 action; thus, it is reasonable to apply the shortened statute of limitations. (cites omitted; emphasis added)
Carothers, 633 F.2d at 14-15. The clear implication of this language is that had it not been for the construction given the blue-sky law by the Kentucky court, the statute of limitations governing common-law fraud would have been applied. The Carothers doctrine was again followed by the Sixth Circuit in Herm v. Stafford, 663 F.2d 669, 678 (6th Cir.1981).
There is no Tennessee case holding that the Tennessee Securities Act of 1980 is the exclusive remedy for defrauded buyers of securities in the state. Therefore, under existing law the only way to guarantee that a federal plaintiff enjoys the same procedural advantage as a state plaintiff with the same cause is to apply the longer statute of limitations.
Accordingly, the Court finds that in an SEC Rule 10b-5 action, federal courts in this state should borrow the three-year statute of limitations governing actions for common-law fraud.
It follows that the plaintiffs' SEC Rule 10b-5 claims are not time-barred and therefore the defendants' motions to dismiss must be denied.
*1322 III. PLAINTIFFS' CLAIMS UNDER SECTION 12(2) OF THE 1933 ACT
Defendants argue that the plaintiffs' § 12(2) claims are time-barred by the operation of the 1933 Act's statute of limitations, which forbids any action unless brought within one year of the facts supporting the cause or within three years of the cause occurring.
The Magistrate correctly determined that the date of occurrence in the present case, and consequently the date the statute began to run, is a question of fact which cannot be determined from the pleadings. Therefore, the motion to dismiss will be denied.
IV. APPLICABILITY OF THE TENNESSEE CONSUMER PROTECTION ACT
The plaintiffs allege that by engaging in unfair and deceptive acts or practices in the marketing and sale of securities, the defendants violated the Tennessee Consumer Protection Act (TCPA), Tenn.Code Ann. § 47-18-101 et seq. The defendants' position is that the Act does not apply to the sale of securities.
Whether the TCPA applies to such transactions is a question of first impression in the state. In the absence of any Tennessee precedents, it falls to the Court to make an "Erie -guess" as to the possible decision of the Tennessee Supreme Court were the matter to come before it.
In the present case, the Magistrate has made a thorough study of the factors affecting this decision, including the intent of the Tennessee legislature in passing the law, the impact of the federal scheme of securities regulation, and cases construing comparable statutes in Tennessee's sister states. After painstaking consideration, the Magistrate concluded that the Tennessee Supreme Court, if it were confronted with the issue, would hold that the TCPA does not apply to the marketing and sale of securities. The Court agrees.
The TCPA was enacted in 1977 to protect "consumers and legitimate business enterprises from unfair or deceptive acts or practices in the conduct of any trade or commerce in part or wholly within the state...." Tenn.Code Ann. § 47-18-102(2). The statute, by its terms, is silent about securities; nothing about them appears in the catalogue of offenses in § 47-18-104(b). That, however, does not end the inquiry, for the enumeration of specific unlawful acts was plainly not understood to be exhaustive. That can be seen by referring to § 47-18-104(b)(21), which extends the coverage of the Act to those "[e]ngaging in any other act or practice which is deceptive to the consumer...." Thus, it becomes a question of whether this "Mother Hubbard" clause suffices to bring securities transactions within the ambit of the Act.
The Magistrate found the answer in another section of the Act, § 47-18-115, which states:
XX-XX-XXX. Construction. This part, being deemed remedial legislation necessary for the protection of the consumers of the state of Tennessee and elsewhere, shall be construed to effectuate the purposes and intent thereof. It is the intent of the general assembly that this part shall be interpreted and construed consistently with the interpretations given by the federal trade commission and the federal courts pursuant to § 5(A)(1) of the Federal Trade Commission Act (15 U.S.C. § 45(a)(1)). [Acts 1977, ch. 438, § 16.]
The Magistrate noted that no federal court has ever held that the pertinent section of the Federal Trade Commission Act (FTCA) applies to securities transactions, and that there is substantial authority to the contrary.
The Magistrate further noted that the overwhelming weight of state court authority favors the view that state consumer protection laws do not apply to securities transactions, and found additional support for his conclusion in the fact that securities are already intensely regulated under the federal securities laws and the Tennessee blue-sky laws.
The discussion of the issues and authorities in the Magistrate's Report is superb. It would improve nothing for the Court to *1323 replicate or paraphrase his treatment in the present memorandum. The Court prefers to adopt this portion of his Report in toto, and will add separate comments only to the extent necessary to address specific objections to the Report raised by the Attorney General and adopted by the plaintiffs.
The Attorney General argues that the Magistrate gave insufficient attention to the recent Tennessee case of Skinner v. Steele, 730 S.W.2d 335 (Tenn.App.1987) perm. to appl. denied, which is alleged to have rejected reasoning of the type that the Magistrate relied upon.
Skinner was a suit under the TCPA alleging fraud in the sale of an annuity certificate by an insurance company. Among the defenses to the action was the assertion that such transactions were governed by the Tennessee Insurance Law, Tenn.Code Ann. §§ 56-2-203, et seq., and that they were therefore specifically excluded from the purview of the TCPA by virtue of § 47-18-111(a) which exempts from that Act any
[a]cts or transactions required or specifically authorized under the laws administered by, or rules and regulations promulgated by, any regulatory bodies ... acting under the authority of this state or of the United States.
The court rejected these arguments, holding firmly that the TCPA applies to insurance transactions in spite of the existence of a separate regulatory scheme for the insurance industry. The statutory exemption for "transactions specifically authorized" by the insurance code was explained thus:
The purpose of the exemption is to insure that a business is not subjected to a lawsuit under the Act when it does something required by law, or does something that would otherwise be a violation of the Act, but which is allowed under other statutes or regulations. It is intended to avoid conflict between laws, not to exclude from the Act's coverage every activity that is authorized or regulated by another statute or agency.
Skinner, 730 S.W.2d at 337.
The court further found that the Insurance Code, by its own terms, does not purport to provide an exclusive remedy. The State of Tennessee, by the amicus brief of the Attorney General, contends that by the same token, the existence of parallel regulatory schemes (whether state or federal) does not preclude the application of the TCPA to transactions in securities. This Court is unpersuaded.
The state's argument proceeds from the tacit premise that the insurance industry and the securities trade are alike enough to justify using very similar regulatory approaches. Where state precedent is sparse, analogy can be necessary, but the user must beware. A maladroit analogy can send the law spinning off in the wrong direction. The present case underscores this point.
The Magistrate below was aware of several insurance-related cases in apparent conflict with the result he reached, but he did not discuss the analogy to insurance law at any great length. He remarked in a footnote that "securities transactions are wholly different animal[s] from insurance transaction[s]." The Court believes he was right, but because the state is urging the issue strongly on appeal, it is expedient to take a closer look at these "animals" to determine the proper place of each in the legal bestiary. As always, it is useful to consider the experience of other states. The experience of one particular state is especially helpful in that the insurance-securities-consumer protection problem has been thrashed out more thoroughly there than anywhere else. The state in question is Massachusetts.
The Massachusetts' statute for the Regulation of Business Practices for Consumers' Protection, Mass.Gen.Laws Ann. ch. 93A (1972) differs from the TCPA in certain respects, but is similar with regard to the features affecting this litigation. Like the TCPA, its definitions establish a very broad coverage of affected practices. "Trade" or "commerce" is defined to include "offering for sale ... any property, tangible or intangible ... and any other article, commodity, or thing of value...." Mass.Gen.Laws *1324 Ann. ch. 93A § 1(b). Compare this to the TCPA's definition of "consumer," to which the Skinner court attached great significance: "any natural person who ... acquires by purchase ... any ... property, tangible or intangible ... [or] any other article, commodity, or thing of value...." Tenn.Code Ann. § 47-18-103(1). Cf. Skinner v. Steele, supra, 730 S.W.2d at 336-37. The Massachusetts Act, like the TCPA, is to be applied according to pertinent federal constructions of the FTCA and concomitant FTC regulations. Mass.Gen.Laws Ann. ch. 93A § 2. Moreover, the Massachusetts Act has a provision (substantially the same as that of the TCPA) exempting "transactions or actions otherwise permitted under laws as administered by any regulatory board or officer acting under statutory authority of the commonwealth of the United States." Id., 63.
In 1977, the Supreme Judicial Court of Massachusetts confronted the issue of whether the state's Deceptive Trade Practices Act applied to the insurance industry. On that occasion it held decisively that the statute did apply, despite the existence of a separate statutory scheme for the regulation of insurance. The court was of the opinion that "[t]he mere existence of one regulatory statute does not affect the applicability of a broader, nonconflicting statute, particularly when both statutes provide for concurrent coverage of their common subject matter." Dodd v. Commercial Union Ins. Co., 373 Mass. 72, 365 N.E.2d 802, 804-05 (1977). It was later held that wrongs committed by insurance companies can result in "loss of property" as contemplated by the statute. DiMarzo v. American Mutual Ins. Co., 389 Mass. 85, 449 N.E.2d 1189, 1196 (1983).
A relatively early and unnoticed federal decision held that the Massachusetts Act did not apply to transactions in securities because the FTCA did not. Palace v. Merrill Lynch, Pierce, Fenner & Smith, No. 80-1831-T, Fed.Sec.L.Rep. (CCH) ¶ 99,629 (D.Mass.1981) [1981 WL 1411]. But in 1983 a federal court in Massachusetts was confronted with the argument that Palace had been wrongly decided, since the reasoning underlying it was inconsistent with Dodd, and certain other Massachusetts state court decisions applying Chapter 93A (the consumer protection statute) to transactions not regulated under the FTCA. Cf. Dodd, supra, and Raymer v. Bay State Nat'l. Bank, 384 Mass. 310, 424 N.E.2d 515, 521 (1981) (Ch. 93A applies to banking business).
The court, however, was unconvinced and left Palace intact. It explained:
Dodd and Raymer applied Chapter 93A to insurance and banking, areas in which the states have long played a primary role in regulation. Plaintiffs' proferred application of Chapter 93A to securities transactions presents a very different question. At least since 1933, Federal law has largely superseded state regulation of securities transactions. [cite omitted] This distinction causes the court to conclude that, if faced with the precise question, the Supreme Judicial Court would not extend the coverage of Chapter 93A to securities transactions.
Conkling v. Moseley, Hallgarten, Estabrook & Weeden, 575 F. Supp. 760, 761 (D.Mass.1983).
The Conkling court also noted that the McCarran-Ferguson Act specifically left the regulation of insurance to the states. Conkling, 575 F.Supp. at 762, quoting 15 U.S.C. § 1012(b) (1976).
In the ensuing years, the issue divided district courts in Massachusetts. One judge found Conkling persuasive and followed it. Sweeney v. Keystone Provident Life Ins. Co., 578 F. Supp. 31, 35 (D.Mass. 1983). But others were not so sure. A line of cases arose holding that the Massachusetts General Court had intended the FTC clause in Chapter 93A to be a mere "guide," and that it did not effectively limit the coverage of the statute. Hickey v. Howard, 598 F. Supp. 1105, 1106 (D.Mass. 1984). See also Sullivan v. Dean Witter Reynolds, Inc., No. 82-3300, slip op. (D.Mass.1983); Mitchelson v. Aviation Stimulation Technology, Inc., 582 F. Supp. 1, 2 (D.Mass.1983); Kennedy v. Josephtal & Co., No. 82-913, slip op. (D.Mass.1982).
*1325 During all this time, the Supreme Judicial Court of Massachusetts was not heard from. At length the question was presented to the United States courts yet again, whereupon the presiding district judge certified the question to the Supreme Judicial Court according to the prescribed state rule. The precise question certified was: "Does Chapter 93A of the Massachusetts General Laws apply to conduct alleged to violate Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder?" In effect, the Supreme Judicial Court was invited to decide between the Conkling doctrine and the Kennedy/Hickey approach.
The court accepted the question and came down firmly on the side of Conkling. Cabot Corp. v. Baddour, 394 Mass. 720, 477 N.E.2d 399 (1985). Chief Justice Hennessey, writing for a unanimous panel, stated: "We do not agree that Dodd and Raymer provide precedent for extending the reach of C.93A to the securities field." Cabot, 477 N.E.2d at 400. He went on to quote, with strong approval, Conkling's language about the preeminence of federal law in the field of securities regulation, and the corresponding limits on the prerogatives of the states. The Cabot court found additional support for the result from an examination of the state blue-sky law, passed almost simultaneously with Chapter 93A. While these considerations are not germane to the litigation before this Court, the language of Cabot indicates that the federal predominance described above would have been sufficient, standing alone, to dictate the result.
It should hardly be necessary to say that the Tennessee Supreme Court is not bound by the decisions of the courts of any sister state. It can place Tennessee in a minority of one if it wishes. The point is that neither Skinner nor any other case binding on the Tennessee courts compels such a result. As for this Court, it is of the opinion that, were the Tennessee Supreme Court to confront this issue, it is far more likely than not that Tennessee would follow the great weight of authority in finding that such statutes "are generally held not to apply to securities." L. Loss, Fundamentals of Securities Regulation 799 (1986 Supp. to 1983 ed.)
In short, there was no error in this portion of the Magistrate's Report.
V. RICO ALLEGATIONS
Section 1964(c) of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1964(c), provides a private right of action for plaintiffs injured in their business by reason of a violation of the Act's substantive provisions (or "predicate acts," as they are generally called). In order to make out a valid RICO complaint, the plaintiff must allege that the defendant engaged in (1) conduct (2) of an enterprise (3) through a pattern of (4) racketeering activity. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 3285, 87 L. Ed. 2d 346 (1985). "Racketeering activity" can consist of any of the offenses enumerated in the other sections of the Act, one of which is fraud in the sale of securities.
The complaint alleges that each "tainted" sale of resort interests to each of the 366 plaintiffs constituted a separate predicate act, and that taken in the aggregate, they amounted to a "pattern of racketeering activity."
In the well-known Sedima decision, the Supreme Court complained of "the failure of Congress and the courts to develop a meaningful concept of `pattern.'" Sedima, 473 U.S. at 500, 105 S.Ct. at 3287. Complaints like the one in the present case seem to embody the problem the Court had in mind. The Magistrate's Report, after an excellent discussion of the issues and authorities involved, concluded that if a pattern consists of "continuity plus relationship" (as suggested by the Senate Judiciary Committee before RICO's adoption), the derelictions alleged in the present case do not meet the test. The Court finds that it cannot improve on the Magistrate's analysis.[8] Accordingly, the Court adopts his recommendation. *1326 The RICO counts will therefore be dismissed.
VI. RESPONDEAT SUPERIOR (WILLIAMS)
Inasmuch as Michael Williams has been dismissed from this action, no claim for vicarious liability based on his actions can survive his departure. Both parties admitted as much at oral argument before the Magistrate, who therefore recommended that all such claims be dismissed. The Court adopts this recommendation. Accordingly, the claims concerning Michael Williams will be dismissed.
VII. RESPONDEAT SUPERIOR (SANDESTIN AND SANDCASTLE)
Plaintiffs have alleged that defendant Merrill Lynch is vicariously liable for alleged illegal acts of Sandestin and Sandcastle. Merrill Lynch argues that the pleadings do not allege an employer/employee relationship between it and its two supposed agents, or that they were acting within the scope of any employment.
This is a puzzling objection. The comprehensive amended complaint clearly charges that
[p]ursuant to the doctrine of respondeat superior, Merrill Lynch is liable for the unlawful acts of its agents, representatives, and affiliates including ... [Sandestin and] Sandcastle....
Plaintiff's amended complaint, ¶ 3.2(4).
While this Court has some considerable nostalgia for common-law pleading, the complaint suffices to put Merrill Lynch on notice as to the nature of the claim, and under the Federal Rules that is all that is necessary. The Magistrate properly recommended that the motion to dismiss be denied. The Court agrees.
VIII. LIABILITY OF MERRILL LYNCH FOR ACTUAL CONSTRUCTION OF HOTEL & TOWNHOUSES
Merrill Lynch argues that all claims for liability against it based on the actual construction of the hotel and townhouses should be dismissed because it took no part in that construction.
The Court agrees with the Magistrate that these claims involve issues of fact not suitable for resolution on a motion to dismiss. Therefore the motion to dismiss these claims will be denied.
IX. SUFFICIENCY OF PLEADINGS AGAINST DEFENDANT MORTON OLSHAN
All that has been said about the applicability of § 17(a) of the 1933 Act, the RICO Act and the TCPA applies equally to the claim against Morton Olshan under these statutes. For the reasons discussed above, they will be dismissed.
The plaintiffs, on appeal, have confessed that Count V, alleging breach of contract and breach of warranty, does not state a claim against Morton Olshan. The Magistrate recommended that the count be dismissed, and the Court agrees.
The complaint alleges breach of fiduciary duties stemming from the erection of the resort buildings in an unsuitable location. As the Magistrate points out, the question of whether a fiduciary relationship exists between Morton Olshan and the plaintiffs is governed by Tennessee law, and the parties have not briefed the issue with appropriate references to Tennessee authority. Therefore, the Court will reserve judgment on these motions until the parties have submitted appropriate supplemental briefs.
The Magistrate rejected Morton Olshan's argument that the complaint did not plead common-law fraud and fraud for SEC Rule 10b-5 purposes with sufficient particularity under Rule 9(b), Fed.R.Civ.P. He also held that disputed factual questions made it inappropriate to dismiss the plaintiffs' claim that Morton Olshan was liable as a "controlling person." Finally, *1327 he held that the plaintiffs had stated a claim for aiding and abetting, and for "seller's liability" under § 12(2) of the 1933 Act.
After reviewing the Report and the objections thereto, the Court finds that the Magistrate was correct and that nothing need be added to his discussion of these issues.
X. CLAIMS AGAINST DEFENDANT LAVENTHOL TO DISMISS
For the reasons discussed above, the Court adopts the Magistrate's recommendation to dismiss so much of the plaintiffs' complaint against Laventhol as is predicated upon § 17(a) of the 1933 Act, the RICO Act, or the TCPA.
The gravamen of the SEC Rule 10b-5 claim against Laventhol is that, in preparing estimates of future rental income for the PPM, these defendants relied upon assumed inflation rates that were much higher than the actual rate of inflation turned out to be. The Magistrate noted at the outset that the complaint fails to allege scienter, a necessary element of a SEC Rule 10b-5 action. Indeed, it is by no means clear how Laventhol could have had scienter, since it was predicting a future event. The complaint makes sense only on the premise that the accountants should have known that reliance on the high inflation projections was unreasonable. Thus, the complaint in substance is one for negligence.
In any case, the PPM clearly states that [t]he projected inflated average room rates could be materially different if significantly higher or lower rates of inflation are actually experienced. Since the actual rates of inflation cannot be predicted with any degree of certainty, no assurance is given that the projected average room rates will not vary materially from those shown above. (emphasis added)
PPM, I-3.
For anyone who can read, this seems a clear warning that the forecast of rental income was highly speculative and in some measure contingent upon uncontrollable future events. To say nothing more, it certainly "bespeaks caution" in the language of the leading case of Luce v. Edelstein, 802 F.2d 49, 56 (2d. Cir.1986), and this is enough to insulate defendant Laventhol from liability. The Court agrees with the Magistrate that the complaint, as pleaded, fails to state a SEC Rule 10b-5 claim against Laventhol, but also agrees that the ruling on the motion to dismiss should be reserved until the plaintiffs have had the benefit of additional discovery and leave to amend. The reasons for this will be discussed below.
The complaint also charges Laventhol with "controlling person" liability under § 15 of the 1933 Act (15 U.S.C. § 77o), which states:
Every person who, by or through stock ownership, agency, or otherwise, or who, pursuant to or in connection with an agreement or understanding with one or more other persons by or through stock ownership, agency, or otherwise, controls any person liable under section 11 or 12, shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.
The Magistrate found that the complaint alleged only that the accountants were employed to make financial projections, market studies, and feasibility reports, and that this fell far short of the "actual participation" required to state a claim for "controlling person" liability. Having reviewed the Report and objections, the Court agrees with the Magistrate.
The Court also agrees with the Magistrate's conclusion that the plaintiffs have failed to state a claim for aiding and abetting against Laventhol.
But a finding that several of the claims, in their present forms, are maladroitly pleaded is not the end of the matter. It is *1328 necessary to decide whether to grant leave to amend.
In considering this question, the Court must keep its eye on the well-known policy of the Federal Rules that leave to amend will be liberally granted where such would serve the ends of justice. Under Rule 9(b), dismissal without granting leave to amend is ordinarily improper "unless it appears beyond doubt that plaintiff can prove no set of facts ... that would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957). As the Magistrate observed, this is not such a case.
True, the Comprehensive Amendment Complaint is the plaintiffs' fifth attempt to state their claims. It is tempting to invoke the ancient common law maxim "enough is enough" and hold that six bites at the apple would be too many.[9] However, as the Magistrate points out, the plaintiffs were presumably unaware of the nature of the deficiency of their pleadings. Patience is therefore the order of the day.[10]
The Magistrate's solution reservation of a ruling on all the surviving claims pending completion of ninety days of discovery and amendment of the complaint is reasonable, and will be adopted.
The Court also agrees that until the remaining federal claims are disposed of, any action on motions relating to pendent state claims would be premature.
XI. CLAIMS AS TO DEFENDANT DOMINION
As with the other defendants, the Magistrate recommended that all claims against Dominion based on § 17(a) of the 1933 Act, the RICO Act, and the Tennessee Consumer Protection Act be dismissed. For the reasons discussed supra, the Court agrees.
The complaint also alleges that Dominion Federal is liable as a principal under SEC Rule 10b-5, as a "controlling person," and as an aider and abetter. The Magistrate found that the facts alleged were insufficient to state a claim against Dominion. After reviewing the Report and the objections, the Court finds that the Magistrate is correct, and that nothing need be added to his discussion of the issues.
As with Laventhol, the Magistrate recommended that the plaintiffs be granted leave to amend and that a ruling on the motions to dismiss the securities claims be reserved pending additional discovery and the filing of the new complaint. It will be so ordered.
As with Laventhol, the Court will not address any pendent state claims until the picture regarding the federal claims becomes clearer.
XII. DEFENDANTS' COUNTERCLAIM
Several defendants filed a counterclaim charging that the plaintiffs have tortiously interfered with their prospective business advantages by filing a groundless civil action (i.e., the present one). As the Magistrate noted, it is not certain whether, or under what conditions, Tennessee recognizes this tort. However, it is not necessary to decide these issues, since the Magistrate is surely right in concluding that if the tort exists, and if a groundless lawsuit can serve as a basis for it, the proper vehicle for asserting it can never be a counterclaim during the life of the allegedly meritless suit. Mere common sense teaches us that if a frivolous or malicious suit is to be considered tortious, there must be some sort of judgment on the merits disposing of that suit. To hold otherwise might deter plaintiffs from filing meritorious actions. The Counterclaim will accordingly be dismissed.
An appropriate order will be entered.
ORDER
In accordance with the memorandum contemporaneously filed, the following claims are dismissed from this action:
*1329 1. Plaintiffs' claims against all defendants under § 17(a) of the Securities Act of 1933;
2. Plaintiffs' claims against all defendants under the Tennessee Consumer Protection Act; and
3. Plaintiffs' claims against all defendants under the Racketeer Influenced and Corruption Organization Act (RICO).
As to defendant Merrill Lynch, the motion to dismiss (filed March 6, 1987; Docket Entry No. 152) is granted as to the claims of vicarious liability based on the conduct of Michael Williams, and denied as to all claims not based on § 17(a) of the Securities Act of 1933, the RICO Act, or the Tennessee Consumer Protection Act.
With regard to defendant Morton Olshan, the motion (filed March 6, 1987; Docket Entry No. 150) to dismiss plaintiffs' claims for breach of contract and breach of warranty under Count V of the Comprehensive Amended Complaint is granted.
With regard to defendant Laventhol & Horwath, the Court will reserve a ruling on the motion to dismiss (filed March 6, 1987; Docket Entry No. 141) insofar as it pertains to claims not based on § 17(a) of the Securities Act of 1933, the RICO Act, or the Tennessee Consumer Protection Act, pending the completion of an additional ninety (90) days of discovery and the filing of an amended complaint.
As to defendant Dominion Federal Savings and Loan Association, the Court reserves ruling on the motion (filed March 6, 1987; Docket Entry No. 146) to dismiss as to all claims not based on § 17(a) of the Securities Act of 1933, the RICO Act, or the Tennessee Consumer Protection Act, pending the completion of an additional ninety (90) days of discovery and the filing of an amended complaint.
Plaintiffs' motion (filed April 10, 1987; Docket Entry No. 175) to dismiss the defendants' counterclaim is granted. Accordingly, the counterclaim is dismissed.
It is so ORDERED.
REPORT AND RECOMMENDATION
KENT SANDIDGE, III, United States Magistrate.
By Order entered March 12, 1987, the Court referred the following motions to the undersigned for consideration, submission of proposed findings of fact and recommendations for disposition:
1) motion (filed March 6, 1987) of defendant Morton Olshan to dismiss;
2) motion (filed March 6, 1987) of defendant Dominion Federal Savings & Loan Association to dismiss or alternatively for summary judgment;
3) motion (filed March 6, 1987) of defendant Michael D. Williams to dismiss;
4) motion (filed March 6, 1987) of defendant Laventhol & Horwath to dismiss;
5) motion (filed March 6, 1987) of defendant Merrill Lynch, Pierce, Fenner & Smith, Inc. to dismiss or alternatively for summary judgment; and
6) motion (filed March 6, 1987) of defendants Sandestin Beach Hotel, Inc., Sandcastle Resort at Sandestin, Inc., Frank Flautt, Jr., William Jeffries Mann, Wilton D. Hill, Fred V. Alias, William Alias, and Robert Kamm for summary judgment.
On March 3, 1988, the undersigned heard argument on the motions of defendant Morton Olshan, defendant Dominion Federal Savings & Loan Association, defendant Laventhol & Horwath, and defendant Merrill Lynch, Pierce, Fenner & Smith, Inc.[1] In addition, argument was heard on the motion of plaintiffs to dismiss the counterclaim *1330 of defendants, which was referred to me by Order entered May 12, 1987.
I.
This is an action brought by 113 plaintiffs[2] for fraud and other unlawful acts under federal and state securities laws, the Racketeer Influenced and Corrupt Organization Act ["RICO"], 18 U.S.C. § 1961 et seq., and state law, arising out of the plaintiffs' December, 1984, purchase of hotel interests in the Sandestin Beach Hilton Hotel ["Hotel"] in Destin, Florida. The Hotel contains 400 rooms, is a 15-story resort, and is structured as a condominium regime in which each plaintiff purchased fee simple title to an individual hotel room as well as an undivided proportionate interest in the Hotel's common areas.
The allegations in the complaint[3] are primarily based upon the contents of a Private Placement Memorandum ["PPM"], attached to the complaint as Exhibit 1. The PPM is comprised of: 1) the "legal document," a formal disclosure document that purports to contain the disclosures required by the securities laws; 2) a collection of exhibits to the legal document; and 3) a brochure containing photographs, drawings, and narrative descriptions of various aspects of the hotel.
Plaintiffs claim that the PPM was and is legally deficient in that it omits to disclose material facts. Plaintiffs also allege that the PPM includes affirmative misrepresentations of fact. These deficiencies, as alleged in the complaint, generally concern the following subject matter:
a) statements concerning the position, orientation, and location of the hotel on the beach and the view from each hotel room;
b) statements concerning the profits realized by the developers from the sale of hotel interests;
c) financial projections concerning the expected profitability of the hotel;
d) the adequacy of the hotel's structural facilities; and
e) miscellaneous internal inconsistencies in the sales presentation materials and other inadequate disclosures regarding desirability and investing in hotel interests.
In addition to these specific inadequacies of the PPM, plaintiffs also allege oral misrepresentations made to plaintiffs concerning the same subject matter as set forth above.
For these alleged misrepresentations, plaintiffs sue defendants under the following theories and statutes: state and federal securities laws, RICO, the Tennessee Consumer Protection Act, fraudulent and negligent misrepresentation, breach of contract and breach of warranty, breach of fiduciary duty, negligence, and constructive trust. As will become clear later, all defendants are not sued under each and every theory and/or statute.
The complaint names 14 persons as defendants in this action. Those defendants which have filed motions presently under review are identified in the complaint as follows:
Defendant Merrill Lynch, Pierce, Fenner & Smith, Inc. ["Merrill Lynch"], is engaged in business as a securities broker-dealer. Pursuant to an agreement with the Sandestin Beach Hotel ["SBH"],[4] Merrill Lynch acted as the exclusive selling agent for the sale of hotel interests to all investors in the hotel. Merrill Lynch substantially participated in preparing the PPM and the sales *1331 presentations made to the plaintiffs to induce them to purchase hotel interests.
Defendant Dominion Federal Savings & Loan Association ["Dominion Federal"], is a savings and loan association with its principal place of business in Tysons Corner, Virginia. Prior to the plaintiffs' purchases of their hotel interests, Dominion Federal entered into a commitment with SBH and Merrill Lynch by which Dominion Federal agreed to make loans available to those persons who sought to borrow money to finance the purchase of their hotel interests.
Defendant Laventhol & Horwath is a partnership of certified public accountants having its principal place of business in Tampa, Florida. Prior to the sale of hotel interests to the plaintiffs and prior to preparation of the PPM, Laventhol & Horwath was retained by SBH or its affiliates to prepare financial projections and a market study to determine the feasibility of constructing the hotel and financing the hotel through the sale of hotel interests. Laventhol & Horwath substantially participated in preparing the financial projections set forth in the PPM.
Defendant Morton Olshan is a resident of New York, and since prior to February, 1983, has been Vice President, a director and a shareholder of SBH. The plaintiffs allege, upon information and belief, that Mr. Olshan owns more shares of SBH stock than any other shareholder. Mr. Olshan provided funds to SBH to initiate the development of the hotel and, through the provision of such funds, made it possible for SBH and its affiliates to proceed with development of the hotel and sales of hotel interests to the plaintiffs.
In addition to these defendants who have filed motions to dismiss, plaintiffs have filed a motion to dismiss the counterclaim of certain individual defendants. The defendants (counterplaintiffs) who filed the counterclaim are identified in the complaint as follows:
Defendant and counter-plaintiff Frank L. Flautt, Jr. is a resident of Memphis, Tennessee. Since prior to February, 1983, Mr. Flautt has been President, a director and a shareholder of both SBH and Sandcastle.[5] Mr. Flautt is alleged to be the principal individual responsible for developing the hotel, including formulating the financing plan, offering and selling hotel interests, and managing the entire development project.
Defendant and counter-plaintiff William Jeffries Mann is a resident of Memphis, Tennessee. Since prior to February, 1983, he has been Vice President, a director, and a shareholder of SBH.
Defendant and counter-plaintiff Wilton D. Hill is a resident of Memphis, Tennessee. Since prior to February, 1983, he has been the Secretary/Treasurer, a director and a shareholder of SBH.
Defendant and counter-plaintiff Fred V. Alias, is a resident of Destin, Florida. Since prior to February, 1983, he has been a shareholder, an officer and a director of Sandcastle and Sandestin Beach Resorts, Inc., both of which corporations are affiliated with SBH.
Defendant and counter-plaintiff William Alias, Jr. is a resident of Destin, Florida. Since prior to February, 1983, he has been a shareholder, an officer and a director of Sandcastle and Sandestin Beach Resort, Inc.
Defendant and counter-plaintiff Robert Kamm is a resident of Memphis, Tennessee. Mr. Kamm is Vice President of Sandcastle and is also the Vice President of Finance for Flautt Properties, formerly Flautt and Mann Properties, a corporation controlled by defendant Frank Flautt and operated for the purpose of developing and managing real property.
I will now address the pending motions. The standard for all motions is that dismissal is improper unless it appears beyond *1332 doubt that plaintiffs can prove no set of facts in support of a claim for relief. Conley v. Gibson, 355 U.S. 41, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957).
MOTION OF DEFENDANT MERRILL LYNCH TO DISMISS
I.
Particularity of Plaintiffs' Fraud Allegations
Plaintiffs' claims which are asserted against Merrill Lynch are, for the most part, premised upon allegations of fraud. Defendant argues the complaint should be dismissed pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure for failure to plead fraud with particularity.
Rule 9(b) of the Federal Rules of Civil Procedure requires that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." A properly-pled allegation of fraud must identify "the time, place and content of the alleged misrepresentations upon which [the plaintiff] relied." Bender v. Southland Corp., 749 F.2d 1205, 1216 (6th Cir.1984). A complaint which fails to supply the specificity required by Rule 9(b) is subject to dismissal. Kellman v. ICS, Inc., 447 F.2d 1305 (6th Cir.1971).
Rule 9(b) must be "harmonized and reconciled" with Rule 8 of the Federal Rules of Civil Procedure which requires a pleading to contain a short and plain statement of the claims asserted. Michaels Building Co. v. Ameritrust Co., N.A., 848 F.2d 674 (6th Cir.1988); Temple v. Haft, 73 F.R.D. 49 (D.Del.1976). Nevertheless, conclusory allegations of fraud are insufficient. Id., at 53; see also In re: AM International Inc. Securities Litigation, 597 F. Supp. 1117 (S.D.N.Y.1984).
Plaintiffs' complaint meets the requirements of Rule 9 with respect to the allegedly fraudulent representations and omissions in the PPM. Plaintiffs allege that "Merrill Lynch substantially participated in preparing the PPM." Complaint at ¶ 3.2. Plaintiffs reference and attach the PPM as an exhibit to the complaint, and detail with particularity what material facts were omitted from the PPM, and what false misrepresentations were allegedly made. The Second Circuit has held that reference to the offering memorandum satisfies Rule 9(b)'s requirements as to identification of the time, place and content of the alleged misrepresentations. Luce v. Edelstein, 802 F.2d 49 (2d Cir.1986). As plaintiffs have referenced the PPM, and indeed attached it to the complaint, they have satisfied the requirements of Rule 9(b).[6]
Plaintiffs' assertion that certain defendants, including the agents of Merrill Lynch, made oral misrepresentations at sales presentations presents a more difficult question. Although defendant is apprised of the content of the alleged fraudulent misrepresentations, plaintiffs have not referred to exact dates and locations where the alleged fraud occurred. Instead, plaintiffs have referred only to continuous misrepresentations at sales presentations over a period of time.
I would not suggest that other plaintiffs pattern their pleadings after the one at bar. However, I must conclude that plaintiffs have satisfied the minimal pleading requirements under Rule 9(b), and that to list each presentation in which fraud allegedly occured would add countless details to the already lengthy pleadings. See Kimmel v. Peterson, 565 F. Supp. 476, 479-82 (E.D.Pa. 1983); Kaufman v. Magid, 539 F. Supp. 1088, 1093 (D.Mass.1982). Defendant has been given notice of the general allegations of fraud at these sales presentations, and a general approximation of the time period in which the presentations occurred, and may, through discovery, obtain the exact dates and locations of the sales presentations if necessary. Plaintiffs contend that many of the misrepresentations at the sales presentations have been reduced to written form. *1333 Defendant may, therefore, be guided by those representations which are in writing.
I therefore recommend that defendant's motion to dismiss based on plaintiffs' failure to plead fraud with particularity be denied.
II.
Section 17(a) of the Securities Act of 1933
Under Section 17(a) of the Securities Act of 1933, it is a violation to engage in any scheme to defraud in connection with the sale of a security.[7] Defendants move for dismissal of the security claims filed pursuant to § 17(a) on the ground that § 17(a) does not provide for a private cause of action. While the issue is largely unsettled, the undersigned determines that no private right of action exists.
Section 17(a) grants no explicit private cause of action. Jones v. First Equity Corp. of Florida, 607 F. Supp. 350 (E.D. Tenn.1985). And, the Circuits are split as to whether an implied private right of action exists. The Second, Fourth, Seventh and Ninth Circuits recognize the right; the Fifth and Eighth Circuits do not. See generally, Mosher v. Kane, 784 F.2d 1385, 1390-91 n. 9 (9th Cir.1986).
The Supreme Court has recognized the split among the Circuits, but has declined to decide the issue on at least four occasions. See Eichler v. Berner, 472 U.S. 299, 105 S. Ct. 2622, 2625 n. 9, 86 L. Ed. 2d 215 (1985); Herman and Maclean v. Huddleston, 459 U.S. 375, 378, n. 2, 103 S. Ct. 683, 685, n. 2, 74 L. Ed. 2d 548 (1983); International Brotherhood of Teamsters v. Daniel, 439 U.S. 551, 557, n. 9, 99 S. Ct. 790, 795, n. 9, 58 L. Ed. 2d 808 (1979); Blue Chip Stamps v. Manor Drugstores, 421 U.S. 723, 733, n. 6, 95 S. Ct. 1917, 1924, n. 6, 44 L. Ed. 2d 539 (1975).
The Sixth Circuit has not definitively decided the issue. Although in a number of cases the Court has assumed that a cause of action exists, see Gutter v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 644 F.2d 1194 (6th Cir.1981); Herm v. Stafford, 663 F.2d 669 (6th Cir.1981); Nickels v. Koehler Management Corp., 541 F.2d 611 (6th Cir.1976), in the most recent of these decisions, the Court explicitly acknowledged the disagreement among the Circuits and refused to decide the issue because it had not been raised on appeal. Herm, 663 F.2d at 678, n. 12. More recently, the Court has expressed reservation with regard to the existence of an implied private right of action under Section 14(a) of the federal securities acts. See Rauchman v. Mobil Corp., 739 F.2d 205 (6th Cir.1984).
At the District Court level, there seems to be agreement in Tennessee that no private right exists. See Akers v. Bonifasi, 629 F. Supp. 1212, 1222 (M.D.Tenn.1984); Russell v. Travel Concepts Corp., 75-76 Fed.Sec.L.Rep. (CCH ¶ 95, 230) (M.D.Tenn. 1975) [1975 WL 401]; Media General v. Tanner, 625 F. Supp. 237 (W.D.Tenn.1985); Jones v. First Equity Corp. of Florida, 607 F. Supp. 350 (E.D.Tenn.1985); Memphis Housing Authority v. Paine, Webber, Jackson & Curtis, Inc., 639 F. Supp. 108 (W.D.Tenn.1986). These decisions rely, in large part, on the Fifth Circuit decision, Landry v. All American Assurance Co., 688 F.2d 381, 384-391 (5th Cir.1982), and the four-pronged test set forth by the Supreme Court in Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975).
In Cort, the Supreme Court listed these factors to consider in determining whether an implied private right of action exists:
*1334 1) is the plaintiff a member of the class for whose benefit the statute was enacted;
2) is there a legislative intent to indicate creation of the remedy;
3) is implying the remedy consistent with the legislative scheme; and
4) is the cause of action one traditionally relegated to state law.
422 U.S. at 78, 95 S.Ct. at 2087.
Particular weight is to be accorded to legislative intent. See generally, Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 102 S. Ct. 1825, 72 L. Ed. 2d 182 (1982); Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S. Ct. 242, 62 L. Ed. 2d 146 (1979). If legislative intent is lacking, the other three factors need not be considered. Touche Ross & Co. v. Redington, 442 U.S. 560, 575-76, 99 S. Ct. 2479, 2488-89, 61 L. Ed. 2d 82 (1979). And, a Court should consider three factors in discerning legislative intent: 1) the language of the statute; 2) its legislative history; and 3) its place in the legislative scheme. See Transamerica Mortgage Advisors v. Lewis, supra.
In considering these factors, it seems that Congress did not intend to create a private right of action for claims filed pursuant to Section 17(a). A discussion of the reasons supporting this view is found in Jones, which relies heavily on a District Court opinion from the Eastern District of Kentucky, Ingram Industries, Inc. v. Nowicki, 502 F. Supp. 1060 (E.D.Ky.1980). See also, Kimmel v. Peterson, 565 F. Supp. 476, 481 (E.D.Pa.1983). Plaintiffs have not cited, nor has my own research revealed, any decision to indicate that Congress had a different intent in enacting Section 17(a). I therefore find the reasoning of these decisions persuasive. Under a Cort analysis, plaintiffs cannot show that a private right of action exists under Section 17(a).[8]
In view of the Sixth Circuit's recent reservations with respect to implying a private right of action under the securities laws, the trend in Tennessee (including this Court) not to recognize such a right, and the fact that the courts which have not found a private right of action have thoroughly examined the question by applying the Cort analysis and examining Congressional intent, I recommend that the Court dismiss plaintiffs' claims under Section 17(a).
III.
Statute of Limitations of Section 12(2) Claims
Plaintiffs have alleged in their complaint that defendant's actions violated Section 12(2) of the Securities Act. Defendant moves to dismiss this claim on the ground that the claim was not timely filed.
The statute of limitations for a Section 12(2) claim is set forth in Section 18 of the Securities Exchange Act of 1934, 15 U.S.C. § 78r(c), which provides:
No action shall be maintained to enforce any liability created under this section unless brought within one year after the discovery of the facts constituting the cause of action and within three years after such cause of action accrued.
The question here turns on when the statute began to run.
On this issue, defendant argues that the statute began to run when the plaintiffs entered into a binding commitment to undertake the transaction, or, sometime between February, 1983, and August, 1983. Plaintiffs, on the other hand, argue that the pivotal date is December, 1984, when the sale of hotel interests to each individual plaintiff was made, or alternatively, when plaintiffs discovered the fraud, which plaintiffs contend is a question of fact.
The original Complaint in this action was filed May 30, 1986. The date upon which the statute began to run is a question of fact precluding dismissal of plaintiffs' Section 12(2) claims at this time. Stephenson v. Calpine Conifers II, Ltd., 652 F.2d 808, 813 (9th Cir.1981); Lewelling v. First California Co., 564 F.2d 1277, 1280 (9th Cir. *1335 1977). I therefore recommend that the Court deny this aspect of defendant's motion.
IV.
Statute of Limitations on Section 10(b) and Rule 10b-5 Claims
Plaintiffs have alleged in their complaint that defendant's actions violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 of the Securities and Exchange Commission. Defendants move to dismiss these claims on the ground that they were not timely filed.
Section 10(b) does not contain an express private right of action, and thus, does not have an express statute of limitations period. In such a case a statute of limitations must be borrowed from Tennessee state law. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S. Ct. 1375, 47 L. Ed. 2d 668 (1976); Silverberg v. Thomson McKinnon Securities, Inc., 787 F.2d 1079 (6th Cir. 1986). The statute of limitations borrowed should be the one which best effectuates the purpose of the federal securities laws. Carothers v. Rice, 633 F.2d 7 (6th Cir. 1980). Normally, the statute of limitations is the statute applicable to the state cause of action which most nearly resembles the federal cause of action. See Carothers, 633 F.2d at 12.
The Sixth Circuit has yet to rule on a limitations period for actions brought under Section 10(b) of the 1934 Act in Tennessee. And, the District Courts in Tennessee are in disagreement as to which statute applies. The Western District has ruled that the three-year statute of limitations applicable to Tennessee common law fraud and deceit claims governs Section 10(b) claims. Media General, Inc. v. Tanner, 625 F. Supp. 237 (W.D.Tenn.1985). The Eastern District arrived at an opposite conclusion in Haney v. Dean Witter Reynolds, Inc., Dock. No. CIV-1-85-531 (E.D.Tenn. Aug. 20, 1986).
Most recently, Judge Nixon, writing for this Court, adopted the rule articulated in Haney, and held that Section 48-2-121 of the Tennessee Code Annotated is the State statute that is most analogous to Rule 10b-5. Ockerman v. May Zima, 694 F. Supp. 414 (M.D.Tenn.1988). By so holding, this Court held that the applicable statute of limitations is set forth in Section 48-2-122(h) of the Tennessee Code Annotated, which provides:
No action shall be maintained under this section unless commenced before the expiration of two (2) years after the act or transaction constituting the violation or the expiration of one (1) year after the discovery of facts constituting the violation, or after such discovery should have been made by the exercise of reasonable diligence, whichever first expires.
T.C.A. § 48-2-122(h).
In Ockerman, the undersigned previously considered and recommended that the Court adopt the three-year statute of limitations applicable to Tennessee common law fraud and deceit claims. See Ockerman, Report and Recommendation of October 9, 1987. In reaching that decision, I was persuaded by the Western District's opinion in Media General, and the Sixth Circuit's holding that when the Blue Sky law and common law deceit statutes are roughly similar to a Rule 10b-5 action, the longer statute of limitation applies. Herm, 663 F.2d at 678; Carothers, 633 F.2d at 14. In Herm, the Court held that the longer statute of limitations better effectuates the broad remedial purposes of the federal securities laws. Herm, 663 F.2d at 678.
The Court having rejected this position, however, I must now retreat from that earlier position. It is desirable, even necessary that there be certainty and uniformity regarding the application of statute of limitations to actions under Rule 10b-5 within each state. See Carruthers Ready Mix, Inc. v. Cement Masons Local Union No. 520, 779 F.2d 320 (6th Cir.1985); Nickels, 541 F.2d at 614. A fortiori, it is desirable that uniformity exist within the same court. Accordingly, I must now recommend that T.C.A. § 48-2-122(h) should govern *1336 plaintiffs' 10(b) and 10b-5 claims.[9]
Having determined that Section 48-2-122(h) provides the applicable statute of limitations, the undersigned now must consider when the statute began to run. Defendant argues that the statute began to run on September 6, 1983, the date of closing, which is more than two years before this action was instituted on May 30, 1986. Plaintiffs contend that the statute did not begin to run until December, 1984, the date of the sale of hotel interests to plaintiffs, or when the fraud was discovered, which plaintiffs argue is a question of fact. In either case, plaintiffs argue that the Rule 10b-5 claims were filed within the appropriate limitations period.
The date upon which the statute began to run is a question of material fact as demonstrated above. See Stephenson, 652 F.2d 813; Lewelling, 564 F.2d 1280. Accordingly, the undersigned recommends that the Court deny this aspect of defendant's motion as a genuine issue exists for trial.
V.
Tennessee Consumer Protection Act
Plaintiffs allege in Count III of the Comprehensive Amended Complaint that defendants engaged in unfair or deceptive acts or practices in the marketing and sale of securities, in violation of the Tennessee Consumer Protection Act, T.C.A. § 47-18-101 et seq. Defendants argue that the Tennessee Consumer Protection Act ["TCPA"] does not apply to the sale of securities, and that therefore, this claim should be dismissed.
Whether the TCPA covers the sale of securities is a question of first impression in the State of Tennessee. Because the Tennessee courts have not addressed this issue, this Court must ascertain what the Tennessee Supreme Court would decide if confronted with the question. Lindner v. Durham Hosiery Mills, Inc., 761 F.2d 162, 165 (4th Cir.1985). Relevant to the inquiry is the legislative intent in enacting the TCPA, congressional and legislative intent behind the securities laws, and case law from other jurisdictions in which similar statutes have been construed. Upon due consideration, I conclude that the TCPA does not apply to the sale of securities.
A.
The TCPA of 1977 protects "consumers and legitimate business enterprises from unfair or deceptive acts or practices in the conduct of any trade or commerce in part or wholly within the state...." T.C.A. § 47-18-102(2). Section 47-18-104(b) enumerates more than 20 unlawful acts or practices. Nowhere does the Act specifically allude to securities. It is urged, however, that securities fraud is covered by the Act by virtue of § 47-18-104(b)(26), which declares as unlawful: "Engaging in any other act or practice which is deceptive to the consumer...."
The TCPA provides a private right of action to persons harmed by acts or practices declared unlawful. T.C.A. § 47-18-109. Significant to the issue at bar, it awards treble damages to "willful or knowing" violaters. T.C.A. § 47-18-109(a)(3).
Exempted from coverage of the TCPA are:
Acts or transactions required or specifically authorized under the laws administered by or rules and regulations promulgated by, any regulatory bodies or officers acting under the authority of this state or of the United States....
T.C.A. § 47-18-111(a)(1).
As to the construction of the Act, Section 47-18-115 provides:
*1337 This part, being deemed remedial legislation necessary for the protection of the consumers of the state of Tennessee and elsewhere, shall be construed to effectuate the purposes and intent thereof. It is the intent of the general assembly that this part shall be interpreted and construed consistently with the interpretations given by the federal trade commission and the federal courts pursuant to § 5(A)(1) of the Federal Trade Commission Act (15 U.S.C. 45(a)(1)).
T.C.A. § 47-18-115 (emphasis added).
B.
The parties and the State[10] have exhaustively briefed the issue of whether securities are exempted from the TCPA by virtue of T.C.A. § 47-18-111. Sound arguments have been advanced by all parties. I think, however, that the arguments are misplaced. I believe the critical issue here is not whether securities are exempted from the TCPA by virtue of Section 47-18-111, but rather, whether securities are exempted from the TCPA by virtue of Section 47-18-115.
Section 47-18-104(a) of the TCPA is patterned after Section 5 of the Federal Trade Commission ["FTC"] Act, 15 U.S.C. § 45(a)(1) (1982). The Tennessee General Assembly has therefore deemed it appropriate to look to the FTC and federal decisions interpreting the FTC Act for guidance in construing the scope and meaning of the TCPA. T.C.A. § 47-18-115. Significantly, no federal court has applied Section 5(a)(1) of the FTC Act to securities transactions. Lindner, 761 F.2d at 167. This is because, since its inception, the Securities and Exchange Commission, rather than the FTC, has been responsible for regulating securities transactions. See Section 78ii, Act of June 6, 1934, c. 404, Title II, § 210, 48 Stat. 908. The Fourth Circuit, the District Court of Massachusetts, and the Supreme Court of South Carolina, have all held that securities transactions are exempted from the scope of state consumer protection acts since this has been the interpretation given by the FTC and federal courts to Section 5(a)(1) of the FTC Act. See Lindner, 761 F.2d at 167; Conkling v. Moseley, Hallgarten, Estabrook & Weeden, Inc., 575 F. Supp. 760, 761 (D.Mass. 1983); State v. Rhoades, 275 S.C. 104, 267 S.E.2d 539 (1980).
I am persuaded by these decisions, and am of the opinion that Section 47-18-115, standing alone, precludes the application of the TCPA to securities transactions. I do not believe, however, that Section 47-18-115 is the only basis for holding that the TCPA does not apply to securities transactions.
To begin with, application of the TCPA to securities transactions would create remedies that neither Congress nor the Tennessee legislature included in the federal or state securities laws. Securities transactions are comprehensively regulated by the Securities Act of 1933, 15 U.S.C. §§ 77a et seq. (1982), the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et seq. (1982), and the Tennessee Blue Sky laws, T.C.A. §§ 48-2-101 et seq. "If Congress or the Tennessee legislature wanted to expose securities violators to the punitive spectre of treble damages, they would have, and could have, so provided." Moore v. A.G. Edwards & Sons, Inc., 631 F. Supp. 138 (E.D. La.1986). Instead, Congress chose to limit a plaintiff's recovery to "actual damages," 15 U.S.C. § 77k(e), 78bb(a), and 78r(a), and Tennessee has followed suit. T.C.A. § 48-2-122. I decline to recommend that the Court extend the remedies available in a securities fraud action when Congress and the Tennessee legislature have both declined to do so explicitly.
Support for this conclusion is also drawn from the case law of other jurisdictions. Almost all state and federal courts construing similar statutes have held that consumer protection acts do not apply to security transactions. Lindner, 761 F.2d 162; Moore, 631 F. Supp. 138; Skinner v. E.F. Hutton & Co., 314 N.C. 267, 333 S.E.2d 236 (1985); In re Catanella and E.F. Hutton *1338 & Co. Securities Litigation, 583 F. Supp. 1388 (E.D.Pa.1984); Robertson v. White, 633 F. Supp. 954 (W.D.Ark.1986); Allais v. Donaldson, Lufkin & Jenrette, 532 F. Supp. 749 (S.D.Texas 1982); State v. Piedmont Funding Corp., 119 R.I. 695, 382 A.2d 819 (1978); State v. Rhoades, 267 S.E.2d 539; Kittilson v. Ford, 23 Wash. App. 402, 595 P.2d 944 (1979), aff'd 93 Wash.2d 223, 608 P.2d 264 (1980); Cabot Corp. v. Baddour, 394 Mass. 720, 477 N.E.2d 399 (1985); see also Singer v. Dean Witter Reynolds, Inc., 614 F. Supp. 1141 (D.Mass.1985) (Massachusetts Consumer Protection statute did not apply to commodities transactions).
The reasoning in these decisions has, not surprisingly, varied. Some courts have relied on the interpretation given to the FTC Act, others have relied on specific exemption provisions of the Act (such as T.C.A. § 47-18-111, or one similar), others have noted the inconsistencies of the state consumer protection acts and the securities laws. In all cases, however, the courts have implicitly, if not explicitly, recognized the fact that securities transactions are already extensively regulated by both federal and state laws. Due to this extensive regulation, these courts have uniformly recognized that there is no need for further regulation under the state consumer protection laws. Indeed, most courts have implicitly recognized that further regulation would contravene the spirit and purpose of the already existing securities laws. [One could cite this as the "enough is enough" view.]
In short, I believe the Tennessee Supreme Court would hold, if presented with this issue, that securities transactions are exempted from the TCPA. This determination is consistent with the overriding majority of state and federal court opinions which have considered the issue, the absence of any federal court decision holding that securities transactions are subject to Section 5(a)(1) of the FTC Act, and congressional and legislative intent. I do not believe that the Tennessee legislature would have intended the TCPA, with its treble damages provision, to apply to securities transactions already subject to pervasive and intricate regulation under the Tennessee Blue Sky law, as well as the Securities Act of 1933, and the Securities Exchange Act of 1934.
I respectfully recommend that the Court dismiss plaintiffs' claims under the Tennessee Consumer Protection Act.[11]
VI.
RICO
Plaintiffs allege in Count II of the Comprehensive Amended Complaint that certain activities of defendants constitute separate and distinct instances of "fraud in the sale of securities, wire fraud and mail fraud," and therefore constitute "racketeering activity" as that term is defined under the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. § 1961, et seq. ["RICO"]. Defendant argues, inter alia, that Count II should be dismissed for plaintiffs' failure to allege a "pattern of racketeering activity." The undersigned agrees.
Section 1964(c) of RICO provides a civil remedy to plaintiffs injured in their business or property by reason of a RICO violation. The United States Supreme Court has enumerated the essential elements which must be alleged to recover on a civil RICO claim:
(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. *1339 The plaintiff must, of course, allege each of these elements to state a claim.
Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 3285, 87 L. Ed. 2d 346, 358-9 (1985).
The RICO statute does not fully define the phrase "pattern of racketeering activity." It states merely that "a pattern of racketeering activity requires at least two acts of racketeering activity." 18 U.S.C. § 1961(5). The statute defines "racketeering activity" as, inter alia, "any act which is indictable under any of the following provisions of Title 18, United States Code: Section 1341 (relating to mail fraud), Section 1343 (relating to wire fraud) ... or any offense involving ... fraud in the sale of securities ..., punishable under any law of the U.S." 18 U.S.C. § 1961(1).
The United States Supreme Court has explained that even the commission of two criminal acts, without more, does not establish the "pattern of racketeering activity" which a plaintiff must plead and prove in order to recover under civil RICO:
As many commentators have pointed out, the definition of a "pattern of racketeering activity" differs from the other provisions in Section 1961 in that it states a pattern "requires at least two acts of racketeering activity," Section 1961(5), not that it "means" two such acts. The implication is that while two acts are necessary, they may not be sufficient. Indeed, in common parlance two of anything do not generally form a "pattern."
Sedima, 473 U.S. 479, 496 n. 14, 105 S. Ct. 3275, 3285 n. 14, 87 L. Ed. 2d 346 (1985) (quoting Sen.Rep. No. 617, 91st Cong., 1st Sess. 158 (1969)). In the words of the Court, a pattern requires "continuity plus relationship." Id.
"Since Sedima, attempts to define what constitutes a RICO pattern have become, as one Court has characterized it, a `cottage industry.'" Winer v. Patterson, 663 F. Supp. 723, 725 (D.N.H.1987), citing Morris v. Gilbert, 649 F. Supp. 1491, 1502 (E.D. N.Y.1986). Three separate trends have evolved in the Circuits, but the issue is the same: whether a single scheme or episode can satisfy the "continuity plus relationship" test so as to produce a pattern of racketeering activity under RICO. The Sixth Circuit has not addressed the issue.
Four Circuits have taken an expansive view of the pattern requirement, finding that any two related acts of racketeering activity can constitute a pattern, even if the acts are committed in furtherance of a single criminal scheme. See Bank of America v. Touche Ross & Co., 782 F.2d 966, 971 (11th Cir.1986); R.A.G.S. Couture, Inc. v. Hyatt, 774 F.2d 1350, 1355 (5th Cir.1985); United States v. Ianniello, 808 F.2d 184, 192 (2d Cir.1986), cert. denied, ___ U.S. ___, 107 S. Ct. 3229, 3230, 96 L. Ed. 2d 736 (1987); Cal. Arch. Building Production v. Franciscan Ceramics, 818 F.2d 1466 (9th Cir.1987). "This approach has been critized as ignoring the Supreme Court's language in Sedima to the effect that it is Congress' intent that RICO should reach only continuous criminal activity." Winer, 663 F.Supp. at 723 (citing for example, Roberts v. Smith Barney, Harris Upham & Co., Inc., 653 F. Supp. 406, 410-11 (D.Mass.1986)).
At the other end of the spectrum are the Fourth and Eighth Circuits which have held that illegal acts pertaining to a single criminal episode do not constitute a "pattern of racketeering activity." International Data Bank, Ltd. v. Zepkin, 812 F.2d 149, 152 (4th Cir.1987); Superior Oil Co. v. Fulmer, 785 F.2d 252, 257, n. 7 (8th Cir.1986) (cited with approval in Madden v. Gluck, 815 F.2d 1163 (8th Cir.1987)). This approach has also been critized, in that "defendants who commit a large and ongoing scheme, albeit a single scheme, would automatically escape RICO liability for their acts, an untenable result." Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th Cir.1986).[12]
*1340 Three Circuits have taken a middle course between holding that any two acts may constitute a pattern and holding that a pattern requires acts in furtherance of multiple schemes. Roeder v. Alpha Industries, 814 F.2d 22 (1st Cir.1987); Torwest DBC, Inc. v. Dick, 810 F.2d 925, 928-29 (10th Cir.1987), cited with approval in Condict v. Condict, 815 F.2d 579, 583-85 (10th Cir.1987); Morgan v. Bank of Waukegan, 804 F.2d at 975-76, construed in Marks v. Pannell Kerr Forster, 811 F.2d 1108, 1110-12 (7th Cir.1987). As stated by the First Circuit in Roeder,
We decline to adopt a definition of pattern that relies solely on whether activity can be classified as a single scheme or episode. Shifting the focus to such terms merely substitutes one set of definitional problems for another. Furthermore, given the indeterminate nature of this statutory language, and the subtleties inherent in looking for "continuity plus relationship," no one characteristic can be considered as controlling in determining whether a pattern exists. Cf. Morgan v. Bank of Waukegan, 804 F.2d at 975 (identifying several factors relevant to determining whether a pattern exists). In attempting to identify the order of magnitude at which acts constitute a pattern, the courts recognize that acts can be so closely interrelated in function and connected in time that the "threat of [a] continuing activity" factor is absent. See e.g., Marks v. Forster, 811 F.2d 1108 (7th Cir.1987).
Roeder, 814 F.2d at 31.
Given the fact that the Sixth Circuit has yet to address the issue, and that the Circuits are in disagreement, the undersigned determines that, rather than adopting the reasoning of any one of the three divisions among the Circuits, the best course is to reason from those Circuit decisions most apposite to the case at bar. The undersigned finds Zepkin and Roeder most apposite.
In Zepkin, the Fourth Circuit concluded that a RICO complaint by investors alleging as predicate acts two violations of the securities laws in connection with the sale of securities did not sufficiently allege a pattern of RICO activity. The Court held that the conduct charged was instead merely that of a "single, limited scheme" to defraud. Though it met the technical requirements of a sufficient number of predicate acts sufficiently related to each other, it failed to charge the kind and degree of continuous engagement in criminal conduct required to constitute a RICO "pattern."
Significant to the case at bar, the plaintiffs in Zepkin alleged that the defendants committed securities fraud through the use of a fraudulent prospectus that was sent to numerous investors. The Court held that no pattern could be established from these allegations:
We believe that a single, limited fraudulent scheme, such as the misleading prospectus in this case, is not of itself sufficient to satisfy Section 1961(5). Nor do we find "a pattern" in the fact that one allegedly misleading prospectus reached the hands of ten investors. If the commission of two or more "acts" to perpetrate a single fraud were held to satisfy the RICO statute, then every fraud would constitute "a pattern of racketeering activity." It will be the unusual fraud that does not enlist the mails and wires in its service at least twice. Such an interpretation would thus eliminate the pattern requirement altogether.
Zepkin, 812 F.2d at 145-155.
As further stated by the Fourth Circuit, "the number of predicate acts is not an appropriate litmus test" to determine the *1341 existence of a RICO pattern. Zepkin, 812 F.2d at 155. "The pattern requirement was intended to limit RICO to those cases in which racketeering acts are committed in a manner characterizing the defendant as a person who regularly commits such crimes." RICO is not "`aimed at the isolated offender.'" Id., at 155.
The Court held that the allegedly fraudulent sale of securities constituted a "single, limited scheme" even though it involved numerous investors. The Court held,
To allow a "pattern of racketeering" to flow from a single, limited scheme such as this one would undermine Congress' intent that RICO serve as a weapon against ongoing unlawful activities whose scope and persistence pose a special threat to social well being. The present case does not involve a "pattern of racketeering," but ordinary claims of fraud best left to "the state common law of frauds" and to "well established federal remedial provisions."
Zepkin, 812 F.2d at 155.
Zepkin, of course, is a product of the Fourth Circuit's narrow interpretation that illegal acts pertaining to a single criminal episode do not constitute a "pattern of racketeering activity." It stands, nevertheless, as the most factually apposite Circuit decision to the case at bar. Plaintiffs have not cited, nor has my research revealed, any Circuit decision on similar facts which has reached a contrary result. For this reason, Zepkin is highly persuasive.
Roeder is also persuasive. In Roeder, the First Circuit joined the Seventh and Tenth Circuits in taking the middle position between holding that any two acts may constitute a pattern, and holding that a pattern requires acts in furtherance of multiple schemes. Roeder involved allegations of securities, wire and mail fraud in furtherance of one bribery scheme, which was held not to establish a RICO pattern. Although factually dissimilar, the Court reiterated the position that a threat of continuing criminal activity on the part of the defendant is required to satisfy the "pattern of racketeering activity" requirement. The Court held:
All of the racketeering acts Roeder alleges relate to a single instance of bribery. There is no suggestion that defendants used similar means to obtain other subcontracts, or that they bribed anyone else. RICO is `not aimed at the isolated offender.' Sedima, S.P.R.L. v. Imrex Co., 105 S.Ct. at 3285, n. 14 (quoting 116 Cong.Rec. 35193 (1970) (statement of Rep.Poff)). We hold that the bribery of Adamsky did not constitute "a pattern of racketeering activity."
Roeder, 814 F.2d at 31.
In a non-securities case, the Tenth Circuit (a middle ground Circuit) has articulated what the undersigned believes to be perhaps the best discourse on the continuity requirement. In Torwest DBC, Inc. v. Dick, 810 F.2d 925 (10th Cir.1987), the Court held:
The continuity requirement has been the source of considerable difficulty. Courts generally agree that to make an adequate showing of continuity under Sedima, a plaintiff must demonstrate some facts from which at least a threat of ongoing illegal conduct can be inferred. A scheme to achieve a single discrete objective does not in and of itself create a threat of ongoing activity, even when that goal is pursued by multiple illegal acts, because the scheme ends when the purpose is accomplished.
Id., at 928-929.
Applying Zepkin, Roeder and Torwest to the facts of this case, it must be concluded that defendants have not engaged in a pattern of racketeering activity inasmuch as they have failed to meet the continuity requirement of RICO. Like the plaintiffs in Zepkin, plaintiffs here allege a single scheme to defraud based upon the publication of an allegedly fraudulent prospectus. The fact that the prospectus was published to numerous investors is of no consequence. Plaintiffs have alleged that defendants set out to achieve a single discrete objective, namely, to defraud plaintiffs in the sale and purchase of interests in the Sandestin Beach Hilton Hotel. Under the holdings of Zepkin, Roeder and Torwest, such poses no threat of continued criminal *1342 conduct, and therefore, fails to state a claim under RICO.
This conclusion is consistent with the most recent holdings of the District Courts which have considered this issue. See Winer v. Patterson, 663 F. Supp. 723 (D.N. H.1987); One-O-One Enterprises, Inc. v. Caruso, 668 F. Supp. 693 (D.D.C.1987); Roberts v. Smith Barney, Harris, Upham & Co., Inc., 653 F. Supp. 406 (D.Mass.1986); Anisfeld v. Cantor Fitzgerald & Co., Inc., 631 F. Supp. 1461 (S.D.N.Y.1986).
In Anisfeld, the Court examined and rejected a RICO claim based on facts similar to the instant case. In Anisfeld, 16 plaintiffs claimed that they were induced to purchase $1,350,000 in limited partnership interests based upon false and misleading statements contained in a confidential investment memorandum. The limited partnership was established to acquire and operate a 490 unit apartment complex. The Court, nevertheless, dismissed the RICO claim on the following grounds:
The complaint in this case arises out of a single transaction. The fact that there may have been numerous misrepresentations in connection with a single transaction would not create a pattern under the interpretation of the RICO statute. A single fraudulent transaction does not constitute a pattern; there must be multiple events to satisfy the continuity inherent in the term "pattern."
Id., at 1467.
Certainly plaintiffs have cited, and the undersigned recognizes that, at the District Court level, some authority exists to the contrary. The undersigned concludes, however, that Zepkin and its progeny is the most persuasive interpretation of Sedima, at least with respect to the facts of this case.
The undersigned respectfully recommends that plaintiffs' RICO claims found in Count II of the Comprehensive Amended Complaint be dismissed.[13]
VII.
Respondeat Superior Michael Williams
Plaintiffs allege in Count VI of the Comprehensive Amended Complaint that defendants are liable to plaintiffs for the acts of Michael Williams under the doctrine of respondeat superior. Defendants argue that plaintiffs have failed to state a claim upon which relief can be granted.
At oral argument, counsel for plaintiffs and defendants agreed that this claim should be dismissed, inasmuch as it is premised on the actions of Michael Williams, who has been dismissed as a defendant to this litigation. Respecting this decision of counsel, the undersigned recommends that plaintiffs' allegations concerning Michael Williams in Count VI of the Complaint be dismissed.
VIII.
Respondeat Superior SBH-Sandcastle
Plaintiffs allege that Merrill Lynch is liable for the alleged unlawful acts of SBH and Sandcastle pursuant to the doctrine of respondeat superior. Merrill Lynch argues that this claim should be dismissed because plaintiffs have not alleged that Merrill Lynch was the employer of either SBH or Sandcastle, or that SBH and Sandcastle were acting within the course and scope of their alleged employment by Merrill Lynch.
The Sixth Circuit has recognized that parties may be vicariously liable for the acts of their agents committed in violations of the securities laws. See Davis v. AVCO Financial Services, Inc., 739 F.2d 1057, 1062 (6th Cir.1984); Holloway v. Howerdd, 536 F.2d 690 (6th Cir.1976); Armstrong Jones & Co. v. SEC, 421 F.2d 359 (6th Cir.) cert. denied, 398 U.S. 958, 90 S. Ct. 2172, 26 L. Ed. 2d 543 (1970). In a suit alleging liability for the act of an agent it is sufficient simply to assert the existence of an agency relationship without setting forth the contract of agency or details about the relationship in the pleadings, inasmuch as the *1343 terms of the agency are evidentiary in nature. Templeton v. Atchison, T & SF Railway Co., 7 F.R.D. 116 (D.C.Mo.1946).
Paragraph 3.2(4) of the Comprehensive Amended Complaint recites:
Pursuant to the doctrine of respondeat superior, Merrill Lynch is liable for the unlawful acts of its agents, representatives, and affiliates, including, but not limited to, the unlawful acts of SBH, Sandcastle, and any representatives or agents of Merrill Lynch who participated in the preparation of the PPM or in the making of sales presentations to any of the plaintiffs.
The undersigned is of the opinion that paragraph 3.2(4) of the complaint sufficiently apprises defendant of the nature of the claim asserted, and comports with the "notice pleading" provided by the Federal Rules of Civil Procedure, recognized in Templeton. Whether SBH and Sandcastle are agents of Merrill Lynch, and whether they were acting within the scope of their employment are questions of fact, and not properly to be considered in a 12(b)(6) motion to dismiss.
I therefore recommend that this aspect of the motion of Merrill Lynch be denied.
IX.
Claims Against Defendant for Actions of Others
Plaintiffs allege in paragraph 3.2 of the complaint that "Merrill Lynch is liable to the plaintiffs for all of the unlawful acts set forth in this complaint unless otherwise specified." Defendant argues that plaintiffs' claims for relief based upon the actions of others and the actual construction of the hotel and townhouses should be dismissed as to Merrill Lynch, as Merrill Lynch did not participate in the actual construction of either the hotel or townhouses.
This is a curious argument. Without doubt, whether Merrill Lynch can be held liable depends on whether its own activities are sufficient to render it liable under the securities laws. Questions whether Merrill Lynch possessed the necessary scienter, acted negligently, or otherwise fulfilled the elements of a securities fraud action are questions of fact to be resolved after the completion of discovery. Whether Merrill Lynch had any involvement in actually constructing the townhouses is not determinative of its liability under the securities laws. Certainly, defendant could have known of the project sufficient to meet any scienter requirement without being involved in the actual construction. In any event, defendant's involvement in that activity, if any, is a question of fact inappropriate for consideration in a motion to dismiss.
I therefore recommend that this portion of the motion of defendant Merrill Lynch be denied.
RECOMMENDATION
Based on the foregoing analysis, the undersigned respectfully recommends that the motion of defendant Merrill Lynch be granted in part and denied in part.
It is recommended that the following claims be dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure:
1) plaintiffs' claims under Section 17(a) of the Securities Act of 1933;
2) plaintiffs' claims under the Tennessee Consumer Protection Act;
3) plaintiffs' claims under the Racketeer Influenced and Corrupt Organizations Act; and
4) plaintiffs' claims of respondeat superior liability based on the conduct of Michael Williams.
It is recommended that all other claims remain pending in this lawsuit.
MOTION OF DEFENDANT MORTON OLSHAN TO DISMISS
I.
For the reasons previously discussed in the motion of Merrill Lynch to dismiss, the undersigned recommends that the motion of defendant Morton Olshan to dismiss be granted as it pertains to plaintiffs' claims under Section 17(a) of the Securities Act of *1344 1933, RICO, and the Tennessee Consumer Protection Act.
II.
Pleading Fraud With Particularity
As with the other defendants, the majority of the claims asserted against Morton Olshan are premised upon fraud. Defendant argues the complaint fails to plead fraud with Rule 9(b) particularity for primary violations of Section 10(b) and Rule 10b-5, state common law fraud, "controlling person" liability, and aiding and abetting.
Again, Rule 9(b) requires that circumstances constituting fraud be stated with particularity. It requires allegations as to the "time, place and content" of any alleged misrepresentations and omissions. Bender v. Southland Corp., 749 F.2d 1205, 1216 (6th Cir.1984). These allegations must be made specifically with regard to each individual defendant. Denny v. Barber, 576 F.2d 465, 469 (2d Cir.1978).
A. Rule 10b-5
Plaintiffs seek to hold Morton Olshan individually liable for primary violations of Rule 10b-5. The elements of a Rule 10b-5 claim are:
1) a false representation or omission of a material fact; 2) made with scienter; 3) upon which the plaintiff reasonably relied; and 4) which proximately caused damage to the plaintiff(s).
Lucas v. Florida Power & Light Co., 765 F.2d 1039 (11th Cir.1985).
The allegations in the complaint concerning misrepresentations and omissions take three forms: 1) allegations that omissions and misrepresentations are contained in the PPM; 2) allegations that certain unnamed "defendants" or their "representatives" made oral representations at sales presentations; and 3) in a few passages, none of which pertain to Olshan, plaintiffs allege that particular individuals made particular oral misrepresentations.
The complaint satisfies Rule 9(b) with regard to the Rule 10b-5 claim asserted against Morton Olshan. The primary focus of the complaint is that omissions and misrepresentations were made in the PPM. Plaintiffs' reference to the PPM satisfies Rule 9(b)'s requirements as to identification of the time, place and content of the alleged misrepresentations. Luce v. Edelstein, 802 F.2d at 55. And, no specific connection between fraudulent misrepresentation in the PPM and a particular defendant is necessary where, as here, the defendant is a director participating in the offer of the securities in question. Id.; Somerville v. Major Exploration, Inc., 576 F. Supp. 902, 911 (S.D.N.Y.1983). Accordingly, the claims grounded in the PPM are sufficiently pleaded to pass muster under Rule 9(b).
And, for the reasons discussed in the motion of Merrill Lynch, plaintiffs' assertion that certain "defendants" made oral misrepresentations at sales presentations also satisfies the requirements of Rule 9(b). Olshan is a director of SBH, which is alleged to have participated in the sales presentations. Accordingly, for the reasons previously discussed, plaintiffs have satisfied the minimal requirements of Rule 9(b) with respect to these claims.
I therefore recommend that the motion of defendant Morton Olshan to dismiss with respect to the Rule 10b-5 claims and Rule 9(b) particularity be denied.
B. Common Law Fraud
Plaintiffs allege that Olshan is liable for State common law fraud. Defendant moves to dismiss this allegation for plaintiffs' failure to plead fraud with particularity.
The elements of a cause of action for fraud in Tennessee are:
1) There must be a representation of an existing or past fact and not an opinion or a conjecture as to future events; 2) the representation must be false; 3) the representation must be in regard to a material fact; 4) there must be proof of fraud; 5) the plaintiff must rely reasonably on the misrepresented material fact; and 6) the plaintiff must suffer damage.
Edwards v. Travelers Insurance of Hartford, Connecticut, 563 F.2d 105 (6th Cir. 1977).
*1345 For the reasons discussed in the previous section, I find that plaintiffs have adequately stated a claim for fraud with respect to the claims grounded in both the PPM and sales presentations. I therefore recommend that this aspect of defendant Morton Olshan's motion be denied.
C. Controlling Person Liability
In addition to Olshan's alleged "direct participation" in securities fraud, plaintiffs allege that he is liable as a "controlling person," stating: "he possessed, directly or indirectly, the power to cause or cause the direction of the management and policies of SBH and its affiliates, and, having such a power, was and is a controlling person subject to liability under the relevant state and federal securities laws...." Complaint at ¶ 3.10(2).[14]
The Sixth Circuit has held:
A director of a corporation is not automatically liable as a controlling person. There must be some showing of actual participation in the corporation's operation or some influence before the consequences of control may be imposed.
Herm v. Stafford, 663 F.2d 669 (6th Cir. 1981).
Defendant asserts dismissal is appropriate as plaintiffs have failed to allege that Olshan either participated in or exerted some influence in the corporation's operation. While it is true that the complaint fails to track the exact language of Herm, it nevertheless avers facts sufficient to raise a genuine issue for trial as to whether Olshan was and is a "controlling person." In reaching this conclusion, I am mindful of the language in Rule 8(f) of the Federal Rules of Civil Procedure which states: "All pleadings shall be so construed as to do substantial justice."
The complaint alleges that Olshan is not only a director of SBH, but that he is also an officer and shareholder of SBH. Complaint at ¶ 3.10. As the PPM, which is part of the complaint makes clear, he is one of only four persons who are officers, directors or shareholders of SBH. See PPM Legal Document at 9-10. In the sales brochure, part of the PPM, Olshan's background is described in detail under the pages headed "Management." Further, the complaint, at Paragraph 3.10, alleges that he is the controlling shareholder of SBH, and that he provided the initial infusion of funds necessary to make the securities offering possible.
The assertions in the complaint and its exhibits make clear that SBH is not a large, public-held corporation with passive directors who are not involved in the company's operations. Rather, the complaint makes clear that SBH is a four-man operation. Certainly, a question of fact exists as to whether, under these allegations set forth in the complaint, Olshan is a "controlling person" within the meaning of the securities laws. See SEC v. Coffey, 493 F.2d 1304, 1318 (6th Cir.1974) (whether a person "controls" another under Section 20(a) is a complex factual question.)
I recommend that this aspect of defendant Olshan's motion to dismiss be denied.
D. Aider and Abettor Liability
Plaintiffs allege in paragraph 3.10 of the complaint that defendant Olshan is liable for aiding and abetting the commission of *1346 unlawful acts. Defendant moves to dismiss this claim on the grounds that plaintiffs have not alleged facts to support each of the elements of the claim for aiding and abetting.
The three elements to a claim of aiding and abetting are:
1) a primary violation by another party;
2) a "general awareness" by the aider and abettor "that his role was part of an overall activity that is improper;" and 3) that the aider and abetter "knowingly and substantially assisted in the violation."
Herm v. Stafford, 663 F.2d at 684; SEC v. Coffey, 493 F.2d at 1315-18; Goldberg v. Meridor, 81 F.R.D. 105, 111, n. 10 (S.D.N. Y.1979). Under Herm, whether a defendant may be held liable as an aider and abettor is a factual question inappropriate for resolution prior to trial. See also Woodward v. Metro Bank of Dallas, 522 F.2d 84, 97 (5th Cir.1975); Tucker v. Janota, [1979 Transfer Binder] Fed.Sec.L.Rep. (CCH), para. 96, 701, at 94, 716 (N.D.Ill. 1978) [1978 WL 1128].
The complaint adequately states a claim for aiding and abetting. Plaintiffs have adequately pleaded primary violations by other parties. They allege that Olshan knew sufficient facts to warrant holding him liable for aiding and abetting, and have provided enough facts for the Court to infer that such indeed was possible. Finally, plaintiffs have adequately alleged that Olshan substantially assisted the violation in that he allegedly provided the initial infusion of funds necessary to make the securities offering possible, and was a "controlling person" in the operation of the project.
I recommend that this aspect of defendant Olshan's motion to dismiss be denied.
III.
Seller Under Section 12(2)
Plaintiffs allege that defendant Olshan is liable as a seller under Section 12(2) of the Securities Act of 1933.[15] Defendant argues that the complaint fails to allege sufficiently that Olshan is a seller.
In order to be liable under Section 12, one must be a "seller" of securities. Davis v. AVCO Financial Services, Inc., supra; Croy v. Campbell, 624 F.2d 709, 712 (5th Cir.1980). AVCO holds that a person may be considered a "seller" under Section 12(2) if his actions were both a cause in fact, and a substantial factor, in the sales transaction. Id., at 1067.
The complaint sufficiently alleges that defendant Olshan is a seller. Plaintiffs have alleged that Olshan was a controlling principal of SBH, and that he provided the initial funds or credit that made it possible for SBH to proceed with the offering. The complaint has sufficiently alleged that "but for" Olshan's activities the offering would not have taken place. Further, the allegations concerning the provision of funds and the ability to control through the status of officer, director and majority shareholder is sufficient to raise a question as to whether Olshan's activities were a substantial factor in causing SBH to engage in the offering.
I respectfully recommend that this aspect of defendant Olshan's motion to dismiss be denied.
IV.
Breach of Contract and Warranty
Count V of the complaint asserts claims for breach of contract and breach of warranty arising out of the plaintiffs' unit sale agreements. Defendant argues Count V *1347 fails to state a claim against Olshan, and plaintiffs agree.
Although plaintiffs have advised via brief that they do not purport to assert a cause of action against Olshan in Count V of the complaint, the language of the complaint is unclear. Therefore, for clarification of the record, the undersigned recommends that the Court enter an order dismissing Olshan from Count V of the complaint.
V.
Fiduciary Duty
The complaint alleges in paragraph 5.25 that SBH, Sandcastle and their principals, breached the fiduciary duties owed to the plaintiffs by erecting the townhouse structure between the hotel and the Gulf of Mexico in a manner that obstructs the view and damages the hotel's value by impairing its marketability and desirability as a resort accommodation. Olshan asserts that the breach of fiduciary duty claims fail to state a claim as to him.
Whether a fiduciary duty exists between plaintiffs and Olshan is a question of Tennessee law. Neither party has briefed this issue with regard to Tennessee law. The undersigned therefore recommends that the Court reserve ruling on this aspect of defendant's motion until such time as the parties have had the opportunity to argue the motion with appropriate Tennessee citations.
RECOMMENDATION
Based on the foregoing analysis, the undersigned respectfully recommends that the motions of defendant Morton Olshan be granted in part and denied in part.
It is recommended that the following claims be dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure:
1) plaintiffs' claims under Section 17(a) of the Securities Act of 1933;
2) plaintiffs' claims under the Tennessee Consumer Protection Act;
3) plaintiffs' claims under the Federal Racketeer Influenced and Corrupt Organizations Act; and
4) plaintiffs' claims for breach of contract and breach of warranty.
It is further recommended that all other claims remain pending in this lawsuit, and that the parties submit additional briefs on the issue of whether a fiduciary duty exists with respect to defendant Morton Olshan under Tennessee law.
MOTION OF DEFENDANT LAVENTHOL & HORWATH TO DISMISS
I.
For the reasons previously discussed in the motion of defendant Merrill Lynch to dismiss, the undersigned recommends that the motion of defendant Laventhol & Horwath ["Laventhol"] to dismiss be granted as it pertains to plaintiffs' claims under Section 17(a) of the Securities Act of 1933, RICO, and the Tennessee Consumer Protection Act.
II.
As with the other defendants, the majority of the claims asserted against Laventhol & Horwath are premised upon fraud. Defendant argues the complaint fails to plead fraud with Rule 9(b) particularity for the claim of primary liability under Section 10(b) and Rule 10b-5, "controlling" person liability, aiding and abetting liability, and common law fraud.
Plaintiffs allege that the PPM contains misrepresentations as to the expected inflation rates for the years 1983-1985, which affected Laventhol & Horwath's rental income projections and feasibility report.[16]*1348 However, the PPM makes it quite clear that Laventhol's projections of potential rental income were speculative in nature. Directly under the computation for projected occupancies and average room rates, at page I-3 of the PPM, appears the following disclaimer:
The projected inflated average room rates could be materially different if significantly higher or lower rates of inflation are actually experienced. Since the actual rates of inflation cannot be predicted with any degree of certainty, no assurance is given that the projected average room rates will not vary materially from those shown above.
Further, in the letter which appears directly before the Laventhol report, is the following language:
The report and accompanying summary are based on estimates, assumptions and other information developed from research of the market, knowledge of the industry and information provided by you and your representatives ... Since the projections are based on estimates and assumptions, which are inherently subject to uncertainty and variation depending upon evolving events, we do not represent them as results that will actually be achieved.
PPM at I-1.
Plaintiffs' claims based on the inflation rates in the PPM do not state a claim for relief under Section 10(b). As evidenced above, the statements clearly caution investors of the speculative nature of the financial projections. When projections in the PPM clearly "bespeak caution," as here, plaintiffs have failed to state a claim under Section 10(b). Luce v. Edelstein, 802 F.2d at 56;[17]Polin v. Conductron Corp., 552 F.2d 797, 806, n. 28 (8th Cir.), cert. denied, 434 U.S. 857, 98 S. Ct. 178, 54 L. Ed. 2d 129 (1977) (quoted approvingly in Goldman v. Belden, 754 F.2d 1059, 1068 (2d Cir.1985)).
The thrust of the complaint against Laventhol relates to the alleged misrepresented inflation rates. At paragraph 4.24 of the complaint, however, plaintiffs assert a few other deficiencies in the Laventhol report.[18] These claims are again either premised on future forecasts, which Laventhol has disclaimed, or are based on negligence. Should plaintiffs contend that the remaining claims are not based on negligence, the undersigned points out that, with respect to these claims, plaintiffs have failed to allege scienter, a necessary element for Section 10(b) and Rule 10b-5 liability. See Lucas v. Florida Power & Light Co., 765 F.2d 1039 (11th Cir.1985).
In addition to Laventhol's alleged "direct participation" in securities fraud, plaintiffs allege Laventhol is liable as a "controlling person." Laventhol argues plaintiffs have failed properly to allege a claim for controlling person liability. The undersigned agrees.
The securities laws impose secondary liability on those persons who, directly or indirectly, control any person liable under any provision of the securities laws. 15 U.S.C. § 78t(a); 15 U.S.C. § 77o; T.C.A. § 48-2-122(g); Herm v. Stafford, 663 F.2d at 669. Again, the Sixth Circuit has held that before controlling person liability may *1349 be imposed, "there must be some showing of actual participation in the corporation's operation or some influence (exerted)." Herm, 663 F.2d at 684.
Here, plaintiffs have wholly failed to plead facts sufficient to allege that Laventhol participated in or exerted even an indirect influence in the operations of SBH, Merrill Lynch, or anyone else. Indeed, plaintiffs have alleged only that Laventhol was "retained by SBH to prepare financial projections and a market study and financial projections to determine the feasibility of constructing the hotel and financing the hotel through the sale of hotel interests." Paragraph 3.6 of the Complaint. Such an allegation simply does not even remotely suggest participation in or influence in the operations of SBH, Merrill Lynch, or anyone else potentially liable under the securities laws.
Finally, plaintiffs allege in paragraph 3.6 of the complaint that defendant Laventhol is liable for aiding and abetting the commission of unlawful acts. Defendant argues that plaintiffs have not alleged facts to support each of the elements of a claim for aiding and abetting. The undersigned agrees.
Again, the three elements to a claim of aiding and abetting are:
1) a primary violation by another party;
2) a general awareness by the aider and abettor that his role was part of an overall activity that is improper; and 3) that the aider and abettor knowingly and substantially assisted the violation.
Herm v. Stafford, 663 F.2d at 684.
Plaintiffs have failed properly to allege a claim for aiding and abetting. Plaintiffs have not alleged any facts supporting the assertion that Laventhol had knowledge that its role was part of an overall improper activity. Mere retention for accounting services is simply not enough to impute knowledge of alleged fraudulent conduct on the part of others. Without some underlying factual basis for believing that Laventhol had a general awareness of the alleged fraudulent activities, plaintiffs' assertions are conclusory, and fail to meet the strictures of Rule 9(b). See generally Luce v. Edelstein, 802 F.2d at 54; The Limited, Inc. v. McCrory Corporation, 683 F. Supp. 387 (S.D.N.Y.1988) (available on WESTLAW). The Limited is a case which is instructive to this case on several points. However, with respect to the claim now under review, the Court held that, "although scienter may be alleged in conclusory terms, Rule 9(b) requires that general averments of scienter be accompanied by detailed factual allegations capable of supporting an inference of fraud."
Having concluded that plaintiffs have failed to plead fraud with the particularity required by Rule 9(b), the Court must next determine whether these claims should be dismissed, or whether plaintiffs should be given the opportunity to remedy the pleading deficiencies. This question was recently addressed by the Sixth Circuit in Michaels Building Co. v. Ameritrust Co., N.A., 848 F.2d 674 (6th Cir.1988).
In Michaels, the Sixth Circuit reversed the District Court for the Northern District of Ohio for being "too exacting" in dismissing a complaint for lack of specificity. Admittedly, the facts of Michaels are different from those at bar. In Michaels, the only fact that plaintiffs omitted from their complaint was the identification of borrowers receiving sub-prime loans. Nevertheless, the opinion contains dictum of potentially far-reaching implication.
The Rule 9(b) analysis in Michaels begins with the admonition that dismissal is inappropriate "unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-102, 2 L. Ed. 2d 80 (1957). The Court then lends its support to the view that where there has been no discovery, and where the facts underlying the claims are within the defendant's control, dismissal is inappropriate. The Court admonishes, however, that there must be a "reasonable basis" for plaintiff's complaint, and defendant must be put on notice of the "nature of the claim." Michaels, at 680.
Clearly, Michaels eschews a draconian application of Rule 9(b). Indeed, the Court states that it does not believe that the *1350 Rulemakers intended the harsh result of the particularity requirement preventing courts from "reaching the truth in the cases before them." Michaels, at 680.
Here, the Court is faced with a dilemna. On the one hand, the complaint under review is the fifth amended complaint of plaintiffs. On the other hand, plaintiffs have never been advised by the Court of the specific pleading deficiencies contained in the complaint, and it is likely that many of the factual details omitted from the pleadings are in the hands of defendant(s). Discovery has been stayed, and a reasonable basis exists for inferring that defendant Laventhol could have been a party to the fraud alleged in the complaint. In any event, it is not "beyond doubt that plaintiff[s] can prove no set of facts in support of the claim which would entitle [them] to relief." See Conley, 355 U.S. at 45-46, 78 S.Ct. at 101-102 (emphasis added). Defendant is, without doubt, apprised of the nature of the claim.
Under these circumstances, I conclude that dismissal should be reserved until such time that plaintiffs have had an opportunity to conduct discovery for 90 days and to file an amended complaint shortly thereafter. This is a longer time period than that espoused in Michaels. Due to the nature of the pleading deficiencies here, however, I believe such additional time is necessary for the parties to produce and review any relevant documents which could remedy the aforementioned pleading deficiencies.
As stated in Michaels, "if plaintiffs' claims are groundless, that conclusion will emerge as discovery proceeds." Michaels, at 680. Further, if, after the commencement of discovery, "plaintiffs are still unable to plead a sufficient factual basis for the allegations made against defendant(s), the spectre of Rule 11 sanctions should guide the actions of plaintiffs' counsel." Id., at 681.
I therefore recommend that defendant's motion to dismiss plaintiffs' securities claims for failure to plead fraud with Rule 9(b) particularity be reserved pending 90 days of discovery and the filing of an amended complaint.
III.
Having concluded that plaintiffs' RICO claims should be dismissed, and that the Court should reserve ruling on the motion to dismiss the securities claims, the motion to dismiss the remaining pendent state law claims is not considered at this time. Should the Court later dismiss the securities claims for failure to plead fraud with particularity, the Court could also, in its discretion, dismiss any remaining pendent claims at that time. United Mine Workers v. Gibbs, 383 U.S. 715, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966). I therefore decline to expend judicial resources on state law issues that may, at a later date, be dismissed as a matter of course.
RECOMMENDATION
Based on the foregoing analysis, I recommend that plaintiffs' claims under RICO, Section 17(a) of the Securities Act of 1933, and the Tennessee Consumer Protection Act be dismissed. I further recommend that a ruling on defendant's motion to dismiss be in all other respects reserved, pending 90 days of discovery and the filing of an amended complaint.
MOTION OF DOMINION FEDERAL SAVINGS & LOAN ASSOCIATION TO DISMISS
I.
For the reasons previously discussed in the motion of defendant Merrill Lynch to dismiss, I recommend that plaintiffs' claims under Section 17(a) of the Securities Act of 1933, the Tennessee Consumer Protection Act, and the Federal Racketeer Influenced and Corrupt Organizations Act be dismissed.
II.
Plaintiffs allege in paragraph 3.5 of the complaint that defendant Dominion Federal is 1) primarily liable under Section 10(b) *1351 and Rule 15b-5;[19] 2) as a controlling person; and 3) for aiding and abetting. Defendant Dominion Federal adopts the arguments set forth in the brief of Merrill Lynch, and moves to dismiss these claims for failure to plead fraud with Rule 9 particularity.
As alleged in the complaint, defendant Dominion Federal ["Dominion"] played an extremely limited role in this securities offering. Dominion was the lending institution making loans available to plaintiffs who wished to purchase hotel interests. Plaintiffs urge the Court to view Dominion as a central figure in a three-way scheme (SBH-Merrill Lynch-Dominion) to defraud investors, in that an agreement was reached whereby Dominion would be the sole lending institution for plaintiffs seeking loans to finance their hotel interests. Plaintiffs have wholly failed to allege any facts to support a conclusion of fraud, however.
The complaint is void of any allegation that Dominion participated in the preparation of the PPM, that it distributed it, or was aware of its contents. There is further no allegation that Dominion participated in the actual sales of the securities, or attended sales presentations. Indeed, I have found no allegation of fraudulent conduct on the part of Dominion anywhere in the complaint.
As to the allegations of controlling person liability, the complaint is void of any facts to suggest that Dominion participated in, or exerted an influence in the operations of SBH, Merrill Lynch, or anyone else. A bank which provides routine lending services to a broker is simply not liable as a "controlling person" within the meaning of the securities laws. Wright v. Schock, 571 F. Supp. 642 (N.D.Calif.1983).
Nor have plaintiffs adequately pleaded facts to suggest that Dominion is liable as an aider and an abettor. Plaintiffs allege that Dominion "knew or should have known facts sufficient to provide [it] with notice of the securities law violations that were committed in connection with such sales...." Plaintiffs have failed to provide any facts in support of this assertion, however. An agreement to serve as the lending institution simply is insufficient to impute knowledge of others' wrongs. Without some underlying reason for this Court to believe Dominion knew or should have known of others' alleged wrongs, the claims are inadequately pleaded. See Luce, 802 F.2d at 54; Segal v. Gordon, 467 F.2d 602, 608 (2d Cir.1972); The Limited, Inc., supra.
For the reasons enumerated in the motion of defendant Laventhol to dismiss, I recommend that defendant's motion to dismiss plaintiffs' securities claims for failure to plead fraud with Rule 9(b) particularity be reserved pending 90 days of discovery and the filing of an amended complaint.
III.
Having concluded that plaintiffs' RICO claims should be dismissed, and that the Court should reserve ruling on the motion to dismiss the securities claims, the motion to dismiss the remaining pendent claims is not considered at this time. Should the Court later dismiss the securities claims for failure to plead fraud with particularity, the Court could also, in its discretion, dismiss any remaining pendent claims at that time. United Mine Workers v. Gibbs, 383 U.S. 715, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966). I therefore decline to expend judicial resources on state law issues that may, at a later date, be dismissed as a matter of course.
RECOMMENDATION
Based on the foregoing analysis, I recommend that plaintiffs' claims under RICO, Section 17(a) of the Securities Act of 1933, and the Tennessee Consumer Protection Act be dismissed. I further recommend that a ruling on defendant's motion to dismiss be in all other respects reserved, pending 90 days of discovery and the filing of an amended complaint.
*1352 PLAINTIFFS' MOTION TO DISMISS THE DEFENDANTS' COUNTERCLAIM
Defendants Flautt, Mann, William Alias and Fred Alias have filed a counter-complaint based upon the tort of interference with prospective business advantage. The act claimed to constitute the tort is the act of filing this lawsuit. It is alleged that the lawsuit is groundless, and that it operates to interfere tortiously with the business relationships of these individual defendants, specifically with their ability to sell condominium units to the East of the Sandestin Beach Hilton Hotel, and to develop 3.77 acres to the West of the Hotel. Plaintiffs argue that defendants have failed to state a claim upon which relief can be granted. The undersigned agrees.
Without doubt, this motion presents a novel question to this Court: Can defendants counterclaim for tortious interference with prospective business relationships for the filing of an allegedly groundless lawsuit, and survive a motion to dismiss? The question is properly broken down into three component questions. First, do Tennessee courts recognize the tort of interference with prospective business advantage? Second, if Tennessee courts recognize the tort, does the tort apply to groundless civil lawsuits? Third, if Tennessee courts recognize the tort, and apply it to groundless civil lawsuits, can defendants assert the tort as the basis of a counterclaim in the allegedly groundless suit.
A person is liable for the tort of interference with prospective business advantage if, without privilege to do so, he induces a third person not to enter into a business relation with another. Cesnik v. Chrysler Corporation, 490 F. Supp. 859, 874 (M.D. Tenn.1980). The elements of the tort are:
1) the existence of a business relationship (not necessarily reduced to a contract); 2) that the defendant knew about this relationship; 3) that the defendant intended to interfere with this relationship or knew with a substantial certainty that his actions would interfere; 4) that this intended interference was improper or unprivileged; 5) the interference must be malicious; 6) the interference must induce or otherwise cause the damage; and 7) damage must result.
See, Restatement (2d) of Torts §§ 766, 766(b) and 767 and Comments thereto (1977). Justification or privilege is a defense to the tort.
It is unclear whether Tennessee courts recognize the tort of interference with prospective business advantage. Plaintiffs cite Taylor v. Nashville Banner Publishing Co., 573 S.W.2d 476, 485 (Tenn.App. 1978) for the proposition that the tort may not exist in Tennessee. In Taylor, the Tennessee Court of Appeals, Middle Section, held:
... we note our agreement with the trial court's grant of summary judgment in defendant's favor on the cause of action for intentional interference with prospective advantage. Plaintiff has presented no evidence to raise an issue of material fact on any of the elements of that tort in the instant case. See Prosser, supra, § 130. He has cited no authority in support of this cause of action, nor even any to show that such a tort exists in Tennessee.
Id., at 485. The Tennessee Court of Appeals thus left the question largely open. On the one hand, the Court analyzed the claim, thus indicating that the tort was not wholly obscure. On the other hand, the Court noted that it was unaware of any cases recognizing the tort in Tennessee.
Since Taylor, this Court has had occasion to consider the tort of interference with prospective business relations. In Cesnik, Chief Judge Wiseman held that the tort was indeed a part of Tennessee's substantive law. Cesnik, 490 F. Supp. 874. The Court noted that Tennessee has not developed any substantial body of law regarding the tort, yet recognized that substantial case law had developed with respect to the tort of interference with existing contractual relations. Implicitly likening the one tort to the other, and borrowing the elements of the tort from the Second Restatement of Torts, the Court clearly held that the tort was recognized in Tennessee.
*1353 More recently, however, the Tennessee Court of Appeals again has expressed its doubts as to whether the tort exists in Tennessee. In Hicks v. Metropolitan Government of Nashville and Davidson County, No. 86-49-II (Tenn.Ct.App. Oct. 3, 1986) [1986 WL 10885], Judge Ben Cantrell analyzed a claim based on the tort "assuming this tort is recognized in Tennessee." Slip Op. at 6. Whether the tort of interference with respect to business advantage is recognized by the courts of Tennessee is therefore unclear.
Assuming arguendo that the tort exists in Tennessee, no Tennessee court has come even close to applying it to groundless civil lawsuits. Indeed, the most apposite Tennessee case would seem to go the other way. See Lann v. Third National Bank, 198 Tenn. 70, 277 S.W.2d 439 (1955). Defendants have called the Court's attention to the comments of the Restatement. These comments do indeed note that one of the early bases of the tort was the filing of improper lawsuits. The authority to support such a theory is, however, scant, and to say the least, very old.
The Tennessee courts have recognized only two tort actions that may be brought to obtain redress for the alleged misuse of legal process by another: abuse of process and malicious prosecution. Donaldson v. Donaldson, 557 S.W.2d 60, 62 (Tenn.1977). To hold that the tort of interference with prospective business advantage also applies, would certainly be a radical extension of the now existing law in Tennessee.
Assuming arguendo that the tort does apply in Tennessee to groundless civil lawsuits, however, it simply cannot form the basis of a counterclaim in the allegedly groundless action. My own research has revealed two cases which make this point clear: Griffin v. Rowden, 702 S.W.2d 692 (Tex.App. 5 Dist.1985); and Woodcourt II, Ltd. v. McDonald Co., 119 Cal. App. 3d 245, 173 Cal. Rptr. 836 (1981).
In Griffin, a contractor sued some oil and gas lessees for breach of an oil and gas farm-out contract, and the leasees counterclaimed, inter alia, for tortious interference with advantageous business relationships. The first act claimed to constitute the tort was the filing of the allegedly frivolous lawsuit and notice of lis pendens against the mineral leases held by the defendants. The Court squarely held that lis pendens is absolutely privileged in an action for tortious interference with contract. To support this holding, the Court quoted from a Texas Supreme Court decision which held that "good faith litigants should be assured access to the judicial system." 702 S.W.2d 695 (citing Sakowitz, Inc. v. Steck, 669 S.W.2d 105, 107 (Tex.1984)).
In Woodcourt II, it was alleged that the recording and maintenance of lis pendens constituted intentional interference with prospective economic and business advantage. The Court held:
Our courts have concluded that ... the public policy of affording litigants the utmost freedom of access to the courts to secure their rights and defend without fear of being harassed by defamation actions underlying recognition of this privilege outweighs any public policy which might support appellant's position.
Woodcourt II, 119 Cal.App.3d at 249, 173 Cal.Rptr. at 838. The Court in Woodcourt II thus "recognized that access to courts without fear of defamation actions outweighs the danger of interference in the affairs of others." 702 S.W.2d at 695.
The undersigned construes these cases to mean that a pending lawsuit is absolutely privileged, and cannot constitute interference with prospective business relations as a matter of law. To hold otherwise would be tantamount to opening the floodgates to a whole barrage of premature claims filed by dissatisfied defendants. Such an in terrorem effect directly conflicts with the public policy of assuring good-faith litigants access to the courts.
I therefore conclude that the counterclaim in this action should be dismissed. It is unclear whether the tort of interference with prospective business advantage exists in Tennessee. Assuming arguendo that the tort exists, it is doubtful whether Tennessee courts would apply the tort to groundless civil lawsuits. However, even assuming that the tort would be recognized *1354 as applying to groundless civil lawsuits, I am convinced that the tort could not be raised as a counterclaim in the alleged groundless lawsuit.
RECOMMENDATION
Based on the foregoing analysis, I respectfully recommend that plaintiffs' motion to dismiss the defendants' counterclaim be granted.
RECOMMENDATION
Based on the foregoing analysis, the undersigned respectfully recommends that the motion of defendant Merrill Lynch be granted in part, and that the following claims be dismissed from this lawsuit pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure:
1) plaintiffs' claims under Section 17(a) of the Securities Act of 1933;
2) plaintiffs' claims under the Tennessee Consumer Protection Act;
3) plaintiffs' claims under the Racketeer Influenced and Corrupt Organizations Act; and
4) plaintiffs' claims of respondeat superior liability based on the conduct of Michael Williams.
The undersigned respectfully recommends that, with respect to the motion of defendant Morton Olshan to dismiss, the following claims be dismissed:
1) plaintiffs' claims under Section 17(a) of the Securities Act of 1933;
2) plaintiffs' claims under the Tennessee Consumer Protection Act;
3) plaintiffs' claims under the Racketeer Influenced and Corrupt Organizations Act; and
4) plaintiffs' claims for breach of contract and breach of warranty found in Count V of the Comprehensive Amended Complaint.
The undersigned respectfully recommends that the motion of defendant Laventhol & Horwath be granted as it pertains to plaintiffs' claims under Section 17(a) of the Securities Act of 1933, the Tennessee Consumer Protection Act, and the Racketeer Influenced and Corrupt Organizations Act. I further recommend that a ruling on defendant's motion to dismiss be in all other respects reserved, pending 90 days of discovery and the filing of an amended complaint.
The undersigned respectfully recommends that the motion of defendant Dominion Federal Savings & Loan Association to dismiss be granted as it pertains to plaintiffs' claims under Section 17(a) of the Securities Act of 1933, the Tennessee Consumer Protection Act, and the Racketeer Influenced and Corrupt Organizations Act. I further recommend that a ruling on defendant's motion to dismiss be in all other respects reserved, pending 90 days of discovery and the filing of an amended complaint.
It is respectfully recommended that plaintiffs' motion to dismiss the defendants' counterclaim be granted, and that the counterclaim be dismissed.
OBJECTIONS
ANY OBJECTIONS to this Report and Recommendation must be filed with the Clerk of Court within ten (10) days of receipt of this notice, and must state with particularity the specific portions of this report, or the proposed findings or recommendation to which objection is made. Failure to file objections within the specified time waives the right to appeal the District Court's order. See Thomas v. Arn, 474 U.S. 140, 106 S. Ct. 466, 88 L. Ed. 2d 435 (1985); United States v. Walters, 638 F.2d 947 (6th Cir.1981).
NOTES
[1] A companion case, McInnis v. Merrill Lynch, Pierce, Fenner & Smith, 706 F. Supp. 1355, was filed in the Northern District of Alabama and later transferred to this Court. Although McInnis arose from the same factual situation, it has not been consolidated with the present case except for limited purposes during discovery. Unlike the present case, McInnis is a class action.
[2] Defendant Sandcastle, a Florida corporation, is an affiliate of Sandestin and was responsible, along with Sandestin, for devising the plan by which the hotel was developed, financed, and managed. Sandcastle, pursuant to the COA Management Agreement, is responsible for managing the hotel's common area operations. This management arrangement was established prior to construction of the hotel and prior to the plaintiffs' purchase of their hotel interests.
[3] Argument on the motion of the Sandestin Beach Hotel defendants for summary judgment was reserved pursuant to the Court's order of May 14, 1987, regarding scheduling and case management. That order provides at paragraph ten that "the Court shall reserve ruling on any pending motions for summary judgment until the parties have had a reasonable opportunity to complete discovery pertaining to such motions." Because the stay of discovery has not yet been lifted, the Magistrate was of the opinion that the defendants' motion was not yet ripe for consideration.
[4] For example, in deciding the Kirshner case, the Second Circuit devoted all of two paragraphs to the question. Kirshner, supra, 603 F.2d at 241. The majority referred to Judge Friendly's widely-noted concurring opinion in S.E.C. v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir.1968), in which he said that "once it had been established ... that an aggrieved buyer has a private action under § 10(b) of the 1934 Act [which no one denies] there seemed little practical point in denying the existence of such an action under § 17...." Texas Gulf Sulphur, 401 F.2d at 867. (Friendly, J., concurring).
It seems to this Court that too little attention has been paid to the presence of the word "practical" in Judge Friendly's sentence. His remark may better be understood as a mild criticism of the statutory scheme than as a judgment that the private cause was intended. That seems to have been the position of Judge Friendly himself in later cases. In one instance, he criticized the Kirshner decision, saying that in view of the Supreme Court's reservation of the issue it "may be open to reexamination." Yoder v. Orthomoleculer Nutritional Institute, Inc., 751 F.2d 555, 559 (2d Cir.1985).
[5] In Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S. Ct. 2479, 61 L. Ed. 2d 82 (1979), the court, in rejecting a private cause of action under § 17(a) of the 1934 Act, held that the four Cort factors are not of equal weight. Factors indicating the intent of Congress are more important than the question of whether or not the cause was traditionally relegated to state law. See also Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S. Ct. 242, 62 L. Ed. 2d 146 (1979).
[6] The annotation in the short title of the Act, Tenn.Code Ann. § 48-2-101, lists the following states as having "comparable" legislation: Alabama, Arkansas, Georgia, Kentucky, Mississippi, Missouri, North Carolina and Virginia.
[7] Note that because of White the continued vitality of the two Northern District of Alabama cases cited supra is in question. Alabama, of course, is no longer in the Fifth Circuit. Even so, a recent decision in that district applied the limitations period of the blue-sky law. Hunt v. American Bk. & Trust Co. of Baton Rouge, 606 F. Supp. 1348 (N.D.Ala.1985).
[8] It may, however, be appropriate to add that at least one court has explicitly rejected the argument that supplying a misleading prospectus to a given number of buyers generates an equal number of distinct predicate offenses under RICO. International Data Bank, Ltd. v. Zepkin, 812 F.2d 149, 154 (4th Cir.1987).
[9] Indeed, one defendant (Dominion) has filed a limited objection to that effect.
[10] However, the Court's patience as to amendments will be exhausted with the sixth bite, and plaintiffs are so noticed.
[1] On October 1, 1987, plaintiffs filed a notice of voluntary dismissal as to defendant Michael Williams, thereby mooting the motion of defendant Michael D. Williams to dismiss.
Argument on the motion of the Sandestin Beach Hotel defendants for summary judgment was reserved pursuant to the Court's Order of May 14, 1987, regarding scheduling and case management. That Order provides, at paragraph 10 that, "the Court shall reserve ruling on any pending motions for summary judgment until the parties have had a reasonable opportunity to complete discovery pertaining to such motions." Because the stay of discovery has not yet been lifted, the motion of the Sandestin Beach Hotel defendants for summary judgment is not ripe for consideration at this time.
[2] This case was originally filed in the Middle District of Tennessee by three Tennessee residents. As the case grew to 113 plaintiffs, the companion case, McInnis v. Merrill Lynch, 706 F. Supp. 1355 was transferred to this District from The Northern District of Alabama at Birmingham. Unlike Nichols, McInnis has been certified as a class action.
[3] By "complaint" is meant the Comprehensive Amended Complaint filed by plaintiffs on January 30, 1987.
[4] SBH is a defendant, and is a Florida corporation with its principal place of business in Destin, Florida. SBH was formed to develop the hotel and to manage the hotel's room rental operations. SBH was responsible for structuring the hotel's condominium regime and was responsible for all aspects of the development, construction and financing of the hotel.
[5] Defendant Sandcastle is an affiliate of SBH and was responsible, along with SBH, for devising the plan by which the hotel was developed, financed, and managed. Sandcastle, pursuant to the COA Management Agreement, is responsible for managing the hotel's common area operations. This management arrangement was established prior to construction of the hotel and prior to the plaintiffs' purchase of their hotel interests.
[6] Even were reference alone insufficient, plaintiffs have provided Merrill Lynch with the date the PPM was issued (Complaint at ¶ 2.5), the content of the fraud (Complaint at ¶ 4.1 et seq.), and the place of the fraud (Complaint at ¶ 1.2).
[7] Section 17(a) provides:
It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly
1) to employ any device, scheme, or artifice to defraud, or
2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.
15 U.S.C. § 77q(a).
[8] Of the Circuits that have examined whether Section 17(a) provides a private cause of action, only the Fifth Circuit has applied the Cort test.
[9] The parties have not had the opportunity to argue, so I have not considered, the Third Circuit's recent decision, In re Data Access Systems Securities Litigation, 843 F.2d 1537 (3d Cir. 1988). In that case, the Third Circuit determined that, rather than borrowing a limitations period from state law for complaints asserting violations of Section 10 and Rule 10b-5, the uniform period found in the companion provisions of the 1934 statute, which is one year after discovery of facts constituting the violation and in no event more than three years after such violation, is the appropriate limitations period. The decision is sound and persuasive. However, due to the possible retroactivity concerns if applied to this litigation, I decline to consider the decision without briefs from counsel.
[10] Due to the State's substantial interest in this question, an amicus curiae brief has been filed by the Office of the Attorney General and Reporter. The State argues, as do plaintiffs, that T.C.A. § 47-18-111 does not exempt securities from the scope of the TCPA.
[11] In making this recommendation, I am mindful that the State Attorney General's Office has reached an opposite conclusion. This would indeed prove troublesome had the State considered the TCPA in light of T.C.A. § 47-18-115, as well as T.C.A. § 47-18-111. The State did not, however. Instead, the issue at bar was only analyzed by the State in terms of T.C.A. § 47-18-111.
The reasoning of the insurance cases cited by the State makes an interesting argument that securities are not exempted from the TCPA by virtue of T.C.A. § 47-18-111. However, securities transactions are a wholly different animal from insurance transactions, and special and additional considerations apply. Had the State focused its attention on these special and additional considerations, I believe a different result should have and would have been reached.
[12] The concensus among Courts within the Sixth Circuit seems to be that more than one such scheme is necessary to meet the RICO pattern requirement. See e.g., Cincinnati Gas & Electric Co. v. General Electric Co., 656 F. Supp. 49 (S.D.Ohio 1986) ("although all courts are not in agreement on this issue, until this question is resolved by the courts or Congress we ... find that more than one transaction or ... episode is required to constitute a pattern of racketeering activity." Id., at 79); McIntyre's Mini Computer v. Creative Synergy Corp., 644 F. Supp. 580 (E.D. Mich.1986) (separate acts in furtherance of the same criminal episode or transaction do not constitute a "pattern" of racketeering activity under RICO); Zahra v. Charles, 639 F. Supp. 1405 (E.D.Mich.1986) (separate acts in furtherance of the same criminal episode or transaction do not constitute a "pattern" of racketeering activity); In re Evening News Association Tender Offer Litigation, 642 F. Supp. 860 (E.D. Mich.1986) (a "pattern of racketeering activity" requires more than a single episode ... even if the episode consists of more than one indictable act); Millers Cove Energy Co. v. Domestic Energy Service Co., 646 F. Supp. 520 (E.D.Mich.1986) (RICO requires more than a single episode of racketeering activity).
[13] It is noted that a RICO claim was not alleged in the companion case, McInnis v. Merrill Lynch, 706 F. Supp. 1355.
[14] Section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t(a), provides:
Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.
Congress modeled Section 20(a) upon Section 15 of the Securities Act of 1933, 15 U.S.C. § 77o which reads:
Every person who, by or through stock ownership, agency, or otherwise, or who, pursuant to or in connection with an agreement or understanding with one or more persons by or through stock ownership, agency, or otherwise, controls any person liable under §§ 77k or 77l of this title, shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.
[15] Section 12(2) provides, in pertinent part:
Any person who (2) offers or sells a security ... by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him ...
15 U.S.C. § 77l (1982).
[16] The complaint states, at paragraph 4.23:
Among other things, the Laventhol & Horwath rental income projections and feasibility report were based upon assumed inflation rates of 12 percent for 1983, 10 percent for 1984 and 9 percent annually thereafter through 1989. The actual rate of inflation in the consumer price index for 1983 was 3.2 percent, for 1984 was 4.3 percent and for 1985 was 3.6 percent. The actual rate of inflation in the consumer price index for 1982 was 6.1 percent. As of the date of the PPM, the defendants knew, or should have known, that it was wholly unreasonable and reckless to project rental income from the hotel based upon the assumption that inflation rates would be as projected in the PPM.
[17] Luce held that allegations that the offering memoranda in that litigation contained intentional misrepresentations as to potential cash and tax benefits did not state a claim under Section 10(b) where the memoranda made it quite clear that its projections of potential cash and tax benefits were necessarily speculative and that no assurance could be given that the projections would be realized. Luce, 802 F.2d at 56.
[18] Paragraph 4.24 of the complaint provides:
In addition, the room rates, expenses, gross and net income, other financial aspects, and growth rates contained in the financial projections were unrealistic in view of the actual peak season for the area, the region's average yearly rates, and other factors. The PPM also failed to adequately disclose that rental rates of similar size rooms would vary and that relatively small variances in room rates for hotel occupancy could materially alter the financial results for the hotel. The PPM did not adequately inform investors of the amount of variance in room rates or occupancy necessary to cause a material deviation from the financial projections as set forth in the PPM.
[19] It is actually unclear whether plaintiffs intend to pursue this claim, as it was not discussed at oral argument. The undersigned will nevertheless consider the claim as it appears in paragraph 3.5(1) of the complaint. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589111/ | 972 So.2d 196 (2008)
BARNETT
v.
STATE.
No. 4D07-4035.
District Court of Appeal of Florida, Fourth District.
January 2, 2008.
Decision without published opinion. Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589033/ | 14 So.3d 1014 (2009)
J.P.
v.
STATE.
No. 3D08-3196.
District Court of Appeal of Florida, Third District.
August 12, 2009.
Decision without published opinion Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1018956/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-4750
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
RAYSHAWN R. WILLIAMS,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond. Henry E. Hudson, District
Judge. (CR-04-397)
Submitted: March 30, 2006 Decided: April 5, 2006
Before TRAXLER, GREGORY, and SHEDD, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Taylor B. Stone, BREMNER, JANUS, COOK & MARCUS, Richmond, Virginia,
for Appellant. Paul J. McNulty, United States Attorney, Michael
Steven Dry, Stephen W. Miller, Assistant United States Attorneys,
Christopher M. Kelly, Third-Year Law Student, Richmond, Virginia,
for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Rayshawn R. Williams appeals his jury conviction and
fifty-seven month sentence for being an unlawful user of narcotics
in possession of a firearm, in violation of 18 U.S.C. § 922(g)(3)
(2000). Williams’ attorney has filed a brief in accordance with
Anders v. California, 386 U.S. 738 (1967), asserting the evidence
was insufficient to support his conviction and challenging the
district court’s obstruction of justice enhancement of Williams’
sentence, but stating that he found no meritorious grounds for
appeal. Williams did not file a pro se supplemental brief despite
being notified of his opportunity to do so. Finding no reversible
error, we affirm.
Construing the evidence in the light most favorable to
the Government, we conclude that the evidence was sufficient to
support Williams’ conviction. Glasser v. United States, 315 U.S.
60, 80 (1942); United States v. Romer, 148 F.3d 359, 364 (4th Cir.
1998) (holding that appellate court does not review credibility of
witnesses and assumes jury resolved all contradictions in
testimony in favor of the government). The parties stipulated that
Williams was a user of illegal drugs at the time of his arrest and
that the firearm affected interstate commerce, and one police
officer testified Williams admitted he had obtained the gun.
Williams also asserts that the district court erroneously
determined that he testified falsely and in applying an obstruction
- 2 -
of justice enhancement pursuant to U.S. Sentencing Guidelines
Manual § 3C1.1. When the guidelines are applied as advisory, the
court need only make factual findings by a preponderance of the
evidence, United States v. Bryant, 420 F.3d 652, 655-56 (7th Cir.
2005), and its fact finding concerning obstruction of justice is
reviewed for clear error, United States v. Hughes, 401 F.3d 540,
560 (4th Cir. 2005). We find no such error. The testimony of
arresting police officers conflicted with Williams’ testimony that
he was not given Miranda warnings and that he had told the officers
he knew nothing of the gun. By convicting him, the jury clearly
rejected Williams’ testimony.
In accordance with Anders, we have reviewed the entire
record in this case and have found no meritorious issues for
appeal. We therefore affirm Williams’ conviction and sentence.
This court requires that counsel inform his client, in writing, of
his right to petition the Supreme Court of the United States for
further review. If the client requests that a petition be filed,
but counsel believes that such petition would be frivolous, then
counsel may move in this court for leave to withdraw from
representation. Counsel’s motion must state that a copy thereof
was served on the client. We dispense with oral argument because
- 3 -
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/1025042/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-7645
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
JAMES GORMLEY,
Defendant - Appellant.
Appeal from the United States District Court for the Southern
District of West Virginia, at Huntington. Robert C. Chambers,
District Judge. (3:98-cr-00152-2; 3:03-cv-00340)
Submitted: February 14, 2008 Decided: February 29, 2008
Before NIEMEYER, MOTZ, and SHEDD, Circuit Judges.
Affirmed by unpublished per curiam opinion.
James Gormley, Appellant Pro Se. Philip Henry Wright, OFFICE OF
THE UNITED STATES ATTORNEY, Charleston, West Virginia, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
James Gormley appeals from the district court’s entry of
judgment on his 28 U.S.C. § 2255 (2000) motion for relief from
judgment. The district court awarded a certificate of
appealability (“COA”) to Gormley on his contention that trial
counsel rendered constitutionally ineffective assistance of counsel
when he failed to persuade the trial court to accept his “theory of
the defense” instruction and failed to preserve the issue for
appeal. We deny relief on this issue and affirm.
In an appeal from the denial of a § 2255 motion, we
review de novo the district court’s legal conclusions. United
States v. Poindexter, 492 F.3d 263, 267 (4th Cir. 2007). In order
to succeed on a claim of ineffective assistance, a defendant must
show that his counsel’s performance fell below an objective
standard of reasonableness and that counsel’s deficient performance
was prejudicial. Strickland v. Washington, 466 U.S. 668, 687
(1984). Under the first prong of Strickland, there is a strong
presumption that counsel’s conduct falls within the wide range of
reasonable professional assistance. Id. at 689. To satisfy the
second prong, the defendant must show that there is a reasonable
probability that his attorney’s errors altered the outcome of the
proceeding. Id. at 694.
Having reviewed the record and the district court’s
decision, we conclude that Gormley cannot establish that trial
- 2 -
counsel was ineffective in his conduct regarding a “theory of the
defense” instruction.* Thus, we affirm the portion of the district
court’s order rejecting this claim for the reasons stated by the
district court. United States v. Gormley, Nos. 3:98-cr-00152-2;
3:03-cv-00340 (S.D. W. Va. June 22, 2006). 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
*
In addition, to the extent that appellate counsel’s failure
to raise this issue on appeal was included in the district court’s
certificate of appealability, we find that this claim fails under
Strickland, as well.
- 3 - | 01-03-2023 | 07-05-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1646389/ | 9 So.3d 577 (2007)
GABRIEL MORENO
v.
STATE.
No. CR-05-1494.
Court of Criminal Appeals of Alabama.
April 18, 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/1919207/ | 106 B.R. 16 (1989)
In re Gloria Bermudez BAEZ, Debtors.
Bankruptcy No. B-88-03148(ESL).
United States Bankruptcy Court, D. Puerto Rico.
July 6, 1989.
*17 Lysette Morales Vidal, Caguas, P.R., for debtor.
Victor Gratacos Diaz, Caguas, P.R., for Metropolitana de Prestamos.
OPINION AND ORDER
ENRIQUE S. LAMOUTTE, Bankruptcy Judge.
This case came before the Court on May 16, 1989 for a hearing to consider the confirmation of debtor's chapter 13 plan and the opposition thereto by secured creditor Metropolitana de Prestamos ("Metropolitana"), and also the motion to lift stay filed by Metropolitana (Index A). Arguments by counsel were heard during the morning and an evidentiary hearing was held during the afternoon. The Court consolidated both issues as it found that the evidence to be presented was substantially the same for the two. After considering the evidence, counsels' arguments and the post hearing memoranda, the Court now enters the following findings of fact and conclusions of law.
Findings of Fact
The parties have stipulated that the following facts are uncontested.
1. The debtor filed a petition under chapter 13 of the Bankruptcy Code on October 21, 1988.
2. The debtor's chapter 13 plan proposes to pay Metropolitana de Prestamos the amount of $12,013.00, of which $10,340.00 corresponds to principal and $1,673.00 to interest computed at the yearly rate of 10%. The amount will be paid in 36 equal monthly installments.
3. On June 30, 1988 the debtor purchased from Audi Volkswagen de Puerto Rico a 1988 V.W. Jetta, Model 1674V3 for a cash total price of $16,510.00.
4. The 1988 V.W. Jetta was pledged as collateral to a conditional sales contract with Banco Popular de Puerto Rico, which contract was subsequently assigned to movant Metropolitana. The validity of the security agreement is not in question.
5. The debtor has not made any payments to Metropolitana since the filing of the petition.
6. The value of the collateral, that is, the 1988 V.W. Jetta, is less than the balance owed to Metropolitana on its conditional sales contract.
Upon the evidence presented at the hearing, the Court makes the following additional findings of fact:
7. The first payment on the conditional sales contract in the amount of $426.80 was due on August 25, 1988. Thereafter, Ms. Gloria Bermudez had to make 59 monthly payments of $386.00 each.
8. The balance owed to Metropolitana is $23,200.89.
*18 9. The value range of the car is not less than $10,340.00 and not more than $13,500.00.
10. The debtor is a retired registered nurse. Her principal sources of income are retirement and pension benefits.
11. Ms. Gloria Bermudez signed the loan application in blank.
12. Ms. Gloria Bermudez claims that she did not know that the car was so expensive. The Court does not give any credibility to this assertion. Although an individual may not be fully aware of the fine print in a contract, there are certain basic figures which any person knows when buying and financing a car. Definitely, the price and the monthly installments must have been known to the debtor.
Issues
The issues before the Court are whether or not the stay should be lifted in favor of Metropolitana and whether or not the plan should not be confirmed for lack of good faith under 11 U.S.C. § 1325(a)(3).
Motion to Lift Stay
Pursuant to Section 362(d) of the Bankruptcy Code, there are two basic grounds in order for a creditor to obtain relief from the automatic stay provisions of Section 362(a). First, for cause (including lack of adequate protection); and, second, with respect to a stay of an act against property, if the debtor does not have an equity in such property and the property is not necessary to an effective reorganization. Pursuant to Section 362(g), the movant has the burden of proof on the issue of equity in the property, and the respondent has the burden on all other issues. The Court finds that movant has established both grounds to lift the stay.
Lack of good faith may constitute "cause" to lift the stay under Section 362(d)(1). Matter of Three Star Telecast, Inc., 73 B.R. 270, 273 (Bankr.D.P.R.1987). Moreover, failure to make regular payments to a secured creditor for a substantial period of time also constitutes "cause" to lift the stay. Matter of Sierra, 73 B.R. 322, 323 (Bankr.D.P.R.1987). In this case the debtor has not made any payments to Metropolitana. She claims that she did not know that the car was so expensive. The Court does not believe such a statement and does find that debtor never had a serious intention of making payments to the secured creditor on the conditional sales contract. Such an action raises the inference of and denotes lack of good faith. Additionally, the debtor has failed to make any payments, that is, no payments for the three (3) months preceding the filing of the bankruptcy petition and for nine (9) months up to the filing of the chapter 13 plan. Although the number of payments is much less than the twenty nine (29) months in Matter of Sierra, supra, the fact that not even the initial payment was made, weighs heavily upon this Court's finding that in this case failure to make regular payment to movant does constitute "cause" to lift the stay.
Movant has also satisfied the requirements of 11 U.S.C. § 362(d)(2). It is an uncontested fact that there is no equity in the property (see finding of fact number six). On the other hand, debtor/respondent has failed to meet her burden to establish that the car is needed for an effective reorganization. The main source of debtor's income is from retirement and government pensions. Also, she receives help in the amount of $300.00 from her son. The use of a car has not been established as being needed to procure any income to fund the plan. Debtor's testimony that she needs the car as a means of transportation establishes, at best, a convenience, not a necessity. Accordingly, the movant is entitled to have the stay lifted pursuant to 11 U.S.C. § 362(d)(2).
Confirmation of Chapter 13 Plan
Pursuant to 11 U.S.C. § 1325(a)(3) the Court shall confirm a plan if it has been proposed in good faith and not by any means forbidden by law. The term "good faith" is not defined in the Bankruptcy Code but has been construed as portending that the plan proposes to make meaningful payments to creditors after considering the debtor's entire circumstances. In re Rimgale, *19 669 F.2d 426, 432 (7th Cir.1982). The Court has an independent duty to determine whether a chapter 13 plan is proposed in good faith. In re Stein, 91 B.R. 796 (Bankr.S.D.Ohio 1988). The bankruptcy court's duty in making a "good faith" determination under 11 U.S.C. § 1325(a)(3) is to make a thorough analysis and consideration of the totality of the circumstances. Matter of Smith, 848 F.2d 813 (7th Cir. 1988); In re Doersam, 849 F.2d 237 (6th Cir.1988); In re Caldwell, 851 F.2d 852 (6th Cir.1988). The courts have developed a nonexclusive list of factors to consider when deciding whether a proposed chapter 13 plan complies with the good faith requirement. The Court in In re Kitchens, 702 F.2d 885, at 888-889 (11th Cir.1983) listed the following factors:
"(1) the amount of the debtor's income from all sources;
(2) the living expenses of the debtor and his dependents;
(3) the amount of attorney's fees;
(4) the probable or expected duration of the debtor's Chapter 13 plan;
(5) the motivations of the debtor and his sincerity in seeking relief under the provisions of Chapter 13;
(6) the debtor's degree of effort;
(7) the debtor's ability to earn and the likelihood of fluctuation in his earnings;
(8) special circumstances such as inordinate medical expenses;
(9) the frequency with which the debtor has sought relief under the Bankruptcy Reform Act and its predecessors;
(10) the circumstances under which the debtor has contracted his debts and his demonstrated bona fides, or lack of same, in dealings with his creditors;
(11) the burden which the plan's administration would place on the trustee."
The facts of this case show that the debtor's income from all sources is sufficient to fund the plan; that the debtor's living expenses are modest; that the attorney's fees are reasonable; that the duration of the plan is for 52 months, that is, for almost the maximum of 60 months allowed under 11 U.S.C. § 1322(c); that the debtor has other debts classified under her plan; that the debtor is dedicating all her disposable income to fund the plan; that her income is stable and reliable; that this is the debtor's first bankruptcy filing; and that the plan will not place an undue burden of administration on the trustee. In fact, the trustee has recommended confirmation subject to the Court's ruling on the issues involving secured creditor Metropolitana. On the other hand, the Court finds that there are no inordinate expenses other than the car and that the circumstances upon which the secured debt was incurred with Banco Popular de Puerto Rico, and later assigned to Metropolitana, the movant herein, were surrounded by bad faith since the debtor had no serious intention to make any payments as contracted for. After a careful review of the above, the Court finds that the totality of the circumstances show that debtor's plan does meet, overall, the good faith requirement of 11 U.S.C. § 1325(a)(3).
Equities of the Case
Clearly, the Court's finding that the stay should be lifted in favor of Metropolitana pursuant to 11 U.S.C. § 362(d), but that the chapter 13 plan does comply with the good faith requirement of 11 U.S.C. § 1325(a)(3), presents an incongruous status. However, the bankruptcy court has broad equity powers to resolve the tension between creditors' rights and debtor's expectancies of rehabilitation. In re Energy Resources Co., Inc., 871 F.2d 223, 230 (1st Cir.1989). The Court will exercise its equity power in this case in order that unfairness may not be done in the administration of debtor's estate. Pepper v. Litton, 308 U.S. 295, 304-305, 307-308, 60 S.Ct. 238, 244, 245-46, 84 L.Ed. 281 (1939); In re Coastal Cable TV, Inc., 709 F.2d 762, 764 (1st Cir.1983).
While the debtor should not be allowed "to get out of a contractual obligation voluntarily and willingly undertaken . . ." In re Newsome, 92 B.R. 941, 943 (Bankr.M.D. Fla.1988); she should not be totally foreclosed from the advantages of a fresh start under a chapter 13 plan. The Court, thus, resolves the tension by staying the decision to lift the stay in favor of Metropolitana *20 for fifteen (15) days to allow the debtor the opportunity to modify the plan to provide "full payment in accordance with the contract." Memphis Bank & Trust Co. v. Whitman, 692 F.2d 427, 431-432 (6th Cir. 1982). Upon failure to timely comply, the stay will be deemed lifted in favor of Metropolitana.
Conclusion
In view of the foregoing, the Court hereby
ORDERS that the debtor be and is granted fifteen (15) days to amend the plan to provide payment in full to Metropolitana, that is, $23,200.89; and it is further
ORDERED that upon timely compliance, a hearing on confirmation will be heard on October 17, 1989 at 11:00 a.m.; and it is further
ORDERED that upon failure to timely comply, the stay shall be lifted in favor of Metropolitana.
The Clerk shall enter judgment accordingly.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589010/ | 972 So. 2d 1069 (2008)
KC LEISURE, INC., Appellant,
v.
Lawrence HABER, et al., Appellee.
No. 5D07-907.
District Court of Appeal of Florida, Fifth District.
January 25, 2008.
*1071 Eric A. Lanigan and Roddy B. Lanigan of Lanigan & Lanigan, PL, Winter Park, for Appellant.
Mark O. Cooper, of O'Neill, Liebman & Cooper, P.A., Orlando, for Appellee.
MONACO, J.
The appellant, KC Leisure, Inc., appeals the final order of the trial court dismissing with prejudice its fourth amended complaint against the appellee, Lawrence Haber.[1] Because we conclude that the complaint stated causes of action against Mr. Haber for violation of the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA"),[2] and for fraudulent inducement, we reverse.
This dispute involves the sale of a franchise by Relay Transportation, Inc., to KC Leisure. The franchise authorized KC Leisure to open a retail outlet in the Central Florida area for the sale and rental of electric vehicles. KC Leisure alleged that Mr. Haber was a stockholder and officer of Relay Transportation.
Basically, KC Leisure asserts in its complaint that Mr. Haber and the other defendants, while acting in their capacities as corporate officers, directors and shareholders of Relay Transportation, communicated with each other both verbally and in writing about the disclosure requirements applicable to the sale of franchises to prospective purchasers. Mr. Haber is specifically alleged to have advised the other defendants in this connection and imparted information to them concerning the liabilities and penalties that might result from a failure to comply with the requirements. According to the complaint, however, Mr. Haber and the other defendants decided not to provide any of the disclosures mandated by state and federal authorities, despite knowing that the disclosures were required by law. KC Leisure further alleged that Mr. Haber and his co-defendants devised a scheme to provide KC Leisure with a "license agreement," rather than a franchise agreement, so that they could obtain a $50,000 franchise fee from KC Leisure before actually creating and handing over a Uniform Financial Offering Circular and franchise agreement.
*1072 KC Leisure purportedly entered into the license agreement and paid the $50,000 franchise fee to Relay Transportation, even though none of the disclosures had been made. KC Leisure then alleges that it obtained and renovated retail space at its own expense and began operation of the franchise. Eleven months later it sought to rescind the agreement by written notice to Relay Transportation and Mr. Haber based on the failure of Relay Transportation to provide the disclosures in a timely fashion and on the fact that certain misinformation was contained within them once they were belatedly provided. When no relief was forthcoming, KC Leisure brought suit.
The two-count complaint was not drafted with perfect clarity. In the first count, KC Leisure sought damages for violation of the FDUTPA against Mr. Haber and others. It alleged that the intentional failure to provide the disclosures set forth in 16 C.F.R. § 436.1 constituted an unfair or deceptive act in violation of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1). The foundation for the claim is the language found in section 501.203(3), Florida Statutes (2005), that states, among other things, that the term "violation of this part" means any violation of the FDUTPA and may be based on rules promulgated pursuant to the Federal Trade Commission Act or the standards of "unfairness and deception set forth and interpreted by the Federal Trade Commission or the federal courts."
The trial court dismissed count I with prejudice saying first that:
[C]hapter 559.801 et seq. (2005), Florida's Sale of Business Opportunities Act ("The Act") "defines a `business opportunity' as the sale or lease of products, equipment, supplies or services sold to a purchaser to enable him to start a business under certain defined circumstances; however, the statute expressly excludes the sale of an ongoing business." Batlemento v. Dove Fountain, Inc., 593 So. 2d 234 (Fla. 5th DCA 1991).
In further reliance on the Batlemento case, the trial court then held that the FDUTPA only imposes liability on "sellers and not their shareholders or individuals who act for the seller." Thus, the trial court eliminated the statutory basis for, the appellant's FDUTPA claim. In doing so, the trial court erred.
The FDUTPA makes unlawful "unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce." § 501.204, Fla. Stat. (2005). As noted above, a FDUTPA claim may be based on rules promulgated pursuant to the Federal Trade Commission Act or the standards of "unfairness and deception set forth and interpreted by the Federal. Trade Commission or the federal courts." § 501.203(3), Fla. Stat. (2005), Thus, if the claims of KC Leisure fall within these parameters, a cause of action may be stated against appellees.
The purpose of the FDUTPA is "[t]o protect the consuming public and legitimate business enterprises from those who engage in unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce." § 501.202(2), Fla. Stat. (2005); see also Citibank (S.D.) N.A. v. Nat'l Arbitration Council, Inc., 2006 WL 2691528 (M.D.Fla. Sept. 19, 2006). FDUTPA makes unlawful "unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of trade or commerce." § 501.204, Fla. Stat. (2005); see also Citibank. Instead of defining specific elements for an action under the statute, it directs the courts of Florida to give "due consideration and great weight . . .: to the interpretations of the Federal Trade Commmision *1073 Act, 15 U.S.C., section 45(a)(1)." § 501.204(2), Fla. Stat. (2005); see also Romano v. Motorola, Inc., 2007 WL 4199781 (S.D.Fla. Nov. 26, 2007); Davis v. Powertel, Inc., 776 So. 2d 971, 974 (Fla. 1st DCA 2000), review denied 794 So. 2d 605 (Fla.2001).
The Federal Trade Commission, pursuant to the Federal. Trade Commission Act, 15 U.S.C. §§ 41-58, promulgated a rule known as the Franchise Rule, that concerns disclosure requirements and prohibitions associated with franchising in 16 C.F.R. § 436.1. The Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate basic disclosure document containing twenty categories of information. 16 C.F.R. § 436.1(a). The rule also requires a franchisor to provide prospective franchisees with an earnings claims document containing substantiating information with respect to earnings or profit representations made by the franchisor. 16 C.F.R. §§ 436.1(b)(3), (c)(3). Finally, the failure of a franchisor to comply with these rules in connection with the manner that financial projections are presented to prospective purchasers, and in connection with the provision of certain required disclosures to purchasers, are considered to be unfair and deceptive trade practices under section 5 of the Federal Trade Commission Act. See 15 U.S.C. § 45(a).
Although not specifically identified in the statute, there are basically three elements that are required to be alleged to establish a claim pursuant to the FDUTPA: 1) a deceptive act or unfair practice; 2) causation; and 3) actual damages. Booloworkl Trade, Inc. v. Daughters of St. Paul, Inc., 2007 WL 4124351, ___ F.Supp.2d ___ (M.D.Fla. Nov. 16, 2007). The, claim made by KC Leisure in the first count of its Fourth Amended Complaint is that Relay. Transportation violated the Franchise Rule by failing to give its prospective franchisee, KC Leisure, the requisite disclosure documents, and by providing it with an inaccurate and misleading financial projection. It further alleges that as a direct and proximate result of the deceptive and unfair trade practices KC Leisure, in reliance on this misinformation, was induced to pay $50,000 to purchase a franchise from Relay Transportation, and incurred other expenses associated with the startup of a business, and was, accordingly, damaged. This appears to satisfy all of the elements necessary to state a cause of action under the FDUTPA.
The trial court in dismissing the complaint drew no conclusions concerning whether the Franchise Rule was violated by Relay Transportation. Rather, when it granted the dismissal with prejudice, it found that the FDUTPA only applies to the corporate seller, Relay Transportation, and not to its individual shareholders or officers, such as Mr. Haber. Indeed, Mr. Haber continues to argue this position, albeit without citation to any case authorities.
The case law demonstrates, however, that under the Federal Trade Commission Act an individual may be liable for corporate practices in violation of that statute once corporate liability is established. In order to prove individual liability it is necessary to show that an individual defendant actively participated in or had some measure of control over the corporation's deceptive practices. See, e.g., F.T.C. v. Standard Educ. Soc'y, 302 U.S. 112, 58 S. Ct. 113, 82 L. Ed. 141 (1937); F.T.C. v. GEM Merchandising Corp., 87 F.3d 466, 470 (11th Cir.1996); F.T.C. v. Amy Travel Serv., Inc., 875 F.2d 564, 573 (7th Cir. 1989). In addition, to hold a corporate officer liable for monetary restitution, a plaintiff is also required to establish that the defendant had or should have had knowledge or awareness of the misrepresentations. *1074 Amy Travel Sera, 875 F.2d at 574.
Similarly, it has long been the law in Florida that in order to proceed against an individual using a FDUTPA violation theory an aggrieved party must allege that the individual was a direct participant in the improper dealings. See Anden v. Litinsky, 472 So. 2d 825 (Fla. 4th DCA 1985); General Dev. Corp. v. Catlin, 139 So. 2d 901 (Fla. 3d DCA 1962); see also Rollins, Inc. v. Heller, 454 So. 2d 580 (Fla. 3d DCA 1984) (noting that it is unnecessary to pierce the corporate veil because the individual defendant was a direct participant in the dealings), review denied, 461 So. 2d 114 (Fla.1985). More recently in Aboujaoude v. Poinciana Development Company 509 F. Supp. 2d 1266, (S.D.Fla.2007), the court commented:
FDUTPA makes unlawful "[u]nfair methods of competition or deceptive acts or practices in the conduct of any trade or commerce." § 501.204(1), Fla. Stat. (1981). In order to proceed against an individual for a violation of FDUTPA, a plaintiff must allege that the individual was a direct participant in the dealings.
Id. at 1276-77 (citations omitted).
Thus, once the liability of Relay Transportation is established, Mr. Haber is properly named as a defendant, provided it is alleged that he was a direct participant in the actions that constituted a violation of the FDUTPA. As KC Leisure has, indeed, made the requisite allegations, the count states a cause of action against Mr. Haber.
More particularly, the allegations of the final complaint against Mr. Haber accuse him, among other things, of having actual knowledge of the violations of the Franchise Rule that the corporation was involved in and intentionally electing not only to ignore those requirements, but to draft documents to be given to KC Leisure that were specifically known by him to be violative of the Franchise Rule. The complaint alleged that the defendants, including Mr. Haber, collectively and unanimously cooked up the scheme of providing a "license," rather than the bargained-for franchise, so that the requirements could be evaded prior to KC Leisure's turning over of the $50,000 franchise fee. Finally, he is alleged to have assisted in the preparation of certain pro forma financial documents and spreadsheets with full knowledge that they were inaccurate.
It seems clear, therefore, that KC Leisure has pled a violation of the Federal Trade Commission Act, and hence the FDUTPA, by Relay Transportation and has stated a cause of action against Mr. Haber, as well. The trial court's holding, that the FDUTPA "clearly focus[es] on imposing liability only on sellers and not their shareholders or individuals who act for the seller," is not supported by the case law in general, as we have noted above, or by Batlemento, the case cited by the trial court in its order, in particular.
The trial court's reliance on Batlemento for the proposition that the FDUTPA imposes liability only on the corporate entity but not on the individuals involved in purported misdeeds is misplaced. First, the holding in Batlemento to the effect that the Florida Sale of Business Opportunities Act, sections 559.80-.815, Florida Statutes (1983) ("FSBOA"), does not apply to the sale of an ongoing restaurant business, has little relevance to a claim involving purported misrepresentations under the federal statute and rules in connection with the sale of a franchise to open a new business. Second, Batlemento does not address the issue of personal liability. The FSBOA is only referenced in the first count to reflect that Relay Transportation attempted to comply with section 559.802, Florida Statutes (2005), so as to qualify for an exemption under that statute. That *1075 Relay Transportation complied with the FSBOA does not eviscerate the claim of KC Leisure that it violated the Federal Trade Commission Act and the Franchise Rule. The franchise exemption under the FSBOA does not compel a finding of a franchise exemption under the FDUTPA.
We now turn to the second count of the fourth amended complaint. In this count KC Leisure seeks to state a cause of action for fraudulent practices by alleging that Mr. Haber violated the Florida Franchise Act[3] by intentionally misrepresenting" the prospects of success of the franchise that KC Leisure thought it was buying. Mr. Haber, of course, was an officer and shareholder of Relay Transportation when these actions were alleged to have occurred.
The trial court dismissed this count with prejudice because it found no specific allegations that Mr. Haber personally participated in the conduct that was put forth as a violation of the statute. The court concluded that "Plaintiff cannot possibly establish liability by reason of Defendant's mere relationship to the corporation without alleging that he also personally participated in the fraud described."
Because the sufficiency of a complaint is a matter of law, we review the dismissal de novo. Siegle v. Progressive Consumers Ins. Co., 819 So. 2d 732 (Fla. 2002). We begin by observing that when presented with a motion to dismiss, a trial court is required to "treat the factual allegations of the complaint as true and to consider those allegations in the light most favorable to the plaintiffs." Id. at 734-35 (citations omitted).
Section 817.416(2), Florida Statutes (2005), reads in pertinent part as follows:
(a) It is unlawful, when selling or establishing a franchise . . . for any person:
1. Intentionally to misrepresent the prospects or chances for success of a proposed or existing franchise or distributorship; or
2. Intentionally to misrepresent, by failure to disclose or otherwise, the known required total investment for such franchise or distributorship.
In count II of the complaint, KC Leisure alleged that Mr. Haber participated in the development of pro forma spreadsheets regarding Relay Transportation specifically to provide to KC Leisure and had actual knowledge of its contents and omissions. The pro forma purported to show the anticipated costs and revenues in the startup and operation of the franchise being sold to KC Leisure. The complaint alleged, as well, that the pro forma spreadsheets were based on "conjecture and speculation" without any substantive research, which resulted in the document containing "unsubstantiated and misleading" representations. It further asserts that Mr. Haber and the other defendants authorized the delivery of the misleading document to KC Leisure. Finally, the count alleged that the defendants, including Mr. Haber, misrepresented the known total investment for the franchise, all of which misled the appellant into handing over the $50,000 fee and investing money in the franchise operation.
It appears to us that KC Leisure has sufficiently pled the requirements of section 817.416 to state a cause of action. A complaint must allege ultimate facts which, if established by competent evidence, would support a decree granting the relief sought by the pleader. See Doyle v. Flex, 210 So. 2d 493, 494-95. (Fla. 4th DCA 1968). There are ample allegations contained in count II of personal participation which, if true, would support a judgment for damages against Mr. Haber. *1076 Accordingly, we reverse the dismissal of this count as well.
Although the complaint filed in this case is rather confusing, it does state the causes of action discussed. Thus, we reverse the dismissal with prejudice of the fourth amended complaint and remand the case to the trial court for further proceedings.
REVERSED and REMANDED.
PLEUS and EVANDER, JJ., concur.
NOTES
[1] We also considered other issues in this controversy in Thorpe v. Gelbwaks, 953 So. 2d 606 (Fla. 5th DCA 2007).
[2] §§ 501.201-213, Fla. Stat. (2005).
[3] § 817.416, Fla. Stat. (2005). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919139/ | 912 So. 2d 534 (2004)
Adonnis McGHEE
v.
STATE of Alabama.
CR-03-1261.
Court of Criminal Appeals of Alabama.
October 1, 2004.
*535 Tyrone Townsend, Birmingham, for appellant.
Troy King, atty. gen., and Jack W. Willis, asst. atty. gen., for appellee.
WISE, Judge.
The appellant, Adonnis McGhee, appeals from the trial court's revocation of his probation. The record reveals that McGhee pleaded guilty to one count of murder, a violation of § 13A-6-2, Ala.Code 1975, and was sentenced to 20 years' imprisonment, which was split, and he was ordered to serve 3 years' incarceration followed by 3 years' supervised probation. On February 19, 2004, McGhee's probation officer Linda R. O'Bryant filed a delinquency report alleging that McGhee had *536 violated the terms of his probation because: (1) he was charged with two new criminal offenses, specifically, a violation of the state firearms act and possession of drug paraphernalia; (2) he failed to avoid injurious and vicious habits while on probation; and (3) he failed to pay his supervision fees.
On April 30, 2004, a probation-revocation hearing was conducted. After hearing evidence indicating that McGhee had failed to comply with the conditions of his probation and that he had committed new offenses, the trial court revoked McGhee's probation. The revocation order stated:
"The Defendant was present in open court with his attorney, to-wit: Charles Salvagio. Defendant was previously advised in writing of the alleged violation of the terms of his probation. It is alleged, to-wit:
"That the Defendant has violated the terms of his probation by:
"1.) Violating Condition Number 1 of the Order of Probation, to-wit: `Do not violate any Federal, State or local laws.'
"2.) Violating Condition Number 2 of the Order of Probation, to-wit: `Avoid Injurious or Vicious Habits.'
"3.) Violating Condition Number 12 of the Order of Probation, to-wit: `Pay supervision fees.'
"An evidentiary hearing was held and testimony was taken on the record. The evidence relied upon by the Court to support a finding that the Defendant has violated his probation as stated above is as follows:
"1.) The Defendant was given a split sentence in this case of twenty years split three years to serve, followed by 3 years probation on November 26, 2001.
"2.) The Defendant was released from the penitentiary on 8-14-03 and began his probationary period at that time.
"3.) On 2-14-04 the Defendant was arrested by the Birmingham Police and charged with the new offenses of Violation of State Firearms Act and Possession of drug paraphernalia.
"4.) Evidence was presented at the hearing on this case, from which this Court is reasonably satisfied that the Defendant committed the new offenses.
"5.) Based on the foregoing it is clear that the Defendant has violated the terms of his probation.
"THEREFORE, the Defendant's probation in this case is hereby revoked, and the sentence imposed on November 26, 2001, to-wit: 20 years is placed into effect. The Defendant is to be given credit for any and all time served on this case, including the time he served on the original split.
DONE AND ORDERED this the 30th day of April, 2004.
/s/ Virginia A. Vinson
CIRCUIT COURT JUDGE"
(R. 3). This appeal followed.
McGhee contends that the trial court's revocation of his probation should be reversed because, he says, (1) the revocation was based solely on hearsay testimony of Officer Kenneth Smith, and (2) the court's order revoking his probation was deficient because it did not contain a statement of the specific evidence relied on and the specific reasons for revoking his probation.
McGhee's claim that the trial court erred in revoking his probation solely on hearsay testimony that he committed new criminal offenses while on probation is being raised for the first time on appeal.[1]
*537 "The general rules of preservation apply to probation revocation hearings. Puckett v. State, 680 So. 2d 980, 983 (Ala.Cr.App.1996), citing Taylor v. State, 600 So. 2d 1080, 1081 (Ala.Cr.App.1992). This Court `has recognized, in probation revocation proceedings, only two exceptions to the general rule that issues not presented to the trial court are waived on appeal: (1) the requirement that there be an adequate written order of revocation . . ., and (2) the requirement that a revocation hearing actually be held.' Puckett, 680 So.2d at 983."
Owens v. State, 728 So. 2d 673, 680 (Ala. Crim.App.1998). This Court has also held that a defendant can raise for the first time on appeal the allegation that the trial court erroneously failed to advise him of his right to request counsel during probation-revocation proceedings. Law v. State, 778 So. 2d 249 (Ala.Crim.App.2000).
Although McGhee commented during Officer Smith's testimony that "every bit of this so far is hearsay" (T.R. 7),[2] we cannot say that this statement amounted to an objection, and there was no ruling from the trial court. Because McGhee did not present this claim below and because it is not one of the three exceptions this Court has recognized as claims that can be raised for the first time on appeal, McGhee has preserved nothing for appellate review.
Moreover, contrary to McGhee's assertion, the trial court was presented with other testimony to support the revocation of McGhee's probation. The trial court had before it the additional testimony of Officer Mack Treadwell, who testified based upon firsthand information he observed on the night of the incident. Even if this claim had been properly presented at trial, the trial court did not err in its evidentiary ruling.
McGhee also argues that his probation was revoked based on testimony that, he says, merely established that he had been arrested and charged with a new offense, which, he says, is insufficient as a basis on which to revoke his probation. Again, McGhee did not raise this claim below; thus, nothing has been preserved for appellate review. See Owens v. State, supra.
McGhee also claims that the circuit court's order revoking his probation is deficient because, he says, it does not meet the requirements of Armstrong v. State, 294 Ala. 100, 312 So. 2d 620 (1975). Although this issue is also raised for the first time on appeal, it is one of the three exceptions to the general-preservation requirement and, therefore, is properly before this Court for review.
Before the circuit court can revoke probation, the court must provide a written order stating the evidence and the reasons it relied upon to revoke probation in order to comply with the due-process requirements of Gagnon v. Scarpelli, 411 U.S. 778, 93 S. Ct. 1756, 36 L. Ed. 2d 656 (1973). Wyatt v. State, 608 So. 2d 762 (Ala. 1992); Armstrong v. State, supra. "These *538 requirements offer the probationer some protection from an abuse of discretion by the trial court, aid an appellate court in reviewing a revocation, and prevent future revocations based on the same conduct." T.H.B. v. State, 649 So. 2d 1323, 1324 (Ala. Crim.App.1994).
A written order revoking probation satisfies due-process requirements when that order states that the defendant's probation was revoked because the probationer had been convicted of a new criminal offense. See Trice v. State, 707 So. 2d 294, 297 (Ala.Crim.App.1997). However, in Hunter v. State, 782 So. 2d 845 (Ala.Crim. App.2000), this Court remanded a case when it could not determine from the written order whether the trial court had revoked the defendant's probation because it was reasonably satisfied that the probationer was guilty of the charged offense or because of the mere fact that he had been arrested and charged with a new offense. In Hunter, we stated:
"`On revocation hearings, the standard of proof is not reasonable doubt, but reasonable satisfaction from the evidence.' Thompson v. State, 356 So. 2d 757, 760 (Ala.Crim.App.1978). While certain statements that the trial court made for the record at the conclusion of the revocation hearing strongly suggest that the trial court was indeed reasonably satisfied that Hunter was guilty of DUI [driving under the influence], we are unable to tell from the trial court's written order of revocation whether the court revoked Hunter's probation because it was reasonably satisfied that Hunter was guilty of the charged offense or because of the mere fact that Hunter was arrested and charged with DUI. . . . `"A `mere arrest' or the filing of charges is an insufficient basis for revoking one's probation.'" Clayton v. State, 669 So. 2d 220, 221 (Ala.Crim.App. 1995), quoting Allen v. State, 644 So. 2d 45, 46 (Ala.Crim.App.1994). `Before revoking probation because the probationer has been arrested, the trial court must be reasonably satisfied that the underlying charge against the probationer is true.' Wade v. State, 652 So. 2d 335, 336 (Ala.Crim.App.1994)."
782 So.2d at 846 (footnote omitted).
In the instant case, the circuit court's written order clearly states that it was reasonably satisfied that McGhee had committed the crimes with which he was charged; however, the court's order does not set out the specific evidence it relied upon in reaching its decision. The order merely states that "[e]vidence was presented at the hearing on this case, from which this Court is reasonably satisfied that the Defendant committed the new offenses." (R. 3) Thus, the order was insufficient to comply with the requirements of Rule 27.6(f), Ala. R.Crim. P., and Armstrong v. State. Although the transcript of the revocation hearing clearly establishes that the State presented sufficient evidence from which the court could be reasonably satisfied that McGhee had violated the conditions of his probation and remand is not in the interest of judicial economy, we nevertheless have no choice but to remand this case for a new revocation order, given the Supreme Court's holdings in Armstrong v. State, supra, and Wyatt v. State, supra. See also Attaway v. State, 854 So. 2d 1211 (Ala.Crim.App.2002); and Kinchlow v. State, 891 So. 2d 436 (Ala. Crim.App.2004).
Based on the foregoing, we remand this cause for the circuit court to enter a new order reflecting the specific evidence relied upon, as well as the reason or reasons it had for revoking McGhee's probation. The circuit court shall take all necessary action to see that the circuit clerk makes due return to this Court at the earliest *539 possible time and within 56 days of the release of this opinion.
REMANDED WITH DIRECTIONS.[*]
McMILLAN, P.J., and COBB, J., concur. BASCHAB, J., concurs in the result. SHAW, J., concurs in the result, with opinion.
SHAW, Judge, concurring in the result.
It is apparent from the trial court's order that Adonnis McGhee's probation was revoked because he committed two new offenses. The reason for revocation is, thus, sufficiently stated to satisfy the pertinent due-process requirements. Based on Wyatt v. State, 608 So. 2d 762 (Ala.1992), however, I concur to remand for a statement of the evidence relied on.
NOTES
[1] During the State's examination of Officer Kenneth Smith, the following transpired:
"Mr. Salvagio
[McGhee's counsel]: Your Honor, I know this is a revocation hearing. I understand that the rules are relaxed and all that, but every bit of this so far is hearsay. That's what every bit of this is. Where is this guy?
"The Court: I understand, but I can take that into consideration. Mr. McGhee, be quiet. I can take that into consideration.
"Mr. Streety
[Prosecutor]: And I just want to add, Your Honor, not all of this is going to be hearsay. We do have eye-witnesses to the certain offenses.
"The Court: Go ahead."
(R. 7-8).
[2] T.R. refers to the trial transcript portion of the record.
[*] Note from the reporter of decisions: On October 22, 2004, on return to remand, the Court of Criminal Appeals affirmed, without opinion. On January 7, 2005, that court denied rehearing, without opinion. On May 13, 2005, the Supreme Court denied certiorari review, without opinion (1040548). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919176/ | 106 B.R. 485 (1989)
In the Matter of William SAMS, Debtor.
George W. LEDFORD, Chapter 13 Trustee, Plaintiff,
v.
John TIEDGE, Timothy Kelhoffer, William Sams, Ernest Hase, Nancy Hase, Gary Haines and Pat Meyers, Defendants.
Bankruptcy No. 3-88-04283, Adv. No. 3-89-0038.
United States Bankruptcy Court, S.D. Ohio, W.D.
August 30, 1989.
*486 George W. Ledford, Trustee, Englewood, Ohio.
John E. Breidenbach, Dayton, Ohio, for trustee, George W. Ledford.
William H. Wolff, Sr., Dayton, Ohio, for Pat Meyers and Gary Haines.
David P. Strub, Dayton, Ohio, for debtor.
John Tiedge, Dayton, Ohio, pro se and for Timothy Kelhoffer.
THOMAS F. WALDRON, Bankruptcy Judge.
This proceeding, which arises under 28 U.S.C. § 1334(b) in a case referred to this court by the Standing Order Of Reference entered in this district on July 30, 1984, is determined to be a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A)matters concerning the administration of the estate (C)counterclaims by the estate against persons filing claims against the estate and (O)proceedings affecting the adjustment of the debtor-creditor relationship.
PROCEDURAL AND FACTUAL BACKGROUND
The pleadings and admissions in this proceeding establish a number of material facts, not in dispute among the parties. These undisputed material facts are summarized by the court in the following paragraph.
William Sams, the debtor, filed a petition under Chapter 13 of the Bankruptcy Code on December 27, 1988 and listed real estate located at 1013 Lea Avenue, (the property) in his schedules. Prior to the filing of the debtor's petition, the defendant, Timothy Kelhoffer, through his counsel, the defendant John Tiedge, obtained a judgment in the amount of thirty-nine thousand, one hundred fifty-three dollars ($39,153.00) against the debtor. The debtor listed the defendant Timothy Kelhoffer and Kelhoffer's attorney, John Tiedge, in the schedules filed with the bankruptcy petition. Prior to the filing this Chapter 13 case, defendant Tiedge had commenced on behalf of his client, defendant Kelhoffer, a State Court collection action against the debtor to foreclose a judgment lien in favor of the defendant Kelhoffer against the debtor's property. On November 21, 1988, Tiedge filed a Praecipe in the State Court forclosure action for the execution and sale of the debtor's property. The Sheriff of Montgomery County held a public auction on February 3, 1989 and the debtor's real estate was sold to the defendant, Ernest Hase and Nancy Hase, for approximately sixty-four thousand, five hundred dollars ($64,500.00). It is undisputed that the defendants, Kelhoffer and Tiedge, had actual notice of the filing of the debtor's Chapter 13 Petition prior to the date of the proposed sale of the debtor's property. The defendants admitted such in their pleadings and on January 31, 1989 filed an Objection To Confirmation Of Plan (Doc. 10, Case No. 3-88-04283).
George W. Ledford, the Chapter 13 Trustee filed a Complaint on February 9, 1989 against Tiedge, Kelhoffer, the debtor, Ernest and Nancy Hase, the purchasers of the real estate, the Sheriff of Montgomery County and the Clerk of the Montgomery County Court of Common Pleas. The trustee's complaint requested that the sale of the debtor's property be avoided pursuant to 11 U.S.C. § 549(a), that the State Court records be purged of the sale of the subject real estate and that sanctions for *487 violation of the automatic stay be imposed against the defendants Tiedge and Kelhoffer for the sale price of the real estate sixty four thousand, five hundred dollars ($64,500.00). The debtor filed an answer to the trustee's complaint and a cross-claim against the defendants Kelhoffer and Tiedge and demanded, in addition to the relief sought by the Trustee for violation of the automatic stay, that the debt due the defendant Kelhoffer be discharged and that punitive damages and attorney fees be assessed against defendants Tiedge and Kelhoffer (Doc. 9).
A number of the causes of action asserted by the trustee and the debtor have been concluded. The court has avoided the sale of the debtor's real estate (Doc. 22) and excused several of the defendants from further participation in this proceeding (Doc. 30) pending the resolution of the trustee's and the debtor's causes of action against the defendants Kelhoffer and Tiedge.
Defendants Kelhoffer and Tiedge filed answers to the complaint and the cross-claim (Docs. 13 and 14). On April 12, 1989, Defendants Tiedge and Kelhoffer filed a Motion To Dismiss On Behalf Of John Tiedge And Timothy Kelhoffer (Doc. 18). Counsel for the trustee filed a Memorandum Of Chapter 13 Trustee/Plaintiff Contra Motion To Dismiss On Behalf Of Defendants, John Tiedge and Timothy Kelhoffer (Doc. 20). Debtor then filed a Memorandum Of Defendant, William Sams, Contra To Motion To Dismiss On Behalf Of Defendants, John Tiedge and Timothy Kelhoffer; Motion To Strike Motion To Dismiss (Doc. 23). Defendant Tiedge then filed Response To Trustee's Memorandum Contra; Motion For Summary Judgment On Behalf Of John Tiedge And Timothy Kelhoffer (Doc. 26). The debtor filed a request that the court overrule the Defendants' Motion For Summary Judgment (Doc. 28). The trustee filed a Memorandum Of Chapter 13 Trustee/Plaintiff Contra Motion For Summary Judgment On Behalf Of Tiedge And Timothy Kelhoffer (Doc. 29).
ARGUMENTS OF THE PARTIES
The defendants' contention in support of both of their motions is that the automatic stay (11 U.S.C. § 362(a)) does not impose any affirmative duty on creditors to halt or reverse the consequences of any pending collection actions that were instituted prior to the filing of the bankruptcy petition. The defendants argue that any such actions are the responsibility of the debtor or the Chapter 13 Trustee. The defendants further argue that the automatic stay requires that creditors refrain from taking any action, which would include action to prevent the continuation of any pending collection actions that were instituted prior to the filing of the bankruptcy petition. In the context of this adversary proceeding, the defendants argue that, as a matter of law, the automatic stay prevented them from halting the State Court foreclosure sale of the debtor's property.
The defendants further argue that the debtor's property was in the "constructive possession" of the sheriff of Montgomery County and that the sheriff "acted pursuant to the order of the Common Pleas Court, and not the Order of the defendants" (Doc. 18).
The Trustee in contrast, contends that "once Tiedge, as Kelhoffer's attorney, became aware of the pendency of the debtor's Chapter 13 Petition, there devolved upon Tiedge and Kelhoffer an affirmative legal obligation to take necessary and appropriate steps to withdraw, cancel and dissolve the praecipe for the sheriff's sale and to restore the status quo" (Doc. 20). Similarly, the debtor contends that the defendants failure to prevent the sale they had initiated and facilitated by allowing it to continue to sale is tantamount to a willful violation of the Automatic Stay. The debtor argues that "despite receiving actual notice of the filing [of the Chapter 13 Petition] and filing an Objection To Confirmation, Tiedge and Kelhoffer allowed a chain of events they created to travel to the obvious logical conclusion while denying any wrong-doing, and shifting the blame for the sale to the Sheriff and Clerk for obeying *488 the praecipe they filed." (Docs. 23 and 28).
QUESTIONS PRESENTED
The defendants filed two motions in this case, a Motion To Dismiss (Doc. 18) followed by a Motion For Summary Judgment (Doc. 26), presenting the following issues:
(1) Do the trustee's complaint (Doc. 1) and the debtor's cross-claim (Doc. 9) state causes of action against the defendants for violations of the provisions of 11 U.S.C. § 362(a)?
(2) If the trustee's complaint and the debtor's cross claim do state causes of action against the defendants for violations of the provisions of 11 U.S.C. § 362(a), are the defendants entitled to summary judgment in their favor on the basis of the undisputed material facts in this proceeding?
(3) If the defendants are not entitled to summary judgment in their favor, can partial summary judgment be entered in favor of the trustee and the debtor on the basis of the undisputed material facts in this proceeding?
DECISION
Pursuant to F.R.Civ.P. 12(b)(6), which is made applicable to this proceeding by Bankr.R. 7012(b), a motion to dismiss a complaint may be filed for "failure to state a claim upon which relief can be granted." A motion to dismiss is an attack upon the legal sufficiency of the complaint and the court is restricted to the pleadings. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974); Roth Steel Products v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir.1983). The general rule is "that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-02, 2 L. Ed. 2d 80 (1957); Davis H. Elliot Co., Inc. v. Caribbean Utilities Co., Ltd., 513 F.2d 1176, 1182 (6th Cir.1975). Courts generally disfavor granting a motion to dismiss "[b]ecause dismissal of an action constitutes a judgment on the merits and is accorded preclusive effect." Matter of Schwartzman, 63 B.R. 348, 355 (Bankr.S. D.Ohio 1986).
Although the defendants' Motion To Dismiss could be dismissed as untimely because Rule 7012 contemplates that such motions will be filed before a responsive pleading, and, in this proceeding, the defendants answered both the complaint and the cross-claim before filing their Motion To Dismiss, the more significant basis for denying the motion is that the trustee's complaint and the debtor's cross-claim do state legally cognizable claims.
The complaint and the cross-claim allege that the defendants, with actual knowledge of the filing of this bankruptcy, failed to prevent, and thereby continued to completion, a State Court foreclosure proceeding they had initiated prior to the filing of this bankruptcy petition, but which remained uncompleted at the time the bankruptcy was filed. The complaint and cross-claim further allege that as a result of the continuation of this foreclosure action against the debtor and property of the bankruptcy estate, the defendants caused the real estate to be sold and the debtor and the bankruptcy estate to suffer a loss and incur fees and expenses in violation of the protection provided by the provisions of 11 U.S.C. § 362(a). (Trustee Complaint Doc. 1, ¶ 3, 4, 5, 6, 7, 8, 9, 15, 16, 17 and 18; debtor's cross-claim Doc. 9, ¶ 2, 3, 4, 5, 6, 7, 11, 12 and 13) These allegations are sufficient to withstand the defendants' Motion To Dismiss.
Bankruptcy Rule 7012, which incorporates F.R.Civ.P. 7012(b) contemplates that when matters outside the pleadings are presented by the parties and not excluded by the court, the motion to dismiss can, in appropriate circumstances, be treated as a motion for summary judgment. Matter of Lorandos, 58 B.R. 519, 520 (Bankr.S.D.Ohio 1986). An examination of the pleadings and filings in this proceeding has not revealed any material facts in dispute among the parties. Although the parties disagree on the legal consequences *489 arising from these facts, there is no genuine issue as to any material fact that would prevent the entry of summary judgment. The parties have consistently treated the issues presented for decision as matters that do not require the resolution of disputed facts, but rather, issues that are capable of resolution as a matter of law. The court agrees with the parties' position and will determine the issues under the summary judgment rule (Bankr.R. 7056).
The filing of a petition in bankruptcy automatically activates a number of Bankruptcy Code provisions. Among the more significant are the creation of the bankruptcy estate (§ 541) and the imposition of the automatic stay (§ 362). The bankruptcy estate is composed of all legal and equitable interests of the debtor wherever located and by whomever held. 11 U.S.C. § 541(a). When a petition is filed under Chapter 13 of the Code, the estate created includes not only all legal and equitable interest pursuant to § 541, but also all property which the debtor may acquire after the commencement of the case but before the closing, dismissal or conversion of the case. 11 U.S.C. § 1306(a).
A filing of a bankruptcy petition also results in the imposition of an automatic stay (§ 362(a)) which halts any pending activity to obtain control or possession of the debtor's property without first obtaining an order of the Bankruptcy Court granting relief from the automatic stay. (§ 362(d). Specifically, 11 U.S.C. § 362(a) states:
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title . . . operates as a stay, applicable to all entities, of
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
As the Court of Appeals for the Sixth Circuit stated,
Under section 362(a) of the Bankruptcy Code, the filing of a petition creates a broad automatic stay protecting the property of the debtor. This provision "has been described as `one of the fundamental debtor protections provided by the bankruptcy laws.'" Midlantic Nat'l Bank v. New Jersey Dep't of Envtl. Protection, 474 U.S. 494, 503, 106 S. Ct. 755, 761, 88 L. Ed. 2d 859 (1986) (quoting S.Rep. No. 989, 95th Cong., 2d Sess. 54 (1978); H.R.Rep. No. 595, 95th Cong., 1st Sess. 340 (1977)). The automatic stay extends to virtually all formal and informal actions against property of the bankruptcy estate. It is intended to "stop[] all collection efforts, all harassment, and all foreclosure actions." S.Rep. No. 989, 95th Cong., 2d Sess. 54, reprinted in 1978 U.S.Code Cong. & Admin. News 5787, 5840. The automatic stay "is effective upon the date of the filing of the petition . . . and formal service of process will not be required." 2 Collier on Bankruptcy ¶ 362.03 (15th ed. 1988) (footnotes omitted). Actions taken in violation of the automatic stay generally are void, even if the creditor had no notice of the stay. See, e.g., In re Clark, 60 B.R. 13, 14 (Bankr.N.D.Ohio 1986) (Creditor "had not known of Debtor's filing at the time of repossession but . . . it was, nonetheless, required to return the vehicle to Debtor."); In re Advent Corp., 24 B.R. 612 (Bankr. 1st Cir. 1982) (acts in violation of automatic stay are void regardless of lack of knowledge); Collier, supra, ¶ 362.03 ("In general, actions taken in violation of the stay will be void even where there was no actual notice of the existence of the stay.") (emphasis added).
In re Smith, 876 F.2d 524, 525-26 (6th Cir.1989).
In the case at bar, although the defendants commenced their foreclosure action in state court before the debtor filed his petition, at the time this bankruptcy petition was filed, the foreclosure action was not concluded. In re Glenn, 760 F.2d 1428 (6th Cir.1985). The defendants admit having *490 actual notice of the bankruptcy filing prior to the Sheriff's sale on February 3, 1989. The record in the bankruptcy case establishes that on January 31, 1989 they filed an objection to the confirmation of the debtor's plan.
The defendants argue that although they had actual knowledge of the automatic stay, they had no duty to prevent the sale of the debtor's real estate. They further argue that taking action to stop the sale would have constituted a violation of the automatic stay. The defendants' arguments strain the boundaries of logic and the limits of advocacy. Such a position cannot be accepted by this court, as it has not been accepted by a majority of other bankruptcy courts, particularly the bankruptcy courts of this district. Judge Cole, of this district, characterized a similar argument as "patently absurd". In re Dungey, 99 B.R. 814, 817 (Bankr.S.D.Ohio 1989).
The language of § 362(a)(1) prohibits unequivocally the "commencement or continuation" of all creditor efforts to collect on a debt. As Judge Perlman of this district stated with respect to this language in In re Mitchell, 66 B.R. 73, 75 (Bankr.S.D.Ohio 1986),
We simply do not see how it is possible to avoid the application of the plain language of the foregoing [362(a)(1)] which enjoins "the . . . continuation . . . of a judicial . . . proceeding against the debtor." If one is enjoined from continuing a judicial proceeding against the debtor, one is obliged to discontinue it. It seems to us the question presented to us is as simple as that. The statute is plain and unambiguous, and where that is the case it is not necessary to resort to aids for its construction.
Accord, Smith at 526; Dungey at 817; In re Holman, 92 B.R. 764, 768 (Bankr.S.D. Ohio 1988); Matter of Clark, 60 B.R. 13, 14 (Bankr.N.D.Ohio 1986).
Based on this language of 362(a)(1) many courts have emphasized the obligation incumbent upon creditors to take the necessary steps to halt or reverse any pending State Court actions or other collection efforts commenced prior to the filing of a bankruptcy petition, including garnishment of wages, repossession of an automobile, foreclosure of a mortgage or a judgment lien and, thereby, maintain, or restore, the status quo as it existed at the time of the filing of the bankruptcy petition. Dungey at 817; Holman at 769; Clark at 14; Mitchell at 75; In re Stephen W. Grosse, P.C., 84 B.R. 377, 384 (Bankr.E.D.Pa.1988); In re Outlaw, 66 B.R. 413, 417 (Bankr.E.D. N.C.1986); In re Carlsen, 63 B.R. 706, 710 (Bankr.C.D.Cal.1986); In re Clark, 49 B.R. 704, 707 (Bankr.D.Guam 1985); In re O'Connor, 42 B.R. 390, 392 (Bankr.E.D. Ark.1984); In re Gibson, 16 B.R. 682, 684 (Bankr.S.D.Ohio 1981); In re Baum, 15 B.R. 538, 541 (Bankr.E.D.Va.1981); In re Elder, 12 B.R. 491, 494 (Bankr.M.D.Ga. 1981).
This responsibility is placed on the creditor and not on the debtor or the trustee as the defendants suggest because "[t]o place the onus on the debtor, . . . to take affirmative legal steps to recover property seized in violation of the stay would subject the debtor to the financial pressures the automatic stay was designed to temporarily abate, and render the contemplated breathing spell from his creditors illusory". In re Miller, 22 B.R. 479, 481 (D.Md.1982). Further, it would result in a significant waste of judicial resources and "the automatic stay at 11 U.S.C. § 362 would be frustrated if the debtor had to involve the court in each situation as here. It would continuously involve the court in pointless and needless litigation. In the facts of the case it should not be the court that should stop the snowball." Elder at 494.
The court in Miller, at 481 notes,
The courts have been quick to realize that creditor inaction can often be as disruptive to the debtor as affirmative collection efforts. e.g. In re Elder, 12 B.R. 491, 494 (Bankr.M.D.Ga.1981) ("No action is unacceptable; no action is action to thwart the effectiveness of the automatic stay.") In recognition of this problem, creditors have been required, when necessary, to take affirmative steps to *491 restore the status quo at the time of the filing of the petition for relief.
The court finds the defendants argument that the Sheriff had "constructive possession" of the property and acted pursuant to the order of the Common Pleas Court and not the order of the defendants unavailing. The provisions of the automatic stay place the responsibility to discontinue any pending collection proceedings squarely on the shoulders of the creditor who initiated the action. The Elder court aptly stated that the "[c]reditor sets in motion the process. The creditor is in the driver's seat and very much controls what is done thereafter if it chooses. If the "continuation" is to be stayed, it cannot choose to do nothing and pass the buck to the garnishee or the court in which the garnishment is filed to effectuate the stay. Positive action on the part of the creditor is necessary so that "continuation" is stayed." Elder at 494.
Consistent with the persuasive authority developed in the decisions of the Bankruptcy Courts of this district and other authority, the defendants' Motion For Summary Judgment is DENIED.
As this decision makes clear, not only have the defendants failed to sustain their required burden so that summary judgment cannot be rendered in their favor, to the contrary, it is appropriate to enter partial summary judgment against the defendants.
Federal Courts have long recognized that if there is no genuine issue as to any material fact the court may enter summary judgment, sua sponte. There is no requirement that there be a cross-motion or other pending motion seeking such summary judgment. As the court noted in Buckel v. Prentice, 410 F. Supp. 1243, 1247 (S.D. Ohio 1976), aff'd per curiam 572 F.2d 141 (6th Cir.1978),
The Court, then, while in agreement with plaintiffs that there is no genuine issue as to any material fact herein, does not agree that plaintiffs are entitled to judgment as a matter of law. On the contrary, the Court concludes that on the facts present the defendants are entitled to judgment. The fact that defendants have not filed a cross-motion for summary judgment does not preclude entry of such a judgment if they are otherwise entitled thereto (citations omitted).
Accord, In re O'Malley, 90 B.R. 417, 422 (Bankr.D.Minn.1988); In re Marvin Properties, Inc., 76 B.R. 150, 152 (9th Cir. BAP 1987). Additionally, the United States Supreme Court has recently reaffirmed this authority. The Supreme Court stated in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 2554, 91 L. Ed. 2d 265 (1986),
Our conclusion is bolstered by the fact that district courts are widely acknowledged to possess the power to enter summary judgments sua sponte, so long as the losing party was on notice that she had to come forward with all of her evidence. See [Catrett v. Johns Mansville Sales Corp.,] 244 U.S.App.D.C. [160], at 167-168, 756 F.2d [181], at 189 [(1985)] (Bork, J., dissenting); 10A C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 2720, pp. 28-29 (1983).
This court recognizes that the entry of summary judgment in the absence of any cross-motion or other pending motion seeking summary judgment should be exercised with great caution. The entry of summary judgment is always subject to the requirements of due process concerning notice and an opportunity to be heard, the opportunity for discovery and the exercise of the court's discretion concerning the full presentation of evidence. Matter of Warner, 65 B.R. 512, 517 (Bankr.S.D.Ohio 1986).
In this proceeding, the parties, particularly the defendants, have consistently argued that certain preliminary issues are matters of law that are appropriate for summary judgment. The defendants have specifically stated the following: "There does not appear to be any dispute regarding the material facts in this case." "There being no genuine issue regarding any material fact, this case is appropriate for summary disposition." (Motion For Summary Judgment On Behalf Of John Tiedge And Timothy Kelhoffer-Doc. 26).
The partial resolution of this proceeding is consistent with the United States Supreme *492 Court's recognition of the purposes of the summary judgment rule: "One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses, and we think it should be interpreted in a way that allows it to accomplish this purpose." (footnote omitted) Celotex, 106 S.Ct. at 2553.
Accordingly, partial summary judgment is GRANTED on the trustee's Complaint (Doc. 1) and partial summary judgment is GRANTED on the debtor's cross-claim (Doc. 9) in that it is determined that John Tiedge and Timothy Kelhoffer have violated the provisions of 11 U.S.C. § 362(a).
There are other issues in connection with the violation of the automatic stay which are not properly resolved by summary judgment. Accordingly, a separate order has been entered scheduling a pretrial conference to consider the remaining issues in this proceeding.
An order in accordance with this decision is simultaneously entered.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2586284/ | 162 P.3d 988 (2007)
343 Or. 115
WOLF
v.
OREGON LOTTERY COM'N.
No. S54681.
Supreme Court of Oregon.
June 19, 2007.
Petition for review allowed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919237/ | 106 B.R. 8 (1989)
In re J. BILDNER & SONS, INC., Windward Management Company, Inc., Windward Group Companies, Inc., Windward Management Company of New York, Inc., Windward Management Company of Illinois, Inc., Windward Management Company of Georgia, Inc., and Windward Management Company of Virginia, Inc., Debtors.
Bankruptcy Nos. 88-11257-JNG to 88-11264-JNG.
United States Bankruptcy Court, D. Massachusetts, at Boston.
October 6, 1989.
*9 Richard P. Olson, Ropes & Gray, Boston, Mass., for debtors.
Preben Jensen, Lane & Mittendorf, New York City, for creditor.
MEMORANDUM
JAMES N. GABRIEL, Chief Judge.
I. INTRODUCTION
The matter before the Court is the objection filed by the above-captioned Debtors to the proof of claim filed by Young & Rubicam Inc. ("Y & R"). The claim of Y & R arises from the termination of a sublease of approximately 4000 square feet of retail space located at 230 Park Avenue South, New York, New York, which sublease was entered into between Windward Management Company of New York, Inc. ("Windward"), as sublessee, and Y & R, as sublessor. The Debtors intended to construct and operate a J. Bildner & Sons grocery store in the leased space, but the store never opened due to the Debtors' financial difficulties.
Y & R filed its proof of claim on or about October 24, 1988. Through its proof of claim, Y & R seeks allowance of an unsecured claim in the aggregate amount of $970,638.46. Y & R breaks down the claim as follows: 1) $484,292.11 for failure to discharge liens on the premises filed by suppliers of labor and materials; 2) $35,438.35 for additional rent for the Debtors' portional share of the amount by which the taxes for the period prior to the repossession of the premises by Y & R exceeded the base year tax; 3) $433,823 for liquidated damages for default termination pursuant to Article XXI of the sublease; and 4) $17,085 for costs and expenses, including reasonable attorneys' fees.
The Debtors objected to Y & R's proof of claim on May 5, 1989. In their memorandum, which was filed on September 25, 1989, the Debtors specifically objected to the $484,292.11 and $433,823 amounts. They did not object to either the $35,483.35 amount or the $17,085 amount, although with respect to the latter amount they requested that Y & R's counsel be ordered to file a fee application.
Despite the fact that notice of the objection called for a response to be filed by Y & R on or before June 14, 1989, Y & R failed to file a response by that date. Indeed, Y & R did not file any pleadings to clarify its position with respect to the Debtors' objection until it submitted a memorandum on September 26, 1989 during the evidentiary hearing on the Debtors' objection. In its memorandum, Y & R amended its proof of claim. The Court disallowed Y & R's proposed amendment as being untimely and potentially prejudicial to unsecured creditors since counsel to the creditors' committee was unaware of the amendment.[1] The Court, however, notes that counsel to the Debtor was given notice of the amendment in answers to the interrogatories that were not brought to the Court's attention prior to the hearing.[2]
*10 II. FACTS
One witness, Mr. Carl Sturges, Y & R's Director of Real Estate, testified during the course of the evidentiary hearing, and five exhibits were introduced into evidence. The facts are largely undisputed.[3]
Windward entered into a sublease with Y & R on July 15, 1986.[4] The sublease was for a term of approximately 14 and one-half years, ending on January 31, 2001. The base rent reserved under the sublease was $136,748 for the first two years. The base rent increased in subsequent years in accordance with a schedule contained in Article III of the sublease. Windward defaulted on certain of its obligations under the sublease. It failed to make several monthly payments, and it commenced substantial construction and alteration work, including the demolition of a sprinkler system, on the leased premises without obtaining Y & R's consent and without furnishing performance, labor and material bonds. Mr. Sturges testified that Windward's failure to obtain the requisite bonds constituted a serious default under the sublease and prompted Y & R to terminate the sublease. In accordance with the terms of the sublease, Y & R sent Windward a notice of termination dated December 16, 1987. Subsequently, Y & R instituted civil proceedings against Windward and obtained a warrant of eviction from the Civil Court of the City of New York. Y & R repossessed the premises on February 15, 1988. Y & R also sued the Debtors in the Supreme Court of the State of New York for inter alia damages pursuant to Article XXI of the sublease due to breach of the lease. The parties stipulated that Y & R expended $17,085 in legal fees with respect to the eviction proceeding and the suit for damages.
The parties also stipulated that lien notices in the amount of $484,292.11, covering indebtedness for labor and materials furnished to the Debtors have been filed in the Office of the Clerk of the County of New York. Additionally, the parties stipulated that Y & R paid bonding fees in the amount of $9,203.
The testimony and exhibits revealed that Y & R, as well as J. Bildner & Sons, Inc., Windward Management Company, Windward and others were sued by Ed Herschenfeld Construction Co, Inc. ("Herschenfeld") with respect to the labor and materials furnished by Herschenfeld to the Debtors. Herschenfeld alleged:
The work, labor and services so performed by the plaintiff and the materials so furnished by plaintiff were performed and furnished for the benefit of defendant, Young & Rubicam and with the consent of defendant, Young & Rubicam in that performance of the Work was contemplated by Young & Rubicam upon its entering into its lease with Windward of New York, performance of the Work was desired by Young & Rubicam for the improvement and upgrading of the Premises and the Property, plaintiff's performance of the Work was inspected and supervised by Young & Rubicam, Young & Rubicam itself engaged plaintiff to perform work on and for the improvement of the Property simultaneously with and related to the Work upon the Premises, and Young & Rubicam came into possession of the improvements effected by the Work upon a termination of its sublease of the Premises to Windward of New York.
Y & R denied this allegation and affirmatively asserted the defense that the services performed were done without its consent. The parties stipulated that Y & R has expended $7,254 in the defense of this action to date. Y & R has made no payment to Herschenfeld or any other lien claimants. No offer of proof was made and no evidence was submitted relative to sums expended by Y & R to either clean up the premises or repair any damage done to the premises during the course of construction. *11 The Court notes that Y & R in its amended proof of claim, claims approximately $33,500 for such costs.
Mr. Sturges testified extensively about Y & R attempts to relet the premises. He indicated that Y & R utilized the services of real estate brokers. The first broker, Brad Mendelson of Edward S. Gordon Company Inc. submitted two offers to Y & R, neither of which culminated in the execution of a sublease. The first offer was submitted by a corporation to be formed by Mr. Robert Farley, a well regarded restauranteur. The proposed lease term was 15 years with a 10 year option at fair market value. The base rent for the first five years of the lease was $200,000 per annum, and the security was to be a $100,000 letter of credit. The tenant was to pay a proportionate share of tax escalations.
The second offer was submitted by a corporation known as New York Arena, Inc. The offeror intended to utilize the space once occupied by Windward for a "first quality Sports Bar and restaurant." It sought a 17 year lease and was willing to pay $210,000 per annum for the first two years; $224,700 per annum for the third and fourth years, and $240,429 per annum for the fifth and sixth years of the lease term. This offer did not contain security deposit or tax escalation provisions.
With respect to the two offers, Sturges indicated that, without a computer, he was unable to evaluate whether they were more or less favorable than the sublease with Windward. However, on cross-examination, it was evident to the Court, if not to Mr. Sturges, that the two proposed leases compared favorably to the Windward lease. In both instances, the base rates exceeded the base rates that would have been due under the Windward lease.
Mr. Sturges emphasized that Y & R was most interested in obtaining a credit worthy tenant who was or would be engaged in a respectable business that would reflect well on the building, which was occupied by Y & R. He indicated that he encouraged Brad Mendelson and later a broker identified as Bob Krieger to present Y & R with any reasonable offer. Sturges testified that he did not impose any dollar limitations on the offers to be solicited by the brokers. Sturges testified that Y & R was not interested in maximizing its profit, but was interested in renting to a good, longterm tenant.
Sturges testimony clearly established that Y & R was relying on brokers to present it with offers. Sturges indicated that Y & R never offered the space occupied by Windward to anyone at or below the rental rate paid by Windward. In fact, Sturges was somewhat surprised at the suggestion, noting it was contrary to the practice in the industry.
III. DISCUSSION
A. Contingent Claims
The Debtors objected to Y & R's claim for $484,292.11 pursuant to section 502(e)(1)(B) of the Bankruptcy Code. That section provides in relevant part:
. . . the court shall disallow any claim for reimbursement or contribution of any entity that is liable with the debtor on . . . the claim of a creditor, to the extent that such claim for reimbursement or contribution is contingent as of the time of allowance or disallowance of such claim for reimbursement or contribution. . . .
11 U.S.C. § 502(e)(1)(B).
In In re Hemingway Transport, Inc., 105 B.R. 171 (Bankr.D.Mass.1989), this Court recently examined section 502(e)(1)(B) in depth. In order to prevail under section 502(e)(1)(B), the following elements must be established: "1) the claim must be one for reimbursement or contribution; 2) the entity asserting the claim for reimbursement or contribution must be `liable with debtor;' and 3) the claim must be contingent at the time of allowance or disallowance." Id. 105 B.R. at 176-77. See also In re Wedtech Corp., 85 B.R. 285, 289 (S.D.N.Y.1988); In re Provincetown-Boston Airlines, Inc., 72 B.R. 307, 309 (Bankr. M.D.Fla.1987). Despite Y & R's argument that section 502(e)(1)(B) should only apply to entities whose liability with the Debtor is consensual, as opposed to statutory, the Court is convinced that the elements necessary *12 to prevail under section 502(e)(1)(B) are present here, particularly with respect to the Ed Herschenfeld Construction Co. litigation. Clearly, as the Debtors recognize, allowing Y & R to receive payment on the contractors claims (Herschenfeld has filed a claim in these proceedings) without compelling Y & R to make payment on such claims first would subject the Debtors to double liability and result in a possible windfall to Y & R.
B. Lease Termination Damages
In W.T. Grant Co., 36 B.R. 939 (S.D.N.Y. 1984), a case involving an objection by a trustee to a landlord's proof of claim, the court stated:
The Act itself does not provide a formula for ascertaining the appropriate measure of damages. E.g., In re Crawford Clothes, Inc., 434 F.2d 399, 402 (2d Cir. 1970); C.D. Stimpson Co. v. Porter, 195 F.2d 410, 413 (10th Cir.1952). Therefore, absent a specific damage provision in a lease, courts apply the rule enunciated by the Supreme Court in City Bank Farmers Trust Co. v. Irving Trust Co., 299 U.S. 433, 57 S.Ct. 292, 81 L.Ed. 324 (1937), i.e., that the measure of damages which the landlord may recover as a result of the tenant's breach is "the difference between the rental value of the remainder of the term and the rent reserved, both discounted to present worth." Id. at 443, 57 S.Ct. at 297; see Kuehner v. Irving Trust Co., 299 U.S. 445, 450, 57 S.Ct. 298, 301, 81 L.Ed. 340 (1937). Thus, the landlord may recover only actual damages suffered as a result of the tenant's breach. C.D. Stimpson Co. v. Porter, 195 F.2d at 413; see In re D.H. Overmyer Co., Inc., 10 C.B.C. 17, 22 (Bankr.S.D.N.Y.1976) (construing section 353 of chapter XI); 3A Collier on Bankruptcy 63.33[2.4], at 1946 (14th ed. 1975).
Id. at 941-42 (footnote omitted). In the Grant case, the district court affirmed a bankruptcy court's determination that a liquidated damages provision had "no applicability when the alleged default resulted from the initiation of bankruptcy proceedings." Id. at 942. The district court concluded that since no specific damage provision in the lease controlled, the federally created rule should apply. Id. See also D.H. Overmyer Co., Inc. v. Irving Trust Co., 60 B.R. 391 (S.D.N.Y.1986).
With respect to Y & R's claim for liquidated damages, the Court notes that there was no evidence introduced to show how Y & R arrived at the figure of $433,823 for damages. Article XXI of the sublease provides in relevant part:
21.01 In the event of a Default Termination of this Lease, Tenant will pay to Landlord as damages at the election of Landlord, either:
(a) a sum which at the time of such Default Termination represents the then value of the excess if any, of (1) the aggregate of the Rent which would have been payable hereunder by Tenant for the period commencing with the day following the date of such Default Termination and ending with the date hereinbefore set for the expiration of the full term hereby granted, over (2) the aggregate rental value of the Premises for the same period, or
(b) sums equal to the aggregate of the Rent which would have been payable by Tenant had this Lease not terminated by such Default Termination, payable upon the due date therefor specified herein following such Default Termination and until the date hereinbefore set for the expiration of the full term hereby granted; provided, however, that if Landlord shall relet all or any part of the Premises for all or any part of said period, Landlord shall credit Tenant with the net rents received by Landlord from such reletting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the expenses incurred or paid by Landlord in terminating this Lease and of re-entering the Premises and of securing possession thereof, as well as the expenses of reletting, including altering an preparing the Premises for new tenants, brokers' commissions and all other expenses properly chargeable against the Premises and the term *13 of the Lease and the rental therefrom in connection with such reletting, it being understood that any such reletting may be for a period equal to or shorter or longer than said period. . . .
In sum, the first approach toward damages under the sublease is similar to the federal rule and the second permits Y & R to collect the rent as it becomes due, subject to a credit if the premises are relet. Nowhere, in Y & R's memorandum does it explicitly state that it is seeking damages pursuant to subsection (a) or (b), although it urges the Court to follow Matter of Eagle Clothes, Inc., 18 B.R. 298 (Bankr.S. D.N.Y.1982). In that case, which parenthetically is completely opposite to the instant case since the debtor was the lessor, the court stated: "[a] `primary source' for measuring damages is the covenant of the parties, `if damages or indemnity are not based on rejection.' A liquidated damage clause in a lease fixes the amount of the damages." 18 B.R. at 300 (citations and footnote omitted).
Although the Court ruled that Y & R's amendment to its proof of claim was untimely, reference to the amended proof of claim is helpful because it reveals that Y & R appears to be "measuring" its damages at least in part with reference to section 502(b)(6) of the Bankruptcy Code. That section, however, is not a measure but a limitation on damages. As explained by Collier, section 502(b)(6) of the Bankruptcy Code provides:
[T]he allowable claim of a landlord for purposes of eligibility to share in the distribution of the debtor's assets is the rent reserved by the lease, without acceleration, for either one year or 15 percent not to exceed three years of the remaining period of the lease following either the date the petition was filed by the lessee debtor or the date on which either the landlord took possession of the premises or the lessee surrendered the property, whichever is earlier. In addition, the landlord's allowable claim under the section is for any unaccelerated unpaid rent due under the lease on the earlier of the date of the filing of the petition or the date on which the landlord repossessed or the property was surrendered. But in all events, the burden is upon the landlord to show the damages resulting from the termination of the lease. Upon such showing, the landlord's allowable claim is limited to the formula described in section 502(b)(6)(A) and, under sub-paragraph (B) of the section, any unpaid rent which was due under the lease, on the earlier of the dates described in subparagraph (A).
4 Collier on Bankruptcy ¶ 502.02 at XXX-XX-XX (15th ed. 1989). Parenthetically, the Debtors and Y & R are in agreement that the post-repossession damages calculated at the reserved rent for 15 percent of the period from February 15, 1988 through January 13, 2001 is approximately $362,700.
It is well settled that a properly executed and filed proof of claim is prima facie evidence of the validity and amount of the claim. Bankruptcy Rule 3001(f); 11 U.S.C. § 502(a). A party objecting to a proof of claim bears the initial burden of producing evidence to defeat the claim. However, the ultimate burden of persuasion rests upon the claimant to prove its claim by a preponderance of the evidence. See In re BRI Corp., 88 B.R. 71 (Bankr.E. D.Pa.1988).
Since Y & R failed to present evidence as to how it calculated its claim for $433,823 (Mr. Sturges was not asked to review the proof of claim during the hearing), the Court will utilize the federal rule which provides that the measure of damages is the difference between the present lease value for the remainder of the term and the present fair rental value for the remainder of the term both discounted to present value. See City Bank Farmers Trust Co. v. Irving Trust Co., 299 U.S. 433, 57 S.Ct. 292, 81 L.Ed. 324 (1937); In re Good Hope Industries, Inc., 16 B.R. 702 (Bankr.D.Mass.1982); In re Fernandes Supermarkets, Inc., 1 B.R. 249 (Bankr.D. Mass.1979). Using this formula, the Court is unable to find that Y & R sustained its burden of ultimate persuasion. Although Mr. Sturges alluded to a soft market for *14 the rental of retail space and the to-date fruitless effort of Y & R to relet the premises, that testimony falls far short of what is needed. Indeed, based upon the two offers that were introduced as exhibits, the Court could just as easily conclude that Y & R will at some point be able to sublet the premises without suffering any actual damages and perhaps even make a profit. Accordingly, the Court rules that the Debtors' objection to the claim is sustained and that Y & R's claim must be disallowed as to the amounts it seeks for contingent claims by suppliers of services and materials and for damages stemming from the default termination.
The Court submits this memorandum in accordance with the order dated September 29, 1989.
NOTES
[1] In In re Pyramid Building Co., 87 B.R. 38 (Bankr.N.D.Ohio 1988), the court stated "[b]alancing the equities is a necessary determinant of the propriety of amendment." Id. at 40. See also In re Gibraltor Amusements, Ltd., 315 F.2d 210 (2d Cir.1963). Although the Court notes that the Debtors' consolidated plan has been confirmed, financing exigencies required that the allowed amounts of landlord claims be capped at an amount set forth in the plan by October 2, 1989.
[2] The Court also notes that Y & R unofficially sought a continuance of the evidentiary hearing on September 25, 1989 (a fax copy only of an application for a continuance was submitted to the Court). Additionally, at the time of trial, Y & R indicated that an ostensibly key witness was unable to appear. Given the amount of time since the filing of the Debtors' objection, the Court was neither moved by the reasons advanced by Y & R to allow a continuance of the hearing at the last minute nor favorably impressed by Y & R's apparent lack of preparedness.
[3] To the extent the record of September 26, 1989 is silent as to certain facts, the Court has utilized information set forth in the memoranda, but only to the extent both parties recite the same information.
[4] The sublease was amended twice. Neither amendment is disputed by the parties. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589113/ | 14 So.3d 1010 (2009)
WEST
v.
STATE.
No. 1D08-2329.
District Court of Appeal of Florida, First District.
August 20, 2009.
Decision without published opinion Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589918/ | 270 S.W.3d 533 (2008)
STATE of Missouri, Respondent,
v.
Freddie Leonard OWENS, Appellant.
No. WD 68830.
Missouri Court of Appeals, Western District.
December 16, 2008.
*534 Craig Allan Johnston, Columbia, MO., for appellant.
Shaun Mackelprang, and Jayne T. Woods, Jefferson City, MO., for respondent.
Before THOMAS H. NEWTON, C.J., and VICTOR C. HOWARD and ALOK AHUJA, JJ.
ALOK AHUJA, Judge.
Appellant Freddie Owens appeals his conviction after a jury trial for attempted victim tampering pursuant to § 575.270.2,[1] on the basis that the jury's verdict was unsupported by the evidence and patently inconsistent. We reverse, and vacate Owens' conviction.
I. Factual Background
In January 2007, Owens was living with his girlfriend at the time, C.H.,[2] in Boone County. C.H.'s sixteen-year-old daughter, M.D., lived in the same home. During the early morning of January 11, 2007, M.D. called the police and told them that Owens had sexually assaulted her. When subsequently interviewed, M.D. stated that she was awakened by Owens touching her between her legs underneath her clothing. M.D. also claimed that Owens had asked *535 her to perform oral sex on him, and had offered to perform oral sex on her.
Owens was arrested based on M.D.'s accusations. In late January 2007, while incarcerated in the Boone County jail awaiting trial, Owens made several telephone calls to C.H. Each of the conversations was recorded, a fact of which both Owens and C.H. were aware. During the calls Owens attempted to persuade C.H. to have M.D. sign a notarized statement indicating that she would not participate in Owens' prosecution, and "stop[] these whole proceedings." Owens told C.H. that "[y]ou can make [M.D.] go do it," and asked her to "force [M.D.] to do that." Owens told C.H. that, if M.D. signed a letter stating that she did not wish to press any charges, the State would drop the matter. He stated that "the only thing that can save me ... is a letter from her, or her going down to the DA's office and dropping charges." During the conversations Owens neither proclaimed his innocence, nor admitted his guilt, of the underlying offense. There was no evidence that either Owens or C.H. directly contacted M.D. to attempt to persuade her to drop the charges.
On February 5, 2007, following these recorded conversations between Owens and her mother, M.D. provided a one-sentence, notarized letter to the Boone County prosecutor's office, stating that she "would like to drop the charges filed against [Owens] on January 11, 2007." Prior to trial, M.D. told both the prosecutor's office and her aunt that the sexual assault had not occurred, and that she had made the story up.
As reflected in a First Amended Information filed on the first day of his trial, Owens was ultimately charged with three counts: Count I, statutory sodomy in the second degree, § 566.064; Count II, victim tampering, § 575.270.2; and Count III, attempted statutory sodomy in the second degree, §§ 564.011 and 566.064. (The attempted statutory sodomy count was based on the allegation that Owens "asked M.D. to perform oral sex on him.")
At trial, M.D. testified that Owens had not sexually assaulted her, and that she had made up the allegations due to a dispute with her mother. M.D. denied that either her mother or Owens had talked to her about dropping the charges against Owens; instead, M.D. insisted that it was her decision to inform the prosecutor's office that she had lied in making her accusations.
At the close of the State's evidence, Owens' trial counsel filed a motion for acquittal on all counts. In response, the trial court directed a verdict of not guilty on Count III, the attempted statutory sodomy charge. Prior to submission to the jury, the trial court granted the prosecution's unopposed oral motion to amend Count II from victim tampering to attempted victim tampering. The amendment was apparently triggered by the argument of Owens' counsel that there was insufficient evidence of the completed crime of victim tampering, because there was no evidence that either Owens or C.H. had actually spoken with M.D. to attempt to persuade her to drop the charges against Owens.[3] Notably, under § 575.270.3, the range of punishment for attempted victim tampering is identical to that for the completed offense.
*536 The jury acquitted Owens of Count I, the charge of statutory sodomy in the second degree; however, the jury found Owens guilty of Count II, attempted victim tampering. The trial court accepted the verdict and dismissed the jury. Owens made no objection based on any purported inconsistency in the verdict prior to the jury's discharge. The court sentenced Owens to five years incarceration in the Missouri Department of Corrections without possibility of parole.
II. Analysis
In his sole Point Relied On, Owens argues that his conviction for attempted victim tampering should be vacated because the jury "found Appellant not guilty of sodomy, and Appellant's victim tampering conviction is dependent upon the jury finding that M.D. was the victim of statutory sodomy." We agree.
A. Standard of Review
Generally, "[i]f a defendant claims that a verdict is inconsistent to the point of being self-destructive, he must present that claim to the circuit court before the jury is discharged; if he does not, he waives the claim." State v. Flemons, 144 S.W.3d 877, 881 (Mo.App. W.D.2004). Because Owens did not object to the jury's verdict in a timely fashion, we may review his claim for plain error only. Id.
Rule 30.20[4] authorizes this Court to review "plain errors affecting substantial rights ... when the court finds that manifest injustice or miscarriage of justice has resulted therefrom." "Review of plain error under Rule 30.20 involves a two-step process." State v. Lewis, 243 S.W.3d 523, 525 (Mo.App. W.D.2008). "First, we must determine if the claim on its face establishes substantial grounds to find that manifest injustice or miscarriage of justice has resulted." Id. "Errors are plain if they are evident, obvious, and clear." State v. Brink, 218 S.W.3d 440, 448 (Mo. App.2006). "In the absence of such error, we should decline to exercise our discretion to review the claimed error under Rule 30.20." Id. "If we find plain error on the face of the claim, we may proceed, at our discretion, to the second step to consider whether or not a miscarriage of justice or manifest injustice will occur if the error is left uncorrected." Id.
In connection with our plain error analysis, we note that "[a] `trial court has a duty to examine the verdict returned by the jury for defects, inconsistencies and ambiguities.'" State v. Zimmerman, 941 S.W.2d 821, 824 (Mo.App. W.D.1997) (citation omitted). "`The law is clear that when a jury returns a verdict in improper form [there, as here, based on an inconsistency in verdicts on separate counts], it is the duty of the trial court to refuse to accept the same and require further deliberations until a verdict in proper form is returned.'" State v. Peters, 855 S.W.2d 345, 348 (Mo. banc 1993) (citation omitted). "For the court to attempt to resolve this inconsistency without directly addressing it with the jury through further deliberations... relegates the court to trying to determine the intent of the jury as to its verdicts based upon inferences, conjecture and speculation." Zimmerman, 941 S.W.2d at 825.
B. Interpretation of § 575.270.2
Section 575.270.2, the statute under which Owens was convicted, provides:
*537 A person commits the crime of "victim tampering" if, with purpose to do so, he prevents or dissuades or attempts to prevent or dissuade any person who has been a victim of any crime or a person who is acting on behalf of any such victim from:
(1) Making any report of such victimization to any peace officer, or state, local or federal law enforcement officer or prosecuting agency or to any judge;
(2) Causing a complaint, indictment or information to be sought and prosecuted or assisting in the prosecution thereof;
(3) Arresting or causing or seeking the arrest of any person in connection with such victimization.
(Emphasis added.)
Section 575.270.2 makes express and unambiguous that one of the elements of the crime of victim tampering is that the individual prevented or dissuaded be "a[ ] person who has been a victim of any crime." "It is up to the legislature, not this court, to determine the elements of a crime." State v. Porter, 241 S.W.3d 385, 397 (Mo. App. W.D.2007). "[I]t is presumed, of course, `that the legislature did not insert idle verbiage or superfluous language in a statute.'" Turner v. State, 245 S.W.3d 826, 828 (Mo. banc 2008)(quoting Civil Serv. Comm'n of St. Louis v. Bd. of Aldermen, 92 S.W.3d 785, 788 (Mo. banc 2003)).
Giving the language in § 575.270.2 its plain and ordinary meaning, a jury must find that the object of the tampering is "a victim of any crime" before an accused can be found guilty under the statute. State v. Granger, 966 S.W.2d 27 (Mo. App. E.D.1998), supports this conclusion. In Granger, the defendant was found guilty, after a jury trial, of assault in the first degree, armed criminal action, victim tampering, aggravated stalking, resisting arrest, and two counts of burglary in the first degree. Id. at 29. On appeal, the Eastern District concluded that the evidence was insufficient to support the defendant's conviction for one of the two counts of first degree burglary. Id. at 29-30. Without a lengthy analysis, Granger concluded that reversal of the burglary conviction likewise required reversal of the victim tampering conviction:
As discussed, there was insufficient evidence to find defendant guilty of burglary in the first degree relating to the June 22, 1995 incident. [In the victim tampering instruction,] [t]he jury was only instructed as to finding that Laura Morrow was the victim of burglary in the first degree relating to the June 22, 1995 incident. Defendant's conviction for the class C felony of victim tampering is reversed.
Id. at 30.
State v. Dooley, 851 S.W.2d 683 (Mo. App. E.D.1993), is to like effect. Dooley holds that a defendant need not be found guilty of every predicate offense which could render the object of the tampering the "victim of any crime"; nevertheless, it plainly assumes that the jury must find that the target of the persuasion was the victim of some underlying criminal offense:
The [victim-tampering] instruction ... required the jury to find Mona L. Keith was the victim of assault, burglary, unlawful use of a weapon, or kidnapping, and that defendant attempted to prevent or persuade [sic] her from prosecuting. The instruction follows the language of § 575.270.2 RSMo.1986. Defendant argues that because he was acquitted of the crime of unlawful use of a weapon, Mona L. Keith could not be a victim of that offense and, therefore, one of the disjunctive submissions is without evidentiary support.
*538 This argument is defective given the statute's language that "any person who has been a victim of any crime" is a victim. Section 575.270.2. We decline to narrow the class of "victims" by holding that defendant must be guilty of all underlying charges before he can be found guilty of victim tampering. Defendant's fourth point is denied.
Id. at 687 (emphasis added).[5]
Our conclusion that the State must prove that the target of tampering was in fact the victim of a crime is further bolstered by the Missouri Approved Instruction for submission of victim tampering.[6] MAI-CR3d 329.87 reads:
329.87 VICTIM TAMPERING
(As to Count ___, if) (If) you find and believe from the evidence beyond a reasonable doubt:
First, that [name of victim] was the victim of the crime of [name of crime] (that occurred on or about [date]) (that was charged as a felony on or about [date]), and
(Second, that [name of person] was acting on behalf of [name of victim], and)
(Second) (Third), that (on) (on or about) [date], in the (City) (County) of ________, State of Missouri, the defendant [Briefly describe what defendant said or did.], and
(Third) (Fourth), that (by)(in) so doing, the defendant purposely prevented or dissuaded [name of victim or person in paragraph Second] from [MAICR3d then lists various acts of assistance in criminal enforcement], then you will find the defendant guilty (under Count ___) of victim tampering.
However, unless you find and believe from the evidence beyond a reasonable doubt each and all of these propositions, you must find the defendant not guilty of that offense.
[Insert a definition of the crime of which the person was a victim.]
Id. (boldface emphasis added). The effect of MAI-CR3d 329.87 is that, if the jury has a reasonable doubt that the complaining witness "was the victim of the crime" identified (and defined) in the instruction, it must acquit the defendant of victim tampering, since the jury is expressly admonished that, "unless you find and believe from the evidence beyond a reasonable doubt each and all of these propositions, you must find the defendant not guilty of that offense."[7]
*539 The information which charged Owens reflects that the State was fully aware that it would be required to prove that M.D. was in fact the victim of the crime of statutory sodomy in order to secure Owens' conviction for victim tampering. The relevant paragraph of the First Amended Information, filed on the day Owens' trial commenced, alleges that:
In violation of Section 575.270, RSMo, [Owens] committed the class C felony of victim tampering, punishable upon conviction under Sections 558.011 and 560.011, RSMo, in that on or between January 12, 2007, and April 1, 2007, in the County of Boone, State of Missouri, the defendant acting in concert with another, purposeful[l]y prevented or diss[u]aded M.D. a victim of the crime of statutory sodomy that was charged as a felony on or about the 19th day of January, 2007, from assisting in the prosecution of Freddie Owens for the crime of statutory sodomy.
(Emphasis added.)[8]
Finally, we find it significant that § 575.270 defines not only the crime of victim tampering (in § 575.270.2), but also the offense of witness tampering (in § 575.270.1). This latter subsection proscribes efforts "to induce a witness or a prospective witness to disobey a subpoena or other legal process, or to absent himself or avoid subpoena or other legal process, or to withhold evidence, information or documents, or to testify falsely." The statute only prohibits such efforts, however, if they are accomplished by specific means: threats to cause harm or causing harm to persons or property; force or deception; or offers to confer direct or indirect benefits on the witness. See § 575.270.1(1) to (4). While this statute does not require proof that an underlying offense actually occurred (and in that respect is broader than the victim tampering proscription), it also significantly narrows the scope of prohibited conduct by criminalizing only certain means of persuasion.[9]
C. Inconsistency of the Jury's Verdicts.
Here, Owens was convicted of attempted victim tampering, but was acquitted of the underlying crime of statutory sodomy. However, as discussed above, in order to convict him of victim tampering the jury needed to find that M.D. was in fact victimized by statutory sodomy. We conclude that the jury's acquittal of Owens on Count I, but its conviction on Count II, were patently inconsistent and require the vacation of Owens' victim tampering conviction.
As a general proposition, inconsistencies between verdicts on multiple counts in a criminal prosecution are not grounds for rejecting the individual verdicts; rather, the sufficiency of the evidence on each count is considered independently of the others.
An inconsistent verdict among several charges does not require a reversal provided there is sufficient evidence to support the jury's finding of guilt [on each count considered independently].... "Juries frequently convict on some *540 counts and acquit on others not because they are unconvinced of guilt but simply because of compassion and compromise."
State v. Clemons, 643 S.W.2d 803, 805-06 (Mo. banc 1983) (quoting State v. Urhahn, 621 S.W.2d 928, 934 (Mo.App. E.D.1981)). Under this general principle, the sufficiency of the evidence on "[e]ach count is to be reviewed separately." State v. Rice, 937 S.W.2d 296, 299 (Mo.App. E.D.1996). "[W]hen a defendant is tried on a multiple count charge involving crimes with different elements, the jury's verdict does not have to be logically consistent." State v. Flemons, 144 S.W.3d 877, 882 (Mo.App. W.D.2004). "`However much the jury's conclusion may tax the legally trained's penchant for consistency, the law is clear that inconsistent verdicts among the varied charges of a multi-count indictment are not self-vitiating.'" State v. Cross, 699 S.W.2d 51, 54 (Mo.App. E.D.1985) (citation omitted).
This principle is subject to an important exception, however: where a finding of guilt on one count depends on the jury's verdict on another count, acquittal of the predicate crime precludes conviction of the dependent offense. Thus, in Flemons, we concluded that a jury's "guilty verdict for unlawful use of a weapon [was facially] inconsistent with its verdict of not guilty for marijuana possession." 144 S.W.3d at 882. In Flemons the jury was instructed that the defendant could only be found guilty of unlawful use of a weapon "if he was not traveling in a continuous journey peaceably through this state." Id. The jury was further instructed that "an individual is not `traveling peaceably' if he is committing the offense of possession of more than five grams of marijuana with the intent to distribute, deliver, or sell." Id. This Court concluded that the instructions rendered Flemons' guilt for unlawful use of a weapon contingent on his guilt for possession of marijuana with intent to distribute, and that acquittal on the marijuana possession charge necessitated reversal of his conviction for the weapons offense:
Based on this instruction, the jury could not have acquitted Flemons on the charge of possessing a controlled substance with an intent to distribute but still have found him guilty of unlawful use of a weapon. The unlawful use of a weapon charge and Flemons' not traveling peaceably were dependent on Flemons' being found guilty of possession of marijuana with the intent to distribute.
Id. (footnote omitted); see also id. at 882 n. 2 ("The instruction, which was submitted by the state, made conviction of possession of marijuana with intent to distribute a condition precedent to a conviction for unlawful use of a weapon.").
Similarly, in State v. Staten, 478 S.W.2d 265 (Mo. 1972), the Supreme Court held that a jury's acquittal of the defendant on a second-degree burglary charge required reversal of his conviction for stealing in connection with the burglary, reasoning that
[b]urglary is a constituent element of a stealing charge under the statute and a jury verdict such as this is not merely inconsistent. It shows conclusively that the jury has failed to find a constituent element of the offense and therefore it cannot stand.
id. at 266; see also State v. Peters, 855 S.W.2d 345, 347-48 (Mo. banc 1993) (verdicts inconsistent "because if the defendant was not guilty of assault, he cannot be guilty of armed criminal action based on assault"; trial court properly refused verdicts and ordered jury to deliberate further to resolve inconsistency); State v. Weems, 840 S.W.2d 222, 228 (Mo. banc 1992) (reversal of murder conviction requires reversal of armed criminal action conviction, "because the armed criminal action conviction was dependent upon a finding by the jury that, in accord with its *541 instructions, Mr. Weems committed murder in the first degree"); State v. Young, 42 S.W.3d 729, 733-34 (Mo.App. W.D.2001) (distinguishing Staten and Peters because, in those cases, the acquitted offense was "a constituent element" of the convicted offense).[10]
The State emphasizes that here, the instruction for attempted victim tampering did not explicitly identify statutory sodomy as the predicate offense or contain a definition of statutory sodomy. The instruction did, however, instruct the jury that the offense of "victim tampering" required that the defendant "prevents or dissuades any person who has been the victim of any crime from" assisting in a prosecution.[11] The only crime of which M.D. could have been the victim that was posited by the charging instrument, the evidence, the arguments, and the jury instructions was statutory sodomy in the second degree. The instruction also required the jury to find that Owens asked C.H. "to speak with [M.D.] about signing an affidavit of non-prosecution." Based on the evidence, the "affidavit of non-prosecution" could only relate to the statutory sodomy charge Owens was then facing, and which was the only predicate criminal offense submitted to the jury for its resolution. (Owens was charged with attempted statutory sodomy, based on the invitation to engage in oral sex, only at a later date; in any event, the court directed a judgment of acquittal on that offense.) Construing the instructions as a whole, see, e.g., State v. Storey, 40 S.W.3d 898, 912 (Mo. banc 2001), it is plain that the State's prosecution of Owens for victim tampering depended on a finding that M.D. was a victim of statutory sodomy in the second degree.[12]
The jury was instructed that it should convict Owens of statutory sodomy if it found: (1) that he touched M.D.'s vagina with his hand; (2) "that such conduct constituted deviate sexual intercourse," which was defined to mean the touching of certain body parts "for the purpose of arousing or gratifying the sexual desire of any *542 person"; (3) that M.D. was less than 17 years old; and (4) that Owens was more than 21 years old. By acquitting on this charge, the jury necessarily found that the State had failed to prove at least one of these elements beyond a reasonable doubt: that Owens did not in fact touch M.D.'s vagina; that he did not do so to arouse or gratify sexual desire; or (less plausibly) that M.D.'s or Owens' ages did not meet the statutory definition. State v. Clark, 197 S.W.3d 598, 601 (Mo. banc 2006) ("An acquittal can only be an acknowledgment that the government failed to prove an essential element of the offense beyond a reasonable doubt."). The jury's conclusion that sufficient evidence was not presented on any of these elements would necessarily mean that the State had failed to prove that the crime of statutory sodomy, as defined, had occurred, and that M.D. had been the victim of it. See State v. Bell, 62 S.W.3d 84, 93 n. 2 (Mo.App. W.D.2001) (reference in armed criminal action instruction to underlying felony of robbery necessarily required jury to find all elements of robbery).[13]
Thus, as in Flemons, Staten, and the other cases cited above, Owens' conviction for attempted victim tampering depended upon the jury's finding him guilty of statutory sodomy, and the acquittal on the statutory sodomy count is patently inconsistent with the guilty verdict on Count II.
D. The Fact that Owens Was Charged with Attempted Victim Tampering Does not Alter the Outcome.
The State argues that, because it charged Owens only with the offense of attempted victim tampering, it did not have to prove that M.D. was actually the victim of statutory sodomy. The State quotes § 564.011.2, which provides that
[i]t is no defense to a prosecution [for an attempt offense] ... that the offense attempted was, under the actual attendant circumstances, factually or legally impossible of commission, if such offense could have been committed had the attendant circumstances been as the actor believed them to be.
But the State did not argue this case as one of factual or legal impossibility, or request that the court give the approved modification of the attempt instruction applicable where impossibility is in issue. See MAI-CR3d 304.06, and Note on Use 5. Moreover, any claim of factual or legal impossibility is simply incoherent here: in order for that doctrine to be applicable, the jury would have to have found that M.D. was not, in fact, the victim of statutory sodomy, but that Owens mistakenly believed that she was. We cannot sustain Owens' conviction based on this strained hypothetical. Cf. State v. Young, 139 S.W.3d 194, 197-98 (Mo.App. W.D.2004)(upholding defendant's conviction of attempted second degree statutory rape because defendant "completed every act that he could" in light of the fact that defendant solicited sex via email from a fictional fourteen year old who was actually a Sheriff, and subsequently traveled at a prearranged time to where the minor purported to live).
*543 Ultimately, the State is not allowed to pick and choose which elements of a crime it intends to prove at trial simply because a crime is charged as an attempt. See State v. Doolittle, 896 S.W.2d 27, 28-29 (Mo. banc 1995)(reversing defendant's conviction of attempted first-degree robbery because the jury did not find that the defendant had used, or threatened to use, a "dangerous instrument"). The Comment to the 1973 proposed Criminal Code explains that, even after the rejection of a factual or legal impossibility defense in § 564.011.2,
[i]t is still necessary that the result desired or intended be an offense. The actor will not be guilty of an attempt, even though he firmly believes that his goal is criminal, unless it actually is criminal.
In this case, the State failed to prove that the goal of Owens' conduct was actually criminal, i.e., that the person he had "attempt[ed] to prevent or dissuade" from participating in his prosecution "ha[d] been a victim of any crime." The fact that Owens was charged with attempted victim tampering, rather than with the completed offense, cannot save his conviction.
E. Appropriate Relief.
Because the trial court accepted the jury's verdict acquitting Owens of statutory sodomy, he cannot now be retried on that offense, or on the attempted victim tampering charge which depended on that offense. As this Court explained in Flemons:
A verdict is binding when the circuit court accepts it and discharges the jury. Because the circuit court accepted the jury's not guilty verdict on the charge of possession of marijuana with intent to distribute and discharged the jury, that verdict is binding and jeopardy attaches. Flemons cannot be retried for this offense. The unlawful use of a weapon charge, as instructed, was dependent on a guilty finding on the possession of marijuana with intent to distribute. Hence, the jury's verdict of not guilty on the possession of marijuana with intent to distribute charge should have disposed of the unlawful use of a weapon charge, too.
144 S.W.3d at 883 (citations omitted). The same result obtains here.[14]
The prosecution, and the trial court, were not without a remedy following the jury's return of the inconsistent verdicts on the statutory sodomy and attempted victim tampering charges. Before accepting the verdicts, the trial court could, and should, have resubmitted both counts to the jury, and asked them to deliberate further to resolve the inconsistency in the verdicts they initially returned. See State v. Peters, 855 S.W.2d 345, 348-49 (Mo. banc 1993) (affirming trial court's adoption of this course and finding no violation of defendant's rights under the Double Jeopardy Clause); State v. Bell, 62 S.W.3d 84, 93 (Mo.App. W.D.2001); MAI-CR3d *544 312.06 (approved instruction for use in this situation).
III. Conclusion
For all of the foregoing reasons, Owens' conviction for attempted victim tampering cannot survive his acquittal for statutory sodomy in the second degree. We therefore reverse the circuit court's judgment, and vacate Owens' conviction.
All concur.
NOTES
[1] All statutory references are to RSMo 2000, unless otherwise indicated.
[2] M.D. and her mother are identified by initials pursuant to § 566.226 RSMo Cum.Supp. 2007.
[3] Although the transcript reflects that the trial court granted the State's motion to amend, and Count II was actually submitted to the jury as an attempt offense, no amended information appears in the record on appeal, nor is any motion to amend or amended information noted on the circuit court's docket.
[4] Unless otherwise indicated, rule citations are to the Missouri Rules of Criminal Procedure (2008).
[5] In response to Owens' post-trial motion for judgment of acquittal, the State argued that
[T]here is case law directly on point, as to situations where the underlying crime in the victim tampering, where a jury finds a person not guilty of that underlying crime, but still finds them guilty of the victim tampering, there are many, you know, too many to even cite for you here today, as to that is permissible; that is not an inconsistent verdict.
Suffice it to say that the State has not cited to this Court a single case, from Missouri or elsewhere, upholding a victim tampering conviction in these circumstances.
[6] Prior cases have recognized that, while in no sense binding, approved instructions may be helpful in interpreting criminal statutes. See, e.g., State v. Smith, 972 S.W.2d 476, 479 (Mo.App.W.D.1998); see also State v. McCann, 952 S.W.2d 392, 394 (Mo.App. S.D. 1997).
[7] This admonition implements the principle that "[t]he Due Process Clause requires the State to prove every element of the crime charged beyond a reasonable doubt." State v. Coulter, 255 S.W.3d 552, 562 (Mo.App. W.D.2008)(citing In Re Winship, 397 U.S. 358, 364, 90 S.Ct. 1068, 25 L.Ed.2d 368 (1970)). "It is elemental that the State has the burden of proving each and every element of a criminal offense, and that the State's failure to meet that burden mandates the reversal of any conviction obtained under those circumstances." State v. Todd, 805 S.W.2d 204, 205 (Mo.App. W.D.1991) (emphasis added).
[8] As noted above, an unopposed oral motion to amend the charge to attempted victim tampering was granted during trial. No record of this amendment is contained in the circuit court's docket entries, and no further amended information was apparently ever filed.
[9] We note that the term "victim" is defined in § 575.010(11). Neither party cites to this definition, or suggests that it should influence our reading of § 575.270.2 in the circumstances of this case.
[10] For the reasons stated in the text, cases where verdicts were merely logically inconsistent with one another are irrelevant, because here we find that conviction of Owens for victim tampering depended on a finding that the underlying crime of statutory sodomy had occurred. See, e.g., State v. Davis, 903 S.W.2d 930, 935 (Mo.App. W.D.1995)(rejecting defendant's argument that the jury's verdict was patently inconsistent because, according to defendant, it was "simply inconceivable that, having found that appellant did not touch C.B.'s vagina with his hand (Count I) and did not have intercourse with her (Count II), any rational trier of fact could have found that he placed her hand upon his penis with the intent to arouse sexual desire"); State v. Cross, 699 S.W.2d 51, 53-54 (Mo.App. E.D.1985) (no fatal inconsistency where jury convicted of one count of sodomy but acquitted of another, and both alleged offenses involved the same victim and occurred during the same interaction in a parked car, with only a brief gap between them).
[11] As in Flemons, 144 S.W.3d at 882 n. 2, we find "disingenuous" the State's argument that the jury was not required to find that M.D. "ha[d] been the victim of any crime." Although (as in Flemons) the definition of "victim tampering" appeared in a paragraph below the enumeration of the elements of attempted victim tampering, the jury was instructed that it had to find that Owens had taken "a substantial step toward the commission of the offense of victim tampering of [M.D.]," "for the purpose of committing such victim tampering."
[12] We recognize that neither the statute, nor the attempted victim tampering instruction given here, required the jury to find that Owens had committed the statutory sodomy of which M.D. was a victim, and we can conceive of situations in which a defendant could be convicted of tampering with the victim of a crime committed by others, or by unknown perpetrators. Here, however, there was no basis in the evidence to find that the alleged offense was committed by anyone other than Owens, if it was committed at all.
[13] We note that § 575.270.2 only proscribes interference with the actions of a victim "of any crime." A common meaning of "crime" is
an act or the commission of an act that is forbidden or the omission of a duty that is commanded by a public law of a sovereign state to the injury of the public welfare and that makes the offender liable to punishment by that law in a proceeding brought against him by the state by indictment, information, complaint, or similar criminal proceeding.
WEBSTER'S THIRD NEW INT'L DICTIONARY 536 (unabridged ed. 1981).
[14] We are fully aware that, although the plain error rule generally seeks to put a defendant in the same position he would have been in if he had made a timely objection in the trial court, in the current situation Owens is arguably being put in a better position than if he had noted the inconsistency in the verdicts before the jury was discharged, when the trial court could have remedied the situation. This is, however, the course adopted in Flemons, and we accordingly follow it here. Given that Owens' acquittal of second-degree statutory sodomy is now final and unimpeachable, it would constitute a manifest injustice to affirm an attempted victim-tampering conviction based on an underlying crime which the jury found the State had not proven. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589126/ | 972 So.2d 201 (2008)
SERVANO
v.
STATE.
No. 5D07-2597.
District Court of Appeal of Florida, Fifth District.
January 9, 2008.
Decision without published opinion. Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589131/ | 14 So.3d 1007 (2009)
HOWARD
v.
FLORIDA PAROLE COM'N.
No. 1D09-621.
District Court of Appeal of Florida, First District.
August 6, 2009.
Decision without published opinion Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1593161/ | 453 So.2d 1192 (1984)
Jeffrey JONES, Appellant,
v.
The STATE of Florida, Appellee.
No. 83-45.
District Court of Appeal of Florida, Third District.
August 14, 1984.
*1193 Bennett H. Brummer, Public Defender, and Dubiner & Blumberg and Sara Bresky Blumberg, Sp. Asst. Public Defenders, for appellant.
Jim Smith, Atty. Gen., and Randi B. Klayman, Asst. Atty. Gen., for appellee.
Before SCHWARTZ, C.J., and HENDRY and FERGUSON, JJ.
HENDRY, Judge.
Jeffrey Jones appeals from conviction and sentence for burglary of a structure, sexual battery, robbery, grand theft second degree, and dealing in stolen property. For reasons more fully developed below, we affirm in part and reverse in part.
As his main point on appeal, appellant argues that the trial court erred in allowing the jury to hear testimony regarding the sexual assault by the co-defendant. He further states that despite the fact that he was charged with other crimes upon the person and property of the victims, the repeated references to the co-defendant's sexual assault upon the victim could serve no purpose other than to prejudice and inflame the minds of the jury against him. While we believe such references to have been zealous overkill, and thus erroneous, cf. Rolle v. State, 431 So.2d 326 (Fla. 3d DCA 1983), we find that the error, given the totality of the circumstances as reflected by the trial record, was not prejudicial to the substantial rights of the appellant.
The issue presented herein involves application of the harmless error doctrine, which is well-established. In Palmes v. State, 397 So.2d 648 (Fla. 1981), the Florida Supreme Court stated:
In determining whether an erroneous ruling below caused harm to the substantial rights of the defendant, an appellate court considers all the relevant circumstances, including any curative ruling or event and the general weight and quality of the evidence. In other words, the court inquires generally whether, but for the erroneous ruling, it is likely that the result below would have been different.
Id. at 653-654. See also Recinos v. State, 420 So.2d 95, 98 (Fla. 3d DCA 1982). The court went on to say:
When the error affects a constitutional right of the defendant, the reviewing court may not find it harmless `if there is a reasonable possibility that the error may have contributed to the accused's conviction or if the error may not be found harmless beyond a reasonable doubt.' Even such `constitutional error,' however, may be treated as harmless where the evidence of guilt is overwhelming.
Id. at 654 (citations omitted). See also Drake v. State, 441 So.2d 1079, 1082 (Fla. 1983). More recently, the United States Supreme Court stated that "the Court has consistently made clear that it is the duty of a reviewing court to consider the trial record as a whole and to ignore errors that are harmless, including most constitutional violations." United States v. Hastings, 461 U.S. 499, ___, 103 S.Ct. 1974, 1980, 76 *1194 L.Ed.2d 96, 106 (1983).[1] Thus, the correct standard for appellate review is whether "the error committed was so prejudicial as to vitiate the entire trial[,]" State v. Murray, 443 So.2d 955, 956 (Fla. 1984); Harris v. State, 449 So.2d 892, 897 (Fla. 1st DCA 1984)(e.s.); that is, whether there is a demonstration of prejudice to the substantial rights of the defendant such that it may have contributed to the accused's conviction or changed the outcome of the trial. There is no such showing here.
Appellant was arrested solely on the basis of having sold the victims' stereo to an informant. Later, after having been given Miranda warnings, he confessed to a number of crimes against the victims, including his own gratuitous sexual battery of the wife. While the voluntariness of the confession was argued below, the trial court found that it was freely made, the confession was admitted as evidence, and it is not challenged on appeal. Appellant's confession mirrored the horrifying events as testified to by the victims. Thus, there was ample and overwhelming evidence upon which the jury could find this appellant guilty and we cannot say that the jury was inflamed enough by the evidence of the other sexual assault to reach an unjust or incorrect verdict, or that appellant was unduly prejudiced by its admission. See Lee v. State, 444 So.2d 580 (Fla. 5th DCA 1984). We add, however, the cautionary note expressed by this court in Molina v. State, 447 So.2d 253 (Fla. 3d DCA 1983):
Merely because error can be rendered harmless because of other evidence, it is error nonetheless. Although a conviction in a strong case may be affirmed on a harmless error theory, that is not an invitation to prosecutors to commit the error and does not in any way affect their obligation to avoid deliberately eliciting inadmissible testimony in order to further tip the scales against the defendant.
Id. at 255 (Pearson, J., specially concurring).
As his second issue on appeal, appellant argues that the trial court erred in not setting aside the conviction for grand theft when there was also a conviction for dealing in stolen property. Appellant urges that section 812.025, Florida Statutes (1981)[2] precludes convictions and sentences for both offenses. We find that this argument has merit, notwithstanding the state's attempt to circumvent the statute's prohibition by limiting the grand theft count to the stolen car and limiting the dealing in stolen property count to the stereo component system. Since the theft of the car and the stereo and the sale of the stereo two days later were all a portion of the same scheme or course of conduct, see Kelly v. State, 397 So.2d 709 (Fla. 5th DCA 1981), the convictions and sentences for both grand theft and dealing in stolen property cannot stand. Accordingly, we reverse the conviction and sentence for grand theft, second degree.
Finally, appellant points out that the trial court included the fifteen year sentence for dealing in stolen property when it computed the term of his imprisonment over which it could retain jurisdiction pursuant to section 947.16, Florida Statutes (1981). This was error. Section 947.16(3) lists the crimes for which a trial court may retain jurisdiction over the offender for review of a parole commission order. Dealing in stolen property is not included in the statutory list of crimes. Therefore, the inclusion of the fifteen years must be stricken. This, coupled with the reversal of the conviction and sentence for grand theft, means that the trial court may retain *1195 jurisdiction over the first 99 years of appellant's sentence only.
The ruling of the trial court is affirmed in part, reversed in part, and remanded for correction of the sentencing errors. The defendant does not need to be present when sentence is corrected.
NOTES
[1] The Court went on to say, however, that prosecutorial misconduct would not be condoned. It stated that the appropriate punishment for such misconduct would be to refer the matter to the local Bar Disciplinary Committee.
[2] Section 812.025 states:
Notwithstanding any other provision of law, a single indictment or information may, under proper circumstances, charge theft and dealing in stolen property in connection with one scheme or course of conduct in separate counts that may be consolidated for trial, but the trier of fact may return a guilty verdict on one or the other, but not both, of the counts. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589912/ | 270 S.W.3d 684 (2008)
SOUTHERN COUNTY MUTUAL INSURANCE, Appellant,
v.
SURETY BANK, N.A., Individually and d/b/a Surety Premium Finance, Appellee.
No. 2-07-185-CV.
Court of Appeals of Texas, Fort Worth.
October 23, 2008.
*685 Wilson, Elser, Moskowitz, Et Al, Lee L. Cameron, Jr., Dallas, for Appellant.
Cantey & Hanger, L.L.P., David F. Chappell, Fort Worth, for Appellee.
PANEL: CAYCE, C.J.; HOLMAN and McCOY, JJ.
OPINION
JOHN CAYCE, Chief Justice.
This is the second time we have considered this unearned premium refund case. After this court reversed a summary judgment for appellee Surety Bank, N.A., individually and d/b/a Surety Premium Finance ("Surety Bank") in the first appeal,[1] the trial court, on remand, again granted summary judgment for Surety Bank. Appellant Southern County Mutual Insurance ("Southern County") again appeals, asserting that Surety Bank received all the refund it was entitled to. We affirm.
Background
In our earlier opinion, we provided a comprehensive statement of the relevant facts.[2] We repeat here only those facts pertinent to our review in this appeal.
In March 2001, Scotts Temple, a church in Houston, obtained an automobile insurance policy (the "Policy") through its agent, United National Insurance Agency ("United National"), from insurer Southern County. United National did not deal directly with Southern County, but obtained the policy through Southern County's managing agent, U.S. Risk Underwriters, Inc. ("U.S. Risk"). Coverage was bound on March 29, 2001, and the total gross premium for the Policy was $45,999.
On April 6, 2001, Surety Bank entered into a premium finance agreement ("PFA") with Scotts Temple and United *686 National, under which Surety Bank would finance $34,293, a portion of the total premium, while Scotts Temple was obligated to pay the rest of the premium, $11,706, by down payment. In the PFA, Scotts Temple and United National expressly warranted that this down payment had already been made by Scotts Temple. Scotts Temple, however, did not make the down payment. U.S. Risk did.[3]
Through the PFA, Scotts Temple assigned to Surety Bank "as security for the total amounts payable [under the PFA] any and all unearned premiums and dividends which may become payable under the [Policy]." Also through the PFA, Scotts Temple appointed Surety Bank its "attorney-in-fact ... with full authority upon any default to cancel [the Policy] ... and receive all sums resulting therefrom."
On April 13, 2001, Surety Bank issued a check for $34,293 to U.S. Risk. That same day, Surety Bank sent Southern County a notice of financed premium. Southern County acknowledges receiving this notice.
Scotts Temple did not pay any installments due to Surety Bank under the PFA.[4] Pursuant to the PFA, on May 4, 2001, Surety Bank provided Scotts Temple notice of its intent to cancel the Policy, and on May 15, 2001 canceled the Policy, less than two months after it had taken effect. Surety Bank sent a notice of cancellation to Southern County, placing Southern County on notice that unearned premiums must be returned to Surety Bank within sixty days of the date of cancellation.
Instead of sending the total unearned premiums, which amounted to $38,685, to Surety Bank, Southern County sent $31,721.70, which represented the unearned premiums minus the unearned commissions of U.S. Risk and United National, to U.S. Risk.[5] U.S. Risk added $3,094.80, its unearned commission at the time of cancellation, to the amount Southern County had sent U.S. Risk, then took out for itself $7,133.60, claiming that this amount was its pro rata share of the portion of unearned premium it paid when Scotts Temple failed to make the down payment. U.S. Risk then sent the remaining balance, $27,682.90, to Surety Bank.
Surety Bank sued Southern County[6] to recover the difference between the total unearned premiums and the amount it received from U.S. Risk, claiming that under Texas law and the terms of the Policy and the PFA, it was entitled to receive the total amount of unearned premiums. Surety Bank moved for summary judgment, which the trial court granted. Southern County appealed.
In February 2006, we reversed the summary judgment and remanded the case to the trial court, holding that, because the summary judgment record did not contain the Policy or any other evidence establishing the terms of the Policy regarding the *687 return of unearned premiums, a fact issue existed concerning whether Southern County had breached the Policy.[7] We reasoned that, without the Policy, neither this court nor the trial court could determine what part of the unearned premiums became payable to Scotts Temple upon the Policy's cancellation.[8]
On remand, both parties filed motions for summary judgment. This time, a copy of the Policy was part of the summary judgment evidence. Paragraph A(5) of the "Common Policy Conditions" form states what Southern County's obligations are regarding unearned premiums if the Policy is cancelled:
A. CANCELLATION AND RENEWAL
5. If this policy is cancelled, [Southern County] will send the first Named Insured any premium refund due. The refund will be pro rata subject to the policy minimum premium. The cancellation will be effective even if [Southern County] ha[s] not made or offered a refund.
...
E. PREMIUMS
The first Named Insured shown in the Declarations:
...
2. Will be the payee for any return premiums [Southern County] pay[s].
It is undisputed that the "first Named Insured" is Scotts Temple.
On May 25, 2007, the trial court denied Southern County's motion for summary judgment and granted summary judgment for Surety Bank. The judgment awarded Surety Bank $11,002, the difference between the total unearned premiums ($38,685) and the amount Surety Bank received from U.S. Risk ($27,682.90). The judgment also awarded Surety Bank pre- and post-judgment interest and $62,000 in attorney's fees. This second appeal followed.
Standard of Review
A plaintiff is entitled to summary judgment on a cause of action if it conclusively proves all essential elements of the claim.[9] When reviewing a summary judgment, we take as true all evidence favorable to the nonmovant, and we indulge every reasonable inference and resolve any doubts in the nonmovant's favor.[10]
When both parties move for summary judgment and the trial court grants one motion and denies the other, the reviewing court should review both parties' summary judgment evidence and determine all questions presented.[11] The reviewing court should render the judgment that the trial court should have rendered.[12]
Analysis
As in the first appeal, the parties' dispute centers on whether Southern County made a proper refund of unearned premiums. In one issue, Southern County argues that it was not required to refund to Surety Bank the down payment portion of the unearned premiums because Scotts Temple never paid the down payment. *688 Surety Bank, on the other hand, asserts that Southern County was obligated under the Policy, the PFA, and applicable statutes and regulations to send all unearned premiums to Surety Bank and that Southern County breached its contract (the Policy) by instead sending the unearned premiums to U.S. Risk.
Interpretation of insurance contracts in Texas is governed by the same rules of construction as other contracts.[13] When construing a contract, the court's primary concern is to give effect to the written expression of the parties' intent.[14] This court is bound to read all parts of a contract together to ascertain the agreement of the parties.[15] Terms used in the policy will be given their plain, ordinary, and generally accepted meanings, unless it appears from the policy itself or by usage that the parties intended to use the words in a special or technical sense.[16]
Under the PFA, Scotts Temple assigned to Surety Bank and gave Surety Bank a security interest in Scotts Temple's right to receive "any and all unearned premiums... which may become payable under [the Policy]." We concluded in the first appeal that this meant Surety Bank "stood in the shoes" of Scotts Temple for purposes of Surety Bank's entitlement to receive unearned premiums.[17] In other words, whatever Scotts Temple, in the absence of the PFA, would have been entitled to, Surety Bank was now entitled to.
The unresolved question on remand was "what part of the unearned premium became payable to Scotts Temple upon the Policy's cancellation."[18] Because the Policy was not part of the summary judgment record in the first appeal, we could not determine the answer to this question. Now, we can.
The Policy provides that upon cancellation, Southern County "will send the first Named Insured any premium refund due." The Policy further provides that the "first Named Insured ... [w]ill be the payee for any return premiums we pay." The "first Named Insured" is Scotts Temple. This language is clear and unambiguous: if the Policy is cancelled, Southern County is obligated to return unearned premiums to Scotts Temple.
But this does not end the inquiry. Southern County asserts that Scotts Temple cannot receive a "refund" for premiums that it did not pay. This means, according to Southern County, that Surety Bank cannot complain about not receiving all unearned premiums, since it can only recover to the extent Scotts Temple could recover, and Scotts Temple cannot receive a "refund" for the down payment it never made. We reject this argument.
First, Southern County's position would prove too much. It is true that, ordinarily, to "refund" is to "pay back," which implies that the refund should go to the one who *689 paid.[19] But "refund" does not have such a cribbed meaning in this context.[20] If Southern County's proposed construction of "refund" were correct, that is, if Scotts Temple was not entitled to a "refund" of the down payment because it did not make that down payment, then Scotts Temple likewise would not be entitled to a refund of the amount financed by Surety Bank, since Scotts Temple did not pay that amount either.
Such a result would render meaningless premium finance agreements in which the premium finance provider secures its interest through an assignment of and security interest in refunded unearned premiums, a result clearly contrary to Texas public policy as expressed through the statutes and regulations discussed below.[21] We will not construe contracts to produce an absurd result when a reasonable alternative construction exists.[22]
A previous decision of this court, in which we considered the effect on a claim for a refund of unearned premiums where an insurance agent had paid some of the premiums on behalf of the insured, informs our construction of the term "refund" in this context. In Fuller v. Security Union Ins. Co.,[23] we recognized that, no matter who makes the payment, any payment of premiums to the insurer "constitutes a payment of the premium as between the insured and the insurance company."[24]
The insurance policies at issue in Fuller, like the Policy in this case, "expressly stipulated for payment by the [insurer] to the policyholders of the unearned premiums in the event of cancellation of the policies."[25] Accordingly, we held that the assignee of an insured's right to recover unearned premiums was entitled to recover from the insurer unearned premiums that had been paid by an insurance agent for the insured.[26]*690 We see no reason to construe the refund-of-unearned-premium provisions in the Policy in this case any differently than we construed similar policy provisions in Fuller.
Second, Southern County's position is contrary to the statutory and regulatory scheme established by the State of Texas for premium finance agreements. As we noted in the first appeal of this case, premium finance companies and arrangements are governed by the provisions of former Chapter 24 of the Texas Insurance Code.[27] Former article 24.22 of the insurance code requires each premium finance company, upon entering into a premium finance agreement that contains a power of attorney or an assignment, to notify the insurer of the existence of the agreement and to whom the premium payment was made.[28] Under former article 24.17, if a premium finance company has timely provided such notice, the insurer "shall return whatever unearned premiums are due under the insurance contract directly to the premium finance company within 60 days after the policy cancellation date."[29]
Regulations promulgated by the Texas Department of Insurance reinforce this statutory requirement and provide further indication that the insurer's obligation is to send all unearned premiums directly to the premium finance company. These regulations specify that
[i]f the insurance premium finance company notified the insurer of the existence of the premium finance agreement pursuant to the Insurance Code, Article 24.22, then the entire unearned premium owed the insurance premium finance company (in trust for the insured) shall be paid within 60 days from the date notice of cancellation was received.[30]
In the first appeal of this case, we identified the elements Surety Bank was required to prove in order to recover on its claim against Southern County for failure to properly refund unearned premiums under the Policy:
To prevail on a breach of contract claim seeking a refund of unearned premiums, a premium finance company must establish that (1) the insurance policy provides for a refund of unearned premiums upon cancellation, (2) the premium finance company has authority to collect the refund, (3) the premium finance company gave timely notice of the financing agreement, (4) the insured defaulted on the premium finance agreement, (5) the premium finance company gave notice of the insured's default and requested cancellation of the policy, and (6) the insurer failed to make the proper refund.[31]
*691 Surety Bank conclusively established every element of its claim. Surety Bank established that the Policy provides for a refund of unearned premiums to Scotts Temple upon cancellation. Surety Bank timely notified Southern County of the existence of the PFA, which authorized Surety Bank to collect any and all premium refunds due to Scotts Temple under the Policy. Surety Bank notified Southern County that Scotts Temple defaulted and that the Policy was cancelled effective May 15, 2001. Therefore, within sixty days from May 15, 2001, Southern County was obligated to send all unearned premiums under the Policy to Surety Bank. Southern County did not do so. Therefore, Southern County failed to make a proper refund. Accordingly, the trial court did not err in granting summary judgment for Surety Bank.[32]
Conclusion
Having overruled Southern County's only issue on appeal, we affirm the trial court's judgment.
NOTES
[1] S. County Mut. Ins. Co. v. Surety Bank N.A., 187 S.W.3d 178 (Tex.App.-Fort Worth 2006, no pet.).
[2] Id. at 179-80.
[3] As noted in our earlier opinion, U.S. Risk's agency contract with Southern County obligated U.S. Risk to forward the full amount of premium due on each policy regardless of whether U.S. Risk received full payment from the insured. Id. at 179.
[4] Scotts Temple attempted to make two payments to Surety Bank, but both were returned for insufficient funds.
[5] The gross total premiums of $45,999 included amounts to be paid to U.S. Risk and United National as commissions. Southern County deducted the unearned portions of the agents' commissions at the time of cancellation from the amount of total unearned premiums it sent to U.S. Risk upon cancellation.
[6] Surety Bank also sued Scotts Temple, United National, and U.S. Risk. United National was severed from the case, and Surety Bank nonsuited all remaining defendants but Southern County. [Op. 180 n. 2]
[7] See id. at 182.
[8] See id.
[9] See Tex.R. Civ. P. 166a(a), (c); MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex. 1986).
[10] IHS Cedars Treatment Ctr. of DeSoto, Tex., Inc. v. Mason, 143 S.W.3d 794, 798 (Tex. 2004).
[11] Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex.2005).
[12] Id.
[13] Upshaw v. Trinity Cos., 842 S.W.2d 631, 633 (Tex. 1992); W. Reserve Life Ins. Co. v. Meadows, 152 Tex. 559, 261 S.W.2d 554, 557 (1953) cert. denied, 347 U.S. 928, 74 S.Ct. 531, 98 L.Ed. 1081 (1954).
[14] Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 953 (Tex.1983); R & P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.1980).
[15] See Royal Indem. Co. v. Marshall, 388 S.W.2d 176, 180 (Tex.1965); Pan Am. Life Ins. Co. v. Andrews, 161 Tex. 391, 340 S.W.2d 787, 790 (1960).
[16] Ramsay v. Md. Am. Gen. Ins. Co., 533 S.W.2d 344, 346 (Tex.1976).
[17] S. County Mut. Ins., 187 S.W.3d at 181 (citing Gulf Ins. Co. v. Burns Motors, Inc., 22 S.W.3d 417, 420 (Tex.2000)).
[18] Id. at 182.
[19] See Daniel v. Richcreek, 118 S.W.2d 935, 937 (Tex.Civ.App.-Austin 1938, no writ) ("Ordinarily, `refund' means to pay back, thus implying that the payment is to be made to the party from whom received."); see also State v. U.S. Fid. & Guar. Co., 193 F.2d 47, 50 (7th Cir.1951) ("The word `refund' is defined, `To pay back by the party who has received it, to the party who has paid it, money which ought not to have been paid.'"); Foss v. Halloran & Narr, Inc., 26 Misc.2d 114, 203 N.Y.S.2d 607, 615 (N.Y.Sup.Ct. 1960) ("In Black's Law Dictionary the word `refund' is defined as `to repay or restore; to return money had by one party of another.'").
[20] See Daniel, 118 S.W.2d at 937 (noting that "contextually, the prescribed `refund' meant to the party legally entitled to demand and receive it from the [party holding the funds]," not to the entity that literally "paid" the money to that party); see also Wash. Urban League v. FERC, 886 F.2d 1381, 1386 (3rd Cir.1989) (explaining that in some instances, "[t]he fact that the party receiving the `refund' never actually overpaid the amounts in the refunds to the refunding party should not preclude the use of the word `refund' to describe [a] transaction").
[21] See Serv. Fin. v. Adriatic Ins. Co., 46 S.W.3d 436, 447 (Tex.App.-Waco 2001) ("[C]hapter 24 of the Insurance Code clearly evinces an intent on the part of the Legislature to regulate and protect the premium finance industry."), judgm't vacated w.r.m., 51 S.W.3d 450 (Tex.App.-Waco 2001, no pet.). We note in this regard that U.S. Risk would have been in the same position as Surety Bank if U.S. Risk, when it "fronted" the down payment for Scotts Temple, had required Scotts Temple to sign a premium finance agreement like Surety Bank did. But U.S. Risk did not do so.
[22] See, e.g., Ill. Tool Works, Inc. v. Harris, 194 S.W.3d 529, 533 (Tex.App.-Houston [14th Dist.] 2006, no pet.).
[23] 37 S.W.2d 235 (Tex.Civ.App.-Fort Worth 1931, no writ).
[24] Id. at 237-38.
[25] Id. at 238.
[26] Id.
[27] S. County Mut. Ins., 187 S.W.3d at 181 & n. 3. As we noted in the first appeal, chapter 24 of the Insurance Code was in effect at the time the PFA in this case was signed, but it has since been recodified. See Act of May 25, 1979, 66th Leg., R.S., ch. 825, § 1, 1979 Tex. Gen. Laws 2149, 2149-58 (repealed 2003) (current version at Tex. Ins.Code Ann. §§ 651.001-.209 (Vernon 2005 & Supp. 2008)). For clarity, all citations are to the former section numbers.
[28] Tex. Ins.Code art. 24.22 (Vernon Supp. 2004).
[29] Id. art 24.17(f) (emphasis added); see also Serv. Fin., 46 S.W.3d at 448 ("[A]rticle 24.17 defines the rights and obligations of the parties to an insurance transaction in which the premiums have been financed and the insured subsequently defaults on the finance agreement.").
[30] 28 Tex. Admin. Code § 25.10(a) (2007) (emphasis added).
[31] S. County Mut. Ins., 187 S.W.3d at 181 (citing Serv. Fin., 46 S.W.3d at 449); see also INAC Corp. v. Underwriters at Lloyd's, 56 S.W.3d 242, 253 (Tex.App.-Houston [14th Dist.] 2001, no pet.).
[32] We note that, under the trial court's judgment, Surety Bank will recover more than its secured interest in the refund due Scotts Temple. The regulations account for what is to happen in such circumstances: "The insurance premium finance company shall return any monies due to the insured within 20 days from the date returned unearned premiums are received from the insurer or agent." 28 Tex. Admin. Code § 25.10(c) (2007). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589914/ | 14 So.3d 1271 (2009)
SHLISHEY THE BEST, INC., Appellant,
v.
CITIFINANCIAL EQUITY SERVICES, INC.; and Darryl Lowery and Wedsel Lowery, Appellees.
No. 2D09-135.
District Court of Appeal of Florida, Second District.
July 8, 2009.
*1273 George J.F. Werner, Clearwater, for Appellant.
W. Glenn Jensen and Shayne A. Thomas of Roetzel & Andress, LPA, Orlando, for Appellee CitiFinancial Equity Services, Inc.
No appearance for Appellees Darryl Lowery and Wedsel Lowery.
VILLANTI, Judge.
Shlishey the Best, Inc., the third-party purchaser at a foreclosure sale, appeals the trial court's order that set aside the foreclosure sale and vacated the certificate of sale, contending that it was denied procedural due process because the trial court entered the order ex parte and with no opportunity for Shlishey to be heard. Because the record supports this assertion, we reverse and remand for further proceedings.
The facts here are very straightforward. CitiFinancial filed a foreclosure action against property owners Darryl and Wedsel Lowery. CitiFinancial obtained a final judgment of foreclosure for $168,856.75 on October 30, 2008. That final judgment set the foreclosure sale for December 4, 2008, at 2 p.m.
CitiFinancial subsequently began negotiating with the Lowerys in an effort to allow them to remain in their house. However, as the sale date approached, CitiFinancial did not file a motion seeking to have the foreclosure sale stayed or rescheduled. Instead, on the day of the sale, CitiFinancial apparently sent its representative to the clerk's office, where that representative told the clerk to remove the property from the sale list. The clerk did not do so, and the property was offered at the judicial sale on December 4 as scheduled. Shlishey bought the property at that judicial sale for $2000.
On December 5, 2008, CitiFinancial sent an unsworn letter to the trial judge asserting that the sale had been held due to a clerk's mistake and that the winning bid was insufficient. In the letter, CitiFinancial said that it was enclosing a proposed order vacating the foreclosure sale and the certificate of sale. This letter was not copied to Shlishey or otherwise provided to it.
On December 9, 2008, CitiFinancial served its "Objection to Foreclosure Sale; Motion to Vacate Foreclosure Sale of December 4, 2008; and Motion to Vacate Certificate of Sale." This motion was served by mail on Shlishey on December 9. However, the trial court signed CitiFinancial's proposed order granting its motion to vacate the foreclosure sale and certificate of sale on December 10. Thus, Shlishey never had an opportunity to object to the motion, and the trial court's decision to grant the motion was apparently based solely on the unsworn allegations of CitiFinancial's counsel. Shlishey now appeals, contending that it was denied due process when the court granted CitiFinancial's motion without an opportunity for Shlishey to be heard.
"Due process mandates that in any judicial proceeding, the litigants must be afforded the basic elements of notice and opportunity to be heard." E.I. DuPont De Nemours & Co. v. Lambert, 654 So.2d 226, 228 (Fla. 2d DCA 1995) (citing Cavalier v. Ignas, 290 So.2d 20, 21 (Fla. 1974)); see also Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950) ("`The fundamental *1274 requisite of due process of law is the opportunity to be heard.' Grannis v. Ordean, 234 U.S. 385, 394, 34 S.Ct. 779, 783, 58 L.Ed. 1363 [1914]. This right to be heard has little reality or worth unless one is informed that the matter is pending and can choose for himself whether to appear or default, acquiesce or contest."); Massey v. Charlotte County, 842 So.2d 142, 146 (Fla. 2d DCA 2003) ("Procedural due process requires both fair notice and a real opportunity to be heard `at a meaningful time and in a meaningful manner.'" (quoting Keys Citizens for Responsible Gov't, Inc. v. Fla. Keys Aqueduct Auth., 795 So.2d 940, 948 (Fla.2001))); Prunty v. State ex rel. Williams, 226 So.2d 448, 450 (Fla. 1st DCA 1969) (holding that it is "a denial of due process" to "enter an order on the motion without first giving the parties affected notice and an opportunity to be heard before a party's rights are taken away").
This court recently reversed the ex parte entry of an order vacating a previous order based in part on a finding that it resulted from a due process violation. In McCrea v. Deutsche Bank National Trust Co., 993 So.2d 1057 (Fla. 2d DCA 2008), the trial court had dismissed a foreclosure action brought by Deutsche Bank. Eleven days after the final order of dismissal was entered, Deutsche Bank faxed a cover sheet, unsigned letter, and proposed order to the trial court. Id. at 1058. In the letter, Deutsche Bank asserted that the dismissal order had been "wrongfully" entered based on the McCreas' alleged fraud. Id. A copy of the letter was also faxed to the McCreas. The day after the fax was sent and before the McCreas could respond, the trial court signed the order vacating the dismissal and reinstating the case. Id.
On appeal, the McCreas argued that the order vacating the dismissal order was improperly entered when the court had no jurisdiction to do so. Deutsche Bank asserted that the order was properly entered pursuant to Florida Rule of Civil Procedure 1.540(b), and it submitted documents in its appendix that purportedly supported the trial court's ruling. However, this court reversed, stating:
It may well be that the earlier order was the product of mistake, as opposed to judicial error, and was properly corrected by the trial court under rule 1.540(b). However, the McCreas were precluded from establishing the misapplication of rule 1.540(b) by the ex parte procedure that led to entry of the order. For this reason, we reverse and remand with directions for the court to hold a hearing on the matter.
Id. at 1058-59. While this court did not specifically reference "due process" in its ruling, the reversal due to lack of notice and opportunity to be heard is clearly a determination that entry of the order ex parte violated the McCreas' due process rights.
In a factual setting more similar to that presented by Shlishey, the Fourth District reversed an ex parte order vacating a judicial sale. In White v. Loschiavo, 597 So.2d 373 (Fla. 4th DCA 1992), the clerk held a judicial sale in a partition action. White was the winning bidder at the first sale, but she failed to timely pay the bid price. Id. at 373. The clerk held a second sale, and White was again the winning bidder, but she again failed to timely pay the bid price. Id. at 373-74. At that point, Loschiavo filed an ex parte motion to vacate the bids and sell the property again. Id. at 374. The court granted the motion without a hearing or notice to White, and Loschiavo was the winning bidder at the third sale. Id. White then filed a motion challenging the third sale. The Fourth District held that the order granting the *1275 third sale and declaring the prior bids false and fraudulent was entered in violation of White's due process rights because it was "the result of ex parte contact between the court and Loschiavo" and because the third sale was conducted without notice to White. Id. Thus, the court reversed and remanded with instructions to vacate the third sale and have a new sale. Id.
Here, as in McCrea and White, Shlishey had neither notice nor an opportunity to be heard before its rights to the property it purchased at a facially valid judicial sale were taken away by the court's order vacating that sale. CitiFinancial's December 5, 2008, letter to the trial court challenging the foreclosure sale was not copied to Shlishey. The actual motion to vacate the sale and certificate of sale was not served on Shlishey until December 9, and the trial court ruled on the motion on December 10quite possibly before Shlishey even received the motion served upon it by mail. It is apparent from this sequence of events that Shlishey was denied procedural due process relating to the entry of the order vacating the foreclosure sale.
In this appeal, CitiFinancial argues that Shlishey was not entitled to be heard on the objections because it had no protectable legal rights in the property. We disagree. Shlishey was the winning bidder at a properly noticed and facially proper foreclosure sale. It held a certificate of sale to the property at issue. Pursuant to that certificate of sale, Shlishey had the right to obtain title to the property unless objections to the sale were filed within ten days and sustained by the court. See § 45.031(5), Fla. Stat. (2008) (providing that the certificate of title will be automatically issued by the clerk ten days after the sale unless objections are filed); see also In re Jaar, 186 B.R. 148, 153-54 (Bankr. M.D.Fla.1995) (noting that a mortgagor's right of redemption expires with the filing of the certificate of sale, objections to the sale do not affect or cloud the title of the purchaser in any way, and that a certificate of sale must be set aside before a mortgagor can have any rights back and concluding based on these statutory provisions that "in Florida a residence is sold at a foreclosure sale ... at the time that the certificate of sale is filed by the clerk"). Thus, while Shlishey's rights in the property may have been inchoate during the ten-day objection period, see Roy v. Matheson, 263 So.2d 604, 606 (Fla. 4th DCA 1972), it nevertheless had protectable legal rights in the property. Accordingly, Shlishey was entitled to notice and an opportunity to be heard before those rights were taken away.
CitiFinancial also contends that the trial court's actions could not violate procedural due process because no specific post-sale procedure is statutorily mandated. It contends, in essence, that because there are procedural gaps in chapter 45, the trial court could proceed however it wished. This argument is baseless for two reasons. First, this court has previously held that when a statute contains procedural gaps, those gaps will be filled "by the commonsense application of basic principles of due process." Massey, 842 So.2d at 145 (quoting City of Tampa v. Brown, 711 So.2d 1188, 1189 (Fla. 2d DCA 1998)). Thus, the absence of an explicit statutory procedure for post-sale proceedings did not give the trial court liberty to simply ignore the procedural due process rights of interested parties.
Second, contrary to CitiFinancial's argument, the statute does set forth the required procedure. Section 45.031(8) provides that objections based on the amount of the bid may be filed within ten days after the clerk files a certificate of sale, and "[i]f timely objections to the bid *1276 are served, the objections shall be heard by the court." (Emphasis added.) For the court to "hear" objections, it must provide both notice and an opportunity for any interested party to address those objections. See, e.g., Nelson v. Santora, 570 So.2d 1374, 1376 (Fla. 1st DCA 1990) (interpreting former version of section 45.031(8) to require the court to hold an actual hearing on any objections). We recognize that "[t]he specific parameters of the notice and opportunity to be heard required by procedural due process are not evaluated by fixed rules of law, but rather by the requirements of the particular proceeding," Massey, 842 So.2d at 146, and we do not hold that a court may only "hear" objections to a foreclosure sale at an in-court proceeding with counsel physically present. However, we are certain that the word "heard" in section 45.031(8) does not contemplate that objections to a foreclosure sale may be decided ex parte and without notice to all interested parties, including the buyer holding the facially valid certificate of sale.
Because of the patent procedural due process violations in this case, we reverse the order setting aside the foreclosure sale and remand for further proceedings consistent with this opinion.
Reversed and remanded.
ALTENBERND and FULMER, JJ., Concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589099/ | 972 So. 2d 1060 (2008)
Leon WEAVER, Appellant,
v.
Erin Patricia HOTCHKISS, Appellee.
No. 2D07-1856.
District Court of Appeal of Florida, Second District.
January 23, 2008.
*1061 Leon Weaver, pro se.
Erin Patricia Hotchkiss, pro se.
WALLACE, Judge.
Leon Weaver appeals the circuit court's order that denied his motion to enforce an award of tangible personal property in the final judgment that dissolved his marriage to Erin Patricia Hotchkiss, f/k/a Erin Patricia Weaver. Because the circuit court inexplicably erred in concluding that it lacked jurisdiction to consider and determine Mr. Weaver's enforcement motion, we reverse the order denying the motion and remand for further proceedings.
The Facts and Procedural Background
In August 2006, the Polk County Circuit Court entered a final judgment that dissolved the marriage of the parties. The final judgment included a paragraph awarding specifically identified items of tangible personal property to each party. In the last paragraph of the final judgment, the circuit court retained jurisdiction for enforcement purposes and ordered both parties "to take such reasonable action and conduct themselves in such a manner as to carry out the intents and purposes of this Final. Judgment"
Mr. Weaver subsequently filed his motion in the Polk County Circuit Court. The motion was entitled "Motion to Enforce Final Judgment." The caption of the motion was substantially similar to the caption of the dissolution proceeding, and it bore the same case number as the case number that had been assigned to the dissolution proceeding. In his motion, Mr. Weaver alleged that Ms. Hotchkiss had not delivered to him some of the items of tangible personal property that he was to receive under the provisions of the final judgment. Mr. Weaver requested the entry of an order compelling. Ms. Hotchkiss to comply with the provisions of the final judgment in this regard. Our limited record does not reflect that Ms. Hotchkiss responded to the motion.
On March 26, 2007, the circuit court acting on its own motionentered an order denying Mr. Weaver the relief that he had requested. The circuit court offered the following rationale for its ruling:
THIS CAUSE came before the Court on [Mr. Weaver's] Motion to Enforce Final Judgment filed on January 19, 2007. [Mr. Weaver] is seeking to obtain property that was awarded to him in the parties' divorce. Upon reviewing the motion, the court file, and applicable case law, the Court denies [Mr. Weaver's] motion without prejudice as this Court is not the Court of proper jurisdiction. [Mr. Weaver] is free to refile his grievance in the appropriate civil court.
Unfortunately, the circuit court did not identify the court that it believed to be "the appropriate civil court" where Mr. Weaver could properly file his motion. This omission has hindered this court's review of the circuit court's order.
Discussion
Mr. Weaver filed his motion in the Polk County Circuit Court. This was the same court that had entered the final judgment of dissolution of marriage less than a year before. The caption of Mr. Weaver's motion was substantially similar *1062 to the caption of the dissolution proceeding and bore the correct case number. The circuit court readily located "the court file" and identified the final judgment that Mr. Weaver sought to enforce. Based on our limited record, it does not appear that Ms. Hotchkiss contested the circuit court's jurisdiction to proceed, Under these circumstances, we do not understand how the circuit court reached the conclusion that it lacked jurisdiction in the matter. The circuit court had inherent jurisdiction to enforce the dissolution judgment. See Smilack v. Smilack, 858 So. 2d 1072, 1075 (Fla. 5th DCA 2003); Huml v. Collins, 739 So. 2d 633, 634 (Fla. 3d DCA 1999); Seng v. Seng, 590 So. 2d 1120, 1121 (Fla. 5th DCA 1991).
We may speculate that the judge who signed the order denying. Mr. Weaver's motion was presiding in a division of the circuit court other than the family court division to which the dissolution proceeding was assigned. However, this possibility would not have deprived the judge of jurisdiction. "The internal operation of the court system and the assignment of judges to various divisions [do] not limit a particular judge's jurisdiction." In the Interest of Peterson, 364 So. 2d 98, 99 (Fla. 4th DCA 1978). "If an action is filed in the incorrect division, the proper remedy is to transfer the case to the correct division, subject to the payment of any filing fee and subject to the requirements of any local administrative rule." Fort v. Fort, 951 So. 2d 1020, 1022 n. 2 (Fla. 1st DCA 2007). That said, it does not appear that anything Mr. Weaver did caused his enforcement motion to be assigned to an incorrect division of the circuit court.
Conclusion
For these reasons, the circuit court erred in concluding that it lacked jurisdiction to hear Mr. Weaver's enforcement motion. We reverse the circuit court's order, and we remand this case to the circuit court with directions to entertain Mr. Weaver's motion on its merits. If necessary, the circuit court shall promptly transfer Mr. Weaver's motion to the correct division.
Reversed and remanded with directions.
WHATLEY and LaROSE, JJ., Concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1736761/ | 727 N.W.2d 34 (2006)
STATE
v.
ALTMAN
No. 2005AP0605-CR
Supreme Court of Wisconsin
December 5, 2006.
Petition for review denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589215/ | 972 So.2d 471 (2007)
Pamela Sharonette BARTEE, individually and as Tutrix and Administratrix of the Estate of the Minor Child, Jamie Denise Bartee
v.
CHILDREN'S CLINIC OF SOUTHWEST LOUISIANA, INC., et al.
No. 2007-798.
Court of Appeal of Louisiana, Third Circuit.
December 26, 2007.
*473 Charles H. Braud, Jr., Louisiana Department of Justice, Office of the Attorney General, Baton Rouge, LA, for Intervenor/Appellee, State of Louisiana, Department of Justice.
Leslie A. Cordell, Orrill, Cordell & Beary, LLC, Lafayette, LA, for Plaintiffs/Appellees, Pamela Sharonette Bartee, Jamie Denise Bartee.
Nadia de la Houssaye, Perret Doise (APLC), Lafayette, LA, for Defendant/Appellant, Louisiana Patient's Compensation Fund.
Court composed of SYLVIA R. COOKS, MARC T. AMY, and ELIZABETH A. PICKETT, Judges.
AMY, Judge.
The plaintiff sought payment of a number of expenses from the Louisiana Patient's Compensation Fund for her minor daughter who sustained a brain injury from alleged medical malpractice. The trial court found in favor of the plaintiff, awarding private school tuition, installation and maintenance of a home alarm system, custodial care at an hourly rate for sixteen hours per day, and attorney fees. The Louisiana Patient's Compensation Fund appeals. For the following reasons, we affirm.
Factual and Procedural Background
Pamela Sharonette Bartee, individually and as tutrix and administrator of her minor child's estate, filed the medical malpractice suit underlying the present matter in 1996. She asserted that shortly after her daughter Jamie's birth in 1993, the newborn became dehydrated and sustained brain injury. The record indicates that Jamie's injuries are permanent and have resulted in a number of mental, emotional, and physical difficulties. While Jamie was thirteen years of age at the time of trial, her cognitive ability was estimated to be at the pre-school level.
After summary judgment was entered in favor of two of the defendant health care providers, the plaintiff entered into a settlement with the remaining defendant for the limits of their liability under La.R.S. 40:1299.42(B)(2).[1] Thereafter, the plaintiff pursued the matter against the Louisiana Patient's Compensation Fund (PCF) and settled with the PCF for the statutory cap *474 thereafter. She reserved her right to future medical care and related benefits. The matters in the present proceeding were before the trial court on the plaintiff's rule to show cause why the PCF should not be compelled to provide reimbursement for Jamie's private school tuition, installation and maintenance of a home alarm system, and custodial care and tutoring. The plaintiff also requested attorney fees pursuant to La.R.S. 40:1299.43(E)(2).
The trial court awarded private school tuition and tutoring, reimbursement for the home alarm system and ongoing monthly monitoring charges, and reimbursement for custodial care in the amount of $13.00 per hour for sixteen hours per day to the plaintiff for her time caring for Jamie. Finding that the PCF unreasonably failed to pay for certain claims, the trial court awarded attorney fees, costs and expert witness fees. The trial court denied the request for school uniform expenses.
The PCF appeals, assigning the following as error:
1. The trial court erred in ordering the PCF to pay private tuition and tutoring, as a medical and related benefit under Louisiana Revised Statute[s] § 40:1299.43(A)(3).
2. The trial court erred in ordering the PCF to pay private tuition and tutoring, based on the reasoning that the Calcasieu Parish public school system lacks the capacity to adequately provide for same.
3. The trial court erred in ordering the PCF to pay for a home alarm system and its monthly service costs under Louisiana Revised Statute[s] § 40:1299.43.
4. The trial court erred in awarding reimbursement for custodial care to Ms. Bartee in the amount of thirteen dollars per hour for sixteen hours per day.
5. The trial court erred in not applying the PCF Reimbursement Rate Schedule to Plaintiff's custodial care claim.
6. The trial court erred in awarding $25,000.00 in attorneys' fees based on the finding that the PCF unreasonably failed to pay for medical and related care claims within thirty (30) days of submission of claim.
Discussion
Private School Tuition and Tutoring
The PCF first questions the trial court's award of private school tuition and tutoring for Jamie. It first contends that tuition and tutoring do not fit within the definition of "future medical care and related benefits" under the Medical Malpractice Act and, therefore, the trial court erred in awarding expenses for Jamie's attendance at Our Lady Queen of Heaven School, a private school. The PCF further contends that the evidence does not establish that Our Lady Queen of Heaven School offered services more appropriate for Jamie than does the Calcasieu Parish school system.
The award of future medical care and related benefits is governed by La.R.S. 40:1299.43, Paragraph B(1) of which indicates that "future medical care and related benefits" means "[a]ll reasonable medical, surgical, hospitalization, physical rehabilitation, and custodial services and includes drugs, prosthetic devices, and other similar materials reasonably necessary in the provision of such services. . . ." The provision further instructs that "`[f]uture medical care and benefits' as used in this Section shall not be construed to mean non-essential specialty items or devices of convenience." La.R.S. 40:1299.43(B)(2)
*475 In oral reasons for ruling, the trial court awarded private school tuition and tutoring as follows:
Insofar as the tuition is concerned, I initially thought that Jamie could get the same thing; but I am satisfied from the evidence that has been presented here today that she did not get the care and the education that she is entitled to in the public school system of Calcasieu Parish. So, I am going to find that the evidence does show that the special education Jamie receives at Our Lady Queen of Heaven is not available to her at public schools; and as a result I am going to order that it be provided to her. That means that tuition in the amount of $210 and summer tutorship fees of $150 a month are due. I am not sure what that adds up what the total of that is, but that's from when she started school, and I think the evidence shows in August of '03 and continuing. That obligation to pay the tuition is there.
After review, we find the trial court's award of private school tuition and tutoring supported by the record.
Testimony indicated that the type of structured educational environment recommended by Jamie's physicians was necessitated by the underlying medical malpractice. Dr. William Black, an expert in the field of neuropsychology, evaluated Jamie at the request of her treating pediatric neurologist. His clinical impression of Jamie was that she will have moderate mental retardation for the remainder of her life and will continue to have a lack of development of cognitive skills, social skills, and emotional skills. He noted that Jamie will continue to require 24-hour supervision, "whether this be in the home with nursing level sitters or in a specialized school setting, which is a more restrictive setting. . . ." (Emphasis added.) With regard to Jamie's attendance at Our Lady Queen of Heaven School, Dr. Black opined that the school was appropriate "based on what the teachers say and based on what she's doing." He found it important that the school offers a structured environment and is responsive to Jamie's needs. Further, Dr. John Willis, a pediatric neurologist, explained in an affidavit that a special education program featuring close supervision at both recess and lunch periods and small classes would be "medically necessary to provide care and rehabilitation for Jamie's brain damage."
Jamie's teacher at Our Lady Queen of Heaven School, Catherine King, who is certified in special education, also testified. Ms. King explained the self-contained classroom environment provided at the school, the consistency in the special education teaching staff, and Jamie's progress while attending the school. She stated that the school offers tutoring during the summer recess which prevents the students from regressing while away from school.
The PCF's contention that the evidence does not support a finding that Our Lady Queen of Heaven School offers a more appropriate educational environment for Jamie than the Calcasieu Parish public school system also lacks merit. Along with the testimony from Ms. King, the plaintiff offered the deposition of the special education teacher who taught Jamie while she attended public school. The teacher, who was not certified, explained that Jamie, when not in her special education classroom, attended classes such as art and physical education with the students from the grade level at which she was functioning. Based on the evidence presented, the trial court could have concluded that this testimony demonstrated that the services offered at Our Lady Queen of Heaven School were more in keeping with the type of structured environment *476 recommended by Dr. Black and Dr. Willis.
The PCF's arguments regarding this portion of the judgment lacks merit.
Home Alarm System
The PCF next asserts that the trial court erred in ordering that the PCF provide reimbursement for expenses related to a home alarm system. As with the private school tuition, it contends that the alarm system does not qualify as "future medical care and related benefits" and that, furthermore, it should be prohibited by La.R.S. 40:1299.43(B)(2), which provides future medical care and benefits "shall not be construed to mean non-essential specialty items or devices of convenience."
In awarding expenses related to the home alarm system, the trial court explained:
On the issue of a home alarm system, I do not find it's a device of convenience, but rather a necessary tool in caring for Jamie. So, I am going to grant the motion to compel on that. That means that there will be an award of $394.83 for the installation and [$]24.95 per month since September of 04 when it was installed.
The plaintiff testified as to Jamie's sleeplessness and anxiety during the night hours and her tendency to wander at times. The plaintiff explained the precautions she takes to ensure that Jamie is safe while at home and that, before the alarm, she had a variety of locks on the doors to ensure that Jamie did not leave the house. After the installation of the alarm system, the monitor alerts her when Jamie opens a door. It enables her to know if Jamie is attempting to leave the house.
Dr. Black explained that Jamie will require twenty-four hour supervision for the rest of her life and that, given her deficits, the home alarm system is essential for her safety. He testified that, due to Jamie's "hyperactivity, impulsivity and lack of awareness of danger to herself and others that wherever she is, in the home or elsewhere, requires some kind of security system so that she doesn't slip out or barge out without other people knowing that she's gone. I think that's essential."
In light of this testimony, the trial court's determination that the system was necessitated by Jamie's condition, was essential, and was recoverable as "future medical care and related benefits" is supported by the record.
This assignment lacks merit.
Custodial Care Award for Parental Care
The trial court awarded custodial care reimbursement to the plaintiff at an hourly rate of $13.00 for sixteen hours per day. The PCF contests this award in two regards. First, it contends that the trial court should have limited the plaintiff's reimbursement to eight hours on days when Jamie attended school and to twelve hours on days she does not. Second, the PCF contends that the trial court should have applied the reimbursement rate schedule of $6.00 per hour, plus an inflationary adjustment, to the plaintiff's custodial care claim rather than awarding her the hourly rate of $13.00.
The trial court first addressed the applicability of the PCF's administrative rules, explaining:
On the issue of custodial care, I find that the PCF has the authority to set rates for services and that these rules were promulgated in accordance with the law. However, I agree with the plaintiff that this cause of action for future medical expenses arose prior to the enactment of those rules; namely, the date of injury in October of 1993. Louisiana Revised Statute Title *477 40:1299.43[B](1)(a) and (b) define future medical care and related expenses as all reasonable custodial services incurred after the date of injury up to date of settlement, as well as all reasonable custodial services incurred after the date of injury that will be incurred after the date of settlement. In reading Sections 1(a) and (b) together, future medical care is defined as all reasonable custodial services after the date of injury. Jamie Bartee's injury arose in October of 93; and, therefore, this matter is not governed by the rules adopted and which were enacted in November of 1993.
I now must set the rate for custodial services rendered by Jamie Bartee's mother. In making this decision, I cite the parties to Kelty v. Brumfield. In Kelty, the board valued their services at $6 an hour after determining that the services the Keltys provided were comparable to that of a sitter, because the Keltys were not formally trained, licensed, or certified as nurses or therapists. Based on the evidence provided in that case, the Fourth Circuit disagreed that the Keltys were merely sitters. Based on an average of LPN salaries over the time period awarded $15 per hour for 24 hours a day and reduced the daily reimbursement by 20 percent per day. This reduction accounted for the time Ms. Kelty spent doing other tasks during the day.
The evidence in this case does not show that Ms. Bartee should receive the hourly rate of a licensed nurse; however, I do believe that the care she provides to Jamie is more than that of a sitter or a CNA. I set her hourly rate at $13.00 per hour and award her 16 hours per day. The reduction from 24 hours accounts for the time that Jamie spends in school and also for the time she spends sleeping; and I have awarded her the home alarm system which allows Jamie's mother to have rest and only to monitor Jamie when the alarm goes off.
Certainly the PCF has the authority to promulgate rules, regulations, and standards necessary to discharge its responsibilities. See La.R.S. 40:1299.44(D); Bartee v. Child. Clinic of SW La., 05-583 (La.App. 3 Cir. 8/17/05), 910 So.2d 470, writ denied, 05-2465 (La.3/24/06), 925 So.2d 1230. However, as pointed out by the plaintiff, the PCF's administrative rule limiting the amount of the custodial payment to family members to $6.00 per hour was not enacted until after Jamie sustained injury. Thus, we consider whether the trial court erred in finding that the PCF administrative rules, adopted after Jamie's October 1993 cause of action for medical malpractice arose, are inapplicable to her reimbursement claim, i.e., whether application of the rule would infringe upon a vested right.
As explained by the fourth circuit in Kelty v. Brumfield, 96-0869 (La.App. 4 Cir. 3/12/97), 691 So.2d 242, (citing La.R.S. 49:954(B)), writ denied, 97-0918 (La.5/16/97), 693 So.2d 800, writ denied, 97-0936 (La.5/16/97), 693 So.2d 801, the adoption of the PCF administrative rule regarding reimbursement for custodial care for family members did not have retroactive effect. While the Kelty court noted that the plaintiffs in that case pursued their own custodial care costs for ten years prior to the enactment of the rule, the reference to the filing date for custodial care is a distinction of no moment. Rather, the remainder of the discussion in Kelty also addresses family custodial costs incurred after the PCF's 1993 regulation limiting the hourly rate of custodial care to family members and discusses awards well in excess of the PCF's rates. Similar to the discussion in Kelty, Jamie's right to reasonable and necessary medical expenses *478 arose on the date of her injury, prior to the creation of the 1993 family custodial care rule. Accordingly, the trial court did not err in finding the rule inapplicable.
We note that the PCF asserts that the present matter is analogous to Louisiana Patients Compensation Fund Oversight Board v. Edwards, 41,594 (La.App. 2 Cir. 12/20/06), 945 So.2d 975, wherein the second circuit considered a suit involving a plaintiff's suit for recovery of additional fees payable to a third-party provider. We do not apply the reasoning of Edwards to the present case given the difference in the factual background of this case and that in Edwards which involved a third party's knowledge of a rule change applicable its services. In particular, we note that the second circuit did not addressed what effect the reduced rate change had on the vested rights of the malpractice victim, as here.
Neither do we find merit in the PCF's assertion that either the $13.00 hour rate or the sixteen hours in custodial care awarded the plaintiff require alteration on appeal. With regard to the hourly rate, the trial court noted that the services rendered by the plaintiff exceed those of a sitter or a Certified Nursing Assistant, but that she does not render the services of a licensed nurse. This finding is supported in the record given the plaintiff's testimony regarding Jamie's need for medication and for various hygiene and sanitation measures. The $13.00 hourly rate is consistent with the level of ability discussed by the trial court, as it falls between the hourly rates available to Licensed Practical Nurses and those available to Certified Nursing Assistants in the area as testified to by an expert in nursing and home health administration. As for the sixteen hours of care per day awarded, this too, is supported by testimony in the record indicating that the plaintiff supervises Jamie at all times while she is not attending school. While the PCF contends that the plaintiff should not be compensated for the time that Jamie is sleeping, due to the home alarm system, the plaintiff's testimony reveals that she must respond to Jamie's constant and various needs throughout the night.
This assignment of error lacks merit.
Attorney Fees
Finally, the PCF contests the trial court's award of $25,000.00 in attorney's fees pursuant to La.R.S. 40:1299.43(E)(2), which provides: "The court shall award reasonable attorney fees to the claimant's attorney if the court finds that the patient's compensation fund unreasonably fails to pay for medical care within thirty days after submission of a claim for payment of such benefits."
The PCF does not question the trial court's determination that its failure to pay benefits was unreasonable. Rather, the PCF argues that the parties agreed to waive all attorneys' fees "based upon PCF counsel's assurance of good faith negotiations to fully compromise these matters." The plaintiff asserts that, as there was no settlement of the matters under discussion, nor any offer of settlement by the PCF, the claim for attorney's fees was preserved.
The trial court explained as follows in assessing damages:
On the issue of attorneys fees, Louisiana Revised Stat[ute] Title 40:1299.43 states that the Court shall award reasonable attorney fees to the claimant's attorney if the Court finds that the patient's compensation fund unreasonably fails to pay medical care within thirty days after submission of a claim for payment of such benefits. The evidence presented in this case, particularly the *479 checks sent December of 06 for medical expenses incurred more than two years prior to that time, convinces me that the PCF unreasonably failed to pay the medical care within thirty days. Accordingly, I will grant the plaintiff's request for attorney's fees. I will award $25,000 attorneys fees, which includes the sum for that paralegal, not distinguishing what that dollar amount is; but I am going to award you the services for that.
The parties presented these arguments to the trial court, along with email correspondence surrounding the alleged waiver. After our review of the related correspondence, we find no error in the trial court's determination that the correspondence does not evidence an effective waiver of the right to pursue attorney's fees.
This assignment lacks merit.
DECREE
For the foregoing reasons, the judgment of the trial court is affirmed. All costs of this proceeding are assessed to the appellant, the Louisiana Patient's Compensation Fund.
AFFIRMED.
NOTES
[1] A plaintiff's recovery in a medical malpractice action is dictated by La.R.S. 40:1299.42(B), which provides:
(1) The total amount recoverable for all malpractice claims for injuries to or death of a patient, exclusive of future medical care and related benefits as provided in R.S. 40:1299.43, shall not exceed five hundred thousand dollars plus interest and cost.
(2) A health care provider qualified under this Part is not liable for an amount in excess of one hundred thousand dollars plus interest thereon accruing after April 1, 1991, for all malpractice claims because of injuries to or death of any one patient. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589218/ | 14 So.3d 613 (2009)
STATE of Louisiana
v.
Robert Elijah Lamar MINCEY, a/k/a Robert Bryant.
No. 08-1315.
Court of Appeal of Louisiana, Third Circuit.
June 3, 2009.
Rehearing Denied July 15, 2009.
*614 John Foster DeRosier, District Attorney-14th Judicial District Court, Carla S. Sigler, Assistant District Attorney-14th Judicial District Court, Lake Charles, LA, for Plaintiff/Appellee, State of Louisiana.
Mary E. Roper, Louisiana Appellate Project, Baton Rouge, LA, for Defendant/Appellant, Robert Elijah Lamar Mincey, a/k/a Robert Bryant.
Court composed of ULYSSES GENE THIBODEAUX, Chief Judge, JOHN D. SAUNDERS, and JIMMIE C. PETERS, Judges.
THIBODEAUX, Chief Judge.
The Defendant, Robert Elijah Lamar Mincey, a/k/a Robert Bryant, appeals his jury conviction for manslaughter on the basis that the evidence was insufficient to disprove his claim of self-defense. We affirm.
FACTS
In September of 2006, the victim, Jerome Dejean, was at a nightclub called "Club 69" on Highway 90 in Calcasieu Parish. His girlfriend, Ashley Garcia, and two male friends, Kevin "Sandez" Doucet and Phillip "Smurf" Jones were also there. Defendant was at the same nightclub with his sister, Nashayla Norman, and his mother, Tracey Bryant. The Defendant apparently bumped into Dejean on his way to and from the bathroom. Words were exchanged, and the Defendant ultimately walked out of the club followed by his mother, Doucet, and Jones.
Doucet and Jones confronted the Defendant about the bumping incident. An argument ensued, and the Defendant advised them that he was in possession of a gun. According to the Defendant's mother, Jones told Defendant, "N ....r, show us what you got. We don't care about what you got, we got heat."
Dejean then came out of the club and also confronted the Defendant. The Defendant's mother intervened and attempted to mediate the escalating dispute by standing between the Defendant and Dejean. She placed her hand on Dejean's chest. He pushed her hand aside and attempted to punch the Defendant. The Defendant shot him in the chest and fled. According to the Defendant's mother, Dejean was in "mid-swing whenever he got shot."
LAW AND DISCUSSION
Defendant argues the evidence was insufficient to support his conviction. The analysis for such claims is well-established:
When the issue of sufficiency of evidence is raised on appeal, the critical inquiry of the reviewing court is whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime proven beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. 307, 99 S.Ct. 2781, 61 L.Ed.2d 560, rehearing denied, 444 U.S. 890, 100 S.Ct. 195, 62 L.Ed.2d 126 (1979); State ex rel. Graffagnino v. King, 436 So.2d 559 (La. 1983); State v. Duncan, 420 So.2d 1105 (La.1982); State v. Moody, 393 So.2d 1212 (La.1981). It is the role of the fact finder to weigh the respective credibility of the witnesses, and therefore, the appellate *615 court should not second guess the credibility determinations of the triers of fact beyond the sufficiency evaluations under the Jackson standard of review. See State ex rel. Graffagnino, 436 So.2d 559 (citing State v. Richardson, 425 So.2d 1228 (La.1983)). In order for this Court to affirm a conviction, however, the record must reflect that the state has satisfied its burden of proving the elements of the crime beyond a reasonable doubt.
State v. Kennerson, 96-1518, p. 5 (La.App. 3 Cir. 5/7/97), 695 So.2d 1367, 1371.
Defendant does not deny that he shot and killed the victim, nor did he deny it at trial. Rather, he argues that the State failed to disprove that he acted in selfdefense. Killing in self-defense is governed by La.R.S. 14:20(A), which states, in pertinent part, "[a] homicide is justifiable: (1) When committed in self-defense by one who reasonably believes that he is in imminent danger of losing his life or receiving great bodily harm and that the killing is necessary to save himself from that danger." (Emphasis added).
Defendant contends that the killing was justifiable because he had his back against the wall, and was surrounded by the victim and the victim's two friends, Doucet and Jones. Further, he contends that shooting the victim was the only way he could escape.
The Defendant's claim that Jones had a firearm was disputed by both Doucet and Jones at trial. The evidence given by his own mother defeats his claim of justifiable self-defense. The essence of his defense is that he was justified in responding to an attempted punch by shooting his opponent in the chest at close range. We recognize that Dejean had two friends with him. Thus, Defendant may have genuinely felt endangered; further, some level of fear was objectively reasonable. However, the level of force he used to defend himself was far beyond what was necessary under the circumstances.
In the context of self-defense in a manslaughter prosecution, our court has observed in State v. Griffin, 06-543, pp. 12, 14 (La.App. 3 Cir. 9/27/06), 940 So.2d 845, 851, 854, writ denied, 07-2 (La.9/14/07), 963 So.2d 995, the following:
The State had the burden of proving the Defendant did not stab Marcus Conway in self-defense; therefore, we must determine whether the Defendant reasonably believed that he was in imminent danger of losing his life or receiving great bodily harm and that killing Marcus was necessary to save himself from that danger. The standard in La. R.S. 14:20 is whether the Defendant's subjective belief that he was in danger was reasonable. State v. Brown, 93-1471 (La.App. 3 Cir. 5/4/94), 640 So.2d 488.
Factors to consider in determining whether a defendant had a reasonable belief that the killing was necessary are the excitement and confusion of the situation, the possibility of using force or violence short of killing, and the defendant's knowledge of the assailant's bad character. State v. Hardeman, 467 So.2d 1163 (La.App. 2d Cir.1985). Although there is no unqualified duty to retreat, the possibility of escape is a factor to consider in determining whether a defendant had a reasonable belief that the use of deadly force was necessary to avoid the danger. State v. Brown, 414 So.2d 726 (La.1982).
State v. Spivey, 38,243, p. 6 (La.App. 2 Cir. 5/12/04), 874 So.2d 352, 357.
In cases where the defendant claims self-defense as a justification, the absence of a weapon from the victim's *616 person or immediate reach is often a critical element of the state's proof. See State v. Davis, 28,662 (La.App.2d Cir.9/25/96), 680 So.2d 1296.... The absence of weapon on the victim, however, is not dispositive of the issue....
State in Interest of D.S., 29,554, p. 3 (La.App. 2 Cir. 5/7/97), 694 So.2d 565, 567.
By returning the guilty verdict, the jury obviously did not believe the Defendant acted in self-defense. We find that a rational fact finder, after viewing the evidence in the light most favorable to the prosecution, could have found beyond a reasonable doubt that the State proved the homicide was not committed in self-defense. Accordingly, this assignment of error lacks merit.
Defendants in this case and in Griffin used deadly force against what were unarmed attacks. Thus, as in Griffin, the jury in the present case could rationally have concluded that Defendant did not act in self-defense.
This analysis applies even if the jury believed the testimony of Defendant's most favorable witness, Ms. Bryant, the Defendant's mother. Of course, the State presented evidence that was less favorable to Defendant. Jones testified that Defendant walked to the bar's bathroom, and bumped into the victim, then bumped into the victim again on his way back. The victim then told him to watch where he was going, "[a]nd the dude got crazy." According to Jones, Defendant indicated that he wanted to resolve the issue outside, so Jones and Doucet followed him out of the bar. When they arrived outside, Defendant got near a wall and put his hand under his shirt. Jones testified that he saw Defendant had a gun, so then he and Doucet began backing up. The victim then came out and got in front of Defendant. When the victim touched his hat, Defendant shot him. Jones opined that the victim did not see the gun in Defendant's waistband. Doucet's testimony was similar, although he acknowledged that he did not see the initial jostling that apparently triggered the incident.
Defendant did not deny shooting and killing the victim. His defense was justification. However, as mentioned earlier, responding to an oncoming punch by shooting the other person in the chest is an excessive response. Thus, the jury's determinations in the present case were not unreasonable. Therefore, the Defendant's reliance on self-defense is meritless.
CONCLUSION
For the foregoing reasons, the Defendant's conviction is affirmed.
AFFIRMED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1736803/ | 802 So. 2d 607 (2001)
STATE of Louisiana
v.
Anthony O. STOKES.
No. 2000-K-1219.
Supreme Court of Louisiana.
February 16, 2001.
Denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2586307/ | 162 P.3d 988 (2007)
343 Or. 115
STATE
v.
GONZALEZ.
No. S53771.
Supreme Court of Oregon.
June 19, 2007.
Petition for review denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2455409/ | 775 S.W.2d 919 (1989)
COMMONWEALTH of Kentucky, Appellant,
v.
John HARDY, Appellee.
No. 88-SC-956-DG.
Supreme Court of Kentucky.
September 7, 1989.
Frederic J. Cowan, Atty. Gen., Rickie L. Pearson, Asst. Atty. Gen., Frankfort, for appellant.
Thomas L. Conn, Fayette County Legal Aid, Inc., Lexington, for appellee.
WINTERSHEIMER, Justice.
This appeal is from a judgment which convicted Hardy of two counts of unlawful transaction with a minor in the third degree. He was sentenced to twelve months in jail and fined $500 on each count. The Court of Appeals reversed because there were two black persons on the jury panel and the prosecutor exercised one peremptory challenge to strike one of the two black jurors.
The issue is whether the trial judge abused his discretion in denying Hardy's Batson motion when he concluded that Hardy had failed to make a prima facie showing that the prosecutor used the single peremptory challenge to purposefully exclude a venireman because of race.
The panel from which the jury was chosen had three black persons on it. One of *920 the black veniremen was removed by lot. Another was struck by means of a peremptory challenge and the remaining black juror was left on the panel and heard the case. The prosecutor used three of his six challenges to select the jury. After both parties had exercised their peremptory challenges, defense counsel made a motion regarding the use of the peremptory challenge to strike one of the black panel members. The trial judge did not require an explanation pursuant to Batson v. Kentucky, 476 U.S. 79, 106 S. Ct. 1712, 90 L. Ed. 2d 69 (1986) or a neutral explanation and denied Hardy's motion.
The Court of Appeals reversed because it determined that the striking alone of one black panel member when there are two blacks on the panel was sufficient under Batson, supra, to require a finding that a prima facie case had been made with the shifting of the burden of proof to the prosecution to articulate a racially neutral explanation for the strike. We disagree.
Batson provides a three-pronged test for establishing a prima facie case for racial discrimination in jury selection. The first two standards were met because Hardy is black and the prosecutor struck one of two blacks from the jury panel. However, Hardy has not shown that these or any other facts in the case create an inference that the prosecutor excluded that panel member because of race. The burden was on Hardy to raise the inference before the prosecution would be required to rebut it or explain its action.
Batson requires more than a mere stating that the prosecutor struck a number of blacks from the jury panel. In considering this matter, the trial judge should consider all the relevant circumstances. Hardy has not shown any "pattern" of strikes against black jurors regarding this particular venire, because only one of three were challenged.
Batson also indicated that questions and statements during the voir dire may be used to support or refute an inference of discrimination. Hardy cannot demonstrate any circumstance in this regard because it was the defense counsel, not the prosecutor, who asked the panel if they would have a problem with the fact that the defendant was black and the victims were white.
The U.S. Supreme Court indicated a confidence in trial judges and recognized a broad discretion in them to determine whether, under all the circumstances, a prima facie showing of discrimination had been made. There is no indication that the trial judge abused his discretion by ruling that Hardy had not made a sufficient showing or argument stating that the prosecutor had struck one of the three black jurors on the basis of race.
Batson requires more than a simple numerical calculation. Numbers alone cannot form the only basis for a prima facie showing. Two California cases decided before Batson provide a persuasive analysis. People v. Wheeler, 22 Cal. 3d 258, 148 Cal. Rptr. 890, 583 P.2d 748 (1978) indicated that the use of two peremptories to excuse the only two black jurors was found insufficient for a prima facie showing. People v. Rousseau, 129 Cal. App. 3d 526, 179 Cal. Rptr. 892 (1982) stated that a claim of discriminatory exclusion requires the defendant to establish as complete a record of the circumstances as is feasible and that from all the circumstances, he must show a strong likelihood that such persons are being challenged because of their group association rather than because of a specific bias. Rousseau, supra, further held that even though all the blacks on the panel had been struck by the prosecutor, this alone was not enough to establish a prima facie showing of discrimination.
Hardy has failed to make a prima facie showing of a discriminatory use of the peremptory challenge. The trial judge correctly refused to require a neutral explanation from the prosecution.
It is the holding of this Court that Batson requires more than merely stating that the prosecutor struck a certain number of *921 blacks from the jury panel. In deciding whether the defendant has made a requisite showing of discrimination, the trial judge should consider all the relevant circumstances.
The decision of the Court of Appeals is reversed and the judgment of conviction is reinstated.
STEPHENS, C.J., and GANT, LAMBERT and VANCE, JJ., concur.
COMBS, J., did not sit.
LEIBSON, J., dissents and files a separate dissenting opinion.
LEIBSON, Justice, dissenting.
Respectfully, I dissent.
The Majority Opinion states that the Court of Appeals reversed and remanded for a Batson hearing "because it determined that the striking alone of one black panel member when there are two blacks on the panel was sufficient under Batson" to require a Batson inquiry. The Majority found error in this proposition and required "other relevant circumstances" to raise an inference that the prosecutor used peremptory challenges to exclude a venireman due to race. Batson v. Kentucky, 476 U.S. 79, 106 S. Ct. 1712, 90 L. Ed. 2d 69 (1986).
I do not disagree that Batson requires more than merely a showing that the defendant is black and "the prosecutor struck a certain number of blacks from the jury panel." But I think, as did the Court of Appeals, that "other relevant circumstances" exist here. The Court of Appeals explained:
"Even if the statistical evidence was not sufficient to establish a prima facie case, the fact that the defendant, a black middle-aged man, was charged with [third-degree rape of a white, under-aged female] is a `relevant circumstance.'"
Our Majority Opinion leaves out these significant facts. The Court of Appeals rests on more than "a simple numerical calculation."
I cannot say the Court of Appeals clearly erred in its judgment that the particular circumstances of this case warranted a Batson inquiry. I would affirm the Court of Appeals. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589147/ | 972 So.2d 804 (2007)
S.A.T.
v.
E.D.
2060164.
Court of Civil Appeals of Alabama.
May 11, 2007.
*805 Karen H. Jackson, Prattville, for appellant.
B. Diane Paris, Montgomery, for appellee.
BRYAN, Judge.
S.A.T. ("the mother") appeals a judgment insofar as it modified the child-support obligation of E.D. ("the father") from 8365 per month to $175 per month, found the mother in contempt, and awarded the father an attorney's fee in the amount of $250. We dismiss the appeal in part and affirm the judgment in part.
The father and the mother, who have never been married, had one child together. That child was born in November 1993. The father resides in Lawrenceville, Georgia, and the mother resides in Montgomery, Alabama.
*806 On November 3, 2005, the father petitioned the juvenile court to find the child dependent. As grounds, the father alleged that the mother had mentally and emotionally abused the child by denying the child communication and contact with the father. The father also alleged that, although a Texas court had previously adjudicated the issue of child support, there had been no adjudication regarding the custody of the child. In addition to the adjudication of dependency, the father sought an award of joint legal and joint physical custody of the child and an award of pendente lite and regular visitation rights with the child.
The father subsequently amended his petition to eliminate his claim seeking joint physical custody. In that amended petition, the father alleged that the mother had not permitted the father to visit with the child.
On December 15, 2005, the juvenile court entered a pendente lite order awarding the father visitation during every third weekend and the Christmas holidays. That order also directed the parties to meet for visitation exchanges at the Alabama-Georgia state line or any other place the parties agreed upon.
On April 20, 2006, the father petitioned the juvenile court to find the mother in contempt. As grounds, the father alleged that the mother had violated the December 15 order by refusing to meet at the Alabama-Georgia state line for visitation exchanges,
The mother responded by filing a pleading titled, in part, "Motion to Strike Petitioner's Motion for Contempt." In that pleading, the mother denied that she had willfully violated the December 15 order and alleged that she could not travel to the Alabama-Georgia state line for visitation exchanges due to a back injury and that the parties had agreed to make visitation exchanges in Montgomery. The mother attached, among other things, her physician's affidavit stating that the mother's back pain prevents her from sitting for prolonged periods of time.
The juvenile court then held a hearing on the father's petitions. At the conclusion of the hearing, the juvenile court orally rendered its ruling. The juvenile court found the mother in contempt for failure to comply with the visitation provisions of the December 15 order, modified the father's child-support obligation' by reducing it from $365 per month to $175 per month, and awarded the father an attorney's fee in the amount of $250.
The juvenile court subsequently entered a written judgment. That judgment awarded the mother primary physical custody; awarded the parties' joint legal custody; awarded the father visitation rights; modified the father's child-support obligation by reducing it to $175 per month; awarded the father an attorney's fee in the amount of $250 for the contempt proceeding; and denied the father's petition seeking an adjudication of dependency. The mother appealed to this court without filing a postjudgment motion in the juvenile court.
The mother first argues that the juvenile court erred in modifying the father's child-support obligation because it did so in the absence of a registered Texas child-support judgment pursuant to the provisions of the Uniform Interstate Family Support Act ("UIFSA"), codified at § 30-3A-101 et seq., Ala.Code 1975.
Generally, the court will not consider arguments the appellant did not first present to the trial court. State Farm Mut. Auto. Ins. Co. v. Motley, 909 So.2d 806, 821 (Ala.2005) ("This Court cannot consider arguments advanced for the purpose of reversing the judgment of a trial court when those arguments were never presented to the trial court for consideration or were raised for the first time on *807 appeal."). However, in this instance, although the mother failed to present to the juvenile court her argument that the father's child-support obligation could not be modified in the absence of registering the Texas child-support judgment, we will consider that argument because it challenges the juvenile court's subject-matter jurisdiction to modify the father's child-support obligation. Challenges to subject-matter jurisdiction may be raised for the first time on appeal, because "`a lack of jurisdiction cannot be waived.' Takao v. Zoning Bd. of Adjustment of Birmingham, 656 So.2d 873, 874 (Ala.Civ.App.1995)." Morgan v. Morgan, 964 So.2d 24, 28 (Ala. Civ.App.2007).
Section 30-3A-601, Ala.Code 1975, states: "A support order or an income-withholding order issued by a tribunal of another state may be registered in this state for enforcement." Moreover, the Official Comment to § 30-3A-601 states:
"The common practice under the [Revised Uniform Reciprocal Enforcement of Support Act[1]] was to initiate a new suit for the establishment of a support order, even though there was an existing order for child support. That practice is specifically rejected by UIFSA. . . .
"Under the one-order system of UIFSA, only one existing order is to be enforced prospectively. . . . Registration of [a child-support] order in "the responding state is the first step to enforcement by a tribunal of that state. Rather than being an optional procedure, . . . registration for enforcement under UIFSA is the primary method for interstate enforcement of child support."
(Emphasis added.) Therefore, when a court of another state has issued a valid child-support order, in order for an Alabama court to exercise subject-matter jurisdiction over a child-support-modification petition, the foreign child-support order must be registered in Alabama.
"Register" as defined in § 30-3101(15), Ala.Code 1975, "means to file a support order or judgment determining parentage with the clerk of the appropriate court." Additionally, § 30-3A-603(a), Ala.Code 1975, provides: "A support order or income-withholding order issued in another state is registered when the order is filed in the appropriate court of this state." See Wall v. Borosky, 850 So.2d 351, 356 (Ala.Civ.App.2002) (concluding that foreign child-support orders were registered in Alabama when the party sought to domesticate those foreign judgments in an Alabama court).
In the case now before us, there is nothing in the record to establish that either the father or the mother registered the Texas child-support judgment in Alabama. Consequently, the juvenile court could not exercise subject-matter jurisdiction over the issue of child support. A judgment entered by a court that lacks subject-matter jurisdiction is void. Gulf Beach Hotel, Inc. v. State ex rel. Whetstone, 935 So.2d 1177, 1183 (Ala.2006). Such a judgment will not support an appeal. Id. Therefore, we dismiss the mother's appeal insofar as she appeals the juvenile court's purported modification of the father's child-support obligation, and we instruct the juvenile court to vacate that portion of its judgment that modifies the father's child-support obligation.
The mother also argues that the juvenile court erred by entering its December 15, 2005, pendente lite visitation order without affording the mother notice *808 and an opportunity to be heard. However, we have previously stated:
"`If a party contends that there was improper procedure at a hearing, that party must have brought it to the attention of the trial court either by an objection made at the hearing or by a proper and timely posttrial motion for such a contention to be properly considered on appeal.' Niver v. State Dep't of Human Res., 521 So.2d 1326, 1328 (Ala.Civ.App. 1987); see also Ex parte Linnell, 484 So.2d 455 (Ala.1986); and Embroy v. State Dep't of Pensions & Sec., 450 So.2d 127 (Ala.Civ.App.1984)."
KS. v. G.A.B., 911 So.2d 1085, 1095 (Ala. Civ.App.2005). "We cannot reverse the trial court's judgment on grounds not presented to the trial court. See Sanders v. Smitherman, 776 So.2d 68, 73 n. 4 (Ala. 2000)." Birmingham Bd. of Educ. v. Boyd, 877 So.2d 592, 594 (Ala.2003). See also Andrews v. Merritt Oil Co., 612 So.2d 409, 410 (Ala.1992) ("This Court cannot consider arguments raised for the first time on appeal. . . ."). Because the mother failed to argue to the juvenile court that it had erred by entering an ex parte visitation order, we cannot consider that argument. Therefore, we cannot conclude that the juvenile court erred on that ground.
The mother also argues that the juvenile court's contempt judgment is not supported by sufficient evidence. Although the mother failed to present this argument to the juvenile court either during the hearing or by a postjudgment motion, our supreme court has previously stated:
"`"If a court makes findings of fact in a nonjury case, Rule 52(b), Ala. R. Civ. P., excuses the losing party from objecting to the findings or moving to amend them or moving for a judgment or a new trial as a predicate for an appellate attack on the sufficiency of the evidence."'"
Weeks v. Herlong, 951 So.2d 670, 676 (Ala. 2006) (quoting New Props., L.L.C. v. Stewart, 905 So.2d 797, 800 (Ala.2004) (quoting in turn Ex parte James, 764 So.2d 557, 561 (Ala.1999) (Lyons, J., concurring in the result))). In its contempt judgment, the juvenile court made no specific findings of fact regarding its reasons for finding the mother in contempt. Therefore, we must ascertain whether the juvenile court made findings of fact during the contempt proceeding.
The following colloquy took place during the contempt proceeding:
"The Court: Okay. Well, the problem here, ma'am, is that you haven't complied with visitation because you're saying that you can't drive there because of your back, is that right?
"[The mother]: Yes.
"The Court: So what I can do is I'm going to work it and [ya'll] have a new visitation schedule worked out, so I understand from your lawyers, and I'm going to comply with that but what I'm going to have to do because she can't drive. . . .
". . . .
"The Court: Well, see, the State line's got a receiving center there, you know, a Georgia State receiving center. . . .
"[The mother]: I'm not going to drive that far, not with my sixteen month old and under the circumstances of he and his wife attitude and . . .
"The Court: Attitude? All right. The parties can go have a seat out there. I want to talk to the lawyers a minute.
"(WHEREUPON, the parties were excused from the courtroom and the following proceedings occurred.)
"The Court: . . . Prepare me an Order and the mother is in contempt of court for failure to comply with the prior Court order. . . ." *809 (Emphasis added.) We conclude that, based on the foregoing, the juvenile court stated the, basis upon which it found the mother in contempt, i.e., the mother's statement regarding the father's and his wife's "attitude." Although the mother failed to argue to the juvenile court that it had erred by finding her in contempt based on insufficient evidence, we proceed to address the merits of the mother's argument based on this court's construction of the juvenile court's statements as findings of fact.
The standard of review of a judgment of contempt is as follows:
"[W]hether a party is in contempt of court is a determination committed to the sound discretion of the trial court, and, absent an abuse of that discretion or unless the judgment of the trial court is unsupported by the evidence so as to be plainly and palpably wrong, this court will affirm."
Nave v. Nave, 942 So.2d 372, 377 (Ala.Civ. App.2005) (quoting Stack v. Stack, 646 So.2d 51, 56 (Ala.Civ.App.1994)). Furthermore,
""[i]n ore tenus proceedings, the trial court is the sole judge of the facts and of the credibility of the witnesses, and it should accept only that testimony which it considers worthy of belief." Clemons v. Clemons, 627 So.2d 431, 434 (Ala.Civ. App.1993).'"
Gladden v. Gladden, 942 So.2d 362, 369 (Ala.Civ.App.2005) (quoting Ex parte R.E.C., 899 So.2d 272, 279 (Ala.2004)).
At the hearing, the mother stated that her ailing back rendered her unable comply with the December 15 order requiring her to travel from Montgomery to the Alabama-Georgia state line to meet the father for visitation exchanges. However, the juvenile court could have assessed the mother's statement regarding the father's and his wife's "attitude" as evidence of a willful refusal to comply with the December 15 order. See Gladden v. Gladden, supra (affirming the finding of contempt, concluding that the trial court could have disbelieved the only evidence it had received, which tended to establish that the party did not willfully violate that court's order). Therefore, we cannot conclude that the juvenile court's order finding the mother in contempt was in error.
Last, the mother argues that the juvenile court erred by awarding the father an attorney's fee in the amount of $250. However, the mother failed to argue to the juvenile court that it had erred on this ground. Because we cannot reverse the juvenile court on a ground not argued to it, we decline to address the merits of the mother's argument. See Andrews, supra; and Boyd, supra.
APPEAL DISMISSED IN PART; AFFIRMED IN PART.
THOMPSON, P.J., and MOORE, J., concur.
PITTMAN, J., concurs in part and concurs in the result, with writing.
THOMAS, J., concurs in the result, without writing.
PITTMAN, Judge, concurring in part and concurring in the result.
Notably, in this case, the father's dependency complaint specifically averred that a previous child-support judgment had been entered by a Texas court and that he was paying the mother $365 per month in child supportallegations that the mother did not deny. Further, in the affidavit accompanying that complaint, the father specifically denied any desire to reduce his child-support obligation.
The juvenile court, in unilaterally reducing the father's child-support obligation, acted outside its jurisdiction because § 30-3A-611(a), Ala.Code 1975, provides that a *810 court of this state may modify a foreign child-support order only "[a]fter a child-support order issued in another state has been registered in this state" (emphasis added). Although the juvenile court would have had jurisdiction to act as an "initiating court" to request the appropriate Texas court to modify its judgment, see Ala. Code 1975, § 30-34-206(a), the juvenile court in this case did not act under that statutory authority.
Accordingly, I agree with the conclusion in the main opinion that the juvenile court acted outside its jurisdiction in modifying the father's child-support obligation and that that purported modification is void. To the extent that the main opinion dismisses the mother's appeal as to the child-support issue, I concur. To the extent that the main opinion affirms the juvenile court's judgment as to the other issues raised by the mother, I concur in the result.
NOTES
[1] The Revised Uniform Reciprocal Enforcement of Support Act, which Alabama did not adopt, is the predecessor to the UIFSA. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589237/ | 706 F.Supp. 1479 (1989)
DeSISTO COLLEGE, INC. and Loren E. Horner, Plaintiffs,
v.
The TOWN OF HOWEY-IN-THE-HILLS, Thomas P. Line, in his individual capacity, and Paul Mazade, in his individual capacity, Defendants.
No. 87-1-Civ-Oc-14.
United States District Court, M.D. Florida, Ocala Division.
January 23, 1989.
*1480 *1481 Roderick MacLeish, Jr., Fine & Ambrogne, Exchange Place, Boston, Mass., Stephen H. Durant, Martin, Ade, Birchfield & Johnson, P.A., Jacksonville, Fla., for plaintiffs.
Keith R. Mitnik and John M. Robertson, Robertson, Williams, Mitnik & McDonald, P.A., Orlando, Fla., for defendants.
OPINION AND ORDER[1]
SUSAN H. BLACK, District Judge.
I. Introduction
Howey-in-the-Hills is a small town in Central Florida, approximately forty miles northwest of Orlando. The town is sixteen blocks long from north to south and four blocks wide from east to west. It has a population of some 650 residents. The town governs itself through a Mayor, Town Council, Zoning Commission, and other agencies. The town controls land use and development within its borders through its power to zone. The Town of Howey-in-the-Hills [hereinafter "Howey-in-the-Hills," "Howey," or "town"] is one of the defendants in this case.
Various educational institutions have for many years used property in the town. One of these institutions, located on a forty-one acre tract of land on the southern border of the town, has been a privately owned and operated high school. In 1980, Michael DeSisto and Will Roberts through a partnership bought the high school campus. They leased the campus to the DeSisto School [hereinafter "DeSisto School" or "DeSisto High School"], a high school for learning disabled students.
In 1986, DeSisto and Roberts through their partnership purchased property for the use of a second educational institution in Howey-in-the-Hills. This second educational institution was the DeSisto College, a college serving learning disabled students. DeSisto College, Inc. [hereinafter "DeSisto College" or "College"] is one of the plaintiffs in this case.
The town at first accepted and even promoted the creation of a college for the learning disabled. When the College purchased residential homes in areas not adjacent to the DeSisto High School, the town withdrew its support for the DeSisto College. The town discovered that certain college uses in residentially-zoned areas violated its Zoning Ordinance. The town also promulgated new ordinances to more closely regulate the function of colleges in residentially zoned areas.
DeSisto College and Loren E. Horner, a student at the College, sue the town and various government officials under 42 U.S. C. § 1983 and the fourteenth amendment's equal protection and due process clauses. DeSisto College wishes to secure the right to use residential property without restriction anywhere within the town's boundaries. Plaintiff Horner wishes to safeguard the College's operations in Howey to prevent her loss of DeSisto College's "unique educational and treatment program."[2]
If this case went to trial, the plaintiffs would attempt to prove that the defendant *1482 town opposed the College and used its powers to exclude it from the town based on irrational fear and prejudice towards learning disabled students. The town would attempt to prove that Michael DeSisto was no more than a businessman trying to establish a business in Howey in the cheapest possible way, by converting residences into college facilities rather than by building on vacant land from the ground up. Although the Court finds that the parties genuinely dispute each of these extreme factual contentions, neither of these facts if established are material to this case. The Court finds from the facts that are not genuinely disputed that summary judgment is appropriate.
The Court will first review the procedural history of this case. The Court will then summarize background facts as they appear from the record and specify the standard of review on a motion for summary judgment. Finally, the Court will analyze plaintiffs' claims.
II. Procedural History
The present plaintiffs along with a party who is no longer a plaintiff, Keith Murphy, filed their original Complaint in this action on January 2, 1987. The original Complaint named as defendants Thomas P. Line, Arthur Pratt, Alan B. Mills, Jr., Rodney T. Griffin, individually and in their capacity as members of the Zoning Commission of Howey-in-the-Hills, Paul Mazade, John P. Purser, III, Carlin Washo, individually and in their capacity as members of the Town Council of Howey-in-the-Hills.
Plaintiffs voluntarily filed an Amended Complaint on January 15, 1987. The First Amended Complaint named the same defendants as the original Complaint with the addition of the Town Of Howey-in-the-Hills. On January 29, 1987, defendant Thomas P. Line filed a Motion To Dismiss First Amended Complaint. On March 17, 1987, the Court granted the motion as to Count III, but denied the motion as to Counts I and II. The Court stated that "plaintiffs [had] alleged sufficient facts to state the causes of action for violations of the Due Process and Equal Protection Clauses of the Fourteenth Amendment to the United States Constitution." The motion did not raise and the Court did not address questions of immunity of the individual defendants.
Plaintiffs filed the Second Amended Complaint on July 10, 1987. The Second Amended Complaint named the same defendants as the First Amended Complaint. Keith Murphy was not included as a plaintiff in the Second Amended Complaint. The defendants filed various motions to dismiss the Second Amended Complaint. In an order dated November 10, 1987, the Court granted the motions to dismiss on the grounds that the Second Amended Complaint sought to hold the individual defendants personally liable for their legislative conduct for which the individuals were absolutely immune. The Court gave plaintiffs leave to file an amended complaint "eliminating any causes of action against the defendants in their individual capacities based on the defendants' legislative activities." November 10, 1987, order at 16. In order to clarify plaintiffs' claims against each defendant and to distinguish the claims from one another, the Court further ordered plaintiffs to plead each count and the facts supporting each count separately, to plead separate counts for each defendant, and to plead counts based on defendants actions in their individual capacities separately from counts based on defendants' actions in their official capacities. Id. at 15-17.
On December 7, 1987, the plaintiffs filed their Third Amended Complaint. The Third Amended Complaint included the same defendants as the Second Amended Complaint with the exception of Carlin Washo and John P. Purser III. The Third Amended Complaint further named Paul Mazade in his capacity as Mayor of Howey. The plaintiffs failed, however, to plead each count and the facts supporting each count separately, to plead separate counts for each defendant, and to plead counts based on defendants' actions in their individual capacities separately from counts based on defendants' actions in their official capacities. On April 1, 1988, the Court *1483 granted defendants' motions to dismiss the Third Amended Complaint for violation of the Court's order of November 10, 1987.[3] The Court gave plaintiffs leave to file a Fourth Amended Complaint and gave plaintiffs further instructions in pleading.
Plaintiffs filed the Fourth Amended Complaint on April 20, 1988. The defendants listed in the Fourth Amended Complaint were the same as those in the Third Amended Complaint with the exception of Alan B. Mills. The plaintiffs withdrew the claims against defendants Arthur W. Pratt and Rodney T. Griffin by stipulation on May 6, 1988. Defendants once again filed a motion to dismiss. In light of counsels' representations as to the law and the fact that discovery in the case had terminated on June 29, 1988, the Court summarily denied the motion to dismiss stating that the issues would be more appropriately addressed on a motion for summary judgment.
Defendants filed their motion for summary judgment at bar on September 22, 1988. Plaintiffs filed their own motions for summary judgment on Counts IV and V on May 18, 1988, and July 22, 1988, respectively. The parties filed timely responses and replies. The Court heard oral argument on November 18, 1988.
III. Background Facts
The Court has carefully reviewed the pleadings, affidavits, exhibits, depositions, memoranda, transcript of oral argument on the instant motions for summary judgment, and the file in this case as a whole. Pursuant to Fed.R.Civ.P. 56 and for the purpose of summarizing the record, the Court will list various background facts as they appear on the record. In listing facts, the Court will resolve all genuinely disputed factual questions in plaintiffs' favor. The inclusion of facts in the statement of facts does not indicate that those facts listed are material pursuant to Fed.R.Civ.P. 56. The Court's discussion of materiality is encompassed in the Court's analysis of the substantive law. Furthermore, the inclusion of various facts is not a finding that the defendants could not establish different facts if this case went to trial.
A. The Parties
1. This is an action pursuant to 42 U.S. C. § 1983, brought by a college for the learning disabled and one of its students. The defendants are Howey-in-the-Hills and two town officials who are sued in their individual capacities. The Complaint seeks declaratory and injunctive relief. Pretrial Stipulation, Stipulated Fact 1.
2. Plaintiff DeSisto College is a Florida not-for-profit corporation. The College is located in Howey-in-the-Hills, Florida. The College was temporarily licensed by the Florida State Board of Independent Colleges and Universities in March, 1986, and has operated under that temporary license since the College commenced classes on September 8, 1986. Pretrial Stipulation, Stipulated Fact 2 & 7. Appendix To Motion For Preliminary Injunction, Exhibit B, Affidavit of Marsha Glines ¶ 10 [hereinafter "First Affidavit of Marsha Glines"].
3. Plaintiff Loren E. Horner, is a student at DeSisto College. Affidavit of Loren Horner ¶¶ 1-4. Plaintiff Loren E. Horner suffers from emotional difficulties which impair her cognitive functioning. First Affidavit of Marsha A. Glines ¶ 7.
4. Defendant Thomas P. Line [hereinafter "Line"] is the Chairman of the Zoning *1484 Commission of the town and lives in Howey. Plaintiffs sue Line in his individual capacity. Pretrial Stipulation, Stipulated Fact 3.
5. Defendant Paul L. Mazade [hereinafter "Mazade"] is a member of the Town Council of Howey as well as Howey's Mayor. Mazade also lives in Howey. Defendant Mazade is sued in his individual capacity. Pretrial Stipulation, Stipulated Fact 4.
6. Defendant Town of Howey-in-the-Hills is a Florida municipal corporation. Pretrial Stipulation, Stipulated Fact 5. The town is located approximately forty miles northwest of Orlando and has a population of approximately 650 people. Pretrial Stipulation, Stipulated Fact 6; First Affidavit of Marsha Glines ¶ 2. The town is sixteen blocks long from north to south, and four blocks wide from east to west. Map of Howey, Comprehensive Land Use Development Plan at 1-3, filed June 13, 1988; Map of Howey, Plaintiff's Exhibit 19.
B. Educational Institutions At Howey
7. DeSisto College was not the first educational institution based in Howey. Until 1978, the Howey Academy operated as a private high school in Howey. During the 1970's, the student population at the Academy was approximately 400 students. The Academy's students were not handicapped and the Academy operated until its closing without interference from town officials. In 1980, C.V. Griffin, the owner of the Academy, sold the Academy's campus to the LaMancha Partnership, a partnership whose general partners are A. Michael DeSisto [hereinafter "Michael DeSisto" or "DeSisto"], and Will Roberts. Fourth Amended Complaint ¶ 13; Defendant's Answer ¶ 13; Roberts, 8/12/87, at 51, 56-59.[4]
8. DeSisto College was not the first educational institution in Howey formed by Michael DeSisto to serve learning disabled students. In February, 1980, the DeSisto School, a high school for learning disabled students, first began operations on the grounds of the former Howey Academy and surrounding properties. The DeSisto School, also known as "DeSisto Howey" or the "DeSisto High School," is situated on State Route 19 in the southern section of the town. DeSisto Howey is one of three educational institutions founded by Michael DeSisto. In addition to DeSisto Howey and DeSisto College in Howey, Michael DeSisto operates the DeSisto School in Stockbridge, Massachusetts. DeSisto Howey continues to operate legally in Howey without opposition from Howey. DeSisto Howey is not a party to this litigation. The campus of DeSisto Howey, like the campus of the Academy, is comprised of a forty-one acre tract of land with numerous school buildings, including classrooms, dormitories and a gymnasium. First Affidavit of Marsha Glines ¶ 2. DeSisto Howey has had a student population in excess of 100 students.
9. DeSisto College is the first college that has operated in Howey. DeSisto College serves students who live both in and out of Howey, many of whom drive. Second Supplemental Affidavit of Marsha Glines ¶ 7. The students of DeSisto College are older than high school students. Many are of drinking age. Various professionals, such as psychologists, psychiatrists and special education teachers, have identified DeSisto College students at various times as emotionally disturbed or educationally handicapped. First Affidavit of Marsha Glines ¶ 3.
10. DeSisto College shares many characteristics with traditional colleges. For example, DeSisto College contemplates the establishment of classrooms, dormitories, faculty housing, administrative offices, a library, day-care facilities for faculty, a testing lab, a computer center, a visual arts studio, a gymnasium, laboratory space, a dance studio, a student services center, and therapy-related facilities. Second Supplemental Affidavit of Marsha Glines ¶¶ 6, 16; First Affidavit of Marsha Glines ¶ 14; Glines at 98-99.
*1485 11. By virtue of its function and layout, DeSisto College causes greater movement of persons and automobiles than ordinary residential owners of property in Howey. DeSisto College also has greater parking requirements than ordinary residential owners of property in Howey. Parking requirements and the movement of persons in residential areas would grow as the College increased in size to its projected size of 160 students or beyond. First Affidavit of Marsha Glines ¶¶ 6 & 15; Second Supplemental Affidavit Of Marsha Glines ¶ 7. Such movement of persons and automobiles must by necessity cause greater noise than would otherwise exist in residential areas. Furthermore, present operations of DeSisto College and its planned operations are more intensive uses of property than ordinary residential use of property.
C. Acquisition Of Property By DeSisto College
12. In the spring of 1985, Michael DeSisto hired Marsha Glines to serve as Executive Director of the DeSisto College Project. The purpose of the project was to initiate steps to acquire property and hire faculty and staff for a college which was to serve learning disabled students. Second Supplemental Affidavit of Marsha Glines ¶ 2.
13. By September, 1986, the College used or occupied the following property in Howey: 1) a classroom and dining room facility located at 507 South Palm Avenue, 2) a dormitory building, called the "transition house," located at 509 South Palm Avenue, 3) a single-family house at 110 South Palm Avenue, 4) 411 South Palm Avenue, 5) 308 South Palm Avenue, 6) 703 North Lakeshore Boulevard, and 7) 800 North Palm Avenue as the residence and office of Marsha Glines. All of these facilities are located in Howey's residential zoning districts. Second Supplemental Affidavit of Marsha Glines ¶¶ 3, 6, 8-9.
14. As with the property used by DeSisto Howey, all of the property used by the College prior to September, 1986, with the exception of the president's residence, was located in the southern section of the town. Affidavit of Ronald Glines ¶ 4. Defendants Mazade and Line, together with other past and present town officials, reside in the northern section of Howey. Affidavit of Ronald Glines, Exhibit A. The town is, however, only sixteen blocks long from north to south, and four blocks wide from east to west. Map of Howey, Comprehensive Land Use Development Plan at 1-3, filed June 13, 1988; Map of Howey, Plaintiff's Exhibit 19.
15. Marsha Glines first occupied the property at 800 North Palm Avenue in December, 1985. From that time to the present, that property, in addition to serving as Glines's residence, has served as one of the administrative offices first of the DeSisto College Project and subsequently for its successor, DeSisto College, Inc. Second Supplemental Affidavit of Marsha Glines ¶ 6.
16. On September 8, 1986, the LaMancha Partnership acquired property at 703 North Lakeshore Boulevard. Pretrial Stipulation, Stipulated Fact 9. Sometime thereafter in early September, 1986, the College entered into a lease of the property at 703 North Lakeshore Boulevard. Second Supplemental Affidavit of Marsha Glines ¶¶ 8-9.[5]
17. On August 22, 1985, Marsha Glines, together with a real estate broker from Howey, Louisa Wrobel [hereinafter "Wrobel"], appeared at a meeting of the Howey Zoning Commission. Wrobel at 17, ln. 15. Wrobel had filed a request that the College be permitted to use the property. First Affidavit of Marsha Glines ¶ 9. Two former Mayors of the town, Fletcher Bishop and Sam Adams [hereinafter "Adams"], also attended the meeting. Bishop at 120, In 13 to 126, ln. 19. Glines also stated that the property would be used for conference rooms or administrative offices for the College, *1486 and for counseling purposes. Wrobel at 17, ln. 25. Affidavit of Bishop ¶ 5.
18. In response to Marsha Glines's statements, Edmond Stachowski, then-chairman of the Zoning Commission, expressed his opinion that the property could not be used for "college purposes." Wrobel at 18, ln. 15; Bishop at 120, ln. 18. At that point, Wrobel interjected and explained to Chairman Stachowski that the property was located in an R-1 district which permitted "school" use. Wrobel at 18, ln. 21; Bishop at 120, ln. 19.
19. After some discussion among the committee members, Chairman Stachowski then changed his opinion and agreed that the proposed use was a permitted one under the Howey Zoning Ordinance. Bishop at 122, ln. 19; Wrobel at 21, ln. 11. Chairman Stachowski said that it was not necessary for the College to file an application with the Zoning Commission for authorization to use the property. Wrobel at 22, ln. 5; Bishop at 123, ln. 9; Affidavit of Bishop ¶ 6. Adams recounted similar facts. Affidavit of Adams ¶¶ 4-5; Adams at 17, ln. 12-24.[6]
20. On March 24, 1986, the Florida State Board of Independent Colleges and Universities granted temporary licensure to DeSisto College. Pretrial Stipulation, Stipulated Fact 7. The College decided to hold a party in celebration of its licensure. Invitations were sent to a number of the defendants and the party was, in fact, attended by defendants Line and Mazade. Line I at 231, ln. 23.
21. At various times, Marsha Glines spoke to various community groups concerning the College, including the Town of Howey Men's Club and the Town of Howey Women's Civic and Garden Club. Deposition of Marsha Glines at 98, ln. 18-25. By April, 1986, it was common knowledge in the town that the College would be opening the following fall. See, e.g., Mazade I at 121, ln. 25 to 122, ln. 9; Line I at 234, ln. 5-10; see also Warner II at 42, ln. 18-22.
22. In May, 1986, at the suggestion of Mazade, then a member of the Town Council, Mayor Fletcher Bishop decided to schedule a "Mayor's Forum" to discuss the opening of the College. Pretrial Stipulation, Stipulated Fact 8; Bishop at 107, ln. 4 to 108, ln. 3-7. The Mayor's Forum, which was held in June, 1986, was announced at a meeting of the Town Council and was publicized in the local newspaper, the Howey Herald. First Affidavit of Marsha Glines ¶ 8.
23. The College participated in the "Mayor's Forum" on June 16, 1986. The forum was attended by a number of public officials of the town, including then-Mayor Fletcher Bishop and approximately 50 Howey residents. At the forum, Marsha Glines distributed copies of the College's catalogue. She also answered questions from town residents, including questions as to where students would be living. Pretrial Stipulation, Stipulated Fact 17; Second Supplemental Affidavit of Marsha Glines ¶ 7.
24. Glines stated that, as a condition of the College's licensure, it would have to grow to approximately 160 students within four years.[7] There is, however, nothing in the record to indicate that there is any upper limit on the number of students that DeSisto College could or would in the future enroll. Glines stated that some students *1487 would require close supervision and would reside in the College's dormitory referred to as the "transition house," a dormitory building which presently accommodates approximately 24 students and is located on the west side of State Route 19 opposite the DeSisto High School. Glines explained that other College students would be residing in private homes within the community or in private homes outside of Howey. Second Supplemental Affidavit of Marsha Glines ¶ 7; Bishop at 110, ln. 1 to 113, ln. 17.
25. On October 8, 1986, the Howey Zoning Commission approved an "Authorization for Building Permit Application" for property used by the College. This permit allowed DeSisto College to "replace garage door opening with windows and wall remove cement driveway." Plaintiffs' Exhibit 10.
D. Zoning In Howey Prior to December 25, 1986
26. In March, 1967, Howey adopted a Zoning Ordinance. Under the ordinance, the town was divided into four different districts, R-1, R-2, R-3 and C-1. The ordinance set forth various permitted uses. Appendix A, Zoning, Code of Ordinances of the Town of Howey-in-the-Hills, Florida, [hereinafter "1967 Zoning Ordinance"], Editor's Note at 947, Exhibit 2 to Second Supplemental Affidavit of M. Glines.
27. Until December 25, 1986, Section 6(1)(A)(2) of the 1967 Zoning Ordinance [hereinafter "Section 6(1)(A)(2)"] provided that "schools, elementary, high and private, but excluding correctional institutions" were permitted uses in R-1, R-2 and R-3 districts. This same language was contained in a Zoning Ordinance of the town which pre-dated the existence of the Academy. Zoning Ordinance, Town of Howey-in-the-Hills, Adopted December 4, 1950, Plaintiffs' Exhibit 1.
28. Under section 6(3)(A)(1) of the 1967 Zoning Ordinance, any use permitted in R-1, R-2, and R-3 districts was permitted in a C-1 district. Thus, prior to its repeal on December 25, 1986, the 1967 Zoning Ordinance permitted the use of property for "school, elementary, high, and private but excluding correctional institutions" in all areas of the town. In addition, various other uses were permitted as a matter of right in residential zoning districts until December 25, 1986, including libraries, community centers, government buildings, churches and home offices for physicians or surgeons. 1967 Zoning Ordinance, Plaintiffs' Exhibit 2.
E. The September 29, 1986, Citation Letter
29. On September 8, 1986, Diane Brownlee, the College's admissions officer, telephoned defendant Line, and informed him that the College had leased the Lakeshore Boulevard property. Pretrial Stipulation, Stipulated Fact 10; Brownlee at 64, ln. 14 to 65, ln. 17.
30. The original purpose of the College's acquisition of the Lakeshore Boulevard property was to use it as a faculty residence and a part-time tutoring or therapy facility. Second Supplemental Affidavit of Glines ¶ 9. The property was, however, later used as a classroom. Second Supplemental Affidavit of Marsha Glines ¶ 16. Sykes at 41-42; Murphy at 34, ln. 7 to 35, ln. 21.[8]
31. Defendant Line responded to Brownlee by expressing his opposition to the College's acquisition of the property. Brownlee at 64, ln. 14 to 65, ln. 17.
32. On the same day of Brownlee's telephone conversation with defendant Line, a meeting of the Zoning Commission was scheduled. The posted agenda for the meeting was a discussion of the enforcement of the Zoning Code in the town. The meeting was scheduled to take place at 6:30 p.m. on September 8, immediately prior to a meeting of the Town Council. At the meeting, members of the Zoning Commission discussed the College's acquisition of the *1488 Lakeshore Boulevard property. Warner II at 28, ln. 13 to 32, ln. 2.
33. On September 22, 1986, the Howey Zoning Commission convened its next meeting. The meeting also concerned the College's acquisition of the 703 North Lakeshore Boulevard property. The meeting was chaired by the defendant Line. Unlike most meetings of the Zoning Commission, which were sparsely attended, approximately one hundred town residents were in attendance. First Affidavit of Marsha Glines ¶ 11; Warner II at 6, ln. 13-17 & 21.
34. Ronald Glines began the meeting by making a presentation on behalf of the College. Ronald Glines served from May through October 1986, as a consultant to the College. Affidavit of Ronald Glines ¶ 1.
35. When Ronald Glines was unable to answer all of the questions posed by the audience, Marsha Glines agreed to respond to questions. She stated that no classes would be held at the Lakeshore Boulevard house and that the property would be used as a faculty residence and a study hall/therapy center between the hours of 3:30 p.m. and 5:30 p.m. The College had no plans for students to reside at the Lakeshore Boulevard house. Second Supplemental Affidavit of Marsha Glines ¶ 13; Willis, at 48, ln. 3, 18.
36. The Zoning Commission voted to refer the question of the College's use of the property to the town attorney for an opinion. Minutes Of The Meeting Of The Zoning Commission on September 22, 1986, Plaintiffs' Exhibit 11. Michael Croak was Town Counsel from 1977 to December, 1986. Croak, at 4, ln. 9-10.
37. The next meeting of the Zoning Commission was held on September 27, 1986. Prior to this time, defendant Line had met with Michael Croak. Croak at 14, ln. 3 to 15, ln. 21. The result of the defendant Line's meeting with Croak was a one-paragraph letter from Croak dated September 26, 1986. The letter addressed the question of the legality of the use of property as a "college classroom or office" in a residential zoning district and was appended to the September 28, 1986, citation letter. Plaintiffs' Exhibit 4 at 2. Croak expressed two reasons why a college classroom or office in a residential district would violate the Zoning Ordinance. Croak opined that such a use would violate the town's ordinance "establishing the districts," and would also "violate the town ordinance on building permits inasmuch as this would be a different use than as described in the original building permit issued for the property." Plaintiffs' Exhibit 4 at 2.
38. Croak did not undertake any legal research with respect to his letter of September 26, 1986. Croak at 21, ln. 4-8. Croak's opinion of September 26, 1986, was a "preliminary" one. Croak at 23, ln. 1-11. The letter reflected both Croak's own personal opinion as to the legality of the use as well as defendant Line's position that the College's use of the Lakeshore property was illegal. Croak at 17, ln. 1-9, & 36, ln. 14-15; Croak at P-1. Croak's final opinion expressing the same conclusion with some reservations as to the certainty of his interpretation of the ordinance is contained in his letter to Line dated October 27, 1986. See Defendant's Exhibit 1, Croak Affidavit ¶ 4.
39. At the time that Croak rendered his opinion, he was unaware of a number of facts. He did not know that the College had been occupying property in residential zoning districts since April, 1986. Croak at 25, ln. 6-11. Likewise, Croak was unaware of the August 22, 1985, meeting of the Zoning Commission. Croak at 26, ln. 16 to 28, ln. 11. He was unaware of the "Mayor's Forum" held in June, 1986. Croak at 26, ln. 11-15.[9]
40. At no time had the College represented that the property at 703 North Lakeshore Boulevard would be used for an office or for a college classroom. Second Supplemental Affidavit of Marsha Glines ¶ 15; Defendants' Exhibit 7. Although no *1489 such representation was made, the property was in fact used for classroom purposes. Sykes at 41-42; Murphy at 34, ln. 7 to 35, ln. 21; Second Supplemental Affidavit of Marsha Glines ¶ 16. See also supra Background Facts ¶ 30.
41. At the meeting of the Zoning Commission on September 27, 1986, the members of the Commission discussed the enforcement of the Zoning Ordinance against DeSisto College in its use of the North Lakeshore Boulevard property. Commission member Patricia Warner expressed her concern that the Zoning Ordinance was not always enforced in the past. Warner at 52, ln. 8-15.[10] Defendant Line expressed his view that enforcement of zoning regulations and construction standards was especially important as applied to public assembly buildings such as colleges.
42. The Commission members, including Commission member Warner, voted unanimously to notify the owners of the North Lakeshore Boulevard property that they were in violation of the Zoning Ordinance. Minutes Of Special Zoning Commission Meeting, September 27, 1986, Plaintiffs' Exhibit 12. That college students drive automobiles, that DeSisto College in particular would have greater parking requirements than an ordinary residential owner of property, that the movement of DeSisto College students and their automobiles would cause greater noise than would exist without the College being located in residential areas, and that college use is a more intensive use of property than ordinary residential use, were facts before the Zoning Commission when it voted to cite DeSisto College for violating the Zoning Ordinance.
43. On September 29, 1986, defendant Line sent a letter to Michael DeSisto, advising him that the Lakeshore Boulevard property could not be used as a "classroom, meeting house or other college uses". Defendant Line's letter to DeSisto also included a copy of Croak's letter of September 26, 1986, and a copy of the Howey Zoning Code pertaining to building permits. Plaintiffs' Exhibit 4.
F. Ordinances 160, 161, and 162
44. In October, 1986, Croak drafted Ordinances 160, 161, and 162, for the purpose of clarifying the zoning regulations as they applied to, among other things, the legality of colleges in residential areas. Croak at 51-52, 65-66; Affidavit of Croak ¶¶ 10-11; Letter dated October 27, 1986, Plaintiffs' Exhibit 21.[11] Under Ordinance 160, various *1490 *1491 uses of property, including school use, were removed as permitted uses in residential zoning districts. Defendants' Exhibit 17. Defendant Line also proposed Ordinance 161, which allowed for the creation of a "public facility district" [hereinafter "PFD"] in all zoning districts of the town. Defendants' Exhibit 18. Under this ordinance, uses more intensive than a college, such as hospitals, electric plants, railroad systems, airports, and stadiums, were required to satisfy the requirements of the ordinance. Defendants' Exhibit 18. Ordinance 162 limited the number of unrelated individuals who could live in a residential home to three.
45. Croak was discharged from his position as Town Counsel in December, 1986. Croak at 62, ln. 2-7. Richard Langly was appointed as Croak's replacement on December 8, 1986. Mazade I at 212, ln. 16-22; Plaintiffs' Exhibit 28.
46. On December 1, 1986, the Town Council convened for a first reading of Ordinances 160 and 161. Plaintiffs' Exhibit 15. On December 15, 1986, the Town Council convened for a second reading of Ordinances 160 and 161, and on that date passed the two ordinances, Ordinances 160 and 161. Plaintiffs Exhibit 17. These ordinances became effective on December 25, 1986, and have remained in effect since that time. Pretrial Stipulation, Stipulated Fact 18. Ordinance 162 was adopted January, 5, 1987, and took effect on January 15, 1987. Fourth Amended Complaint ¶ 69; Defendant's Answer ¶ 69; Defendant's Exhibit 19. That college students drive automobiles, that DeSisto College in particular would have greater parking requirements than ordinary residential owners of property, that the movement of DeSisto College students and their automobiles would cause greater noise than would exist without the College being located in residential areas, and that college use is a more intensive use of property than ordinary residential use, were facts before the Town Council when it voted to enact Ordinances 160, 161, and 162.
G. The Change Of Use Application
47. On September 29, 1986, defendant Line sent Michael DeSisto a letter which stated that the College's use of the Lakeshore Boulevard property was in violation of the town's Zoning Ordinance. Plaintiffs' Exhibit 3.
48. In an effort to resolve the matter, the College filed a "change of use" application on November 25, 1986. In the application, the College contended that authorization from the Commission was unnecessary because the Zoning Commission had no authority to deny a landowner the right to use his property for a use which was already permitted in a particular zoning district. The College's application was filed with a reservation of rights. Plaintiffs' Exhibit 16.
*1492 49. A hearing on the application was held before the Zoning Commission on December 11, 1986. Richard Langley represented the Zoning Commission. Plaintiffs' Exhibit 23. The College's application to use the 703 Lakeshore Boulevard property for college purposes was denied by the Zoning Commission. Plaintiffs' Exhibit 16.[12]
H. Citations of December 19, 1986
50. The Howey Mansion is located on approximately 15 acres of land in the northern section of Howey. Second Supplemental Affidavit of Marsha Glines ¶ 18.
51. On December 19, 1986, defendant Line met with defendant Mazade at the offices of the Line Construction Company in Tavares, Florida. Mazade I at 171, In. 23 to 172, ln. 8. During their meeting, a series of "citation" letters were typed by Line's secretary on town stationery on behalf of Mazade. Mazade I at 172, ln. 12-14. Plaintiffs' Exhibit 5. That college students drive automobiles, that DeSisto College in particular would have greater parking requirements than ordinary residential owners of property, that the movement of DeSisto College students and their automobiles would cause greater noise than would exist without the College being located in residential areas, and that college use is a more intensive use of property than ordinary residential use, were facts before the Mayor and the Chairman of the Zoning Commission when they decided to cite DeSisto College for violating the Zoning Ordinance.
52. In one letter, defendant Mazade cited the College for violating the use provisions of the Zoning Ordinance with respect to the College's use of the Mansion. Plaintiffs' Exhibit 5 at 5-6. The letter states that "colleges are not allowed under this use regulation in the Town of Howey-in-the-Hills." Id. Mazade also cited the College for using the Mansion property for a use other than the use set forth in the Mansion's original building permit. Id. Finally Mazade cited the College for having more than six unrelated individuals living in the Mansion. Id.
53. Town Council member Joyce Powers wrote a letter to Mayor Mazade calling for a Town Council meeting on December 29, 1986, to discuss among other things the December 19, 1986, citation of the College. Plaintiffs' Exhibit 29. Mazade called a special meeting of the Town Council for December 29, 1986. Over one hundred residents attended the meeting. Pretrial Stipulation, Stipulated Fact 14.
54. Howey government officials have not enforced Howey's Zoning Ordinances against all persons who have in the past been in violation of the zoning ordinances.[13]
I. Articulated Purposes For Governmental Actions[14]
55. Michael Croak, the attorney who drafted Ordinances 160, 161, and 162, stated in his affidavit that based on his personal observations, the enforcement of the zoning code against Desisto College was based on concern for protecting the residential character of the town. See Affidavit *1493 of Michael Croak ¶ 9, Appendix To Defendants' Memorandum In Support Of Motion For Summary Judgment, Exhibit 1. Croak stated that the residential character of the town would benefit from maintenance of a low level of vehicular traffic, Croak at 72, and the exclusion of boarding houses. Croak at 68.
56. Similarly, defendant Thomas P. Line suggested at the October 27, 1986, meeting of the Zoning Commission that the enforcement of the Zoning Ordinance against the College promoted the "privacy, tranquility, lifestyle, and the peaceful and quiet atmosphere." See Minutes Of Zoning Board Of October 27, 1986, Appendix To Defendants' Memorandum In Support Of Motion For Summary Judgment, Exhibit 16 at page m/z 28, Appendix In Support Of Defendants' Motion For Summary Judgment, Exhibit 15. Line made similar remarks in his deposition. Line at 129, ln. 19-23. Other Howey government officials expressed similar concerns. See Pratt at 236, ln. 16-24, 239, ln. 4-7; Griffin at 198, ln. 25 to 199, ln. 25; Washo at 103, ln. 20 to 104, ln. 3, 114, ln. 16-25, 115, ln. 6-14, 129, ln. 11-23.
57. A seventeen-page petition dated November 10, 1986, indicates that the signatories wished to "restrict R-1, R-2, and R-3 districts for private single family residences only, to maintain our town's serenity ... [and] to preserve the residential character of [their] neighborhood." See Petition, Appendix To Defendants' Memorandum In Support Of Motion For Summary Judgment, Exhibit 20.
58. Plaintiffs' legal advisors, the Director of Desisto High School, and Michael DeSisto recognized at least the articulation of the purpose of preserving the residential character of Howey. See DeSisto, 8/21/87, at 10, ln. 17 to 13, ln. 11, 93 ln. 6-12; Doktor, at 10, ln. 22 to 11, ln. 14; Plaintiffs Exhibit 44, Memorandum From M. Morley to H.D. Robuck, legal advisors of DeSisto College, at 3-4.
59. A number of citizens and government officials of Howey made derogatory statements at public gatherings, public meetings, private meetings, and in newspaper interviews concerning DeSisto College and the students at the College.[15]
IV. Standard Of Review
A district court's review of a case on a motion for summary judgment is governed by Fed.R.Civ.P. 56. A moving party discharges its burden on a motion for summary judgment by "showing" or "pointing out" to the district court that there is an absence of evidence to support the nonmoving party's case. See Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). Fed.R.Civ.P. 56 permits the moving party to discharge its burden with or without supporting affidavits and to move for summary judgment on the case as a whole or on any claim. 477 U.S. at 325, 106 S.Ct. at 2554. When a moving party has so discharged its burden, the nonmoving party must then "go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" 477 U.S. at 324, 106 S.Ct. at 2553.
The district court must enter summary judgment "after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." 477 U.S. at 322, 106 S.Ct. at 2552; Fed.R.Civ.P. 56(c). Whether or not the *1494 moving party has met its burden of establishing that there is no genuine issue as to any material fact and that he is entitled to judgment as a matter of law, requires the court to draw inferences from the evidence as viewed in the light most favorable to the nonmoving party, and to resolve all reasonable doubts in that party's favor.
The Eleventh Circuit Court of Appeals explained the reasonableness standard in WSB-TV v. Lee, 842 F.2d 1266, 1270 (11th Cir.1988):
In deciding whether an inference is reasonable, the court must "cull the universe of possible inferences from the facts established by weighing each against the abstract standard of reasonableness." ... The opposing party's inferences need not be more probable than those inferences in favor of the movant to create a factual dispute, so long as they reasonably may be drawn from the facts.... When more than one inference reasonably can be drawn, it is for the trier of fact to determine the proper one.
842 F.2d at 1270 (citations omitted).
Fed.R.Civ.P. 56(c) requires the district court to deny a motion for summary judgment if the court finds that there exists a genuine issue for trial. What constitutes a "genuine issue for trial" was addressed by the Supreme Court in Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In Anderson, the Court stated that "summary judgment will not lie if the dispute about a material fact is `genuine,' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." 477 U.S. at 248, 106 S.Ct. at 2510. The Court further stated that the inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." 477 U.S. at 251-52, 106 S.Ct. at 2511-12.
V. Plaintiffs' Fourth Amended Complaint
The Plaintiffs' Fourth Amended Complaint seeks inter alia[16] the following relief: A) a declaration that under Florida law the meaning of the word "school" as it appears in the use regulations of the 1967 Zoning Ordinance includes the Plaintiff College's use, see Count V; B) a declaration that Ordinance 161 is unconstitutionally vague on its face under the substantive due process clause of the fourteenth amendment, see Count IV; C) a declaration that the defendants' citation of the College on September 29, 1986, and December 19, 1986, for violating Section 6(1)(A)(2) of the Town's 1967 Zoning Ordinance violates the College's substantive due process rights and both the College's and Loren Horner's equal protection rights under the fourteenth amendment, see Counts I, II, III, VI, VII, VIII, IX, X, and XI; D) a declaration that Ordinance 160 violates Desisto College's substantive due process rights and both the College's and Loren Horner's equal protection rights under the fourteenth amendment, see Counts I, VI, VII; E) a declaration that the town's passing Ordinances 161 and 162 violated plaintiffs' equal protection rights under the fourteenth amendment, see Counts VI, VII.
The Court will first determine whether or not the term "school," as used in the 1967 Zoning Ordinance, includes "college" use. The Court will then determine whether or not Ordinance 161 is unconstitutionally vague on its face. Finally, the Court will address the equal protection and substantive due process claims.
A. The Term "School" In Section 6(1)(A)(2) Of The 1967 Zoning Ordinance
The parties have each filed motions for summary judgment on Count V of the *1495 Fourth Amended Complaint. They each agreed at the hearing on the motions for summary judgment that the Court did not need to resolve any factual issues to rule on the motions and that the motions raised only questions of law. This Court agrees that statutory construction is a question of law. See Devin v. Hollywood, 351 So.2d 1022, 1026 (Fla. 4th DCA 1976).
The issue raised by Count V is whether or not the term "school" in Section 6(1)(A)(2) of the 1967 Zoning Ordinance includes colleges. Plaintiffs argue that colleges are schools under the ordinance. Defendants argue that colleges are not schools under the ordinance. The Court will first outline Florida's law of statutory construction applicable to this case and then apply that law in construing Section 6(1)(A)(2).
The goal of statutory interpretation is to determine legislative intent. See Tyson v. Lanier, 156 So.2d 833, 836 (Fla.1963). Where legislative intent is not clear, however, Florida Courts have designed rules of construction to aid in the search for legislative intent. See Lanier v. Bronson, 215 So.2d 776, 778 (Fla. 4th DCA 1968). These rules of construction are equally applicable to the construction of municipal ordinances as to other statutes. See Carroll v. City of Miami Beach, 198 So.2d 643, 646 (Fla. 3d DCA 1967).
It is a general principle of statutory construction, well-established in Florida's jurisprudence, that the mention of one thing implies the exclusion of another, expressio unius est exclusion alterius. See Towerhouse Condominium, Inc. v. Millman, 475 So.2d 674, 676 (Fla.1985); Thayer v. State, 335 So.2d 815, 817 (Fla.1976); Ideal Farms Drainage Dist. v. Certain Lands, 19 So.2d 234, 239 (Fla.1944). Therefore, where a statute enumerates the things on which it is to operate, the statute will ordinarily be construed as excluding from its operation all those things not expressly mentioned. Id.
Another principle of statutory construction is that words take meaning based on their context or their association with other words in the statute, noscitur a sociis. See State ex rel. Triay v. Burr, 84 So. 61, 73-75 (Fla.1920); Orange County Audubon Soc. v. Hold, 276 So.2d 542, 543 (Fla. 4th DCA 1973). Where one of the enumerated terms is a general one, it may be restricted to a narrower sense or less general meaning by the context in which it is used. See Carraway v. Armour & Co., 156 So.2d 494, 495 (Fla.1963); Ex parte Amos, 112 So. 289, 293 (Fla.1927). If the legislature excludes a thing by omission from the statute, a court may not in the process of construction supply the omission. See Brooks v. Anastasia Mosquito Control Dist., 148 So.2d 64, 66 (Fla. 1st DCA 1963).
The final principle of statutory construction applicable to this case requires a court 1) to presume that the legislature puts every provision in a statute for a purpose and 2) to construe the statute to give each of the statute's provisions effect, ut res magis valeat quam pereat. See Forehand v. Board of Public Instruction, 166 So.2d 668, 672 (Fla. 1st DCA 1964). A construction that would leave any part of the language in a statute without effect should be rejected. See Vocelle v. Knight Bros. Paper Co., 118 So.2d 664, 667 (Fla. 1st DCA 1960).
Section 6(1)(A)(2) of the 1967 Zoning Ordinance provides in pertinent part as follows:
Section 6. Schedule of district regulations Use regulations; height and area regulations; prohibited regulations.
(1) Use regulation-R-1, R-2, R-3 districts.
(A) In the R-1 and R-2 and R-3 single-family districts, no building or land shall be used and no building shall hereafter be erected, constructed, reconstructed, structurally altered, repaired or moved unless otherwise provided in this ordinance, except for one of the following uses:
....
(2) Schools, elementary, high, and private, except correctional institutions.
*1496 Code of Ordinances of the Town of Howey-in-the-Hills, Florida, Appendix A, Zoning, Section 6(1)(A)(2).
The Court finds that the term "school" is an ambiguous term. It is unclear whether or not the term does or does not include college in its meaning. The parties have presented the Court with numerous cases from various jurisdictions in which courts have diverged on the question whether or not a college is a school. The Court notes that these courts interpreted statutes with language different from the ordinance in this case. The parties have also presented the Court with various statutory definitions of the term "school" that are in conflict. Various dictionaries also diverge on the issue.
Despite the general ambiguity of the term, the Court finds under the various applicable principles of statutory construction that Howey's legislative authority did not intend the term "school" to include colleges in Section 6(1)(A)(2). The term "school" in Section 6(1)(A)(2) is a general term followed by a series of specific types of schools. Under the doctrine of expressio unius est exclusion alterius, the Court finds that the enumeration of specific types of schools in Section 6(1)(A)(2), implies the exclusion of other specific types of schools that were not mentioned. These other specific types of schools cannot be included under the general term "school." Therefore, even if this Court considered a college to be a school, that was not the intent of the legislature that promulgated Section 6(1)(A)(2).
Furthermore, under the doctrine of noscitur a sociis, the specific types of schools following the general term "school" narrow the meaning of the general term. Thus, the meaning of the word school in context is restricted to those types of schools enumerated. Because a college is not one of the specific types of schools enumerated, it is excluded.
Finally, under the doctrine of ut res magis valeat quam pereat, a construction that included unenumerated specific types of schools like colleges, would render the inclusion of specific types of schools like elementary and high schools unnecessary to the statute and, therefore, meaningless. Because a college is at best a specific type of school, even if the Court found that a college could be a school, that was not the intention of the legislative authority in enacting Section 6(1)(A)(2).
The Court disagrees with plaintiffs' argument that because Howey's zoning regulations are in derogation of Desisto College's private rights of ownership they should, therefore, be interpreted in favor of the property owner. Although plaintiffs have articulated a valid principle of statutory construction, that principle will not be applied where legislative intent to the contrary is clear. See Hoffman v. Brevard County Board Of Commissioners, 390 So. 2d 445, 446 (Fla. 5th DCA 1980). Based on the foregoing analysis of legislative intent, the Court finds that legislative intent is clear and that the Court need not construe the ambiguity in the term "school" in Section 6(1)(A)(2) in plaintiffs' favor.
The Court also disagrees with plaintiffs' argument that the exclusion of "correctional institutions" from Section 6(1)(A)(2) indicates a legislative intent that the term school is broad enough to include colleges. To the contrary, the exclusion of correctional institutions is a further refinement of the specific types of schools. This Court agrees with defendants' suggestion that the exclusion is intended to exclude reform schools which are either elementary, high, or private schools. The exclusion was not intended to broaden the meaning of the term school or otherwise cause the term school to include colleges. Accordingly, the Court will deny plaintiffs' motion for summary judgment as to Count V and grant defendant's motion for summary judgment as to Count V.
B. Facial Challenge Of Ordinance 160 For Vagueness
The standards for evaluating the vagueness of a statute or ordinance were enunciated in Grayned v. City Of Rockford, 408 U.S. 104, 108-09, 92 S.Ct. 2294, 2298-99, 33 L.Ed.2d 222 (1972). First, a person must be given a reasonable opportunity to know what the law prohibits so that *1497 he may act accordingly. Id. Second, in order to prevent arbitrary and discriminatory enforcement, laws must provide explicit standards. Id. These standards should not, however, be mechanically applied, because the degree of vagueness tolerated by the constitution "depends in part on the nature of the enactment." Hoffman Estates v. Flipside, Hoffman Estates Inc., 455 U.S. 489, 498, 102 S.Ct. 1186, 1193, 71 L.Ed.2d 362 (1982). Economic regulation is subject to a less strict vagueness test. Papachristou v. City of Jacksonville, 405 U.S. 156, 162, 92 S.Ct. 839, 843, 31 L.Ed.2d 110 (1972). Moreover, laws which contain only civil penalties, are also given greater tolerance. Barenblatt v. United States, 360 U.S. 109, 137, 79 S.Ct. 1081, 1098, 3 L.Ed.2d 1115 (1959). The speculative danger of arbitrary enforcement does not render an ordinance void for vagueness in a preenforcement challenge to the law. Hoffman Estates, 455 U.S. at 503-04, 102 S.Ct. at 1195-96.
A "facial" challenge is a claim that the law is "invalid in toto and therefore, incapable of any valid application." Hoffman Estates, 455 U.S. at 494 n. 5, 102 S.Ct. at 1191 n. 5 (quoting Steffel v. Thompson, 415 U.S. 452, 474, 94 S.Ct. 1209, 1223, 39 L.Ed.2d 505 (1974)). On review of a statute for facial constitutionality, a federal court must consider limiting constructions that state authorities have proffered. Hoffman Estates, 455 U.S. at 494 n. 5, 102 S.Ct. at 1191 n. 5 (citing Grayned v. City of Rockford, 408 U.S. 104, 110, 92 S.Ct. 2294, 2300, 33 L.Ed.2d 222 (1972)).
Plaintiffs argue that Ordinance 161 is unconstitutionally vague on its face.[17] Defendants argue that the statute is not unconstitutionally vague because Howey's Comprehensive Development Plan is incorporated by express reference in Ordinance 161 and is also necessarily applied in any zoning decision pursuant to Fla.Stat. § 163.3194. Similarly, defendants argue that Howey's Comprehensive Development Plan requires that its standards be applied in enforcing each and every ordinance. Defendants argue that Florida courts have approved the incorporation of a town's comprehensive plan by reference in an ordinance and that such ordinances will not be considered vague. See Alachua County v. Eagle's Nest Farms, Inc., 473 So.2d 257, 261 (Fla. 1st DCA 1985).
Plaintiffs respond that the ordinance does not incorporate the Comprehensive Development Plan by reference. Plaintiffs argue that the only reference to the plan in the ordinance is one that requires the Director of Planning, or other person designated by the Town Council to "check compliance with the Comprehensive Development Plan." Plaintiffs argue that this cannot be construed as a requirement that applicants for a Public Facilities District designation comply with the Comprehensive Development Plan. Plaintiffs apparently concede that if the Comprehensive Development Plan is incorporated by reference, that ordinance provides adequate standards to give it fair notice of what the law requires.
The Court finds that Ordinance 161 incorporates the Comprehensive Development Plan by reference. First, if the Director of Planning is to "check compliance" with the Comprehensive Development Plan, failure to comply would a fortiori require denial of the application. Unless such compliance is deemed a mandatory requirement of the Ordinance, the legislature's inclusion of the language in the ordinance would be rendered meaningless. Such an interpretation should be avoided. Second, the ordinance should be interpreted so as to make it constitutional. If incorporation of the Comprehensive Development Plan is a reasonable interpretation and such incorporation renders the ordinance constitutional, it is incumbent on this Court to make such an interpretation. Third, as an economic regulation with only civil penalties, the ordinance must be given greater tolerance. Fourth, the Court finds that the possibility of discriminatory enforcement judged only from the face of the ordinance is speculative. Finally, this Court finds that the ordinance is capable of valid application *1498 and that the limiting constructions proffered by state authorities render the statute constitutional. Accordingly, the Court will deny the plaintiffs' motion for summary judgment on Count IV and grant defendant's motion on that count.
C. Equal Protection Claims
The equal protection clause of the fourteenth amendment mandates that "[n]o State shall ... deny to any person within its jurisdiction the equal protection of the laws." U.S. Const. amend. XIV, § 1. This provision requires that "similarly situated" persons receive equal treatment from the government. See City of Cleburne v. Cleburne Living Center, 473 U.S. 432, 439, 105 S.Ct. 3249, 3254, 87 L.Ed.2d 313 (1985) (citing Plyler v. Doe, 457 U.S. 202, 216, 102 S.Ct. 2382, 2394, 72 L.Ed.2d 786 (1982)).
If a person challenges a state created classification under the equal protection clause and the classification does not affect "fundamental rights" or use a "suspect classification," a federal court must presume that the classification is valid, and uphold the classification if it is rationally related to a legitimate state interest.[18]City of Cleburne 473 U.S. at 440, 105 S.Ct. at 3254; Plyler v. Doe, 457 U.S. 202, 102 S.Ct. 2382, 72 L.Ed.2d 786 (1982). Rationality review has been described as "lenient." Exxon Corporation v. Eagerton, 462 U.S. 176, 195, 103 S.Ct. 2296, 2308, 76 L.Ed.2d 497 (1983). In conducting this analysis, federal courts must keep in mind that states are accorded wide latitude in regulating their local economies, and they may make rational distinctions or classifications among persons "with less than mathematical exactitude."[19]New Orleans v. Dukes, 427 U.S. 297, 303, 96 S.Ct. 2513, 2516, 49 L.Ed.2d 511 (1976); Vance v. Bradley, 440 U.S. 93, 108, 99 S.Ct. 939, 948, 59 L.Ed.2d 171 (1979); Alamo Rent-A-Car v. Sarasota-Manatee Airport Authority, 825 F.2d 367, 371 (11th Cir.1987), cert. denied, ___ U.S. ___, 108 S.Ct. 1022, 98 L.Ed.2d 987 (1988). See also City of Cleburne, 473 U.S. at 440, 105 S.Ct. at 3254.
1. The Legitimate Governmental Purpose
As to the first prong of the equal protection review, whether or not a particular classification has a legitimate purpose, a court need not discover the actual purpose the legislature had for its actions. See United States Railroad Retirement Board v. Fritz, 449 U.S. 166, 179, 101 S.Ct. 453, 461, 66 L.Ed.2d 368 (1980); see also Silver v. Baggiano, 804 F.2d 1211, 1218-19 (11th Cir.1986); United States v. Middleton, 690 F.2d 820, 822-23 (11th Cir.1982), cert. denied, 460 U.S. 1051, 103 S.Ct. 1497, 75 L.Ed.2d 929 (1983); Equity Group Holdings v. DMG, Inc., 576 F.Supp. 1197, 1205-06 (S.D.Fla.1983) ("The Court infers that the legislature means what it does not say, as well as what it explicitly has set forth in the laws it has passed"); cf. Cleburne, 473 U.S. at 448, 105 S.Ct. at 3258 (finding that special zoning requirement was not supported by "any rational basis").[20] It is enough if the legislation is supported by plausible or hypothesized reasons. Fritz, 449 U.S. at 179, 101 S.Ct. at 461. It is "constitutionally irrelevant whether this reasoning in fact underlay the legislative decision." Id. (quoting Flemming *1499 v. Nestor, 363 U.S. 603, 612, 80 S.Ct. 1367, 1373, 4 L.Ed.2d 1435 (1960)).
A court will, therefore, accept contemporaneous statements of legislative purposes, or, in the absence thereof, rationales constructed after the fact, as the actual purpose of legislative action, unless "an examination of the circumstances forces [the court] to conclude that [the plausible or hypothesized purposes] `could not have been a goal of the legislation.'" Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 463 n. 7, 101 S.Ct. 715, 723 n. 7, 66 L.Ed.2d 659 (1981) (quoting Weinberger v. Wiesenfeld, 420 U.S. 636, 648 n. 16, 95 S.Ct. 1225, 1233 n. 16, 43 L.Ed.2d 514 (1975)) (emphasis added); Hancock Industries v. Schaeffer, 811 F.2d 225, 237 (3d Cir.1987); Christian Science Reading Room Jointly Maintained v. City And County Of San Francisco, 792 F.2d 124, 124 & n. 2 (9th Cir.1986), cert. denied, 479 U.S. 1066, 107 S.Ct. 953, 93 L.Ed.2d 1002 (1987); Stern v. Tarrant County Hospital, 778 F.2d 1052, 1060-61 (5th Cir.1985) (en banc), cert. denied, 476 U.S. 1108, 106 S.Ct. 1957, 90 L.Ed.2d 365 (1986); Shelton v. City Of College Station, 780 F.2d 475, 484 (5th Cir.) (en banc), cert. denied, 477 U.S. 905, 106 S.Ct. 3276, 91 L.Ed.2d 566 (1986) (substantive due process); Scott v. City of Sioux City, Iowa, 736 F.2d 1207, 1216 n.11 (8th Cir.1984). See also Alamo Rent-A-Car, 825 F.2d at 372; E & T Realty v. Strickland, 830 F.2d 1107, 1115-16 (11th Cir.1987), cert. denied, ___ U.S. ___, 108 S.Ct. 1225, 99 L.Ed.2d 425 (1988) (Circuit Judge Kravitch concurring in part and dissenting in part).
A district court may not substitute its own judgment as to the wisdom or utility of legislative purpose for that of local legislatures. See Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 469, 101 S.Ct. 715, 726, 66 L.Ed.2d 659 (1981) (citing Ferguson v. Skrupa, 372 U.S. 726, 729, 83 S.Ct. 1028, 1030, 10 L.Ed.2d 93 (1963)); Alamo Rent-A-Car, 825 F.2d at 370. A district court must instead require those challenging a legislative judgment as to the purpose of its action to "convince the court that the legislative facts on which the classification is apparently based could not reasonably be conceived to be true by the governmental decisionmaker." Vance v. Bradley, 440 U.S. 93, 111, 99 S.Ct. 939, 949, 59 L.Ed.2d 171 (1979) (citing Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78-79, 31 S.Ct. 337, 340-41, 55 L.Ed. 369 (1911)). See also Clover Leaf Creamery Co., 449 U.S. at 464, 101 S.Ct. at 724.
The foregoing standards for equal protection review apply not only to the actual zoning legislation passed by the local legislative bodies, but also to the administrative enforcement of the zoning laws in particular cases. See Stern v. Tarrant County Hospital, 778 F.2d 1052, 1056-58 (5th Cir. 1985) (en banc), cert. denied, 476 U.S. 1108, 106 S.Ct. 1957, 90 L.Ed.2d 365 (1986)[21]; Shelton v. City of College Station, 780 F.2d 475, 479-83 (5th Cir.) (en banc), cert. denied, 477 U.S. 905, 106 S.Ct. 3276, 91 L.Ed.2d 566 (1986) (substantive due process).[22] The United States Supreme Court as well as courts in this circuit have applied the legislative model of equal protection review of specific applications of zoning laws. See, e.g., Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S. 252, 97 S.Ct. 555, 50 L.Ed.2d 450 (1977) (legislative model applied to denial of a zoning change from single family to multiple-family dwelling); South Gwinnett Venture v. Pruitt, 491 F.2d 5, 7 (5th Cir.) *1500 (en banc), cert. denied, 419 U.S. 837, 95 S.Ct. 66, 42 L.Ed.2d 64 (1974) (denial of application for rezoning of building from part commercial, part residential to apartment zone). Accordingly, this Court shall consider the equal protection challenge to the enforcement of Section 6(1)(A)(2) of the 1967 Zoning Ordinance together with the passage of Ordinances 160, 161, and 162.
In equal protection review of local zoning decisions under the rational basis test, this circuit has recognized the legitimacy of various legislative purposes. One panel summarized some of these purposes as follows:
The Supreme Court has recognized the key role that the zoning power can play in maintaining for citizens an acceptable quality of life. Zoning is the local community's most powerful weapon against a wave of commercialism that threatens to permeate not only the major thorough-fares but the quiet residential neighborhoods with their parks, trees, and children at play. Without the power to zone, every person would be at the mercy of the entrepreneur who chose to develop on the next corner. Zoning provides one of the firmest and most basic of the rights of local control.
Stansberry v. Holmes, 613 F.2d at 1288. The governmental purpose of preserving the residential character of a municipality has uniformly been considered legitimate. See, e.g., Grosz v. City Of Miami Beach, Florida, 721 F.2d 729, 738 (11th Cir.1983), cert. denied, 469 U.S. 827, 105 S.Ct. 108, 83 L.Ed.2d 52 (1984).
Plaintiffs conceded at oral argument and in their briefs that the ultimate issue in this case is whether or not Ordinances 160, 161, and 162, passed by Howey's local legislative body, and the enforcement of Section 6(1)(A)(2) by Howey's Mayor and Chairman of the Zoning Commission against Desisto College, have a rational relationship to a legitimate governmental purpose. See Transcript Of Hearing On Motion For Summary Judgment [hereinafter "Tr."], filed November 30, 1988, at 3. At oral argument plaintiffs' counsel stated that it was plaintiffs' position that there was no legitimate governmental purpose served by these ordinances. Tr. at 7. Plaintiffs' counsel stated that the preservation of the residential character of Howey did not constitute a legitimate governmental purpose in this case but was merely a pretext for governmental action that was really as a matter of historical fact motivated by irrational fear and prejudice. Tr. at 10, 16, & 49.[23] Plaintiffs' counsel further stated that even if there were rational reasons and the ordinance were valid on its face, if plaintiff showed improper motive, then the Court would have to find for plaintiffs. Tr. at 5.[24]
At oral argument defendants stated that summary judgment was particularly appropriate in this case because of the vexatious nature of the lawsuit and the devastating effect the lawsuit has already had on a local government and its officials. Tr. at 24 & 31. Defendants stated that the town's ability to provide municipal services like zoning and a police force is threatened by the attorneys' fees from this litigation and the possibility of bankruptcy. Tr. at 24-25. Defendants argued that the existence of the DeSisto High School in Howey since 1980 demonstrates that the government and people of Howey did not have any irrational fears and prejudices against learning disabled students. Tr. at 27 & 32-33. Defendants further stated that they had no objections to the DeSisto College *1501 in Howey. The town even helped Michael DeSisto obtain a license from state agencies. Id.
Defendants voiced their objections, however, when the College began buying residential properties that were not adjacent to the DeSisto High School and converting them into dormitories, classroom, and administration buildings. Tr. at 27-28. Defendants paint the conflict not as a civil rights dispute, but a zoning dispute in which the financial interests of Michael DeSisto and Will Roberts are pitted against the tranquility of the town. Tr. at 27. Defendants state that Michael DeSisto seeks nothing less than to use the civil rights laws to exempt himself from following local Zoning Ordinances. Tr. at 29 & 32. Defendants state that the town properly acted in the interest of protecting the residential character of the town. Tr. at 30 & 37.
Defendants further argue that the two enforcement actions at issue in this case did not deprive the plaintiffs of any property rights. Tr. at 35. Defendants point out that no leases were produced and the unrebutted evidence shows that the lease on the Mansion property was denied for reasons other than the town's enforcement actions. Tr. at 34-35. Defendants further stated that no underlying tort was established in this case because as a matter of law the reasonable interpretation of ordinances cannot be tortious and does not shock the conscience. Tr. at 35. Finally, defendants argue that the challenged ordinances are facially neutral and of general application and, therefore, constitutional. Tr. at 35-37 & 40.[25]
The Court finds that statements by Howey government officials and residents of Howey in affidavits and in open legislative hearings both contemporaneous and subsequent to the enforcement of Section 6(1)(A)(2) of the 1967 Zoning Ordinance against Desisto College and the passage of Ordinances 160, 161, and 162, indicates an articulated purpose for the legislation and the enforcement of the legislation in this case.[26] In particular, the articulated purpose of the legislation and its enforcement is to preserve the residential character of Howey. Defendants have proffered other legitimate government purposes for the legislation and the enforcement actions, however, in light of the Court's disposition of this case, it is unnecessary for the Court to analyze these purposes.[27] It is enough that the defendants had one legitimate governmental purpose for their legislation and their enforcement actions.
Based on the record before the Court, the Court finds that there are no genuine issues of fact that Howey government officials had evidence before them from which they could reasonably find that preservation of the residential character of Howey was the purpose of enforcing Section 6(1)(A)(2) of the 1967 Zoning Ordinance against Desisto College and passing Ordinances 160, 161, and 162. The record shows that there are no genuine issues of fact that the following facts were before the legislators and enforcers of Howey's Zoning Ordinances and that the legislators and enforcers could reasonably conceive those facts to be true: 1) that college students drive automobiles; 2) that DeSisto College would have greater parking requirements than an ordinary residential owner of property; 3) that the movement of DeSisto College students and their automobiles would cause greater noise than would exist without the College being located in residential areas; and 4) that college use is a more intensive use of property than ordinary residential use.
Similarly, the Court finds that there are no genuine issues of fact that preservation *1502 of the residential character of Howey "could have been" the purpose of their enforcing Section 6(1)(A)(2) against Desisto College and passing Ordinances 160, 161, and 162. It is undisputed that government officials and residents articulated this reason contemporaneous to the enforcement of Section 6(1)(A)(2) against DeSisto College and the passage of Ordinances 160, 161, and 162, as well as at the present time. However, even if the government officials did not articulate these reasons, the objective existence of these reasons, either after the passage or enforcement of the legislation, supports their actions. It is unnecessary for this Court to probe the minds of government officials to find their actual subjective motivations. See supra at Section V, C, 1.
Plaintiffs argue that the articulated purpose is not legitimate because it is a pretext for the actual purpose of the legislative action. Plaintiffs argue that the real purpose of defendants' enforcement of Section 6(1)(A)(2) of the 1967 Zoning Ordinance against Desisto College and the passage of Ordinances 160, 161, and 162 as a matter of historical fact, was defendants' irrational fear of and prejudice towards learning disabled students. Plaintiffs argue that evidence in the record creates a genuine issue of material fact about the actual purpose of the legislation and its enforcement in this case.
The Court will assume arguendo that plaintiffs have established that there is a genuine issue of fact concerning the actual purpose of the legislation and its enforcement in this case. Even given this assumption, however, the Court cannot find that such an issue of fact is material under Fed.R.Civ.P. 56.
Although plaintiffs have introduced evidence to indicate that purposes other than the preservation of the residential character of Howey might have motivated certain individuals, such a showing is irrelevant to the inquiry of whether or not preservation of the residential character of a town is a conceivable legitimate purpose for legislation and enforcement of that legislation. A showing that various individuals were motivated by irrational fear and prejudice against learning disabled students does not create an issue of fact as to whether or not "the legislative facts on which the classification is apparently based could not reasonably be conceived to be true by the governmental decisionmaker," Vance v. Bradley, 440 U.S. 93, 111, 99 S.Ct. 939, 949, 59 L.Ed.2d 171 (1979) (citing Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78-79, 31 S.Ct. 337, 340-41, 55 L.Ed. 369 (1911)); Clover Leaf Creamery Co., 449 U.S. at 464, 101 S.Ct. at 724, or that the proffered purpose "`could not have been a goal of the legislation.'" Clover Leaf Creamery Co., 449 U.S. at 463 n.7, 101 S.Ct. at 723 n.7 (quoting Weinberber v. Wiesenfeld, 420 U.S. 636, 648 n.16, 95 S.Ct. 1225, 1233 n.16, 43 L.Ed.2d 514 (1975)) (emphasis added). Absent such a showing, it makes no difference whether or not various individuals had a purpose other than the preservation of the residential character of Howey. So long as the record shows that the legislators and the enforcers of the legislation had evidence before them that can reasonably be conceived to be true and from which they could have discerned the proffered purpose for the their conduct, the Court cannot question the credibility of the persons who articulated or hypothesized that purpose. It is "constitutionally irrelevant whether this reasoning in fact underlay the legislative decision." United States Railroad Retirement Board v. Fritz, 449 U.S. 166, 179, 101 S.Ct. 453, 461, 66 L.Ed.2d 368 (1980) (quoting Flemming v. Nestor, 363 U.S. 603, 612, 80 S.Ct. 1367, 1373, 4 L.Ed.2d 1435 (1960)).[28]
*1503 Plaintiffs rely on City of Cleburne v. Cleburne Living Center, 473 U.S. 432, 439, 105 S.Ct. 3249, 3254, 87 L.Ed.2d 313 (1985) for the proposition that governmental actions based on improper motives such as negative attitudes, fear and prejudice and by means which are pretextual, arbitrary and irrational, violate the equal protection clause as well as the substantive due process clause. See supra notes 23-24 and accompanying text; Plaintiffs' Appendix In Opposition To Defendants' Motion For Summary Judgment, Appendix C. Under Cleburne plaintiffs argue that courts must apply a more searching review than in the typical rational basis test.
This Court disagrees with plaintiffs' reading of Cleburne. The Supreme Court has not expressly created a new "enhanced rational basis" review as suggested by plaintiffs.[29] Although the Supreme Court stated that irrational motivations of government officials do not constitute rational grounds that can support legislation, the Court did not state that such irrational motivations alone would render an ordinance unconstitutional if the ordinance was otherwise supported by legitimate objectives. Cleburne, 473 U.S. at 448, 105 S.Ct. at 3258. Indeed, it appears that the Supreme Court applied its traditional rational basis review when it found that the zoning requirements in Cleburne were not supported by "any rational basis." Id.; see also E & T Realty v. Strickland, 830 F.2d 1107, 1115-16 (11th Cir.1987) (Kravitch, J., concurring in part and dissenting in part). But see Brennan v. Stewart, 834 F.2d 1248, 1258 (5th Cir.1988). This Court will not interpret Cleburne as changing the well-settled law of rational basis review sub silentio.
Even if Cleburne did create a new level of scrutiny, plaintiffs would still be incorrect in their rendition of the applicable legal standard in this case. Even in the case of heightened scrutiny, as is applied to ordinances alleged to discriminate on the basis of race, proof that a municipality was motivated in part by invidious discriminatory purpose would not necessarily require invalidation of the challenged classification. Such proof by plaintiff would serve only to shift the burden of proof to the municipality on the issue of causation of the alleged harm. See Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S. 252, 270 n. 21, 97 S.Ct. 555, 566 n. 21, 50 L.Ed.2d 450 (1977); Mt. Healthy City School Dist. Bd. of Education v. Doyle, 429 U.S. 274, 285-87, 97 S.Ct. 568, 575-76, 50 L.Ed.2d 471 (1977). To satisfy its burden of proof on the issue of causation, a municipality would need to show that it would have reached the same decision even had the impermissible motivation not been considered. See Arlington Heights, 429 U.S. at 270 n. 21, 97 S.Ct. at 566 n. 21; Mt. Healthy City School Dist. Bd. of Education, 429 U.S. at 285-87, 97 S.Ct. at 575-76. It is unnecessary for this Court to analyze this issue at the present time. This Court expressly makes no finding as to whether or not the defendants would have reached the same decision absent some alleged discriminatory motive.[30]
*1504 2. Rational Relationship Between The Legislative Action And The Legitimate Governmental Purpose
After the court identifies a legitimate governmental purpose for the challenged legislative action, the second step of equal protection review requires the court to determine whether or not the legislative action is rationally related to that purpose. If the legislative determination that its action will tend to serve the legitimate purpose "is at least debatable," the challenge to that action must fail even if the court is presented with evidence of the absence of a rational relationship between the legislation and its legitimate purpose. Clover Leaf Creamery Co., 449 U.S. at 464, 101 S.Ct. at 724 (quoting United States v. Carolene Products Co., 304 U.S. 144, 153-54, 58 S.Ct. 778, 784-85, 82 L.Ed. 1234 (1938)); Hancock Industries v. Schaeffer, 811 F.2d 225, 238 (3d Cir.1987). Where there was evidence before the legislature reasonably supporting the classification, a litigant may not procure invalidation of the legislation merely by tendering evidence in court that the legislature was mistaken. Clover Leaf Creamery Co., 449 U.S. at 464, 101 S.Ct. at 724. The Constitution provides such limited judicial review of social and economic legislation because it presumes that unwise decisions will eventually be rectified by democratic processes. Cleburne, 473 U.S. at 440, 105 S.Ct. at 3254.
Plaintiffs' counsel stated at oral argument that it was not even fairly debatable that enforcement of Section 6(1)(A)(2) of the 1967 Zoning Ordinance against Desisto College and the passage of Ordinances 160, 161, and 162 were rationally related to the preservation of the residential character of Howey. Tr. at 14. Plaintiffs' counsel argued that as a factual matter the exclusion of Desisto College could only have been related to the irrational and prejudicial purpose of excluding learning disabled students from Howey and no other purpose. Tr. at 15-16. Plaintiffs' counsel further argued that legislation that permitted elementary schools, high schools, and other more intensive uses but which excluded colleges was not rationally related to preserving the residential character of Howey. Tr. at 8-9. Similarly, plaintiffs in their memoranda stated that the enforcement of the zoning laws against Desisto College, while at the same time failing to enforce the zoning laws against other persons, was not rationally related to preservation of the residential character of Howey. Plaintiffs Appendix In Opposition To Defendants' Motion For Summary Judgment, Appendix E.[31]
The parties do not dispute that the enforcement of Section 6(1)(A)(2) of the 1967 Zoning Ordinance creates a classification between college use and elementary and high school use. The issue before the Court is whether or not there are any issues of fact as to whether or not it is fairly debatable that this classification and the enforcement of this classification against Desisto College is rationally related to the legitimate purpose of preserving the residentially zoned areas of Howey.
The Court finds that there are no genuine issues of fact as to whether or not *1505 colleges are intensive uses of property. DeSisto College contemplates the establishment of classrooms, dormitories, faculty housing, administrative offices, a library, day-care facilities for faculty, a testing lab, a computer center, a visual arts studio, a gymnasium, laboratory space, a dance studio, a student services center, and therapy-related facilities. By virtue of its function and layout, DeSisto College causes greater movement of persons and automobiles than ordinary residential owners of property in Howey. DeSisto College also has greater parking requirements than ordinary residential owners of property in Howey. Parking requirements and the movement of persons in residential areas would grow as the College increased in size to its projected size of 160 students. Such movement of persons and automobiles must by necessity cause greater noise than would otherwise exist in residential areas. Even if DeSisto College did not intend to perform all the functions commonly performed by colleges, it could do so if it were permitted to perform college uses in residential areas of Howey. Accordingly, there are no genuine issues of fact that it was at least fairly debatable that the legislation and its enforcement against Desisto College was rationally related to the purpose of preserving the residential character of Howey.
The Court finds it to be of no consequence that other more intensive uses were permitted to exist in residentially zoned areas or that the zoning authorities failed to properly enforce their own laws against other zoning violators. As long as it is fairly debatable that a classification is rationally related to the legitimate goal, preserving residential areas, government officials are free to attack the perceived evil in a piecemeal fashion. Equal protection does not require that "all evils of the same genus be eradicated or none at all." Railway Express Agency v. New York, 336 U.S. 106, 110, 69 S.Ct. 463, 465, 93 L.Ed. 533 (1949). See also Katzenbach v. Morgan, 384 U.S. 641, 657, 86 S.Ct. 1717, 1727, 16 L.Ed.2d 828 (1966).[32]
Even if the Court had to analyze the town's failure to enforce its Zoning Ordinances against other persons in Howey, the Court would find that there are no genuine issues of fact that these persons are not similarly situated to DeSisto College. The ordinances and the enforcement in this case do not draw classifications among similar land uses based on the handicaps of DeSisto College's students and the absence of such handicaps in others using the land. The challenged classifications in this case are between elementary or high schools and colleges, and between colleges and various other intensive uses permitted in residential areas such as libraries, community centers, and police stations. See Complaint ¶ 142.
The Court finds that there are no genuine issues of fact that a rational lawmaker may determine that colleges are different enough from elementary and high schools in their potential size and function that a municipality may rationally distinguish among them in making zoning decisions. A municipality's ability to distinguish among schools and colleges is not dissipated merely because the college happens to serve learning disabled students.
The Court similarly finds that there are no genuine issues of fact that a rational lawmaker may distinguish among colleges and other intensive uses of property such as libraries, community centers, and police stations. A municipality may properly balance its estimation of the public need for certain facilities against the effect of those facilities on the town's residential character in making zoning decisions. A municipality for example may rationally determine that a police station is *1506 necessary in a residential area in order to support the public safety. A library may rationally be determined to be necessary to serve the community's need for access to books. A community center may serve recreational functions. The municipality may without being irrational or inconsistent with the determinations just mentioned determine that a college in a residential area does not serve similar public functions, and that the ill effect of a college on the town's residential character and tranquility require exclusion of colleges from residential areas. Such classifications fall within the category of social and economic legislation traditionally within the state's police and local zoning powers. It is not for the federal courts to make such decisions for local zoning officials.
D. Substantive Due Process
The due process clause of the fourteenth amendment provides that "[n]o State shall ... deprive any person of life, liberty property, without due process of law." U.S. Const. amend. XIV. The due process clause, in addition to setting procedural minima for deprivations of life, liberty, or property, bars "certain government actions regardless of the fairness of the procedures used to implement them." Daniels v. Williams, 474 U.S. 327, 331, 106 S.Ct. 662, 665, 88 L.Ed.2d 662 (1986). Under the doctrine of substantive due process, various portions of the Bill of Rights have been incorporated into the fourteenth amendment's limits on the power of the states as being "implicit in the concept of ordered liberty." Palko v. Connecticut, 302 U.S. 319, 325, 58 S.Ct. 149, 152, 82 L.Ed. 288 (1937). In addition, under substantive due process courts have invalidated laws or actions of government officials that "shock the conscience." See United States v. Salerno, 481 U.S. 739, 746, 107 S.Ct. 2095, 2101, 95 L.Ed.2d 697, 708 (1987) (quoting, Rochin v. California, 342 U.S. 165, 172, 72 S.Ct. 205, 209, 96 L.Ed. 183 (1952)). Finally, the due process clause requires that states act only through means rationally related to legitimate ends and thus not "arbitrarily." See Regents Of University of Michigan v. Ewing, 474 U.S. 214, 227, 106 S.Ct. 507, 514, 88 L.Ed.2d 523 (1985) (dismissal of student from medical program did not violate due process clause as arbitrary); Exxon Corp. v. Governor Of Maryland, 437 U.S. 117, 124-25, 98 S.Ct. 2207, 2213-14, 57 L.Ed.2d 91 (1978); Williamson v. Lee Optical Of Oklahoma, 348 U.S. 483, 491, 75 S.Ct. 461, 466, 99 L.Ed. 563 (1955). The analysis of substantive due process for rationality is the same as the analysis under equal protection review. See Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 470 n. 12, 101 S.Ct. 715, 727 n. 12, 66 L.Ed.2d 659 (1981); Exxon Corp. v. Governor Of Maryland, 437 U.S. 117, 124-25, 98 S.Ct. 2207, 2213-14, 57 L.Ed.2d 91 (1978); Ferguson v. Skrupa, 372 U.S. 726, 730-33, 83 S.Ct. 1028, 1031-32, 10 L.Ed.2d 93 (1963); Brennan v. Stewart, 834 F.2d 1248, 1257-58 (5th Cir.1988).
Plaintiffs do not argue that defendants' actions shock the conscience or that their right to operate in Howey is implicit in the concept of ordered liberty. Plaintiffs argue that the defendants' actions were not rationality related to the achievement of any legitimate purpose. Based on the Court's analysis of the equal protection claim, the Court shall for the same reasons reject the plaintiffs' substantive due process argument.[33]
Accordingly, it is
ORDERED:
1. That the Motion Of The Plaintiff, Desisto College, Inc. For Partial Summary Judgment, filed May 18, 1988, is denied.
*1507 2. That the Motion Of The Plaintiff, Desisto College, Inc., For Partial Summary Judgment On Count V Of The Fourth Amended Complaint, filed July 22, 1988, is denied.
3. That Defendants' Motion For Summary Judgment, filed on September 22, 1988, is granted.
4. That the Clerk of Court shall enter judgment for the defendants and against the plaintiffs.
DONE AND ORDERED.
NOTES
[1] This case came on to be heard on the Motion Of The Plaintiff, Desisto College, Inc. For Partial Summary Judgment, filed May 18, 1988; the Motion of The Plaintiff, Desisto College, Inc., For Partial Summary Judgment On Count V Of the Fourth Amended Complaint, filed July 22, 1988; and Defendants' Motion For Summary Judgment, filed on September 22, 1988. The parties filed timely responses in opposition to each other's motions. The Court heard oral argument on November 18, 1988.
[2] Complaint ¶ 148. This Court does not address Horner's standing to assert her claims in light of the Court's disposition of the College's claims. The Court will assume, without deciding, that Horner has such standing.
[3] The Court also granted a motion for sanctions against plaintiffs' counsel pursuant to Fed.R. Civ.P. 11 for signing the Second Amended Complaint without having performed a reasonable inquiry into the law of legislative immunity, for heedlessly including individual defendants in the Second Amended Complaint in a "shotgun approach," and for signing the Third Amended Complaint without due regard to the Court's instructions in the November 10, 1987, order. The Court cited various cases demonstrating that had plaintiffs conducted reasonable research, they would have discovered that a member of a town council is absolutely immune from liability based on conduct in furtherance of the member's duties. See Espanola Way Corp v. Meyerson, 690 F.2d 827, 829 (11th Cir.1982), cert. denied, 460 U.S. 1039, 103 S.Ct. 1431, 75 L.Ed.2d 791 (1983); Hernandez v. City of Lafayette, 643 F.2d 1188, 1193 (5th Cir.1981); Universal Amusement Co. Inc. v. Hofheinz, 616 F.2d 202, 205 (5th Cir.1980). The Court has further clarified the broad scope of legislative conduct in the area of zoning legislation and zoning enforcement infra. See infra notes 18-22 and accompanying text.
[4] Deposition testimony shall be cited by reference to the person's name, page of the deposition, and the lines on the page if applicable. If there exists more than one deposition of any person, that will be indicated either by including the date of the deposition after the deponent's name or by including a roman numeral after the deponent's name.
[5] The defendants vigorously dispute this fact because of plaintiffs inability to present a written lease and Marsha Glines's lack of personal knowledge concerning the lease. As with the rest of the facts in the Court's statement of facts, the Court shall assume that for purposes of this motion, and for no other purpose, that the plaintiffs had a lease on this property.
[6] The Court notes that the defendants vigorously dispute plaintiffs' representations concerning what actually happened at this meeting. See Defendant's Statement Of Facts at 3, filed November 28, 1988. In addition, defendants argue that there is no evidence in the record demonstrating that this determination was an advisory opinion as to the interpretation of Section 6(1)(A)(2) of the 1967 Zoning Ordinance with binding prospective application as to any and all college uses in all residential areas of Howey. See Stachowski at 31-44. The Court notes that these factual disputes are not material to the case.
[7] The defendants dispute this fact. Although defendants concede that this was Glines's statement, defendants argue that this was not a licensure requirement and that the plaintiffs knew that it was not. See Deposition of Sandra Knight, at p. 11, ln. 24 to p. 12, ln. 9; p. 62, ln. 4-8; Appendix 21 to Defendant's Motion For Summary Judgment. See also Defendants' Notice Of Objection To Plaintiffs' Proposed Finding Of Fact at 5. The Court finds this factual dispute is not material in light of the Court's disposition of this case.
[8] Although Marsha Glines stated at the September 22, 1986, Zoning Commission meeting that no classes would be held at the Lakeshore Boulevard house, Second Supplemental Affidavit of Marsha Glines ¶ 13, plaintiffs apparently do not dispute the deposition testimony of Murphy and Sykes that classes were in fact held at the house.
[9] Defendants would argue that no reasonable inference could be drawn from Croak's lack of awareness of these facts that his interpretation of the ordinance would have been different had he known these facts. The Court finds that this factual dispute is not material to the case.
[10] The defendants dispute this contention.
[11] Ordinance 160 provides as follows:
ORDINANCE NO. 160
AN ORDINANCE UNDER THE CODE OF ORDINANCES OF THE TOWN OF HOWEY-IN-THE-HILLS, LAKE COUNTY, FLORIDA, REVISING AND CHANGING CERTAIN PARTS OF APPENDIX A-ZONING, SECTION 6, SCHEDULE OF DISTRICT REGULATIONS (p. 953) BY REPEALING SUBSECTIONS (1)(A)(9) OF SECTION 6:
Appendix A-Zoning, Section 6, Schedule of District Regulations is hereby amended by, repealing the following subsections listing permitted used in R-1, R-2, and R-3 Districts, to-wit:
Section 6.
(1)(A)(2) Schools, elementary, high and private, except correctional institutions.
(1)(A)(3) Libraries, community centers, and buildings used exclusively by the federal, state, county or town government for public purposes except penal or mental institutions.
(1)(A)(4) Churches and other places of worship including Sunday School buildings.
(1)(A)(6) Parks, playgrounds and play fields if approved by the town council.
(1)(A)(9) Uses customarily incidental to any of the above uses when carried out in the same dwelling, including also home occupations such as the office of a physician, surgeon, dentist, musician, artist, or any other similar use.
a. Only a nameplate, not to exceed one square foot in area, may be attached to the house.
b. No advertising structure of any character shall be permitted; however, temporary signs, not exceeding eight (8) square feet in area, pertaining to the sale, lease or rental of building or premises may be placed in the buildable areas as defined herein.
The above listed subsections of Section 6, Appendix A-Zoning are repealed in full and henceforth are not permitted uses under Section 6, (1)-Use Regulations-R-1, R-2, R-3.
Ordinance 161 provides as follows:
ORDINANCE NO. 161
AN ORDINANCE UNDER THE CODE OF ORDINANCES OF THE TOWN OF HOWEY-IN-THE-HILLS, LAKE COUNTY, FLORIDA, ESTABLISHING REQUIREMENTS AND CONDITIONS FOR A "PFD" PUBLIC FACILITY DISTRICT.
1. PURPOSE AND INTENT
The purpose of provisions of this ordinance is to allow for the creation and establishment of a "PFD" Public Facility Zoning District under the zoning ordinances of the Town of Howey-in-the-Hills, Florida. The "PFD" Public Facility District is to be used for those areas where special or substantial public interest uses and activities are either necessary and/or desirable.
It is further the intent of these provisions to establish "PFD" Public Facility Districts individually under approved site plans and conditions necessary to promote the general welfare and safety of the citizens, and to secure economic and coordinated land use.
2. PERMITTED USES
The following are the permitted uses in a "PFD" Public Facility District. However, the specific ordinance authorizing the establishment of a "PFD" Public Facility District related to a specific tract of land will condition the land use and operation of the function, to-wit:
a. Airports and heliports.
b. Auditoriums, stadiums, arenas, and expositions.
c. Broadcasting towers and facilities.
d. Buildings, structures, and uses operated or maintained by a body having the power of eminent domain.
e. Bus stations, railroad stations or other mass transit systems.
f. Cemeteries and crematories.
g. Community base residential facilities.
h. Churches and church schools.
i. Church camps, Boys Ranches and Girls Ranches.
j. Day care centers.
k. All educational institutions.
l. Electric power and light generating plants, electric substations, and operational centers.
m. Gas and water metering stations.
n. Hospitals, including emergency treatment centers.
o. Marinas
p. Nursing homes.
q. Parks.
r. Post offices.
s. Libraries.
t. Police and fire facilities.
u. Recreation facilities.
v. Refuse transfer stations.
w. Sanitary landfills.
x. Sewage treatment facilities, regional.
y. Tourist information centers.
z. Water withdrawal operations, regional.
aa. Any other use of a similar type nature when approved by the Town Council.
3. PROCEDURES AND SITE PLAN REQUIREMENTS
In order to establish a "PFD" Public Facility District, application must be made to the Town Council on official forms obtained from the Town Clerk, with a filing fee as required and the application shall be accompanied by a preliminary site plan drawn to an appropriate scale on paper indicating the following:
a. Project name
b. North arrow, date and scale
c. Name, address and telephone number of owner and applicant.
d. Property lines and contiguous streets.
e. Location and dimensions of all existing and proposed structures, indicating their intended use and setback distances from all property lines and centerline of roadways.
f. Existing and proposed means of vehicular ingress and egress to the property.
g. Location of offstreet parking and loading areas, showing the number of spaces and the dimensions of access aisles and driveways.
h. Location of all buffers, screens, walls and fences, indicating their heights and type of material used.
i. Location of all signs, indicating height, lighting and type of material used.
j. Location of sewer and water lines.
k. Location of solid waste containers and screening.
l. The method of handling any traffic problems, both vehicular and pedestrian, created by the proposed use.
The procedures for public notices and public hearings shall be the same as required for any change of zoning within the boundaries of the Town of Howey-in-the-Hills, Florida.
The Director of Planning, or other person designated by the Town Council, shall check compliance with the Comprehensive Development Plan as adopted. The Zoning Commission shall review the application and preliminary site plan, and after public hearing forward its recommendation and vote to the Town Council. If the recommendation is affirmative, the Zoning Commission shall also forward any and all recommended conditions regulating and controlling the particular use affirmed. The regulations and conditions shall include, but are not limited to:
a. The particular use approved.
b. Any and all performance standards, restrictions, condition requirements for the permitted used.
c. Requirements that any transfer of ownership or lease [illegible] or all of the property in question included in the transfer or lease agreement a provision that the purchaser or lessor is aware of the conditions pertaining to the particular "PFD" Public Facility District and agrees to be bound by said conditions of the ordinance authorizing the establishment of the particular "PFD" Public Facility District.
4. LOT SIZE
There is no required lot size, lot width or building heights in the "PFD" Public Facility District, but each shall be determined individually on each specific application depending on the requested land use and its potential intensity.
5. SET BACKS
All buildings and structures shall be set back not less than thirty-five (35) feet from public rights-of-way and fifteen feet from all property lines.
6. SCREENING
When the rcar and/or side of the property zoned "PFD" abuts residentially zoned property or property having a residential use, the property shall, as a condition or requirement of the "PFD" zoning, be required to provide screening along the rear and/or side property line to be of height and of material as determined individually on each application.
This ordinance shall take effect upon its passage according to law.
ATTEST:
______________ _______________________
TOWN CLERK MAYOR
PASSED BY VOTE OF THE COUNCIL AT FIRST READING. DATE:
DECEMBER 1, 1986
PASSED BY VOTE OF THE COUNCIL AT SECOND READING. DATE:
DECEMBER 15, 1986
ORDINANCE NO. 162
AN ORDINANCE UNDER THE CODE OF ORDINANCES OF THE TOWN OF HOWEY-IN-THE-HILLS, LAKE COUNTY, FLORIDA, REVISING AND CHANGING THE DEFINITION OF FAMILY AS SET FORTH IN APPENDIX A-ZONING, SECTION 2. DEFINITIONS.
Appendix A-Zoning, Section 2, Definitions "Family" is hereby amended by repealing the following definition, to-wit:
FAMILY: Any number of individuals, related by blood or marriage living together as a single housekeeping unit, and/or no more than six (6) individuals, not related by blood or marriage shall occupy a single family dwelling.
And is hereby further amended by enacting and adding the following definition, to wit:
FAMILY: Any number of individuals, related by blood or marriage, living together as a single housekeeping unit, or no more than three (3) individuals, not related by blood or marriage living together as a single housekeeping unit.
This ordinance shall take effect upon its passage according to law.
[12] Plaintiffs allege that the denial of the change of use violated their constitutional rights. See Complaint ¶ 162. Plaintiffs have not, however, requested a declaration as to the unconstitutionality of the change of use procedure in any of the prayers of the Fourth Amended Complaint. The Court notes that the denial of a change of use permit would be analyzed in the same manner as the zoning legislation and the enforcement of the zoning legislation.
[13] Defendants dispute this factual finding. The Court will assume the truth of plaintiffs' allegations for purposes of this motion. The Court will, however, pause to note that it does not violate equal protection or due process when the government chooses to solve a small aspect of a larger problem and does not act to solve the larger problem. Furthermore, enforcement of the Zoning Ordinances against parties who are not similarly situated as plaintiffs will not violate either equal protection or due process. See infra notes 31 & 32 and text following note 32.
[14] The Court specifically does not find that the following facts are the actual purposes for the promulgation of Ordinances 160, 161, and 162 and enforcement of the zoning ordinances against DeSisto College of the various government officials. The following facts demonstrate the articulated purposes of the governmental actions of various individuals both before and after the initiation of this lawsuit. The Court finds that there is no genuine issue of fact that these purposes were articulated.
[15] The defendants hotly contest this factual finding and the admissibility of any newspaper articles that plaintiffs have introduced to support it. In fact, the defendants ask the Court to consider other newspaper articles showing that Michael DeSisto is motivated more by profit than serving learning disabled students. The Court will, for the purpose of this motion, assume the truth of plaintiff's allegations. The Court finds, infra at Section V,C,1, that the parties' motivations are not material to this case. The Court finds that rational basis review under the equal protection and due process clauses is an objective one and not a subjective one. Under the objective test of whether or not legislation or enforcement is supported by a rational basis, the motivations of the lawmakers and enforcers are not material to the question whether or not legislation is otherwise supported by a rational basis.
[16] Plaintiffs also seek an injunction against the enforcement of the various zoning ordinances against DeSisto College, an injunction against the town's reversal of its "earlier determination to the effect that college use was permissible in a residential zoning district," an injunction preventing the town from "interfering" with the College's use and occupation of various parcels of land, an order that the Howey-in-the-Hills Zoning Commission and Town Council be placed in receivership, attorneys' fees and costs of suit, and "further relief as may be appropriate." It is unnecessary for the Court to analyze such relief in light of the Court's disposition of the claims for declaratory relief listed in the text.
[17] See supra note 11 for the full text of Ordinance 161.
[18] The cases in this circuit have uniformly applied the rational basis test to equal protection challenges of municipal zoning ordinances and municipal disposition of applications for rezoning of property. See Grant v. Seminole County, Florida, 817 F.2d 731, 736 (11th Cir.1987); Nasser v. City of Homewood, 671 F.2d 432, 441 (11th Cir.1982); Couf v. DeBlaker, 652 F.2d 585, 588-90 (5th Cir. Unit B, 1981), cert. denied, 455 U.S. 921, 102 S.Ct. 1278, 71 L.Ed.2d 462 (1982); Stansberry v. Holmes, 613 F.2d 1285, 1289 (5th Cir.1980); South Gwinnett Venture v. Pruitt, 491 F.2d 5, 6 (5th Cir.), cert. denied, 419 U.S. 837, 95 S.Ct. 66, 42 L.Ed.2d 64 (1974); Higginbotham v. Barrett, 473 F.2d 745, 747 (5th Cir.1973).
[19] In this circuit, the actions of local zoning authorities are considered legislative in character. Grant, 817 F.2d at 736; Couf, 652 F.2d at 588; South Gwinnett Venture, 491 F.2d at 7. Local zoning commissions are, therefore, not required to make findings of fact or state reasons for their actions, and their actions are entitled to the presumption of validity accorded to other state legislation. Couf, 652 F.2d at 588; South Gwinnett Venture, 491 F.2d at 7.
[20] See infra notes 29-30 and accompanying text for a discussion of Cleburne.
[21] "The constitutional test for rationality of a legislative classification, whether the classes be distinguished in the test of the law or in its administration, is whether any rational decisionmaker could have so classified." Stern, 778 F.2d at 1056.
[22] In Shelton v. City of College Station, the Fifth Circuit Court Of Appeals stated the rationale for adopting the legislative model in constitutional challenges to particular applications of zoning laws. The Court stated that any other approach would require zoning officials to place greater emphasis on recording evidence and to increase their knowledge of the record evidence. Such a change would alter the structure of the state-created process for deciding zoning questions, and the role of local zoning officials "would change from that of deciding the best course for the community to adjudicating the rights of contending petitioners." Shelton, 780 F.2d at 480. This Court agrees with the Fifth Circuit Court Of Appeal that such a result is to be avoided.
[23] Plaintiffs' counsel stated that "[t]he question is whether that factually is the right reason, whether the preservation of residential neighborhoods and the defendants' concerns as articulated in their brief about fraternity houses and the like are in fact true reasons." Tr. at 10. See also Plaintiffs' Appendix In Opposition To The Defendants' Motion For Summary Judgment, Appendix C; Plaintiffs' Memorandum In Opposition To Defendants' Motion For Summary Judgment, filed October 11, 1988, at 17 & 24.
[24] The following exchange occurred between plaintiffs' counsel and the Court:
THE COURT: So what you're saying is there could be fifteen reasons, rational reasons, ... for an ordinance. It could be on its face valid, and if there was improper motive, then it would be discriminatory?
MR. MacLEISH: Exactly.
[25] The Court need not address the question whether or not plaintiffs have established any genuine factual issues as to their deprivation of a property interest or the existence of an underlying tort in light of the Court's disposition of the case on other grounds.
[26] See supra section I of the Background Facts.
[27] In particular, defendants state that other purposes for the subject legislation and its enforcement is to protect the public health and safety, to control future growth. See Defendants' Statement Of Facts Responding To The Questions Propounded In The Court's Order Of November 21, 1988, filed November 28, 1988, at 23-37.
[28] The policy against inquiries into the actual motivations of legislators is well established. Indeed, the Supreme Court has recognized that "ever since Fletcher v. Peck, 6 Cranch 87, 130-131, 3 L.Ed. 162 (1810), that judicial inquiries into legislative or executive motivation represents a substantial intrusion into the workings of other branches of government. Placing a decisionmaker on the stand is therefore `usually to be avoided.'" Arlington Heights v. Metropolitan Housing Development Corporation, 429 U.S. 252, 268 n. 18, 97 S.Ct. 555, 565 n. 18, 50 L.Ed.2d 450 (1977) (citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 420, 91 S.Ct. 814, 825, 28 L.Ed.2d 136 (1971)).
[29] Apparently, this enhanced rational basis review is less searching than strict scrutiny, somewhat less searching than intermediate level scrutiny, and somewhat more searching than traditional rational basis scrutiny.
[30] In any event, Cleburne is distinguishable from the instant case. The ordinance at issue in Cleburne both on its face and as applied drew a distinction between group homes for the mentally retarded and other congregate living facilities such as apartment houses, multiple dwellings, boarding and lodging houses, fraternity or sorority houses, dormitories, apartment hotels, hospitals, sanitariums, nursing homes and private clubs. The ordinances and the enforcement in this case do not draw such classifications among similar land uses based on the handicaps of those using the land. The challenged classifications in this case are between high schools and colleges and between colleges and various other intensive uses permitted in residential areas such as libraries, community centers, and police stations. Complaint ¶ 142. The Court finds that colleges are different enough from elementary and high schools in their potential size and function that a municipality may rationally distinguish among them in making zoning decisions. A municipalities' ability to distinguish among schools and colleges is not dissipated merely because the college happens to serve learning disabled students. The Court similarly finds that distinctions between colleges and other intensive uses of property such as libraries, community centers, police stations are also rational. Such classifications fall within the category of social and economic legislation traditionally within the state's police powers and local zoning powers. See infra at Section V, C, 2.
The cases other than Cleburne on which plaintiffs rely are similarly distinguishable in that they all concern local ordinances that both on their faces and as applied make classifications between congregate living facilities that serve persons with various handicaps and similar living facilities that do not. See Sullivan v. City of Pittsburgh, PA., 811 F.2d 171 (3d Cir.1987); J.W. v. City of Tacoma, Wash., 720 F.2d 1126 (9th Cir.1983); Burstyn v. City of Miami Beach, 663 F.Supp. 528 (S.D.Fla.1987).
[31] Plaintiffs have for some reason been reluctant to characterize their equal protection claim as one for selective enforcement. Tr. at 48. The Court finds plaintiffs' reluctance at using the words "selective enforcement" somewhat confusing. This Court interprets Count VI and especially ¶ 142 to allege a claim that the town enforced its ordinances against DeSisto College but not other landowners in the town. Such a claim at least in part sounds like selective enforcement. Whether or not the Court characterizes the equal protection claim as selective enforcement, the Court finds that the parties with whom plaintiffs compare themselves are not similarly situated as a matter of law. See text infra at text following note 32.
[32] In rejecting a constitutional attack on an allegedly underinclusive statute the Supreme Court stated:
[W]e are guided by the familiar principles that a `statute is not invalid under the Constitution because it might have gone farther than it did,' that a legislature need not `strike at all evils at the same time,' and that `reform may take one step at a time, addressing itself to the phase of the problem which seems most acute to the legislative mind.'
Katzenbach v. Morgan, 384 U.S. 641, 657, 86 S.Ct. 1717, 1727, 16 L.Ed.2d 828 (1966).
[33] Just as the foregoing analysis requires summary judgment in favor of the town, it requires summary judgment in favor of the individual defendants. The Court would add, however, that plaintiffs' claims against the individual defendants would fail regardless of the town's liability. Plaintiffs have failed to establish that injunctive relief against the individual defendants in their personal capacities is permitted under § 1983. See Akins v. Board of Governors Of State Colleges & Universities, 840 F.2d 1371, 1377-78 (7th Cir.1988), vacated on other grounds, ___ U.S. ___, 109 S.Ct. 299, 102 L.Ed.2d 319 (1988). Furthermore, if such relief were permitted, there would be a substantial question whether or not the defendants are protected by qualified immunity. The Court need not address these issues. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589162/ | CITY OF ABBEVILLE
v.
RONNIE TRAHAN.
No. KA07-1468.
Court of Appeals of Louisiana, Third Circuit.
January 9, 2008.
MR. BART BELLAIRE, City Prosecutor Counsel for Appellee: City of Abbeville.
MR. PRESTON M. SUMMERS, Counsel for Appellant: Ronnie Trahan.
Court composed of OSWALD A. DECUIR, JIMMIE C. PETERS, and BILLY H. EZELL, Judges.
PETERS, J.
On August 29, 2007, the defendant, Ronnie Trahan, was found guilty of resisting an officer, a violation of La.R.S. 14:108, and playing loud music, a violation of Abbeville City Ordinance 13-23.7. The trial court ordered him to pay a fine of $100.00 plus cost of court for resisting an officer. In the event of default of the payment of the fine, the trial court ordered him to serve three days in jail. The trial court also ordered the defendant to pay a fine of $25.00 plus cost of court for playing loud noise. In default of that payment, the trial court ordered him to serve twenty-four hours in jail.
The defendant filed a motion for appeal on September 5, 2007. The trial court issued an order granting the appeal on September 7, 2007. On November 21, 2007, this court issued a rule to show cause why the appeal should not be dismissed, "as the judgment at issue is not an appealable judgment." In accordance with this court's order, the defendant filed a pleading in which he alleged that La.Code Crim.P. art. 912.1 was inapplicable because he was charged with two crimes for which the cumulative penalty exceeded six months.
The defendant may appeal to the court of appeal from a judgment in a criminal case triable by jury. La. C. Cr. P. art. 912.1(B)(1). Article 1, § 17 of the Louisiana Constitution stipulates that crimes for which the punishment may be confinement for more than six months must be tried by a jury except when, in noncapital cases, the defendant knowingly and intelligently waives his right to a jury trial. See also La. C. Cr. P. arts. 780 and 782. A defendant charged with a misdemeanor in which the punishment, as set forth in the statute defining the offense, may be a fine in excess of $1,000.00 or imprisonment for more than six months, shall be tried by a jury of six jurors. La. C. Cr. P. art. 779(A). In those instances when more than one misdemeanor offense is charged by separate bills of information, but are consolidated for trial, the aggregate possible punishments are determinative of whether the defendant is entitled to a jury trial. State v. Hornung, 620 So.2d 816, 817 (La.1993); State v. Vu, 02-1243 (La.App. 5th Cir.4/8/03), 846 So.2d 67.
State v. Hicks, 41,906, pp. 1-2 (La.App. 2 Cir. 12/20/06), 945 So.2d 959, 960-61.
However, when "two or more misdemeanors are joined in accordance with Article 493 in the same indictment or information, the maximum aggregate penalty that may be imposed for the misdemeanors shall not exceed imprisonment for more than six months or a fine of more than one thousand dollars, or both." La.Code Crim.P. art. 493.1.
In this case, the two misdemeanors were charged in a single citation, thus, limiting the defendant's sentencing exposure pursuant to La.Code Crim.P. art. 493.1. Accordingly, the defendant was not entitled to a jury trial and is, therefore, not entitled to seek review of his convictions by appeal to this court.
Louisiana Revised Statutes 13:1896 provides that:
Review or appeal of a judgment in any criminal case tried under a state statute in city, parish or municipal courts shall be provided in Article 912.1 of the Louisiana Code of Criminal Procedure. Review of a judgment in any other criminal case tried in a city, parish or municipal court shall be by appeal to the district court of the parish in which the court of original jurisdiction is located, except in those cases which are appealable to the Supreme Court under the provisions of the Constitution. These appeals shall be on the law alone.
Pursuant to La.Code Crim.P. art. 912.1 and La.R.S. 13:1896, the defendant may seek review of his conviction for resisting an officer with this court by application for writ of supervisory review. Additionally, the authority to review the defendant's conviction for loud noise, which was a violation of a city ordinance, lies with the 15th Judicial District Court.
We find that the judgment at issue herein is not appealable. Therefore, the appeal in the above-captioned case is hereby dismissed. We grant the defendant permission to file a proper application for supervisory writs regarding his conviction for resisting an officer, in compliance with Uniform RulesCourts of Appeal, Rule 4-3, as we construe the motion for appeal as a notice of intent to seek a supervisory writ.
APPEAL DISMISSED. DEFENDANT-APPELLANT IS PERMITTED TO FILE AN APPLICATION FOR SUPERVISORY WRITS WITHIN THIRTY DAYS FROM THE DATE OF THIS DECISION. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1593119/ | 453 So.2d 215 (1984)
Clinton SHEPHERD, Appellant,
v.
STATE of Florida, Appellee.
No. 83-561.
District Court of Appeal of Florida, Fifth District.
July 26, 1984.
*216 James B. Gibson, Public Defender, and Christopher S. Quarles, Asst. Public Defender, Scott M. Swain, Certified Legal Intern, Daytona Beach, for appellant.
Jim Smith, Atty. Gen., Tallahassee, and Evelyn D. Golden, Asst. Atty. Gen., Daytona Beach, for appellee.
SHARP, Judge.
Shepherd appeals from his convictions for simple battery[1] and resisting a police officer with violence.[2] He presents two issues: whether the trial court violated his constitutional rights by excluding him from the courtroom during his jury trial, and whether the court erred in excluding all evidence relating to Shepherd's possible insanity at the time the charged offenses were committed. We think error occurred on the latter ground and we reverse for a new trial.
Based on psychological reports of two doctors who saw Shepherd in jail that concluded that although he was competent to stand trial, he was extremely hostile and possibly violent, the trial judge had Shepherd bound and cuffed when he appeared in the courtroom during his trial. Shepherd steadfastly demanded that he be furnished a lawyer to represent him and he ignored the public defender who was appointed as his defense counsel. Although the disruptive character of his behavior is not apparent from reading the record, Shepherd repeatedly said he did not want to be present in the courtroom at his trial.
One of a criminal defendant's most basic rights is the right to be present in the courtroom at every stage in the proceedings. Illinois v. Allen, 397 U.S. 337, 90 S.Ct. 1057, 25 L.Ed.2d 353 (1970). This right may be lost if he behaves in a disorderly, disruptive or disrespectful manner in the courtroom. 21 Am.Jur.2d Criminal Law § 700 (1981); Standards for Criminal Justice 6-3.8 (1980). It may also be lost if he voluntarily waives the right to be present. See Taylor v. United States, 414 U.S. 17, 94 S.Ct. 194, 38 L.Ed.2d 174 (1973). In this case Shepherd's behavior does not appear sufficient by itself to have merited his exclusion from the trial, but his repeated requests to leave the courtroom justified the court in allowing him not to be present. We find no error occurred on this ground.
The second ground, exclusion of all argument and testimony regarding Shepherd's possible insanity defense, presents a more difficult problem. See Briseno v. State, 449 So.2d 312 (Fla. 5th DCA 1984); Patterson v. State, 419 So.2d 1120 (Fla. 4th DCA 1982), petition for review denied, 430 So.2d 452 (Fla. 1983). Exclusion of defense evidence may impinge upon a defendant's sixth amendment rights. Chambers v. Mississippi, 410 U.S. 284, 93 S.Ct. 1038, 35 L.Ed.2d 297 (1973); Washington v. Texas, 388 U.S. 14, 87 S.Ct. 1920, 18 L.Ed.2d 1019 (1967). Whether exclusion *217 can be upheld in a case where the state is prejudiced, and the defense willfully delinquent is not clearly settled.[3] However, where no prejudice is found by the court to the state, and the failure on the part of defense counsel is a technical failure to comply with the criminal rules, exclusion is too harsh a sanction. Bradford v. State, 278 So.2d 624 (Fla. 1973); Richardson v. State, 246 So.2d 771 (Fla. 1971).
In this case the defense counsel failed to file a notice of intent to rely upon an insanity defense, pursuant to Florida Rule of Criminal Procedure 3.216. The court granted the state's motion in limine to exclude any testimony of any witness or argument of counsel and any mention of Shepherd's having just broken out of a mental hospital in Tampa. It refused defense counsel's motions for a continuance and to require the state to show prejudice, and further refused to accept a belated filing of the required notice. The court warned defense counsel not to violate this ruling, or be held in contempt.
At the trial the defense established through the police officers who subdued and arrested Shepherd, that at the time of his arrest Shepherd was acting in an extremely bizarre manner. Officer Harrison testified he first saw Shepherd at night on foot in the middle of the road in Ocoee, Florida, causing a disturbance as cars were swerving to miss hitting him. Harrison stopped his patrol car, and tried to get Shepherd to move to the side of the road. Shepherd resisted him and hit him. A fight ensued and Harrison called for a backup car. Officers Wilson and Clinger arrived on the scene, and had to brake suddenly to avoid hitting Shepherd. Wilson testified Shepherd was running down the middle of the road hooting loudly like an owl.
It took the three police officers five minutes to subdue Shepherd and handcuff him. When they got him to the police station, he was quiet, but appeared dazed and lost. He asked for his mother, and said he needed to be locked up again. The police officer was prevented from testifying Shepherd meant he needed to be returned to a mental hospital from which he had just departed. Nor was defense counsel allowed to ask the police officers whether they thought Shepherd was acting in a normal manner. Further, Shepherd's mother was prevented from testifying about her son's lengthy mental problems, numerous institutionalizations and severe psychological disorder. These exclusions were all based on the court's prior ruling on the motion in limine.
Both the state and defense counsel were aware that Shepherd's insanity would be an issue at trial. Defense counsel filed a motion to have Shepherd examined by two experts to determine whether he was competent to stand trial. Both experts concluded that Shepherd was competent, although while in jail Shepherd hit a corrections officer and set fire to a paper plate in his cell. He was also violent and hostile and refused to be examined by any psychiatrist.
Defense counsel also moved the court to appoint an expert to assist the defense in proving Shepherd was insane at the time of the charged offenses. Dr. Tell filed a report with the court in which he said Shepherd could be suffering from a strong paranoid type of disorder of possibly psychotic proportions. He suggested Shepherd be stabilized by treatment and medicated and then reevaluated. He was unable to make such an evaluation at the jail because Shepherd was violent and out of control when he tried to interview him. The court refused defense counsel's motion to evaluate Shepherd further.
At the sentencing hearing, the court said it thought the defendant was "dangerous not only to himself but to others in the community" and that he would need close confinement in prison, and possibly psychiatric *218 treatment. Defense counsel presented a lengthy history from Shepherd's mother of Shepherd's hospitalizations for mental problems and his bizarre behavior. The defense renewed a motion for new trial based on the grounds presented in this appeal, but it was denied.
In this case we think the trial court erred in excluding Shepherd's possible insanity defense by ruling on the state's motion in limine without making an inquiry pursuant to Richardson. See Briseno; Clair v. State, 406 So.2d 109 (Fla. 5th DCA 1981); Dorry v. State, 389 So.2d 1184 (Fla. 4th DCA 1980); cf. Patterson. The error cannot be deemed harmless in any event in this case because it appears lack of prejudice to the state could have been found and further, there was evidence defense could have offered to establish an insanity defense.
Accordingly, the judgment is reversed and the cause remanded for a new trial.
REVERSED AND REMANDED.
COBB, C.J., and DAUKSCH, J., concur.
NOTES
[1] § 784.03, Fla. Stat. (1983).
[2] § 843.01, Fla. Stat. (1983).
[3] See Westen, The Compulsory Process Clause, 73 Mich.L.Rev. 71 (1974); Note, The Preclusion Sanction a Violation of the Constitutional Right to Present a Defense, 81 Yale L.J. 1342 (1972); see also United States ex rel. Veal v. DeRobertis, 693 F.2d 642 (7th Cir.1982); Alicea v. Gagnon, 675 F.2d 913 (7th Cir.1982); United States v. Davis, 639 F.2d 239 (5th Cir.1981). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589191/ | 14 So.3d 731 (2009)
SHIPP
v.
THOMAS.
No. 2008-CT-00463-COA.
Supreme Court of Mississippi.
July 30, 2009.
Petition for writ of certiorari. Denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589899/ | 783 N.W.2d 675 (2010)
2010 WI App 69
STATE of Wisconsin, Plaintiff-Appellant,[]
v.
Kyle Lee HUGGETT, Defendant-Respondent.
No. 2009AP1684-CR.
Court of Appeals of Wisconsin.
Submitted on Briefs January 27, 2010.
Opinion Filed April 6, 2010.
*676 On behalf of the plaintiff-appellant, the cause was submitted on the briefs of J.B. Van Hollen, attorney general, and James M. Freimuth, assistant attorney general.
On behalf of the defendant-respondent, the cause was submitted on the brief of Craig Mastantuono and Rebecca M. Coffee of Mastantuono Law Office, S.C., Milwaukee.
Before HOOVER, P.J., PETERSON and BRUNNER, JJ.
HOOVER, P.J.
¶ 1 The State appeals an order dismissing, with prejudice, a single charge of second-degree intentional homicide. The circuit court dismissed the case due to the State's failure to preserve apparently exculpatory evidence consisting of threatening voicemail messages left on two cell phones. Kyle Huggett claimed he acted in perfect self-defense and defense of others. The lost voicemail messages were from the victim, who broke into Huggett's home. The State argues: (1) we incorrectly decided the leading evidence preservation case, State v. Greenwold, 189 Wis.2d 59, 525 N.W.2d 294 (Ct.App.1994) (Greenwold II); (2) Huggett is not entitled to any remedy because the voicemail messages were not in the State's exclusive control and comparable evidence was available; and (3) the circuit court erroneously exercised its discretion by dismissing the case rather than ordering a less severe remedy. We reject the State's arguments and affirm.
*677 BACKGROUND
¶ 2 Huggett and his pregnant girlfriend, Amy Kerbel, resided together, along with Kerbel's five-year-old son. John Peach, Kerbel's former boyfriend and father of her son, left voicemail and text messages on Huggett's and Kerbel's respective cell phones on January 20, 2008. Peach had also sent text messages in the week preceding that date. All of the voicemail and text messages were reportedly threatening. After receiving the voicemails on the twentieth, Kerbel and Huggett listened to the other's message, and planned that if Peach came to the residence, Kerbel would retreat to a bedroom with her son and call 911.
¶ 3 Later that night, around 10:00 p.m., Peach arrived at the home. Huggett stated he also saw a second person outside the home.[1] Kerbel went to the bedroom and called 911. Meanwhile, Huggett retrieved and loaded a handgun. Peach broke down the locked entry door and entered the home. Huggett stated he fired two shots as Peach was advancing toward him, and Peach then ran back out the door. Huggett thought Peach left because he saw a truck driving away. However, he was later found in the yard dead with two gunshot wounds to the chest.
¶ 4 Sheriff's Deputy Joanna Bartosh was the first officer to arrive at the scene. She immediately asked Huggett what happened. Huggett replied, "He broke into myor I shot him. He broke into my house. I thought he was going to kill me." Bartosh arrested Huggett and seized his cell phone. She then spoke with Kerbel, who told Bartosh about the threatening text and voicemail messages. Bartosh listened to Kerbel's voicemail and immediately realized the message had evidentiary value and, with Kerbel's permission, took the cell phone and voicemail pass code. Bartosh also viewed some of the text messages at that time and began copying them down. She noted the following two messages: "I will b there when the games over im in crazy mode now fuck u its go n down bitch" and "Fu bitch hes fucked 2 nite things will get real[.]"
¶ 5 Deputy Julie Mead subsequently interviewed Kerbel at the scene. Kerbel also told Mead that Peach sent threatening text and voice messages prior to coming to the home, and that they were available on Kerbel's phone. Mead retrieved the phone and transported it to the sheriff's department as evidence.
¶ 6 During the early morning hours of January 21, detective Tracy Finch interviewed Huggett at the sheriff's department. Huggett waived his rights and answered Finch's questions, and was described as cooperative. He also claimed he acted in self-defense and mentioned the text and voicemail messages on both phones. When asked later in the interview about the content of the messages, Huggett responded by asking whether Finch had already heard them. When Finch replied she had not, Huggett explained Peach was screaming in the voicemail messages, and that all of the messages, including texts, were threats to harm Huggett. Finch did not request consent to search Huggett's phone. On January 23, Kerbel was interviewed again, this time by Finch. Kerbel reiterated that it would be okay to look at her phone.
¶ 7 The sheriff's department later sought a document subpoena for "the contents of the ... cell phones, particularly *678 any text messages stored thereon ...."[2] On January 30, the department served the subpoena on Alltel,[3] requesting "Billing statements, account records, internet usage, T-Zone usage, IM usage, text messages, or any other records in any form...." Alltel promptly[4] responded by fax, indicating, "There is no text message data available for the time period requested. All other information has been provided." Alltel's response did not include any voicemail recordings.
¶ 8 Eventually, on March 11, 2008, the sheriff's department sought and obtained a search warrant for the phones to recover "text messages, call logs/records, and any other records in any form ...." Deputy Mead was able to recover threatening text messages from the day of the incident. However, she could not retrieve Kerbel's voicemail and did not attempt to recover any voicemail from Huggett's phone. In fact, Mead testified she never attempted to retrieve any messages from Huggett's phone, was never asked to, and was unaware of any such message until she viewed a memo from defense counsel in mid-February 2009.
¶ 9 Huggett was charged on May 13, 2008. On June 3, Huggett's counsel requested that the district attorney preserve all messages and recordings on the cell phones. Following the preliminary hearing on July 16, Huggett's counsel filed a formal discovery demand, which specifically included the phone messages. After further requests, on February 25, 2009, the State informed Huggett it had not preserved the voicemails and could no longer access them.
¶ 10 Huggett moved to dismiss the case the next day, and an evidentiary hearing was held the following day. Subsequently, the parties submitted further briefs, the state crime lab confirmed no messages could be recovered from the phones, and Huggett obtained, via subpoena, a letter from Alltel explaining that voicemail messages are only saved for about seven days. On May 29, the circuit court issued a written decision dismissing the case with prejudice. The State appeals.
DISCUSSION
¶ 11 The State first argues we incorrectly decided Greenwold II, which sets forth two different due process tests depending on whether lost evidence is apparently exculpatory or merely potentially exculpatory. There, we held: "A defendant's due process rights are violated if the police: (1) failed to preserve the evidence that is apparently exculpatory; or (2) acted in bad faith by failing to preserve evidence which is potentially exculpatory." See Greenwold II, 189 Wis.2d at 67-68, 525 N.W.2d 294 (citing Arizona v. Youngblood, 488 U.S. 51, 57-58, 109 S.Ct. 333, 102 L.Ed.2d 281 (1988)); State v. Greenwold, 181 Wis.2d 881, 885-86, 512 N.W.2d 237 (Ct. *679 App.1994) (Greenwold I).[5] We explained:
[T]he Youngblood analysis suggests that if the materiality of the evidence rises above being potentially useful to clearly exculpatory, a bad faith analysis need not be evoked; the defendant's due process rights are violated because of the apparently exculpatory nature of the evidence not preserved.
Greenwold II, 189 Wis.2d at 68, 525 N.W.2d 294.
¶ 12 The State contends we misinterpreted Youngblood, and that, instead, bad faith must be shown in all cases, regardless whether the evidence is potentially or apparently exculpatory. We reject the State's argument for two independent reasons.
¶ 13 First, as the State acknowledges, we are bound by our precedent set forth in Greenwold I and Greenwold II. See Cook v. Cook, 208 Wis.2d 166, 189-90, 560 N.W.2d 246 (1997) (court of appeals may not overrule, modify, or withdraw language from a prior published opinion). Nonetheless, the State indicates it presents the argument to preserve it for review by the supreme court, and also asks us to signal our disfavor with the Greenwold analysis. We decline that invitation; rather, we reaffirm the Greenwold I and Greenwold II decisions and state our belief those cases properly set forth the due process test for cases involving the State's failure to preserve evidence. We do not find the State's argument to the contrary persuasive.
¶ 14 Second, we conclude the State forfeited its argument by applying the Greenwold II analysis in the circuit court and not challenging its application.[6]See State v. Huebner, 2000 WI 59, ¶¶ 10-12, 235 Wis.2d 486, 611 N.W.2d 727. Indeed, at the hearing on Huggett's motion to dismiss, the State represented:
I will tell you what is not going to be a point of contention. I'm not going to sit here as an officer of the court, as district attorney, and an advocate for justice and tell the Court that this evidence is not exculpatory or apparently exculpatory. Of course what that does in the Youngblood line of cases is render the issue of good faith irrelevant here, at least to that extent.
In its reply brief, the State concedes it forfeited the argument, but asks us to exercise our discretion to nonetheless address the issue and certify it to the supreme court. Again, we decline.
¶ 15 The State next argues there was no due process violation because the voicemail messages were not in the State's exclusive control and because there was comparable evidence available. Concerning exclusive control, the State emphasizes Huggett and Kerbel could have listened to and tape-recorded their cell phone voicemail messages by calling in from another telephone. At the motion hearing, Huggett acknowledged the ability to access his voicemail from another phone, but testified it was not something he routinely did. When asked why he did not do so after his release from jail, Huggett stated, "Because they had my phone, it didn't occur to me." Kerbel twice testified she could not access *680 her messages remotely but, when asked a third time in a different manner, responded "I'm notyeah, I think you actually might be able to." She stated, however, she had never done that.
¶ 16 We first observe the State does not cite any cases setting forth an "exclusive possession" requirement as an element of the due process test when apparently exculpatory evidence is not preserved. Rather, the State cites State v. Sarinske, 91 Wis.2d 14, 36, 280 N.W.2d 725 (1979), which is a duty to disclose case involving the Brady rule. See Brady v. Maryland, 373 U.S. 83, 87, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963). The State also quotes United States v. Sepulveda, 15 F.3d 1161, 1195 (1st Cir.1993). That case, however, involved merely potentially exculpatory evidence and, furthermore, does not mention an exclusive possession requirement. The State provides no argument that either case should be extended to the present context.
¶ 17 This is a rather unusual case in that, while the physical evidence was solely within the State's possession, the concomitant electronic evidence was stored elsewhere and could have been accessed by both the State and the defense. Given the facts of this case, however, it was reasonable for Huggett to expect that the State would preserve the voicemail recordings. The sheriff's department was immediately aware of the apparently exculpatory value of the evidence and confiscated the cell phones as part of its investigation. It knew, or should have known, that the voice recordings would be automatically deleted by the cell phone provider at some point in timethis is common knowledge. Additionally, the department was in a better position to preserve the evidence given its collective investigatory experience and access to necessary technical equipment.
¶ 18 By creating an expectation of preservation, the State became responsible for ensuring that it occurred. Huggett was not charged with any crime until nearly four months after the incidentlong after the apparently exculpatory evidence had been destroyed. It would be fundamentally unfair for the State to induce reliance and then place the responsibility on Huggett for failing to seek and preserve the evidence prior to ever being charged.
¶ 19 Additionally, we rejected an exclusive possession argument in State v. Hahn, 132 Wis.2d 351, 392 N.W.2d 464 (Ct.App. 1986), which has some similarities with this case. There too, the apparently exculpatory evidence was destroyed while in the possession of a third party, a private garage. We stated:
Defendant's truck had an apparent exculpatory value which the state recognized, evidenced by its impoundment of the vehicle.
[W]hen the sheriff's department told defendant that his truck had been impounded, he had no reason to believe that any action he might take regarding the vehicle, such as signing its title, would affect the impoundment. While defendant's act of signing the truck's title may have initiated a chain of events which resulted in the destruction of his truck, defendant's action has no relationship to the state's duty to preserve evidence.
Id. at 360, 392 N.W.2d 464.[7] Without explicitly accepting or rejecting an exclusive *681 possession requirement, we merely "conclude[d] that the state had possession of the vehicle." Id. at 358, 392 N.W.2d 464. We then applied the then-current due process test. Id.
¶ 20 In a minimally developed related argument, the State stresses the lack of state action in destroying the evidence, citing three nonbinding cases. The State argues it should not be held responsible for Alltel's destruction of the voicemail messages. It is irrelevant, however, whether the State affirmatively destroyed evidence or passively allowed it to be destroyed. See id. at 357-60, 392 N.W.2d 464; Greenwold II, 189 Wis.2d at 67, 525 N.W.2d 294 (referring to "evidence not preserved, lost, or destroyed by the State"). In either event, the State failed in its duty to preserve evidence. Here, the State made no attempt to record the messages, much less listen to and contemporaneously document their content, until over two and one-half months after the incident. Even then, no attempt was made to access Huggett's voicemail messages.
¶ 21 We next address the State's argument that comparable evidence was available to Huggett. In order to rise to the level of a due process violation, the lost evidence "must ... be of such a nature that the defendant would be unable to obtain comparable evidence by other reasonably available means." Greenwold II, 189 Wis.2d at 67, 525 N.W.2d 294 (quoting California v. Trombetta, 467 U.S. 479, 489, 104 S.Ct. 2528, 81 L.Ed.2d 413 (1984)). "In Trombetta, the Court focused its analysis on the defendant's right to fundamental fairness by giving the defendant a chance to present a complete defense." Id. (citing Trombetta, 467 U.S. at 485, 104 S.Ct. 2528).
¶ 22 The State argues Huggett had access to comparable evidence through witness testimony and the preserved text messages. We reject this contention. Although Huggett and Kerbel both recalled generally that Peach's messages were threatening, neither could sufficiently recall the precise language used. Kerbel was unable to recall any of the words used in either message, and did not listen to the entire message left on Huggett's phone. Huggett only remembered some of the language, consisting of two phrases. Deputy Bartosh listened only to the message on Kerbel's phone, and only part of it. She could only recall that she came away with the perception that the message should be preserved.
¶ 23 Furthermore, mere descriptions of the messages could not adequately convey Peach's tone, which was described as "angry and yelling," and "a lot of yelling, and screaming, and very threatening tone." Simply put, there is no replacement for a live recording of the threats screamed at Huggett shortly before Peach broke down the door to Huggett's home. The messages would be central to the jury's application of the self-defense and defense of others standard, which requires that Huggett subjectively believed it was necessary to use deadly force against Peach to prevent imminent death or great bodily harm to himself or the home's other occupants, and that his belief was objectively reasonable under the circumstances. See WIS. STAT. § 939.48(1) (2007-08).[8]
*682 ¶ 24 Similarly, the text messages, by their very nature, could not convey Peach's tone. Further, they likely would not carry the same weight as a "live" threat. It is one thing to type a nasty text message or email and press send; it is quite another to call a person to convey threats directly.
¶ 25 Finally, we address, and reject, the State's challenge to the circuit court's choice of dismissal as the remedy. Quoting Hahn, the State acknowledges that "[w]hen the government has destroyed [or lost] criminal evidence, the imposition of a sanction is within the court's discretion." Hahn, 132 Wis.2d at 361, 392 N.W.2d 464. There, we cited federal cases "which held that the determination of the sanction depends on a balancing of the quality of the government's conduct and the degree of prejudice to the accused." Id. at 362, 392 N.W.2d 464. Hahn, however, preceded Greenwold I and II, which established the government's good or bad faith as irrelevant to whether a due process violation occurred in cases involving apparently exculpatory evidence. Thus, it is unclear whether the balancing test referenced in Hahn remains viable.[9] We need not, however, resolve that issue here.
¶ 26 The State argues, "While dismissal may be proper where the State has acted in bad faith in failing to preserve exculpatory evidence (at least `apparently exculpatory' evidence), dismissal should not be an automatic remedy in cases" not involving bad faith.[10] The State argues a better remedy here would have been to instruct the jury to accept the truthfulness and characterizations of Peach's alleged voicemail threats. The State complains dismissal is an unfairly harsh sanction because the State did not act in bad faith, Huggett can present other evidence of Peach's threats, and the messages "add little to resolving the disputed issue of whether Huggett's subjective profession of self-defense was objectively reasonable." We disagree with the State's third proffered reason. The tone and content of the voice messages would be highly relevant to both the subjective and objective components of the self-defense standard.
¶ 27 Further, contrary to the State's suggestion, the circuit court did not select dismissal as the automatic remedy. Rather, at the motion hearing the court recognized dismissal was "the most Draconian sanction possible," and indicated it was hesitant to grant it. The court repeatedly referred to dismissal as an "extraordinary remedy" and commented that, under Hahn, it was "a discretionary call for the Court." Only after ordering further briefing by the parties did the court decide dismissal was the proper remedy. The court's written decision addresses the State's and Huggett's conduct vis-à-vis the loss of evidence, the import of the evidence, and the effect on Huggett's ability to present a complete defense, indicating, in part:
This Court believes that any trier of fact, in order to comport with the due process clause, would need to listen to at least one, and, even better, both voice mail messages in order to determine whether or not Huggett's actions were a *683 reasonable or an unreasonable exercise of the privilege of self-defense.
. . . .
Because what may well be characterized as the most important pieces of exculpatory evidence were not preserved by law enforcement officers, Mr. Huggett's due process rights have been denied.
This evidence simply cannot be adequately reconstructed by any other means, and the only sanction left to this Court is dismissal ....
¶ 28 As in Hahn, we cannot conclude the court committed an erroneous exercise of discretion. "To find an [erroneous exercise] of discretion an appellate court must find either that discretion was not exercised or that there was no reasonable basis for the trial court's decision." Wisconsin Pub. Serv. Corp. v. Krist, 104 Wis.2d 381, 395, 311 N.W.2d 624 (1981). Because the circuit court demonstrated a reasonable basis for its conclusion, we accept its choice of sanction. See Hahn, 132 Wis.2d at 363, 392 N.W.2d 464.
Order affirmed.
NOTES
[] Petition for review filed.
[1] According to an affidavit in support of a document subpoena, further investigation revealed that two other men accompanied Peach to the home.
[2] Further, after noting the reported threatening text messages in the week preceding the incident, the sheriff's department's affidavit in support of the document subpoena stated:
Kerb[e]l further informed Deputy Bartosh that additional cell phone communication had been going on between the parties earlier [that day], consisting of both text and voice mail messages. Kerb[e]l displayed the text messages and played the voicemail messages for the officer. She then agreed to surrender the phone to the officer as evidence for the investigation and also provided Deputy Bartosh with the pass code to access the contents of the cell phone.
[3] Alltel was both Huggett's and Kerbel's cell phone service provider, but they had separate accounts.
[4] Alltel dated the fax cover sheet February 1, but the data transmission printout on that document indicates February 4.
[5] In Greenwold I, we held, "[U]nless the evidence was apparently exculpatory, or unless the officers acted in bad faith, no due process violation resulted." State v. Greenwold, 181 Wis.2d 881, 885, 512 N.W.2d 237 (Ct.App. 1994). Concluding the evidence in that case was only potentially exculpatory, we then remanded for the circuit court to conduct a bad faith analysis. Id. at 885-86, 512 N.W.2d 237.
[6] We also note it was the State that successfully appealed in both Greenwold cases, leading to the current test adopted in those cases.
[7] While State v. Hahn, 132 Wis.2d 351, 360, 392 N.W.2d 464 (Ct.App.1986), referred to the evidence's "apparent exculpatory value," that case was decided prior to Arizona v. Youngblood, 488 U.S. 51, 109 S.Ct. 333, 102 L.Ed.2d 281 (1988), and Greenwold I, which discussed Hahn. Thus, we recognize Hahn was not necessarily distinguishing between potentially and apparently exculpatory evidence as those terms are utilized in the subsequent cases.
[8] See also WIS JICRIMINAL 1052, at 3-4 (May 2006) ("The reasonableness of the defendant's belief must be determined from the standpoint of the defendant at the time of [his] acts.... The standard is what a person of ordinary intelligence and prudence would have believed in the position of the defendant under the circumstances existing at the time of the alleged offense.").
[9] The Greenwold decisions, which involved potentially exculpatory evidence, did not address the remedy issue because it was determined there was no due process violation. We are aware of no published evidence destruction cases in Wisconsin decided subsequent to Greenwold II.
[10] We note this argument appears premised on the State's view that Greenwold II was wrongly decided. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1593096/ | 19 So.3d 1045 (2009)
Henry BATTLE, Appellant,
v.
STATE of Florida, Appellee.
No. 4D07-2890.
District Court of Appeal of Florida, Fourth District.
September 30, 2009.
*1046 Carey Haughwout, Public Defender, and Ellen Griffin, Assistant Public Defender, West Palm Beach, for appellant.
Bill McCollum, Attorney General, Tallahassee, and Mitchell A. Egber, Assistant Attorney General, West Palm Beach, for appellee.
POLEN, J.
Appellant, Henry Battle, timely appeals his conviction and sentence. This court has jurisdiction. Fla. R.App. P. 9.140(b)(1)(A).
Battle was charged by information with burglary of a dwelling, theft and battery on a law enforcement officer. A detective and investigating officers, as well as two witnesses, testified at the jury trial in April 2007. The detective testified that he had observed Battle running along a sidewalk with socks on his hands, ducking and hiding between parked cars. This detective and the officer accompanying him found Battle's behavior highly suspicious. The detective followed Battle in the marked police unit while the officer exited the car and chased Battle. After some physical struggle, the officer was able to tackle Battle to the ground and handcuff him.
Battle told the detective and the officer that his name was Larry Jones. They thus wrote the name "Larry Jones" on the evidence bag containing the socks Battle wore on his hands.
As the detective and the officer detained Battle, four Hispanic men ran toward them. The detective discovered, after speaking with the men, that someone took money from their home. A search of Battle's person revealed he carried the exact amount and denomination of money that the witnesses claimed was missing.
Because the Hispanic men did not speak more than broken English, a Spanish-speaking officer was called to the scene to help the witnesses make an identification of Battle. The witnesses identified Battle as the intruder that they saw inside their home minutes before their conversation with the police. At the time of trial, two of the witnesses had returned to Mexico.
At trial, the detective and one of the officers testified that the unavailable witnesses had told them the exact amount and denomination of money the intruder stole. In addition, on redirect examination, the prosecutor asked the detective how sure he was that Battle committed the burglary. After reciting the evidence collected, the detective answered, "Definitely, one hundred percent, [Battle] is the guy that committed the burglary."
At the conclusion of the trial, Battle was convicted of burglary of a dwelling, theft and simple battery, a lesser included offense of battery on a law enforcement officer. The trial court sentenced Battle to thirty-years imprisonment on the burglary count and time served on the theft and simple battery counts.
Battle first argues on appeal that any testimony by law enforcement officials regarding the claims made by the two unavailable witnesses is inadmissible hearsay and a violation of the Confrontation Clause. Battle emphasizes that the detective and the officer were permitted to testify that the unavailable witnesses had told them the precise amount of money they were missing, as well as the exact denomination. *1047 This hearsay testimony was the foundation of the State's identification case.
We agree that the trial court abused its discretion in admitting testimony regarding the out-of-court statements of the unavailable witnesses. We reverse as to the admission of evidence regarding the statements of these declarants. Though a trial court has wide discretion concerning the admission of evidence, the court's discretion is limited by the rules of evidence. E.g., McDuffie v. State, 970 So.2d 312, 326 (Fla.2007). The hearsay evidence was inadmissible. The State should have taken steps to preserve the testimony of these two men before they returned to Mexico.
Battle also argues that because he was unable to cross-examine these witnesses, the admission of their statements violated the Confrontation Clause. E.g., Davis v. Washington, 547 U.S. 813, 822, 126 S.Ct. 2266, 165 L.Ed.2d 224 (2006); Crawford v. Washington, 541 U.S. 36, 50-53, 124 S.Ct. 1354, 158 L.E.2d 177 (2004) (holding admission of "testimonial" statements by unavailable declarants a defendant has not had the opportunity to cross-examine violates the Confrontation Clause of the Sixth Amendment). Here, the witnesses' statements were made between fifteen and twenty minutes after the burglary while Battle was in police custody, and so were not solicited by the police in attempts to respond to an ongoing emergency. See Davis, 547 U.S. at 822, 126 S.Ct. 2266 ("[Statements] are testimonial when the circumstances objectively indicate that there is no ... ongoing emergency, and that the primary purpose of the interrogation is to establish or prove past events potentially relevant to later criminal prosecution."); Crawford, 541 U.S. at 50-53, 124 S.Ct. 1354. The admission of these testimonial statements violated Battle's constitutional rights.
Secondly, Battle argues that evidence regarding his alias is inadmissible as other crimes evidence offered only to show his bad character or propensity to commit crimes. See § 90.404(2)(a), Fla. Stat. (2007). Specifically, Battle challenges the State's reference to the false name Larry Jones that Battle provided to the police upon his arrest. The detective and officer wrote Larry Jones on the evidence bag containing the socks that Battle wore on his hands. Evidence of prior crimes or bad acts is admissible to prove facts other then character or propensity, such as identity. Id. Here, the trial court's admission of testimony regarding Battle's alias was not in error. The State had to explain to the jury why a name other than Henry Battle was on the evidence bag. The information regarding Battle's alias was integral to the facts of the arrest and explained what would otherwise be inexplicable. Thus, the false name testimony was not inadmissible evidence of a collateral crime or bad act, but intertwined with the present case.
Battle thirdly objects to admission of the detective's opinion testimony. During the trial, the detective testified that "[d]efinitely, one hundred percent, [Battle] is the guy that committed the burglary." Battle argues that this statement was improper opinion testimony, which tainted the jury and requires reversal.
Generally, "a witness's opinion as to the guilt or innocence of the accused is not admissible." E.g., Martinez v. State, 761 So.2d 1074, 1079 (Fla.2000). Florida statutory law excludes such opinion testimony, regardless of its relevance, "on the grounds that its probative value is substantially outweighed by unfair prejudice to the defendant." Id.; see § 90.403, Fla. Stat. (2007). The danger of prejudice increases *1048 when an investigating officer is permitted to offer an opinion as to the defendant's guilt. Martinez, 761 So.2d at 1080. "In this situation, an opinion about the ultimate issue of guilt could convey the impression that evidence not presented to the jury, but known to the investigating officer, supports the charges against the defendant." Id.
Though the issue is not preserved for appeal, if defense counsel properly had objected to the detective's opinion, it would have been excluded as an impermissible opinion on Battle's guilt. The detective's opinion as to the guilt of the defendant impinged on the jury's determination. Trial courts should be stricter in cautioning counsel against soliciting such opinions and law enforcement officials about making such statements. As this case will be remanded for a new trial, such testimony should not be allowed.
Lastly, Battle concedes that the alleged impropriety of remarks made during the State's closing arguments was not preserved for appellate review. We thus affirm without further discussion.
In summary, we reverse and remand for a new trial based upon Battle's first argument, and affirm as to his second, third and fourth arguments on appeal.
Affirmed in part, reversed and remanded in part.
WARNER and TAYLOR, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589244/ | 972 So.2d 839 (2007)
Harold A. BLAKE, Appellant,
v.
STATE of Florida, Appellee.
No. SC05-1302.
Supreme Court of Florida.
December 13, 2007.
*840 Robert A. Norgard and Andre M. Norgard of Norgard and Norgard, Bartow, FL, for Appellant.
Bill McCollum, Attorney General, Tallahassee, Florida, and Katherine V. Blanco, Assistant Attorney General, Tampa, FL, for Appellee.
PER CURIAM.
Harold Blake appeals his convictions of first-degree murder, attempted armed robbery, and grand theft of a motor vehicle, as well as his sentence of death. He raises three issues: (A) that the trial court erred in denying the motion to suppress his recorded statement; (B) that the trial court erred in failing to advise him of his right to self-representation; and (C) that his death sentence is not proportionate. As explained below, we affirm.
I. FACTS AND PROCEDURAL HISTORY
On the morning of August 12, 2002, Maheshkumar "Mike" Patel was shot and killed as he stood inside the glass doors of a convenience store, called Del's Go Mart, that he owned and operated in Winter *841 Haven, Florida. The store's video surveillance camera partially captured the shooting. The cause of death was a gunshot wound to the chest.
Witnesses testified that on August 12, 2002, at about 6 a.m., they heard a gunshot and saw a black male run and enter a light-colored car parked in front of the store. A detective found the car abandoned a little over a mile away. A K-9 tracked a scent from the car to a building in the Lake Deer Apartments. At the time, Teresa Jones was living in that complex with her children and her boyfriend, Richard Green.[1]
At about 7:00 or 7:10 that morning, Richard Green, Kevin Key, and Blake came to Teresa's home. She took Key to a store and Blake to the Scottish Inn, where he was staying. On the way, they stopped by a light-colored car on the side of the road, and Blake removed two guns from it. Blake told Teresa he had shot someone. Blake took the guns with him. Later the same day, Blake told Demetrius Jones that he, Green, and Key were attempting a robbery and someone was shot. Blake asked Demetrius to dispose of a gun, and Demetrius agreed to attempt to sell it. However, Blake did not give Demetrius the gun. At around 6 or 7 p.m. that night, Green gave Demetrius a 9 mm handgun and they attempted to sell it, but no one bought it. Later that night or early the next morning, Green threw the gun in a nearby lake.
On August 14, Detectives Louis Giampavolo and Ivan Navarro interviewed Richard Green. Green took the officers to the apartment where Blake was located, and Blake was arrested without incident. Blake began talking as soon as Giampavolo and Deputy Sheriff Kenneth Raczynski placed him in Giampavolo's car. Giampavolo read Blake his Miranda[2] rights on the way to the station. When they arrived, they placed Blake in an interview room with hidden audio and video equipment. They did not reread his Miranda rights or have him sign a waiver.
Giampavolo and Raczynski interviewed Blake. Blake said he stole a vehicle and then met Green and an unknown black male. He initially said he sold the car and was not involved with the Patel shooting. Blake then said "all three of us will get charged," made a statement about the death penalty, and began to cry. He admitted that they went to the store to commit a robbery. Blake said he was in the backseat and had a 9 mm handgun and a .38 caliber revolver. All three of the men got out of the car. Blake had the 9 mm handgun. When Patel made a sudden movement and tried to lock the door, Blake shot him. Giampavolo then asked Blake to give an audiotaped statement. Blake did not agree to taping the statement, but said he would detail the events one more time. The officers decided to videotape the statement anyway.
As seen on the videotape, Blake said he stole a car and picked up Richard Green, who was with an unknown male. Green drove to the store. The men walked up to the door of the store. Blake carried a gun with his finger on the trigger. As they approached, Patel scared him and Blake shot him with the 9 mm handgun. Blake claimed that it was an accident, however it was intended to be a warning shot. Blake acknowledged he had been treated well and that Giampavolo had read him his rights in the car:
*842 Blake was indicted for first-degree murder, attempted armed robbery, and grand theft of an automobile. At trial, he testified in his own defense. He admitted that he stole the car, but claimed that when the trio arrived at the store, he stayed in the car and heard gunshots. He claimed the entire incident was against his will.
The jury found Blake guilty of first-degree murder, attempted robbery (with a finding that he discharged a firearm resulting in death), and grand theft of a motor vehicle. At the penalty phase, the jury unanimously recommended that he be sentenced to death. After a Spencer[3] hearing, the trial court followed the jury's recommendation, finding three aggravating factors: (1) previous conviction of another capital felony or of a felony involving the threat of violence to the personfirst-degree murder and attempted robbery with a firearm (great: weight); (2) commission by a person previously convicted of a felony and under sentence of imprisonment, or placed on community control, or on felony probation (some weight); and (3) commission while the defendant was engaged in an attempt to commit the crime of armed robbery (merged with commission for financial gain) (moderate weight). The court found one statutory mitigator age of the defendant at the time of the offense (moderate weight)and seven nonstatutory mitigators: (1) appropriate courtroom behavior (some weight); (2) never displayed violence in the presence of his family, was a good son, and formed a loving relationship with his family (moderate weight); (3) remorseful for his conduct (some weight); (4) cooperated with the deputies at the time of arrest (some weight); (5) the co-participant. Richard Green was sentenced to life imprisonment (very little weight); (6) no prior violent felony convictions, except the capital felony committed two weeks prior to the death of Patel (little weight); and (7) adjustment to confinement and institutional living and no danger to the community at large if incarcerated for life (some weight). This appeal followed.
II. DISCUSSION OF LAW
Blake raises three issues: (A) that the trial court erred in denying the motion to suppress his recorded statement; (B) that the trial court erred in failing to advise him of his right to self-representation; and (C) that his death sentence is not proportionate. We address these issues below, as well as (D) sufficiency of the evidence.
A. Admissibility of the Videotaped Statement
Blake first argues that the trial court erred in denying his motion to suppress his recorded statement. The relevant facts are undisputed. Blake acknowledges that he "made two statements to law enforcement after his arrest, the second of which was video tape recorded," and that "Fun the videorecording Mr. Blake provided essentially the same factual recitation of the incident." The State agrees that Blake's statement was recorded secretly after he refused to give a taped statement.
Blake argues that by asking him to agree to a taped statement, the detective implicitly promised that his refusal would be honored, rendering the recording involuntary. Therefore, the trial court should have granted his motion to suppress his videotaped statement. In reviewing the trial court's ruling on a motion to suppress, we accord a presumption of correctness to the determination of historical facts, but "independently review mixed questions of law and fact that ultimately determine constitutional issues arising in the context of the Fourth and Fifth Amendment and, by extension, article I, section 9 of the Florida *843 Constitution." Nelson v. State, 850 So.2d 514, 521 (Fla.2003) (quoting Connor v. State, 803 So.2d 598, 608 (Fla.2001)).
Many courts have held it permissible to record a confession without the defendant's knowledge or consent. See, e.g., Lester v. Wilson, 363 F.2d 824, 826 (9th Cir.1966) ("[P]olice secrecy and deception in obtaining a tape recording of incriminating statements, unassociated with a right to counsel problem or other circumstance which would render such statements inadmissible, do not present a constitutional violation."); Bell v. State, 802 So.2d 485, 485 (Fla. 3d DCA 2001) (rejecting a claim that a videotaped statement must be suppressed because the defendant was not aware that his statement was being videotaped); Davis v. State, 271 Ga. 527, 520 S.E.2d 218, 219 (1999) (finding that the failure to inform defendant that his statement was being videotaped did not render the statement involuntary); State v. Wilson, 755 S.W.2d 707, 709 (Mo.Ct.App.1988) ("Secret recordation of in-custody questioning of an accused, standing alone, is not unconstitutional."). Therefore, Blake acknowledges that the detectives could have simply recorded the statement without his consent. Nevertheless, he argues that because the detective asked him for permission and he refused, the videotaped confession was a result of an implied promise that it would not be taped.
This is a question of first impression in this Court. In fact, our research has revealed only two cases addressing this issue: Woods v. McDonough, No. 8:03-CV2336-T-27MAP, 2007 WL 1017666. (M.D.Fla. Mar.30, 2007), a recent case from the United States District Court for the Middle District of Florida; and Wilson, 755 S.W.2d at 709, a Missouri appellate court case. Although it involved an audio rather than a video recording, the circumstances in Woods are nearly identical to those here. In that case, the defendant gave oral post-Miranda statements regarding his involvement in the crime. Woods, 2007 WL 1017666, at *9. A detective asked if he would give a taped statement, but the defendant said he preferred that it not be taped. Id. at *7. Another detective nevertheless recorded the defendant's statement secretly with a small hand-held recorder. Id. The recorded portion of the interview was a summary of what the defendant already had told detectives. Id. Rejecting essentially the same argument made here, the federal district court found that the Florida trial court properly denied the defendant's postconviction claim:
At best, Petitioner alleges that he thought the detective's acceptance of his negative response when asked to give a recorded statement was an "implied promise" not to record the remainder of the interview. Standing alone, this is not sufficient to rise to the level of inducement or coercion warranting suppression of the taped interview. . . . Having knowingly and voluntarily waived his Fifth Amendment rights, and having agreed to the interview, Petitioner was not in a position to dictate the manner in which the detectives memorialized his statements.
Id. at *9. Similarly, in Wilson, the defendant argued that his confession was involuntary because an officer told him the interrogation was not being recorded when in fact it was. 755 S.W.2d at 709. A Missouri appellate court rejected the claim, stating, "We do not find this brand of trickery so offensive as to render defendant's confession involuntary." Id. at 709. For the reasons explained below, we likewise reject this claim.
In Florida, lilt is well established that a confession cannot be obtained through direct or implied promises. In order for a confession to be voluntary, the *844 totality of the circumstances must indicate that such confession is the result of free and rational choice." Johnson v. State, 696 So.2d 326, 329 (Fla.1997). "[P]olice misrepresentations alone do not necessarily render a confession involuntary." Fitzpatrick v. State, 900 So.2d 495, 511 (Fla. 2005). "[T]o establish that a statement is involuntary, there must be a finding of coercive police conduct." Schoenwetter v. State, 931 So.2d 857, 867 (Fla.), cert. denied, ___ U.S. ___, 127 S.Ct. 587, 166 L.Ed.2d 437 (2006); see also Colorado v. Connelly, 479 U.S. 157, 167, 107 S.Ct. 515, 93 L.Ed.2d 473 (1986) ("We hold that coercive police activity is a necessary predicate to the finding that a confession is not `voluntary' within the meaning of the Due Process Clause of the Fourteenth Amendment."). "[T]he salient consideration in an analysis of the voluntariness of a confession is whether a defendant's free will has been overcome." Black v. State, 630 So.2d 609, 614-15 (Fla. 1st DCA 1993).
For example, confessions induced by promises not to prosecute or promises of leniency may render a confession involuntary. See, e.g., Samuel v. State, 898 So.2d 233, 237 (Fla. 4th DCA 2005) (finding a promise not to prosecute other fictional crimes rendered confession involuntary); Walker v. State, 771 So.2d 573, 575 (Fla. 1st DCA 2000) ("Where there is an express quid pro quo, i.e., a promise of protection from prosecution for cooperation, the promise of leniency alone is sufficient to render a confession or inculpatory statement involuntary"); see also Brewer v. State, 386 So.2d 232, 235 (Fla.1980) (finding a confession involuntary where the officers "raised the spectre of the electric chair, suggested that they had the power to effect leniency, and suggested to the appellant that he would not be given a fair trial."). Similarly, a confession made in return for a promise of release is involuntary. See Brockelbank v. State, 407 So.2d 368, 369 (Fla. 2d DCA 1981). However, not all police statements that arguably could be considered "promises" render a confession involuntary. For example, "[t]he fact that a police officer agrees to make one's cooperation known to prosecuting authorities and to the court does not render a confession involuntary." Maqueira v. State, 588 So.2d 221, 223 (Fla. 1991). Similarly, "a confession is not rendered inadmissible because the police tell the accused that it would be easier on him if he told the truth." Bush v. State, 461 So.2d 936, 939 (Fla.1984).
Further, a promise alone is not sufficient to render a confession involuntary. There must also be a causal connection between the police conduct and the confession. See, e.g., Connelly, 479 U.S. at 164, 107 S.Ct. 515 ("Absent police conduct causally related to the confession, there is simply no basis for concluding that any state actor has deprived a criminal defendant of due process of law."). Before finding the confession inadmissible, Florida courts have repeatedly required that the alleged promise "induce," be "in return for," or be a "quid pro quo" for the confession. See, e.g., Bruno v. State, 574 So.2d 76, 79-80 (Fla.1991) ("Statements suggesting leniency are only objectionable if they establish an express quid pro quo bargain for the confession."); Evans v. State, 911 So.2d 796, 800 (Fla. 1st DCA 2005) (finding admissible a confession following a statement that the agent was not there to arrest the defendant because the "statement was not made with an intent to deceive" or "to induce a confession" and "was not the cause of the defendant's eventual confession" where there was "no quid pro quo for the alleged promise"); Green v. State, 878 So.2d 382, 385 (Fla. 1st DCA 2003) ("The comments here never rose to the level of an express quid pro quo bargain in return for appellant's confession.").
*845 Even if, as Blake argues, the request to tape was an implied promise not to tape without his permission, the totality of the circumstances do not suggest that the request constituted coercive police activity or that Blake's free will had been overcome. Before giving his initial statementwhich he concedes is "essentially the same factual recitation of the incident" reflected on the videoBlake was read his Miranda rights.[4] Asking for consent to tape a subsequent recitation of the same facts is not coercive or outrageous police conduct. While it would have been better to obtain a, written waiver of his Miranda rights, see Traylor v. State, 596 So.2d 957, 966 (Fla. 1992) (recognizing that "where reasonably practical, prudence suggests" a Miranda waiver should be in writing), Blake acknowledges on the video that he had been read his Miranda rights. Further, a review of the videotape reveals nothing in the demeanor of either Blake or of the detectives that suggests coercive conduct. Blake acknowledged that he had been treated well and that he told the truth because it was the right thing to do.
Finally, we find no causal connection between the request to tape and the confession. Again, Blake already had confessed. Although he declined to have his statement recorded, he agreed to repeat the statement to the detectives knowing that the detectives would be able to testify about it. In fact, Blake testified at trial, "I kn[e]w if I did get charged with anything it was my word against theirs." Therefore, the request to tape did not overcome Blake's will and induce his confession. For these reasons, we reject Blake's claim.
B. Trial Court's Failure to Advise of the Right to Self-Representation
Blake next argues the trial court erred in failing to advise him of his right to self-representation. We reject this claim as well.
Blake filed two pro se motions to dismiss counsel and appoint new counsel. He withdrew the first motion. The second motion alleged that counsel ignored his requests to interview witnesses and sound advice, that counsel was unwilling to pursue an "adversarial role," and that Blake lacked confidence in counsel. At a hearing on the motion, the judge asked Blake and defense counsel about the grounds alleged. He took the motion under advisement, indicating a written order would follow. The issue of self-representation did not arise. The next day, the court denied the motion "without prejudice to re-file the motion if new grounds become available."
Blake does not challenge the trial court's denial of the motion. Instead, he argues that Nelson v. State, 274 So.2d 256, 259 (Fla. 4th DCA 1973), cited with approval in Hardwick v. State, 521 So.2d 1071, 1074-75 (Fla.1988), required the trial court, after denying the motion, to inform the defendant of his right to self-representation. We reject this claim.
A motion to discharge counsel does not automatically require a Faretta[5] inquiry or *846 notice of the right to self-representation. State. v. Craft., 685 So.2d 1292, 1295 (Fla. 1996) (holding that Nelson and Hardwick do not require the trial court to inform a defendant of the right to self-representation after the denial of a motion to discharge counsel based on incompetence). A Faretta inquiry is triggered only by an "unequivocal assertion of the right to self-representation." Craft, 685 So.2d at 1295; see also Gamble v. Sec y, Fla. Dep't of Corr., 450 F.3d 1245, 1249 (11th Cir. 2006) (Tin order for there to be a Faretta violation, the defendant must have indicated that he wishes to conduct his own defense."), cert. denied, ___ U.S. ___, 127 S.Ct. 510, 166 L.Ed.2d 381 (2006). Blake did not at any time indicate a desire to represent himself. Therefore, the trial court was not required to inform Blake of his right to self-representation or to conduct a Faretta inquiry.
Blake's claim that the trial judge erred in failing to make his findings on the record is likewise without merit. Blake apparently interprets the phrase "[i]f no reasonable basis appears for a finding of ineffective representation, the trial court should so state on the record," Nelson, 274 So.2d at 259 (emphasis added), as requiring an oral pronouncement from the bench. Here, the trial court took the motion under advisement and the next day entered a written order denying the motion. A written order is a ruling "on the record." Blake has not cited any cases requiring an oral ruling from the bench. For these reasons, we affirm.
C. Proportionality
In his final claim, Blake argues that his death sentence is disproportionate. "Proportionality review is not simply a comparison between the number of aggravating and mitigating circumstances. This Court's function in a proportionality review is not to reweigh the mitigating factors against the aggravating factors; that is the function of the trial judge." Connor, 803 So.2d at 612 (citation omitted). Instead, we consider the totality of the circumstances and compare them to similar capital cases where a death sentence was imposed. Id. We find Blake's death sentence proportional.
The trial court followed the jury's unanimous death recommendation and sentenced Blake to death for the first-degree murder of Mike Patel, finding three aggravators: (1) prior violent felony (great weight); (2) commission while on felony probation (some weight); and (3) commission during the course of an armed robbery merged with commission for financial gain (moderate weight). The trial court found one statutory mitigatorage of the defendant at the time of the offense ("almost 23") (moderate weight), and seven nonstatutory mitigators.
Blake does not argue that the trial court improperly found any of the aggravators, but argues that consideration of the facts underlying the factors makes them less serious. To the extent Blake is challenging the weight the trial court assigned to the aggravators, we review for an abuse of discretion. E.g., Buzia v. State, 926 So.2d 1203, 1216 (Fla.), cert. denied, ___ U.S. ___, 127 S.Ct. 184, 166 L.Ed.2d 129 (2006) We affirm the weight given an aggravator if based on competent substantial evidence. Id.
The first aggravating factorprior violent felonyis supported by Blake's previous conviction for first-degree murder and attempted robbery with a firearm arising out of the shooting death of Kelvin Young. The jury in that case found that Blake "personally possessed a firearm," but did not find that he "personally discharged a firearm resulting in death." Like the murder of Patel, Young's murder occurred during the course of an attempted robbery with a firearm. The two men *847 were killed with the same gun less than two weeks apart. Blake's willingness to rob Patel less than two weeks after his participation in an attempted robbery resulting in the death of Young, using the same firearm that killed Young, undermines his argument that the prior violent felony aggravator is "less significant." The weight given this aggravator is supported by competent, substantial evidence, and trial court did not abuse its discretion in assigning great weight to the prior violent felony conviction.
At oral argument, Blake's counsel argued that in establishing, the prior violent felony aggravator, the State improperly suggested that Blake shot Young, contrary to the jury's verdict in that case. To the extent the State suggested that Blake could have been Young's shooter, we certainly do not condone such conduct. However, defense counsel did not object to the evidence presented below and did not raise this issue in his briefs on appeal. Moreover, any error is not fundamental.
We further find that any inappropriate suggestion that Blake was the shooter in the prior murder was adequately rebutted in several ways. First, the jury's verdict in the prior case was attached to the judgment and sentence the State itself introduced in evidence during the penalty phase. Second, defense counsel repeatedly pointed to the verdict and noted that the jury found Blake did not discharge the firearm. Thus, the jury in this case was clearly informed of the verdict in Blake's trial for the first-degree murder and attempted robbery of Young. Finally, the trial judge expressly stated in the sentencing order that the jury in the former case found that Blake did not personally discharge the firearm. Therefore, we are confident that any inappropriate suggestion that Blake could have been the shooter in that case did not affect the jury's recommendation.
The second aggravating factor, commission while on felony probation, is based on evidence that at the time of the murder Blake was on probation for four felony offensesthree involving driving while license suspended and one involving grand theft of an automobile and driving with license suspended. Blake argues that this case is "distinguishable from those defendants who are on supervision from prior prison sentences or for violent offenses against persons." While it is true that none of Blake's prior offenses involved violence, it is also true that section 921.141(5)(a) does not require violence for this aggravator to apply. See § 921.141(5)(a), Fla. Stat. (2002) ("The capital felony was committed by a person previously convicted of a felony and under sentence of imprisonment or placed on community control or on felony probation."). The trial court gave this aggravator only "some weight." Competent, substantial evidence supports the weight given.
The final aggravating factor was that the crime was committed while Blake was attempting to commit armed robbery, which was merged with the financial gain aggravator. The trial court gave this aggravator moderate weight. Blake argues that this aggravator will be found in every case of a robbery resulting in death. To the extent he argues that this is an automatic aggravator where a person is convicted of felony murder, we have repeatedly rejected that argument. See, e.g., Dufour v. State, 905 So.2d 42, 69 (Fla.2005) ("This Court has repeatedly rejected the argument that the murder in the course of a felony aggravator is an unconstitutional automatic aggravator.").
Blake also argues that this was not a violent confrontation. Indeed, the surveillance video shows that the shooting happened quickly and the victim was shot *848 through the glass door. However, Patel was shot and killed. Therefore, the encounter was necessarily violent. The trial court did not abuse its discretion in assigning this aggravator moderate weight.
Blake also argues that his sentence is disproportionate because the shooting was the result of a "robbery gone bad." He argues this case is like Urbin v. State, 714 So.2d 411 (Fla.1998), Livingston v. State, 565 So.2d 1288 (Fla.1988), and Terry v. State, 668 So.2d 954 (Fla.1996)all robbery-murder cases where we have reversed death sentences on proportionality grounds. For the reasons explained below, we disagree.
This case is unlike Urbin and Livingston. First, the defendants in both of those cases were minors at the time of the murders. See Urbin, 714 So.2d at 417 (comparing Urbin, to Livingston and finding "the fact that both Urbin and Livingston were seventeen years old at the time of the murders to be particularly compelling"). Blake, on the other hand, was almost 23 years old. See Shellito v. State, 701 So.2d 837, 845 (Fla.1997) (distinguishing Livingston where the defendant was 19 years old); Mendoza v. State, 700 So.2d 670, 679 (Fla.1997) (distinguishing Livingston where the defendant was 25 years old). In addition, both Urbin and Livingston involved two aggravators and relatively strong mitigation. See Urbin, 714 So.2d at 418 (finding the death sentence disproportionate where it was supported by two aggravatorsprior violent felony and commission during the course of a robbery/pecuniary gainand strong mitigation, in, eluding age, substantial impairment of the capacity to appreciate the criminality of conduct, and parental abuse and neglect); Livingston, 565 So.2d at 1292 (finding the death sentence disproportionate where it was supported by two aggravatorsprior violent felony and commission during an armed robberyand "several mitigating factors," including the defendant's age (17), severe childhood beatings and neglect, marginal intellectual functioning, and extensive use of cocaine). Here, the trial court found three aggravators and only weak mitigation. For these reasons, Urbin and Livingston are not comparable.
This case is also unlike Terry, 668 So.2d 954. In Terry, the defendant was sentenced to death in connection with a robbery-murder at a gas station. 668 So.2d at 957. The trial court found two aggravators: prior violent felony and capital felony committed during the course of an armed robbery/pecuniary gain. Id. at 965. The trial court rejected the defendant's age (21) as a statutory mitigator and also rejected the "minimal nonstatutory mitigation." Id. We found Terry to be like other "robbery-murder cases" (citing Sinclair v. State, 657 So.2d 1138 (Fla.1995), and Thompson v. State, 647 So.2d 824 (Fla. 1994)) where we had vacated death sentences. Terry, 668 So.2d at 966.
However, this case involves the same two aggravators at issue in Terry, plus an additional felony probation aggravator. More importantly, the prior violent felony in Terry was a contemporaneous conviction for acting as a principal to the aggravated assault committed by the codefendant. See Terry, 668 So.2d at 965-66 ("While this contemporaneous conviction qualifies as a prior violent felony and a separate aggravator, we cannot ignore the fact that it occurred at the same time, was committed by a codefendant, and involved the threat of violence with an inoperable gun."). Blake's prior violent felony conviction is for first-degree murder in connection with a separate attempted robbery with a firearm. We rejected a similar claim in Mendoza, 700 So.2d at 679:
In Terry and Jackson [v. State, 575 So.2d 181 (Fla.1991)], . . . the trial court found two aggravating circumstances *849 and no mitigating circumstances in imposing the death penalty. In both of those cases, we vacated the death sentences on proportionality grounds. However, in Terry and Jackson, the trial courts based prior-violent-felony aggravating circumstances upon armed robberies which were contemporaneous with the murders. By contrast, the trial court in this case based the prior-violent-felony circumstance upon appellant's previous armed robbery conviction. . . . Thus, appellant's prior conviction of an entirely separate violent crime differs from the aggravation found in Terry and Jackson.
Blake's death sentence is likewise not comparable to that vacated in Terry.
Blake also suggests that death is not proportional because the trial court did not find the heinous, atrocious, or cruel (HAC) or cold, calculated, and premeditated (CCP) aggravators. The absence of these aggravators is relevant, but is not controlling. See Larkins v. State, 739 So.2d 90, 95 (Fla.1999). We have upheld many death sentences where neither HAC nor CCP was present. See, e.g., Bryant v. State, 785 So.2d 422, 436-37 (Fla.2001); Mendoza, 700 So.2d at 673; Melton v. State, 638 So.2d 927, 928 (Fla.1994); Freeman v. State, 563 So.2d 73, 75 (Fla.1990); Carter v. State, 576 So.2d 1291, 1293 (Fla. 1989).
We conclude that Blake's sentence is proportional to other death sentences this Court has upheld. See, e.g., Bryant, 785 So.2d at 436-37 (citing Mendoza, 700 So.2d at 673, in rejecting a "robbery gone awry" argument where the trial, court found three aggravators: (1) prior violent felonysexual battery, grand theft, robbery with a weapon, and aggravated assault with a mask; (2) commission during a robbery; and (3) avoid arrest); Mendoza, 700 So.2d at 679 (rejecting a "robbery gone awry" argument where the trial court found two aggravators: a prior violent felonyarmed robbery in connection with a separate caseand commission during a robbery); Melton, 638 So.2d at 930 (upholding a death sentence in connection with a robbery-murder, where the sentence was supported by two aggravators, including prior first-degree murder and robbery convictions); Carter, 576 So.2d at 1293 (rejecting a "robbery gone bad" argument where the trial court found three aggravators: (1) under sentence of imprisonment; (2) prior violent feloniesarmed robbery and murder; and (3) commission during a robbery); Freeman, 563 So.2d at 75 (upholding a death sentence supported by two aggravatorsprior convictions for first-degree murder, armed robbery, and burglary of a dwelling with assault, all committed, three weeks priorand corn mission during a burglary and commission for pecuniary gain (merged)).
Finally, Blake argues that his death sentence is disproportionate because Richard Green, who was convicted as a principal, received a life sentence. "In cases where more than one defendant is involved, the Court performs an additional analysis of relative culpability guided by the principle that `equally culpable co-defendants should be treated alike in capital sentencing and receive equal punishment.'" Brooks v. State, 918 So.2d 181, 208 (Fla.2005) (quoting Shere v. Moore, 830 So.2d 56, 60 (Fla. 2002)). We have rejected relative culpability arguments where the defendant sentenced to death was the "triggerman." See, e.g., Ventura v. State, 794 So.2d 553, 571 (Fla.2001) (finding codefendants not equally culpable where a codefendant hired Ventura to kill the victim, but Ventura was the triggerman); Downs v. State, 572 So.2d 895, 901 (Fla.1990) ("[E]vidence in the record supports the trial court's conclusion that Downs was the triggerman and thus was more culpable than Johnson."). Blake admitted he shot Patel. *850 The jury specifically found that Blake "personally discharged a firearm resulting in death." Therefore, we reject Blake's relative culpability argument.
D. Sufficiency of the Evidence
Blake does not contest the sufficiency of the evidence at trial, but we have an independent obligation to review the record for sufficiency of the evidence. See Fla. R.App. P. 9.142(a)(6); Rodgers v. State, 948 So.2d 655, 673-74 (Fla.2006), cert. denied, ___ U.S. ___, 128 S.Ct. 59, 169 L.Ed.2d 50 (2007). The jury found Blake guilty of first-degree murder on a general verdict form. "A general guilty verdict rendered by a jury instructed on both first-degree murder alternatives may be upheld on appeal where the evidence is sufficient to establish either felony murder or premeditation." Crain v. State, 894 So.2d 59, 73 (Fla.2004). The evidence in this case is detailed above. Upon review, we find competent, substantial evidence to support Blake's first-degree felony murder conviction. The evidence showed that Blake admitted that the men went to the store to commit a robbery. He further admitted that he took a 9 mm handgun to the front of the store, Patel scared him, and he shot Patel. His confession is consistent with evidence that Patel was killed by a bullet from a 9 mm handgun recovered from a nearby lake.
III. CONCLUSION
Based on the foregoing, we affirm Blake's convictions and sentence of death.
It is so ordered,
LEWIS, C.J., and WELLS, ANSTEAD, PARIENTE, QUINCE, CANTERO, and BELL, JJ., concur.
NOTES
[1] Teresa Jones is not related to Demetrius Jones. To avoid confusion, we refer to both by their first names.
[2] Miranda v. Arizona, 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966).
[3] Spencer v. State, 615 So.2d: 688 (Fla.1993).
[4] Blake made various arguments below about the voluntariness of his confession, and also claimed that the officers did not read him his Miranda rights. The trial court found that he was read his Miranda rights, and also found "no evidence of coercion or promise." Blake has not challenged these findings on appeal, nor has he raised any other claims concerning his confession.
[5] Faretta v. California, 422 U.S. 806, 835, 95 S.Ct. 2525, 45 L.Ed.2d 562 (1975) ("Although a defendant need not himself have the skill and experience of a lawyer in order competently and intelligently to choose self-representation, he should be made aware of the dangers and disadvantages of self-representation, so that the record will establish that `he knows what he is doing and his choice is made with eyes open.'") (quoting Adams v. United States ex McCann, 317 U.S. 269, 279, 63 S.Ct. 236, 87 L.Ed. 268 (1942)). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589258/ | 61 S.W.3d 599 (2001)
GTE MOBILNET OF SOUTH TEXAS LIMITED PARTNERSHIP, Appellant,
v.
Adrien PASCOUET and Chantal Pascouet, Appellees.
No. 14-99-00869-CV.
Court of Appeals of Texas, Houston (14th Dist.).
September 13, 2001.
Rehearing Overruled October 31 and November 1, 2001.
*605 Steve M. Zager, Austin, for appellant.
Thomas W. Sankey, E. John Gorman, Houston, for appellees.
Panel consists of Justices YATES, EDELMAN, and WITTIG.
OPINION
WITTIG, Justice.
The Pascouets brought nuisance and invasion-of-privacy claims after GTE Mobilnet of South Texas Limited Partnership erected a 126-foot cellular phone tower 20 feet from their Bunker Hill back yard. We examine whether the Federal Telecommunications Act of 1996 preempts the Pascouets' claims; we also review the jury's findings against GTE and its assessment of nearly one million dollars in damages. The trial court denied the Pascouets' requests for a permanent injunction and for declaratory relief, and it rendered judgment on the jury's verdict. On appeal, GTE attacks the money judgment; on cross-appeal, the Pascouets assert that the trial court should have granted injunctive and declaratory relief. We overrule all issues presented in this appeal, except that we hold there was no evidence to support the jury's findings: (1) of future damages for the nuisance claims; and (2) of liability and damages as to the invasion-of-privacy claims. For the reasons stated below, we reverse and render judgment that the Pascouets take nothing as to future damages for their nuisance claims and as to all of their invasion-of-privacy claims; we affirm the remainder of the trial court's judgment, including past damages for nuisance.
*606 Background
The Pascouets moved to Houston from France in 1979. In 1983 they purchased a home in the City of Bunker Hill Village ("Bunker Hill") for $400,000. They were attracted by the peaceful environment in Bunker Hill as well as by the strict zoning ordinances there. The Pascouets knew about the Bunker Hill municipal complex that was next to their property ("Municipal Complex"), but the city's activities there never bothered them before the occurrence made the basis of this suit.
To fill a gap in its cellular phone coverage, GTE needed to find a new transmission tower in the Bunker Hill area. The Memorial Village Police Department ("Police Department") provides police services for several cities, including Bunker Hill. The Police Department already operated an 80-foot communications tower on the Municipal Complex. This tower was several hundred feet from the Pascouets' house. The Police Department was not receiving adequate coverage from the antenna on the 80-foot tower, and Bunker Hill wanted to remedy this problem to improve its police service. GTE and Bunker Hill executed a License Agreement allowing GTE to build a 126-foot tall communications tower ("Tower") and equipment building ("Building") on the Municipal Complex. Under the License Agreement, GTE pays Bunker Hill $10,000 per year during the term of the agreement, which has an initial term of ten years, with an option to extend the term for four more ten-year periods. GTE agreed to put the Police Department antenna at the top of the Tower to improve the Police Department's coverage.
Bunker Hill instructed GTE not to build the Tower near the Bunker Hill city hall but rather to build it near the edge of the Municipal Complex, close to the boundary of the Pascouets' property. GTE did not lease the Municipal Complex; rather, GTE obtained a license from Bunker Hill to construct and operate the Tower and the Building on the Municipal Complex. Bunker Hill and GTE contend that Bunker Hill and its property are not subject to Bunker Hill's zoning ordinances. Therefore, GTE did not obtain any building permits from Bunker Hill, nor did it apply for a special exception or a special use permit or any other amendment to Bunker Hill's zoning ordinances to allow for the erection and operation of the Tower and the Building.
Bunker Hill's city administrator, Mr. Eby, talked to Mrs. Pascouet one time, describing the new construction as being "close to the fence" and as a "little building" with an "antenna" nearby. He promised to update the Pascouets later, but he never spoke to the Pascouets again. GTE erected the Tower on August 25, 1994, without having had any communications with the Pascouets. The Pascouets filed this suit against GTE and Bunker Hill four months later. The Tower stands about twenty feet from the property line and sixty feet from the Pascouets' home.
The Building had two floodlights that were on all night and that illuminated the Pascouets' backyard so that one could read and write on their patio in the middle of the night. The Building also had two noisy air conditioners, with one operating all the time. The noise from the air conditioners drowned out normal conversation in the backyard, could be heard indoors, and interrupted the Pascouets when they were trying to sleep. When the door to the Building was open, the GTE workers could and did look out over the Pascouets' fence and see into their backyard. Workers would also climb the Tower. In 1997, GTE turned the floodlights off. In April of 1998, GTE built a fence so that its *607 workers at ground level could not see into the Pascouets' backyard.
After the Pascouets asserted federal claims against Bunker Hill, the defendants removed this case to federal court. Shortly before trial in federal court, the Pascouets settled with Bunker Hill for $28,000 and dismissed Bunker Hill from this suit. The federal court then remanded this case to state court. After a three-day trial, the trial court charged the jury with questions on liability and damages for nuisance and invasion of privacy, percentage-of-responsibility questions as to Bunker Hill and GTE, and reasonable attorney's fees for the Pascouets' declaratory judgment action. Although the jury determined reasonable attorney's fees for the Pascouets' declaratory judgment action, the court instructed the jury two times that it was not to decide the legal issue of whether the Tower and the Building violate any Bunker Hill ordinance and that the courtnot the jurywould decide this issue.
The jury found that the Tower was a nuisance for which GTE was 100% responsible and awarded actual damages of $748,000-$28,000 for loss of market value in the house, $60,000 for Mr. Pascouet's past loss of use and enjoyment, $180,000 for his future loss of use and enjoyment, $120,000 for Mrs. Pascouet's past loss of use and enjoyment, and $360,000 for her future loss of use and enjoyment.
The jury also found that both GTE and Bunker Hill invaded the Pascouets' privacy and that Bunker Hill was 30% responsible and GTE 70% responsible for the invasion-of-privacy damages. The jury assessed actual damages of $225,000$100,000 for Mr. Pascouet's past mental anguish, $50,000 for his future mental anguish, $50,000 for Mrs. Pascouet's past mental anguish, and $25,000 for her future mental anguish. The jury also found reasonable attorney's fees for trial and appellate work as to the Pascouets' declaratory judgment action.
The Pascouets requested that the trial court enter a declaratory judgment that Bunker Hill's zoning ordinances apply to GTE and that GTE, the Tower, the Building, and the lot on which the Tower and Building were constructed violate various Bunker Hill zoning ordinances. The Pascouets also requested a permanent injunction requiring GTE to: (1) remove the Tower and Building because they violate the Bunker Hill ordinances; (2) comply with the zoning ordinance in the future; and (3) cease its operations that are a nuisance. The trial court denied the Pascouets' requests for injunctive and declaratory relief. The trial court entered judgment on the jury's verdict, except that it awarded no attorney's fees.
GTE filed a motion to modify the judgment to reduce it by $486,500 and by 50% of the prejudgment interest based on an alleged settlement credit of 50% under Chapter 32 of the Texas Civil Practice and Remedies Code. GTE also filed a motion for judgment not withstanding the verdict and for new trial. The trial court denied these motions. GTE appealed, and the Pascouets cross-appealed.
Issues Presented
GTE presents the following issues: (1) whether the Federal Telecommunications Act of 1996 ("FTA") preempts the Pascouets' common-law claims for nuisance and invasion of privacy; (2) whether the trial court abused its discretion by admitting evidence regarding Bunker Hill's zoning ordinances; (3) whether the trial court abused its discretion by admitting the expert testimony of Michael Coker; (4) whether the evidence was legally and factually sufficient to support the jury's nuisance findings; (5) whether the evidence was legally and factually sufficient to support *608 the jury's invasion-of-privacy findings; (6) whether GTE was entitled to a pro-rata settlement credit due to the Pascouets' settlement with Bunker Hill. By their cross-appeal, the Pascouets present the following issues: (1) whether the trial court abused its discretion by denying the Pascouets' request for a permanent injunction; and (2) whether the trial court erred by denying the Pascouets' request that it find and declare certain alleged violations of the Bunker Hill zoning ordinances.
Does the FTA Preempt the Pascouets' Common-Law Claims?
In its first issue, GTE argues that we should reverse and render judgment that the Pascouets take nothing because the Pascouets' claims are impliedly preempted by the FTA. The parties have not cited and we have not found any federal or state cases dealing with the specific preemption issue raised by GTE. We hold that the FTA does not preempt the Pascouets' claims in this case.
Under the Supremacy Clause of the United States Constitution, the laws of the United States are the supreme law of the land, and a state law that conflicts with federal law is preempted and "without effect." U.S. Const. art. VI, cl. 2; Maryland v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 2128-29, 68 L.Ed.2d 576 (1981). A federal law may expressly preempt state law. See Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 2617, 120 L.Ed.2d 407 (1992). Preemption may also be implied if the scope of the statute indicates that Congress intended federal law to occupy the field exclusively or if state law actually conflicts with federal law. Freightliner Corp. v. Myrick, 514 U.S. 280, 287, 115 S.Ct. 1483, 1487, 131 L.Ed.2d 385 (1995). A state law presents an actual conflict with federal law when "it is `impossible for a private party to comply with both state and federal requirements' or where state law `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Myrick, 514 U.S. at 287, 115 S.Ct. at 1487 (quoting, respectively, English v. General Elec. Co., 496 U.S. 72, 78-79, 110 S.Ct. 2270, 2274-75, 110 L.Ed.2d 65 (1990) and Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941)). We must decide whether it is impossible for GTE to comply with both state law and the FTA and whether the Pascouets' claims stand as an obstacle to the accomplishment and execution of the full purposes of the FTA.[1]See Myrick, 514 U.S. at 287, 115 S.Ct. 1483, 131 L.Ed.2d 385
Historically, the states have exercised primary authority in matters concerning land use and zoning. Federation of Advertising Indus. Representatives, Inc. v. City of Chicago, 189 F.3d 633, 639 (7th Cir.1999). Thus, by enacting the FTA, Congress legislated in an area traditionally regulated by the states. Id. Therefore, our preemption analysis must begin with the presumption that these historic powers of the states are not to be superseded by the FTA unless that was the clear and manifest purpose of Congress. Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 121 S.Ct. 2404, 2414-15, 150 L.Ed.2d 532 (2001). This presumption "is crucial in our federal system, `[f]or if in close or uncertain cases a court proceeds to preempt state laws where that result was not clearly the product of Congress's considered judgment, the court has eroded the dual system of government that ensures our liberties, representation, diversity, and effective governance.'" Hyundai *609 Motor Co. v. Alvarado, 974 S.W.2d 1, 5 (Tex.1998), quoting Kenneth Starr et al., The Law of Preemption: A Report of the Appellate Judges Conference, American Bar Association 40 (1991). Therefore, we must consider the FTA's language, the context of its enactment, and our understanding of the way Congress intended the statute and its regulatory scheme to affect business, consumers, and the law, in order to discern whether Congress manifested a clear intent that the FTA preempt the Pascouets' common-law claims. Hyundai Motor Co., 974 S.W.2d at 5.
Our analysis starts with the relevant language of the FTA.[2]See Lorillard Tobacco Co., 533 U.S. at ___, 121 S.Ct. at 2415. GTE asserts that the Pascouets' common-law claims for nuisance and invasion of privacy are impliedly preempted because they conflict with the following parts of the FTA:
§ 253 Removal of barriers to entry
(a) In general
No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.
(b) State regulatory authority
Nothing in this section shall affect the ability of a State to impose, on a competitively neutral basis and consistent with section 254 of this section, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers.
...
§ 332. Mobile services
...
(c) Regulatory treatment of mobile services
(7) Preservation of local zoning authority
(A) General authority
Except as provided in this paragraph, nothing in this chapter shall limit or affect the authority of a State or local government or instrumentality thereof over decisions regarding the placement, construction, and modification of personal wireless service facilities.
(B) Limitations
(i) The regulation of the placement, construction, and modification of personal wireless service facilities by any State or local government or instrumentality thereof
(I) shall not unreasonably discriminate among providers of functionally equivalent services; and
(II) shall not prohibit or have the effect of prohibiting the provision of personal wireless services.
(ii) A State or local government or instrumentality thereof shall act on any request for authorization to place, construct, or modify personal wireless service facilities within a reasonable *610 period of time after the request is duly filed with such government or instrumentality, taking into account the nature and scope of such request.
(iii) Any decision by a State or local government or instrumentality thereof to deny a request to place, construct, or modify personal wireless service facilities shall be in writing and supported by substantial evidence contained in a written record.
(iv) No State or local government or instrumentality thereof may regulate the placement, construction, and modification of personal wireless service facilities on the basis of the environmental effects of radio frequency emissions to the extent that such facilities comply with the Commission's regulations concerning such emissions.
(v) Any person adversely affected by any final action or failure to act by a State or local government or any instrumentality thereof that is inconsistent with this subparagraph may, within 30 days after such action or failure to act, commence an action in any court of competent jurisdiction. The court shall hear and decide such action on an expedited basis. Any person adversely affected by an act or failure to act by a State or local government or any instrumentality thereof that is inconsistent with clause (iv) may petition the Commission for relief.
...
47 U.S.C. §§ 253 & 332(c)(7) (emphasis added).
Further, the Federal Telecommunications Act provides as follows:
Applicability of Consent Decrees and Other Law
...
(c) Federal, State, and local law.
(1) No implied effect.This Act and the amendments made by this Act shall not be construed to modify, impair, or supersede Federal, State, or local law unless expressly so provided in such Act or amendments.
Pub.L. No. 104-104, Title VI, § 601, Feb. 8, 1996, 110 Stat. 56, 143 (1996).
In Cipollone, the Supreme Court noted that
[w]hen Congress has considered the issue of pre-emption and has included in the enacted legislation a provision explicitly addressing that issue, and when that provision provides a "reliable indicium of congressional intent with respect to state authority," ... "there is no need to infer congressional intent to pre-empt state laws from the substantive provisions" of the legislation. Such reasoning is a variant of the familiar principle of expressio unius est exclusio alterius: Congress' enactment of a provision defining the pre-emptive reach of a statute implies that matters beyond that reach are not pre-empted.
505 U.S. at 517, 112 S.Ct. at 2618 (citations omitted). This language led a number of courts to conclude that, under Cipollone, an express preemption clause forecloses implied preemption. See Hyundai Motor Co., 974 S.W.2d at 9. But in Myrick, the court explained that Cipollone announced no such absolute rule. Myrick, 514 U.S. at 288-89, 115 S.Ct. at 1488. Rather, "[a]t best, Cipollone supports an inference that an express pre-emption clause forecloses implied pre-emption." Id. at 289, 115 S.Ct. at 1488. In § 332(c)(7), there is not only language that expressly preempts state law, but, unlike Cipollone, there is also language that limits the preemptive effect of the statute to the express language of § 332(c)(7)(B). This statutory language is strong evidence that Congress did not intend to preempt state regulation *611 unless it conflicted with the express provisions of § 332(c)(7)(B).
A state law may be preempted when it is impossible to comply with both federal and state requirements. Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963). There is no such impossibility here. It is not impossible for GTE to comply both with the FTA and with the state common-law of nuisance and invasion of privacy. The FTA does not require GTE to engage in the conduct for which it was found liable by the jury in this case. Nor is it impossible for GTE to comply with federal law and at the same time to respond in damages for breach of common-law duties. See Perry v. Mercedes Benz of N. Am., Inc., 957 F.2d 1257, 1264 (5th Cir.1992); cf. Cipollone, 505 U.S. at 518, 112 S.Ct. at 2608 ("[T]here is no general, inherent conflict between federal pre-emption of state warning requirements and the continued vitality of state common-law damages actions."). Common-law damage claims are not the same as a state statute or regulation that prohibits GTE from taking actions that the FTA expressly permits. Cf. Florida Lime & Avocado Growers, 373 U.S. at 141-42, 83 S.Ct. at 1217.
A federal law may also preempt state law when the state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Myrick, 514 U.S. at 287, 115 S.Ct. at 1487. The anti-preemption clauses in the FTA show that Congress's purpose was to preempt state law only as to a narrow area of telecommunications policy and to leave the remaining areas to state regulation. See 47 U.S.C. §§ 253(b) & 332(c)(7)(A); Goforth v. Smith, 338 Ark. 65, 991 S.W.2d 579, 585 (1999) ("Congress has carved out a narrow and well defined area of telecommunications policy in which it has exercised its constitutional authority to preempt state and local laws, and has left substantial elements of zoning and land-use matters to state and local control."). Further, the legislative history supports the notion that the FTA was meant to have a narrow, explicit preemptive effect. The conference committee report states that "[t]he conference agreement creates a new section 704 [47 U.S.C. § 332(c)(7)] which prevents Commission preemption of local and State land use decisions and preserves the authority of State and local governments over zoning and land use matters except in the limited circumstances set forth in the conference agreement." H.R. Conf. Rep. No. 104-458, at 207-8, reprinted in 1996 U.S.C.C.A.N. 124, 222.
There is a presumption against preemption in this case. The FTA states that it does not preempt state zoning and land use regulation unless they conflict with its express terms. The Pascouets' claims do not conflict with the express terms of the FTA. See 47 U.S.C. §§ 253(a) & 332(c)(7)(B). The FTA does not provide any remedies to replace state common-law torts relating to land use. Therefore, we find that the Pascouets' common-law claims for nuisance and invasion of privacy do not create an actual conflict with the FTA that would trigger implied preemption. See Hyundai Motor Co., 974 S.W.2d at 5-13. Courts should not conclude that Congress has preempted state law unless there is an unambiguous congressional mandate to that effect. Florida Lime & Avocado Growers, 373 U.S. at 146-47, 83 S.Ct. at 1219. The FTA's language, context, and legislative history reveal no unambiguous mandate that the Pascouets' common-law claims be preempted. GTE cites cases that do find preemption as to the FTA and the Federal Communications Act; however, these cases are inapplicable *612 on our facts because the claims in those cases related to complaints about radio wave emissions or other matters that are expressly preempted. See, e.g., Goforth, 991 S.W.2d at 581-88 (holding that FTA preempted state damage claims to the extent that they complained about the environmental effects of radio wave emissions but not otherwise). The Pascouets have not asserted any claims about radio wave emissions or any other matter that is expressly preempted by the FTA. Accordingly, we hold that the FTA does not preempt the Pascouets' claims.[3] We overrule GTE's first issue.
Did GTE Preserve Error as to the Admission of Evidence Regarding Bunker Hill's Zoning Ordinances?
In its second issue, GTE claims that it objected repeatedly to the introduction of evidence relating to the Bunker Hill zoning ordinances, that this evidence was inadmissible under Texas Rules of Evidence 401 and 403, and that the trial court abused its discretion by admitting this evidence over GTE's objection. GTE's statements regarding preservation of error are incorrect. The record does not show that GTE timely asserted these objections. In fact, GTE did not object to the admission of the Bunker Hill zoning ordinances into evidence. In support of GTE's contention that it preserved error, GTE refers to two trial briefs that it filed. These briefs do not assert these evidentiary objections, and they do not ask the court to rule on the Pascouets' declaratory judgment action before trial. Both of these briefs, however, do contain the assertion by GTE that "violation of the City's zoning ordinance is an integral element of [the Pascouets'] nuisance claim." This assertion is contrary to the position asserted by GTE in its second issue. GTE has not preserved its second issue for our review by a timely objection in the trial court that specifically stated GTE's objection to the admission of the zoning evidence. Tex.R.App. P. 33.1. Furthermore, GTE waived this complaint by inviting the alleged error of which it now complains. International Piping Sys., Ltd. v. M.M. White & Assocs., Inc., 831 S.W.2d 444, 449 (Tex.App.-Houston [14th Dist.] 1992, writ denied). We overrule GTE's second issue.
Did the Trial Court Abuse its Discretion by Admitting the Expert Testimony of Michael Coker?
In its third issue, GTE asserts that the trial court abused its discretion by overruling GTE's objection to the testimony of Michael Cokera land use and planning expert. Coker testified to the amount of light and noise that he observed on the Pascouets' property at night. He also testified that in his opinion the operation of the Tower was a nuisance and an invasion of privacy. On appeal, GTE asserts that Coker was unqualified and unreliable and that his testimony was inadmissible under Tex.R. Evid. 702 and E.I. du Pont de Nemours and Co. v. Robinson, 923 S.W.2d 549 (Tex.1995).
GTE objected at trial that Coker was not qualified as an expert in the areas in which he offered opinion testimony and that he had no specialized training to give an opinion as to the brightness of the Building lights on the night that Coker visited the property. Coker testified to his qualifications and experience in the area of land use and planning. After reviewing *613 the record, we hold that the trial court did not abuse its discretion in determining that Coker was qualified as an expert by knowledge, skill, experience, training, or education. We also find no abuse of discretion in allowing Coker to testify as to the brightness of the Building lights on the Building when Coker visited the Pascouets' backyard at night. Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 499-501 (Tex.2001).
Regarding GTE's assertion that Coker's testimony was inadmissible under Tex.R. Evid. 702 and the Robinson case, GTE did not preserve error in the trial court. To preserve error as to the reliability of an expert, GTE had to obtain a ruling on its objection before trial or when the evidence was offered. Maritime Overseas Corp. v. Ellis, 971 S.W.2d 402, 409 (Tex.1998). For preservation of error purposes, GTE relies on its motion for new trial, but this motion was filed after trial, too late to preserve error. Id. GTE also cites its motion to strike and motion in limine filed in federal court as well as its trial brief. We see no mention of any Robinson argument in the trial brief, and the record does not show that the trial court ruled on any motion or objection in these documents relating to Robinson. Therefore, these documents preserved no error. See Tex.R.App. P. 33.1(a)(2); Wilson v. Korthauer, 21 S.W.3d 573, 578 (Tex. App.-Houston [14th Dist.] 2000, pet. denied).
At trial, the court overruled GTE's objections that Coker was not qualified as an expert in the areas in which he offered opinion testimony and that he had no specialized training to give an opinion regarding the brightness of the Building lights. After allowing the Pascouets some time to qualify Coker as an expert witness, GTE objected and took the witness on voir dire, but GTE specified no grounds for its objection. GTE then stated that Coker was not qualified as an expert in the areas in which he offered opinion testimony, and Coker testified further about his qualifications, outside of the presence of the jury. When the trial court asked if GTE had any further argument, GTE responded that it believed that the Pascouets had not "met the standard required under Robinson or Daubert or Rule 702." GTE, however, did not specify the standard that it claimed had not been satisfied. For example, was GTE referring to the requirement that experts be qualified or that their testimony be relevant or that their testimony be reliable? Further, GTE made this general statement as an argument; rather than as an objection. GTE did not object on these grounds when Coker later testified as to his expert opinions. On this record, we hold that GTE did not preserve error as to its objections under Robinson and Rule 702. See The Kroger Co. v. Betancourt, 996 S.W.2d 353, 360-61 (Tex.App.-Houston [14th Dist.] 1999, pet. denied) (objection that expert's testimony was speculative and unreliable preserved no error as to complaint that expert was not qualified to testify as expert); Rendleman v. Clarke, 909 S.W.2d 56, 58 (Tex.App.-Houston [14th Dist.] 1995, writ dism'd) (to preserve error as to erroneous admission of evidence, a party must present to the trial court(1) a timely request, objection, or motion; (2) state the specific grounds of the complaint; and (3) obtain a ruling before the testimony is offered and received).
In any event, we conclude that the trial court did not abuse its discretion in admitting Coker's testimony. Texas Rule of Evidence 702 allows a witness qualified as an expert by knowledge, skill, experience, training, or education to testify on scientific, technical, or other specialized subjects if that testimony will assist the trier of fact in understanding the evidence or in determining a fact in issue. GTE argues that *614 Coker did not satisfy any of the Robinson factors, that there is a vast analytical gap between the facts and his opinions, and that Coker did not base his opinions on any data or other scientifically accepted analysis. GTE also argues that Coker's experience is in land-use planing and that this experience does not allow him to give opinions regarding the Tower and the Building.
In Robinson, the court listed factors that a court may consider in determining whether the testimony of a scientific expert is admissible under Rule 702.[4]Robinson, 923 S.W.2d at 557. In Gammill, however, the court indicated that the six Robinson factors are not as appropriate for non-scientific experts, and the court recognized that, in non-scientific cases, it is impossible to set out specific criteria for evaluating the reliability of expert testimony. Gammill v. Jack Williams Chevrolet, Inc., 972 S.W.2d 713, 725-26 (Tex.1998). Indeed, the court observed that experience alone could provide a sufficient basis for an expert's testimony in some cases. See id. After reviewing Coker's testimony concerning his experience in land use and planning and his familiarity with what typically constitutes a substantial and unreasonable interference with the use and enjoyment of real property, we find that the trial court did not abuse its discretion in determining that Coker's testimony was reliable. See Helena Chem. Co., 47 S.W.3d at 499-501; Gammill, 972 S.W.2d at 725-26. We overrule GTE's third issue.
Was the Evidence Legally and Factually Sufficient to Support the Jury's Nuisance Findings?
In its fourth issue, GTE attacks the jury's findings as to the Pascouets' nuisance claim, arguing that GTE cannot be liable for nuisance as a matter of law because there is no personal injury or physical damage and that there was legally and factually insufficient evidence to support the jury's loss-of-use-and-enjoyment findings.[5]
GTE first asserts that there was no evidence at trial to support nuisance liability because the Pascouets did not prove nuisance per se and because the Pascouets must prove physical injury to their person or property in order to recover on a nuisance in fact claim. GTE's view of nuisance liability is to too narrow. A nuisance is a condition which substantially interferes with the use and enjoyment of land by causing unreasonable discomfort or annoyance to persons of ordinary sensibilities attempting to use and enjoy it. Meat Producers, Inc. v. McFarland, 476 S.W.2d 406, 410 (Tex.Civ.App.-Dallas 1972, writ ref'd n.r.e.), citing Sherman Gas & Elec. Co. v. Belden, 103 Tex. 59, 123 S.W. 119 (1909). A "nuisance per se" is a nuisance at all times and locations. City of Sundown v. Shewmake, 691 S.W.2d 57, 59 (Tex.App.-Amarillo 1985, no writ). A "nuisance in fact" is a condition that is a nuisance because of its particular surroundings. Id.
GTE cites Maranatha Temple, Inc. v. Enterprise Prods. Co., 893 S.W.2d 92, 98-99 *615 (Tex.App.-Houston [1st Dist.] 1994, writ denied) and argues that the Pascouets cannot recover for the loss of use and enjoyment caused by GTE's nuisance unless the Pascouets prove either a nuisance per se or physical damage to persons or property. While dicta in the Maranatha Temple case might be read to support GTE's argument, GTE's assertion that non-physical nuisance damages may only be recovered under a nuisance per se theory is incorrect. The court in Meat Producers rejected any physical damage requirement, stating: "We do not agree that damages to land from nuisance are limited to physical disturbance of the soil or water. A nuisance is by definition a non-trespassory invasion of another's interest in the use and enjoyment of land ... An offensive odor in itself may be sufficient interference with the use and enjoyment of land to entail liability for permanent damage." Meat Producers, Inc., 476 S.W.2d at 410-11. Other cases hold that noise and glaring lighttwo of the Pascouets' complaints in this casecan be a nuisance. See, e.g., Lamesa Co-op. Gin v. Peltier, 342 S.W.2d 613, 616 (Tex.Civ.App.-Eastland 1961, writ ref'd n.r.e.) ("The facts found by the jury show that defendant's proposed use of its property would cause loud noises, glaring lights, dust, odors, smoke and cotton lint to come into plaintiff's home and substantially, materially and `unreasonably' interfere with plaintiff and his family in the proper use and enjoyment of their home..."); City of River Oaks v. Moore, 272 S.W.2d 389, 390 (Tex.Civ.App.-Fort Worth 1954, writ ref'd n.r.e.) (plaintiffs alleged, among other things, that water towers had lights that shined into their bedroom, disturbing their sleep and that gauges and other devices attached to the sides of the towers created loud noises). These cases all involved nuisance in fact rather than nuisance per se. Therefore, GTE's argument that the Pascouets had to prove physical damage or nuisance per se fails.[6]
GTE also contends there was no evidence or factually insufficient evidence to support the jury's damage findings as to loss of use and enjoyment of the Pascouets' property. When "no evidence" and "factual sufficiency" issues are raised on appeal, we address the "no evidence" issue first. Glover v. Texas Gen. Indem. Co., 619 S.W.2d 400, 401 (Tex.1981). In reviewing "no evidence" issues, we consider only the evidence and reasonable inferences therefrom that support the finding in question and disregard all evidence and inferences to the contrary. Texarkana Memorial Hosp., Inc. v. Murdock, 946 S.W.2d 836, 838 (Tex.1997). If there was any evidence of probative force to support the finding, then the issue must be overruled and the finding upheld. Sherman v. First Nat'l Bank, 760 S.W.2d 240, 242 (Tex.1988).
When reviewing a challenge to the factual sufficiency of the evidence, we examine the entire record, considering both the evidence in favor of, and contrary to, the challenged finding. Cain v. Bain, 709 S.W.2d 175, 176 (Tex.1986) (per curiam). After considering and weighing all the evidence, we set aside the verdict only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex.1986). The jury as trier of fact is the sole judge of the credibility of the witnesses and the weight *616 to be given to their testimony. Mayes, 11 S.W.3d at 451. Because we are not the fact finder, we may not substitute our own judgment for that of the trier of fact, even if we would reach a different answer on the evidence. Ellis, 971 S.W.2d at 407. The amount of evidence necessary to affirm a judgment is far less than that necessary to reverse a judgment. Mayes, 11 S.W.3d at 451.
First, GTE alleges there was no evidence to support the jury's award to the Pascouets' for past loss of use and enjoyment of their property. Reviewing the record in the light most favorable to the award, we note that before the erection of the Tower the Pascouets made frequent use of their backyard. The Pascouets testified to a substantial and more or less continuous interference with the use and enjoyment of their property caused by bright lights at night, noisy air conditioners near the Building and close to their property line, and GTE workers servicing the Building near their backyard. GTE workers peeped into the Pascouets' backyard while on service visits. Viewing this evidence in the light most favorable to verdict, and disregarding all evidence to the contrary, we find there was more than a scintilla of evidence supporting the jury's award to the Pascouets for past loss of use and enjoyment of their property. See Minnesota Min. and Mfg. Co. v. Nishika Ltd., 953 S.W.2d 733, 738-39 (Tex.1997).
Thus, we turn to GTE's contention that the evidence is factually insufficient to support the jury's award to the Pascouets' for past loss of use and enjoyment of their property. In nuisance law, loss-of-use-and-enjoyment damages compensate claimants for their personal discomfort, annoyance, and inconvenience. Daniel v. Fort Worth & R.G. Ry. Co., 96 Tex. 327, 72 S.W. 578, 579-80 (1903). The Pascouets testified that the Tower and Building significantly disturbed their once-tranquil lifestyle that included gardening, socializing, dining, and lounging in their backyard. After GTE constructed the Tower and the Building, the Pascouets spent much less time in their backyard than they did before. Mr. Pascouet no longer enjoyed being in his backyard as much as he used to. The bright lights were on every night after sunset until the early morning, lighting up the Pascouets' backyard. Two air conditioners by the Building and proximate to the Pascouets' property alternated running all the time, producing a loud noise that drowned out normal conversation in the backyard. These air conditioners often disturbed the Pascouets' sleep. Mrs. Pascouet testified that she spent a lot of time in the house and that the nuisance caused by the Tower and the Building caused her distress, made her cry, and made her not interested in living in her house any more. The Pascouets testified that they went from about ten years of an idyllic home life to wanting to flee the home they loved.
GTE did not controvert much of the Pascouets' evidence as to loss-of-use-and-enjoyment damages; however, GTE cross-examined the Pascouets' witnesses and experts. That this or any other court may have awarded a lesser or larger sum as fact finders is not material; absent some evidence, implicit or explicit, of jury bias or prejudice, we must give every intendment to the evidence supporting the verdict. Allen v. Whisenhunt, 603 S.W.2d 242, 244-45 (Tex.Civ.App.-Houston [14th Dist.] 1980, writ dism'd w.o.j.). Based on the record before us, neither the amount of the award, nor any other evidence establishes the existence of jury bias or prejudice, nor is the jury's award of past loss-of-use-and-enjoyment damages to the Pascouets so against the overwhelming weight *617 and preponderance of the evidence as to be manifestly wrong and unjust. Id.
GTE also challenges the sufficiency of the evidence supporting the findings as to future nuisance damages. The jury was asked to find the amount of loss-of-use-and-enjoyment damages that the Pascouets in reasonable probability will sustain in the future. Under the "reasonable probability rule" for future damages, Texas courts have consistently held that the award of future damages rests with the sound discretion of the jury. See Rosenboom Mach. & Tool v. Machala, 995 S.W.2d 817, 828 (Tex.App.-Houston [1st Dist.] 1999, pet. denied). Also relevant to determining an award of future damages is the nature of the injury and the plaintiff's condition at the time of trial. Whole Foods Market Southwest, L.P. v. Tijerina, 979 S.W.2d 768, 781-82 (Tex.App.-Houston [14 th Dist.] 1998, pet. denied).
As to future damages, Mrs. Pascouet did not testify at all about whether she would have future damages. Further, Mr. Pascouet testified that the offending lights had been turned off since 1997 and that in April of 1998, GTE built a 12-foot high fence between the Building and the Pascouets' property, so that the workers could not look over the fence into the Pascouets' backyard. Also, in April of 1998, GTE moved the air conditioners to the other side of the Building so that they were farther away. Mr. Pascouet testified that there was no longer a light problem or a problem with GTE workers looking over the fence into the Pascouets' backyard. While the jury has considerable discretion to determine how much, if any future damages to award, the standard of review is not so nebulous that a reviewing court will uphold a jury award for future damages when there was no evidence to support it. See Whole Foods Market Southwest, 979 S.W.2d at 781-82. Mr. Pascouet did testify in a conclusory manner that he believes that the tower will be a continuing nuisance; however, he did not explain what he meant by this. He did not testify that the Tower would continue to cause Mr. and Mrs. Pascouet to suffer loss-of-use-and-enjoyment damages or that there is a reasonable probability that the Pascouets will suffer these damages. Considering only the evidence favorable to the Pascouets and the reasonable inferences therefrom, we find that there was no evidence of a reasonable probability that the Pascouets would incur future loss-of-use-and-enjoyment damages. Therefore, we sustain GTE's fourth issue to the extent that we hold the Pascouets may not recover for future loss-of-use-and-enjoyment damages. See Rosenboom Mach. & Tool, 995 S.W.2d at 828; Whole Foods Market Southwest, 979 S.W.2d at 781-82. In all other respects, we overrule GTE's fourth issue.
Was the Evidence Legally and Factually Sufficient to Support the Jury's Invasion-of-Privacy Findings?
In its fifth issue, GTE argues that there was no evidence to support the jury's findings of mental anguish caused by GTE's intentional intrusion on the Pascouets' solitude, seclusion or private affairs in a way that would be highly offensive to persons with reasonable and ordinary sensibilities. We agree and hold that the Pascouets may not recover for invasion of privacy on this record.
In determining whether there was any evidence that supports the jury's findings of liability and damages for invasion of privacy, we consider only the evidence and reasonable inferences therefrom that support these findings. Texarkana Memorial Hosp., Inc., 946 S.W.2d at 838. Unreasonable inferences do not constitute some evidence to support this claim. *618 Hammerly Oaks, Inc., 958 S.W.2d at 392. The only viable invasion-of-privacy theory that the Pascouets have is their claim that GTE servicemen have intentionally intruded on the Pascouets' seclusion and solitude in a way that would be highly offensive to persons with reasonable and ordinary sensibilities, causing mental anguish. The only evidence in the record of possible liability under this theory is as follows:
Testimony of Mr. Pascouet
Q. How often over the last four years have maintenance men visited the site and looked into your property?
A. We can talk only [sic] the time we have seen them because we could be out of the house and we did not see them, of course; but at a point it was really often.
...
Q. Do you believe that it [the Tower] will continue to invade your privacy?
A. Oh, yes.
...
Q. The 12-foot fence that GTE built keeps people from looking at you from the building, doesn't it?
A. Yes.
Q. So there's no peeping problem any more?
A. No.
...
Q. Do men still climb up that tower?
A. Yes, of course.
Testimony of Mrs. Pascouet
Q. Did GTE maintenance men visit the site both during the day and at night?
A. Yes. It's always been like that, but in the beginning it was a lot more because they were in the process of installing their equipment and they spent a lot of time there.
Q. And would these GTE maintenance men look over into your backyard when you were out there?
A. Yes.
Q. And this has gone on now for over four years?
A. Yes, four and a half years.
Q. Has the GTE tower and building caused you any distress?
A. Yes.
...
Q. Mrs. Pascouet, what effect has this tower had on you?
A. I was very distressed. I cried a lot because of this affair, and I was not interested in living there anymore. I just wasn't interested in living there.
The invasion-of-privacy tort is typically associated with either a physical invasion of a person's property or eavesdropping on another's conversation with the aid of wiretaps, microphones, or spying. Gill v. Snow, 644 S.W.2d 222, 224 (Tex.App.-Fort Worth 1982, no writ), overruled on other grounds by Cain v. Hearst Corp., 878 S.W.2d 577 (Tex.1994). Considering only the evidence and reasonable inferences therefrom that support the jury's finding of invasion of privacy, we hold there was legally insufficient evidence of conduct by GTE employees that was highly offensive to a reasonable person. Id. The mere fact that maintenance workers come to an adjoining property as part of their work and look over into the adjoining yard is legally insufficient evidence of highly offensive conduct. There was no evidence of how often these workers looked, how long, what or who they spied, or even what the Pascouets were doing when the peering apparently progressed. There was legally insufficient evidence that the GTE maintenance workers engaged in highly offensive conduct.
*619 Even had there been some evidence establishing liability for invasion of privacy, there would still be a dearth of evidence of any mental anguish caused by the alleged invasion of privacy by GTE. Mr. Pascouet testified that he never got physically ill due to the Building and Tower and that he never missed a day of work because of these matters. The Pascouets testified that the Building and Tower have caused them anger, stress, distress, anguish, disappointment in Bunker Hill, fear, lost sleep, worry, and embarrassment. The alleged invasion of privacy by GTE was not the stated cause of their anxiety. The jury awarded the Pascouets damages for mental anguish in the past and, in reasonable probability, in the future.
We find that there was no legally sufficient evidence to support the jury's mental anguish awards. In Parkway Co. v. Woodruff, 901 S.W.2d 434 (Tex. 1995), the Supreme Court held that "an award of mental anguish damages will survive a legal sufficiency challenge when the plaintiffs have introduced direct evidence of the nature, duration, and severity of their mental anguish, thus establishing a substantial disruption in the plaintiffs' daily routine." Id. at 444. Courts should "closely scrutinize" awards of mental anguish damages. Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 54 (Tex.1997). After close scrutiny of the evidence in this record and the standard for mental anguish, we hold that there was no evidence to support the jury's mental anguish awards. Gunn Infiniti, Inc. v. O'Byrne, 996 S.W.2d 854, 860-61 (Tex.1999); Phar-Mor, Inc. v. Chavira, 853 S.W.2d 710, 712-13 (Tex. App.-Houston [1st Dist.] 1993, writ denied) (no evidence of mental anguish damages in invasion-of-privacy case). Therefore, we sustain GTE's fifth issue and hold that the Pascouets take nothing on their invasion-of-privacy claims.
Was GTE Entitled to a Pro-Rata Settlement Credit Due to the Pascouets' Settlement with Bunker Hill?
In its sixth issue, GTE argues that the trial court erred by denying GTE the pro-rata settlement credit of $486,500 that it requested under Chapter 32 of the Texas Civil Practice and Remedies Code. We hold that the trial court correctly denied this settlement credit. At trial, the Pascouets argued that Chapter 32 of the Texas Civil Practice and Remedies Code applied to this case. GTE, however, filed a written election seeking the protections of § 33.012(a)a reduction in the amount of damages to be recovered by the claimant by a percentage equal to the claimant's percentage of responsibility, unless the claimant is barred from recovering because his percentage of responsibility is greater than fifty percent. See Tex. Civ. Prac. & Rem.Code § 33.012(a). GTE stated that it made this election under Tex. Civ. Prac. & Rem.Code § 33.014, indicating that, according to GTE, this case was governed by § 33.014, which covers settlement credits.[7] GTE also requested and received comparative-responsibility questions in the jury charge, which resulted in mitigation of GTE's liability in the trial court.
In two post-verdict motions, GTE did seek a settlement credit under Chapter 32 of the Texas Civil Practice and Remedies Code; however, GTE did not seek this relief until after the jury had returned its verdict based on a comparative-responsibility charge under Chapter 33. GTE did not indicate to the trial court that it believed Chapter 32 applied until its post-verdict *620 motions. We hold that GTE is bound by its election and other conduct in the trial court so that the only possible source of a settlement credit would be Chapter 33not the pro-rata credit that GTE seeks under Chapter 32. General Chemical Corp. v. De La Lastra, 852 S.W.2d 916, 919 (Tex.1993); Owens-Corning Fiberglas Corp. v. Schmidt, 935 S.W.2d 520, 523 (Tex.App.-Beaumont 1996, writ denied). GTE has not requested a Chapter 33 settlement credit on appeal; had GTE done so it would have been equally fruitless because GTE did not preserve error by requesting this settlement credit below.[8] Tex.R.App. P. 33.1. Therefore, we overrule GTE's sixth issue.
Did the Trial Court Err by Denying the Pascouets' Requests for Injunctive and Declaratory Relief?
In their first issue on cross-appeal, the Pascouets assert that the trial court clearly abused its discretion by denying their application for a permanent injunction requiring GTE to stop the nuisance and to comply with the Bunker Hill zoning ordinances. Injunctive relief is proper where the applicant demonstrates the following four grounds for relief: 1) the existence of a wrongful act; 2) the threat of imminent harm; 3) the existence of irreparable injury; and 4) the absence of an adequate remedy at law. Hues v. Warren Petroleum Co., 814 S.W.2d 526, 529 (Tex.App.-Houston [14th Dist.] 1991, writ denied). The question of whether a threat of imminent harm exists to warrant injunctive relief is a legal question for the courtnot a factual question for the jury. State v. Texas Pet Foods, Inc., 591 S.W.2d 800, 803-4 (Tex.1979) ("The jury does not determine the expediency, necessity, or propriety of equitable relief ... The determination of whether to grant an injunction based upon the ultimate issues of fact found by the jury is for the trial court, exercising chancery powers"). The trial court had discretion, under its chancery powers, to deny the Pascouets' application for a permanent injunction. Hues, 814 S.W.2d at 529. The grant or denial of a permanent injunction is within the sound discretion of the trial court, and the trial court's action will not be disturbed on appeal absent a clear abuse of discretion. Id. A clear abuse of discretion in denying injunctive relief arises only when the trial court's decision is not supported by some evidence of substantial and probative character. Morris v. Collins, 881 S.W.2d 138, 140 (Tex.App.-Houston [1st Dist.] 1994, writ denied).
The Pascouets argue that the trial court clearly abused its discretion by refusing to permanently enjoin GTE from keeping the Building and Tower in their current location because, the Pascouets assert, the Building and Tower are a continuing nuisance. We conclude that the trial court's decision was supported by some evidence of substantial and probative character and therefore was not an abuse of discretion. Morris, 881 S.W.2d at 140. As we have already discussed, there was substantial evidence from the Pascouets themselves to the effect that GTE has abated the nuisance. Mrs. Pascouet did not testify as to whether she believed there would be a continuing nuisance in the future. Mr. Pascouet did state in a conclusory manner that he believed that the Tower will be a continuing nuisance; *621 however, he did not provide any facts to indicate why he believes there would be a continuing nuisance. Further, Mr. Pascouet testified that, starting sometime in 1997, GTE had turned the lights near the Building off so that "there is no light problem now." Mr. Pascouet also agreed that "there's no peeping problem any more" because, in April of 1998, GTE built a 12-foot high fence between the Building and the Pascouets' property line so that the GTE workers could not look over the fence into the Pascouets' backyard. Also, in April of 1998, GTE moved the air conditioners to the other side of the Building so that they are farther away from the Pascouets' property. While Mr. Pascouet testified that GTE workers were still coming over to climb the Tower, he did not state how often the workers climb the Tower. There was also no testimony that any GTE workers engaged in "peeping" while they were climbing the Tower; their "peeping" was over the fence which apparently ceased when the fence was raised. The trial court heard substantial evidence to support the conclusion that there was no longer a threat of imminent harm to the Pascouets from any common-law nuisance relating to the Building and the Tower. Therefore, the trial court did not abuse its discretion by denying injunctive relief in this regard.
The Pascouets also requested that the trial court do the following: (1) declare GTE, the Tower, and the Building to be in violation of the Bunker Hill zoning ordinances, and (2) enjoin GTE from violating the Bunker Hill zoning ordinances, including a mandatory injunction to move the Tower and Building at GTE's expense. In their first and second issues on cross-appeal, the Pascouets assert that the trial court erred by denying these requests for declaratory[9] and injunctive relief. At times in their briefs, the Pascouets indicate that GTE could move the Tower and the Building to another location on the Municipal Complex, away from the Pascouets' property line. However, the Pascouets requested an injunction against GTE from all future violations of the Bunker Hill zoning ordinances, and, under the Pascouets' interpretation of these ordinances, GTE could not put the Tower anywhere in Bunker Hill, including in the Municipal Complex.
Bunker Hill enacted its zoning ordinances under Chapter 211 of the Texas Local Government Code. See Tex. Local Gov't Code § 211.001, et seq. A violation of an ordinance enacted under Chapter 211 is a misdemeanor offense. Tex. Local Gov't Code § 211.012(b). As allowed by § 211.012(b), the Bunker Hill zoning ordinances provide that each day of each violation of the zoning ordinances is a separate misdemeanor. Id. These ordinances also provide that, upon conviction of each misdemeanor, the defendant shall be fined not more than $2,000 for each offense.
The Pascouets argue that the trial court could have issued an injunction under Tex. Local Gov't Code § 211.012(c). We disagree. Under the unambiguous language of this statute, only Bunker Hill may enforce its zoning ordinances. See Tex. Local Gov't Code § 211.012(c). While the Pascouets did sue Bunker Hill in this case, they dismissed their claims against Bunker Hill before trial. By seeking their injunctive and declaratory relief regarding the Bunker Hill ordinances, the Pascouets tried to usurp the authority given by the *622 legislature to Bunker Hill to enforce its own zoning ordinances through criminal prosecutions or injunctive relief under § 211.012(c). In fact, the Pascouets requested in their petition that the $2,000 fine for each criminal violation should be awarded to the Pascouetsrather than to Bunker Hillbecause Bunker Hill "wholly abrogated its responsibilities with regard to zoning enforcement against GTE's Tower and equipment building." Under the applicable statutes, only Bunker Hill may enforce its zoning ordinances; the Pascouets may not do so. See Tex. Local Gov't Code § 211.012. Therefore, we hold that the district court properly denied the Pascouets' requests for injunctive and declaratory relief regarding the Bunker Hill zoning ordinances.[10]
In any event, the trial court had additional grounds to deny the Pascouets' requests for injunctive and declaratory relief. The Pascouets asked the trial court for relief that would prevent GTE from having a tower anywhere in Bunker Hill, even though the evidence showed that there was a gap in GTE's cellular phone coverage. However, under the FTA, "[t]he regulation of the placement, construction, and modification of personal wireless service facilities by any State or local government or instrumentality thereof... shall not prohibit or have the effect of prohibiting the provision of personal wireless services." 47 U.S.C. § 253 & 332(c)(7)(B)(i). While the FTA did not preempt the Pascouets' claims for nuisance and invasion of privacy, this provision of the FTA preempted state law and bound the trial court. If the trial court granted the Pascouets' requests for injunctive and declaratory relief regarding the zoning ordinances, this relief might have had the effect of prohibiting the provision of personal wireless services in violation of the FTA. The trial court did not err by denying the Pascouets' requests for injunctive and declaratory relief as to the Bunker Hill zoning ordinances. Therefore, we overrule the Pascouets' first and second issues on cross-appeal.
Conclusion
The FTA does not preempt the Pascouets' common-law damage claims. GTE did not preserve error regarding its complaints about the admission of evidence relating to the zoning ordinances. GTE either failed to preserve error or there was no reversible error regarding Coker's testimony. The evidence was legally and factually sufficient to support the Pascouets' recovery of nuisance damages for loss of market value and past loss of use and enjoyment of their property. There was legally insufficient evidence of future loss-of-use-and-enjoyment damages and of liability and damages for the invasion-of-privacy claim. GTE was not entitled to a settlement credit under Chapter 32 of the Texas Civil Practice and Remedies Code.
The trial court did not err by denying the Pascouets' requests for injunctive and declaratory relief because of the lack of evidence that there was an on-going nuisance that needed to be enjoined, because only municipalities can enforce violations of their zoning ordinances under Tex. Local Gov't Code § 211.012(c), and because, under the FTA, state regulation may not prohibit or have the effect of prohibiting the provision of personal wireless services. Therefore, we reverse the following portions of the trial court's judgment: (1) the *623 award to the Pascouets of $540,000 for future nuisance damages; (2) the liability judgment and damages to the Pascouets of $157,500 for invasion-of-privacy; and (3) the portion that awarded the Pascouets prejudgment and postjudgment interest on the foregoing amounts. We render judgment that the Pascouets take nothing on their invasion-of-privacy claims and on their claims for future nuisance damages. We affirm the portions of the trial court's judgment awarding the Pascouets the following relief against GTE: (1) $208,000 in actual damages for past nuisance damages plus $114,884.29 in prejudgment interest[11] and (2) postjudgment interest on the Pascouets' remaining recovery at the rate of ten percent per annum compounded annually from June 21, 1999 until the judgment is paid. We also affirm the trial court's denial of the Pascouets' requests for injunctive and declaratory relief.
NOTES
[1] GTE does not assert that the FTA expressly preempts the Pascouets' claims or that Congress intended the FTA to exclusively occupy the field.
[2] In construing a statute, our objective is to determine and give effect to the legislature's intent. See National Liability and Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex.2000). We presume that the legislature intended the plain meaning of its words. Id. If possible, we must ascertain the legislature's intent from the language it used in the statute and not look to extraneous matters for an intent the statute does not state. Id. When interpreting a statute, we consider the entire act, its nature and object, and the consequences that would follow from each construction. Atascosa County v. Atascosa County Appraisal Dist., 990 S.W.2d 255, 258 (Tex.1999). We must reject any statutory interpretation that defeats the legislative purpose. Id.
[3] In the alternative, the FTA would not preempt the Pascouets' claims because it is not retroactive and because it was enacted in 1996; the Pascouets' claims accrued in 1994. See AviComm, Inc. v. Colorado PUC, 955 P.2d 1023, 1028-29 (Colo.1998) (FTA does not apply retroactively to proceeding commenced before Congress enacted FTA).
[4] These factors are (1) the extent to which the theory has been or can be tested; (2) the extent to which the technique relies upon the subjective interpretation of the expert; (3) whether the theory has been subjected to peer review or publication; (4) the technique's potential rate of error; (5) whether the underlying theory or technique has been generally accepted as valid by the relevant scientific community; and (6) the non-judicial uses which have been made of the theory or technique. Robinson, 923 S.W.2d at 557.
[5] GTE does not challenge the jury's finding of $28,000 in loss of market value.
[6] This argument also fails because GTE failed to preserve error in this regard by either objecting or tendering appropriate instructions and definitions on GTE's theory for the jury questions involving nuisance liability and damages, e.g. a definition of loss of use and enjoyment of property that contains a physical damage requirement.
[7] GTE's election is puzzling because there is nothing in § 33.014 about electing the protections of § 33.012(a). Nonetheless, in its election, GTE did indicate to the trial court that it believed this case to be governed by Tex. Civ. Prac. & Rem.Code §§ 33.012(a) & § 33.014.
[8] Because GTE never made an election between the dollar-for-dollar settlement credit and the sliding-scale settlement credit, GTE would have been deemed to have elected the sliding-scale settlement credit of Tex. Civ. Prac. & Rem.Code § 33.012(b)(2). See Tex. Civ. Prac. & Rem.Code §§ 33.012(b) & 33.014. GTE never requested this settlement credit in the trial court.
[9] At one point in their brief, the Pascouets seem to indicate that the trial court refused to render a declaratory judgment under Tex. Civ. Prac. & Rem.Code Ann. § 37.008 (Vernon 1997). However, we interpret the trial court's judgment as denying the declaratory relief on the merits rather than under § 37.008.
[10] It should also be noted that the statute under which the Bunker Hill zoning ordinances were enacted "does not apply to a building, other structure, or land under the control, administration, or jurisdiction of a state or federal agency." Tex. Local Gov't Code § 211.013(c).
[11] On appeal, GTE has not challenged the trial court's award of prejudgment interest, so we have adjusted the trial court's prejudgment interest award in proportion to the remaining amount of actual damages. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589261/ | 14 So.3d 201 (2007)
EMMANUEL ALEXANDER PERKINS
v.
STATE.
No. CR-06-0940.
Court of Criminal Appeals of Alabama.
July 27, 2007.
Decision of the Alabama Court of Criminal Appeals without opinion Rehearing denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589294/ | 61 S.W.3d 293 (2001)
Iris Mae Dysart (GULLEY), Appellant,
v.
Claude J. WERTH, M.D., Respondent.
No. 24027.
Missouri Court of Appeals, Southern District, Division One.
October 18, 2001.
Motion for Rehearing or Transfer Denied November 13, 2001.
Application for Transfer Denied December 18, 2001.
*294 Donald T. Taylor, Kansas City, for Appellant.
William A. Lynch, Steven Martin Aaron, Shirley Ward Keeler, Kansas City, for Respondent.
ROBERT S. BARNEY, Chief Judge.
Iris Mae Dysart (Gulley), ("Appellant") appeals the judgment of the Circuit Court of Camden County granting a motion for directed verdict filed by Claude J. Werth, M.D., ("Respondent") following evidence presented in Appellant's lawsuit against Respondent for false imprisonment and medical malpractice.[1] Appellant raises three points of error, discussed below.
Appellant was previously married to Earnest Gulley for about 43 years. In 1990 Appellant began counseling with Dr. Kenneth Wilcox ("Dr.Wilcox"), a psychologist, after experiencing marital problems. In the course of her treatment, Dr. Wilcox advised Appellant that she would benefit from treatment with a psychiatrist. Appellant began treatment with Respondent, a licensed psychiatrist, in July of 1993. She informed Respondent that she believed the source of her problems was that she was not happy with her husband. In the course of Appellant's treatment, Respondent prescribed several medications to help combat her depression. Appellant saw Respondent on a recurring basis from July of 1993 until her last session with him on October 31, 1994. Prior to that time, on July 29, 1994, Appellant complained to Respondent that she had suspected her husband of having an affair and did not *295 want her husband to be included in any of her sessions with Respondent.
On the evening of November 21, 1994, Appellant and Mr. Gulley had a heated argument concerning the couple's finances. Eventually, the Camden County Sheriff's Office responded to the residence and Mr. Gulley left the residence to stay elsewhere. The next morning, Appellant went to the Camden County Courthouse to seek an ex parte order of protection from Mr. Gulley. She filled out the paperwork and was advised to return that afternoon.
In the meantime, Mr. Gulley called Respondent to explain his version of what had happened the previous night. Respondent testified that Mr. Gulley had told him that there had been a "big brew-ha-ha... [p]olice cars had arrived. It sounded like things were out of hand." This was not the first conversation the two had regarding Appellant, as Mr. Gulley had contacted Respondent three other times in the days preceding November 22, 1994. There is no record of what was said during these conversations, additionally, either the Sheriff or a Sheriff's deputy had conversations with Respondent relating to Appellant, a fact acknowledged in Appellant's brief.
When Mr. Gulley spoke to Respondent on the morning of November 22, 1994, he informed Respondent that he did not know where Appellant was and that a .38 caliber pistol was missing from the residence. At that point, Respondent advised Mr. Gulley to come to Respondent's office and pick up a letter which Respondent had addressed to the probate court. It read as follows:
It is [Respondent's] opinion, that of her husband, and the Camden County Sheriff's Department that [Appellant] is suffering from Major Depressive Disorder complicated by paranoid delusional thinking. There is no question in my mind that she is potentially injurious to herself and more importantly to her husband.
I am requesting that she be committed to a psychiatric facility for no less than 30 days.
Should you have any questions, please feel free to contact me at any time.
Respondent had signed the letter and had it notarized. Respondent did not make any attempt to contact Appellant that morning and had not spoken with her since her last visit on October 31, 1994.
After receiving this letter from Respondent, Mr. Gulley returned to the probate court and filled out an Application for Detention, Evaluation and Treatment ("application"). See § 632.305, set out in pertinent part, infra.[2] In the application presented to the probate court, Mr. Gulley set out that Appellant had threatened to kill him and threatened to kill herself, and listed the names of two lay witnesses as persons knowing the parties. The docket entry reflects that the "clerk confirmed [a] letter from [Respondent]." The probate court issued its Order for Detention, Evaluation and Treatment, directing Appellant to be placed in the custody of the Director of the Department of Mental Health for a 96-hour observation period. See § 632.305.2. Appellant, who had returned to the courthouse, was taken into custody by the Camden County Sheriff's Office and transported to the Mid Missouri Health Center ("health center") in Columbia, Missouri.
The morning after arriving at the health center, Appellant was seen by Steven Soltys, M.D. ("Dr.Soltys"), the medical director of the health center at that time. Upon speaking with Appellant, Dr. Soltys did not find her to be "psychotic at that *296 time" but wanted to keep Appellant so that the health center could observe Appellant and verify the events as she had related them. The following day was Thanksgiving and the next three days included a holiday and the weekend, therefore Appellant was not seen again by Dr. Soltys until the following Monday. By noon of that day, Dr. Soltys concluded that Appellant was well enough to be released and opined that Appellant was inappropriately committed.
In her first point, Appellant asserts that the trial court erred in granting Respondent's motion for directed verdict in that sufficient evidence was presented to establish a submissible case on the claim of false imprisonment. In point two, Appellant sets out that the trial court "erred in ruling that the physician/patient privilege of [RSMo] 632.425... was waived, and did not allow [Respondent] to present her case concerning [Respondent's] breach of this confidentiality ... [per RSMo 491.060] and no statutory exception occurred...." In her third point, Appellant asseverates that the trial court erred in granting Respondent's motion for directed verdict because Appellant presented sufficient evidence to establish a submissible case of medical malpractice against Respondent.
In reviewing the trial court's granting of a motion for directed verdict, this Court reviews the evidence to determine whether a submissible case was made by Appellant. McNear v. Rhoades, 992 S.W.2d 877, 884 (Mo.App.1999). "In determining whether a submissible case is made, we view the evidence and all reasonable inferences therefrom in the light most favorable to the claimant's case and disregard all evidence to the contrary." Id. Each element that is required to establish liability on the part of Respondent must be supported by substantial evidence, which is "competent evidence from which a trier of fact can reasonably decide the case." Id. A directed verdict is proper if there is not substantial evidence to support one of the elements of a cause of action. Id. "However, a directed verdict is a drastic action and should only be granted if reasonable persons could not differ as to the outcome of the case." Id.
Appellant alleges in her first point that the trial court erred in sustaining Respondent's motion for directed verdict because Appellant presented sufficient evidence to establish a submissible case of false imprisonment. Appellant contends that Respondent's letter requesting that Appellant "be committed to a psychiatric facility for no less than 30 days" was improper and provided the basis for her unlawful detention.
False imprisonment occurs when one individual confines another without legal justification. Bramon v. U-Haul, Inc., 945 S.W.2d 676, 680 (Mo.App.1997); Desai v. SSM Health Care, 865 S.W.2d 833, 836 (Mo.App.1993). The elements of false imprisonment are the detention of an individual against their will coupled with the unlawfulness of the detention. Bramon, 945 S.W.2d at 680. Liability attaches where the evidence shows that the defendant to a suit instigated, caused, or procured the illegal detention. Desai, 865 S.W.2d at 836.
In her brief, Appellant maintains that the actions of Respondent in speaking with Mr. Gulley about her condition and writing the letter "instigated and/or encouraged [Appellant's] arrest and confinement...." She, therefore, argues that she "established a submissible case that [Respondent] caused her to be falsely imprisoned." We do not agree.
We initially take note that it was Mr. Gulley who filed the application seeking Appellant's commitment for mental *297 evaluation.[3] In support of his application it was Mr. Gulley, not Respondent, who recited that Appellant had threatened to kill him and threatened to kill herself. It was Mr. Gulley who had initiated the discussion of his spouse's purported problems with Respondent, which, in turn led to Respondent's letter. It was the probate court that entered the commitment order. The procedures provided by section 632.305 were expressly followed. In this respect the commitment order was completely legal. Furthermore, Appellant has failed to establish, to our satisfaction, that Respondent's actions instigated, caused, or procured her detention. Under similar circumstances in Ussery v. Haynes, 344 Mo. 530, 127 S.W.2d 410 (1939), it was held that liability did not attach to a doctor that testified or provided information concerning an individual, but who did not take part in the actual commitment, unless a claim is made that the doctor provided false or biased information regarding that individual. Id. at 417. Here, Appellant has not demonstrated that Respondent provided false or biased information or otherwise was not acting in good faith when he wrote the letter. We cannot say that the trial court erred in entering a directed verdict on Appellant's count of false imprisonment against Respondent. Point denied.
In her second point, Appellant alleges the trial court erred in ruling that the physician/patient privilege between Appellant and Respondent was waived pursuant to section 632.425.[4] As a result, Appellant argues that she was not allowed to present her case regarding Respondent's breach of [his fiduciary duty of] confidentiality. However, Appellant did not bring an action against Respondent specifically for this breach, which cause of action is recognized in Brandt v. Med. Defense Assocs., 856 S.W.2d 667, 670-71 (Mo. banc 1993); see also § 632.425. Instead, she pursued theories of false imprisonment and medical malpractice.[5]
We observe that in Count I (false imprisonment) Appellant alleged that Respondent *298 gave Mr. Gulley a letter indicating that Appellant "was a threat to herself and/or others." In Count III (medical malpractice), among her allegations, Appellant alleged that Respondent breached his duty of care in "violating his patient's [Appellant's] confidentiality and trust." In our review of the pleadings and the transcript in this case, we find that Appellant was afforded ample opportunity to elicit evidence and testimony supporting the allegations set out in the foregoing pleadings and touching on Respondent's purported "breach of confidentiality," vis-à-vis her claims for false imprisonment and medical malpractice. The trial court's comments at the conclusion of Appellant's case and its judgment make it clear that the trial court directed a verdict in favor of Respondent and against Appellant solely on the basis that Appellant "[did] not establish a submissible case on the claim for false imprisonment and on the claim for medical negligence."
Appellant cites Fierstein v. DePaul Health Ctr., 949 S.W.2d 90 (Mo.App.1997) as support for her argument. We find it is of little assistance to Appellant. In Fierstein, the plaintiff sued a hospital after the hospital prematurely released her medical records to her ex-husband's attorney after receiving a subpoena to provide the records at a deposition. The trial court granted the hospital's motion for summary judgment and the plaintiff appealed. Id. at 91. The Court of Appeals reversed the trial court's ruling, noting that there is a "fiduciary duty of confidentiality not to disclose any medical information received in connection with the treatment of the patient." Id. at 92. "If a physician discloses any information, without first obtaining the patient's waiver, then the patient may maintain an action for damages in tort against the physician." Id. Fierstein simply recognizes that a tort action may lie against a physician for violation of his fiduciary duty of confidentiality. Id.
Appellant has not shown that the trial court ruling materially affected the merits of her action. Rule 84.13, Missouri Court Rules (2001). Point denied.
In her third point, Appellant posits trial court error in sustaining Respondent's motion for directed verdict on Appellant's claim of medical malpractice against Respondent. Appellant argues that sufficient evidence was presented at trial to establish a submissible case of medical malpractice against Respondent.
"The elements of a claim for medical malpractice are: (1) an act or omission by the defendant that failed to meet the requisite medical standard of care; (2) the act or omission was performed negligently, and (3) a causal connection between the act or omission and the plaintiff's injury." Lashmet v. McQueary, 954 S.W.2d 546, 551 (Mo.App.1997).
In this point, Appellant sets out her theory of liability. She asseverates that Respondent "violated the requisite standard of care of an ordinarily skillful, careful and prudent health care provider," by (1) "speaking with an estranged spouse without [Appellant's] permission;" (2) "speaking with a sheriff without any waiver from [Appellant] about [Appellant's] condition ...;" and (3) "preparing a letter recommending [Appellant] for commitment without a face-to-face examination, or even speaking with [Appellant]." She alleges that "but for" the conduct of Respondent, Appellant would not have been committed to the health center. See Long v. Missouri Delta Med. Ctr., 33 S.W.3d 629, 637 (Mo.App.2000).
It is our view, after applying Appellants' pleadings and facts elicited at trial to the elements of a claim for medical malpractice, that Appellant has failed to *299 show a causal connection between Respondent's purported acts or omission and Appellant's "injuries." It is clear that whatever injuries Appellant may have suffered consisted of those personal injuries flowing from her purported false imprisonment, and not personal injuries in the sense of a "hurt or damage to her person, such as a cut or bruise or broken limb...." St. John's Reg. Health Ctr., Inc. v. Windler, 847 S.W.2d 168, 171 (Mo.App.1993). A "duty and breach of duty (negligence elements) are not elements in a false imprisonment case." Id. n. 6.
More importantly, proof of causation in a medical malpractice case, except in cases where the want of skill or lack of care is so apparent as to require only common knowledge and experience to understand and judge it, requires expert testimony. Tillman v. Elrod, 897 S.W.2d 116, 118 (Mo.App.1995). Here Appellant failed to present sufficient expert testimony supporting a conclusion that any of these alleged procedural deficiencies, i.e., violation of medical standards, caused Respondent to offer an erroneous opinion that directly caused Appellant to be committed for an emergency evaluation per section 632.305.3.[6]
There is little basis for an inference that Respondent's opinion would have been different had he seen Appellant face to face before writing his letter. He had been made aware by both the Sheriff or his deputies and Mr. Gulley that there had been an altercation the night previously. He had seen Appellant less than a month earlier and had been treating Appellant for over a year prior thereto. He was fully aware of her emotional and mental status and was aware of her hostility toward her husband. Respondents' office records reflect that Appellant's hostility toward her husband was increasing. Appellant's own expert witness, Dr. James R. Whitten, M.D., acknowledged that if he had recently seen a patient he would have "an insight to the patient." In response to the question, "Doctor, if you had a number of opportunities to work or deal with a patient in the past and that patient calls you, can you get a pretty good idea with that patient what's going on based on your training and experience of talking with people?", he responded, "Well, if I've seen them recently I think I could extrapolate."
Appellant again cites Fierstein as support, discussed supra, but it has little relevancy to her argument. In her pleadings it is clear that Appellant has not sought damages on the basis of a violation of a fiduciary duty of confidentiality, per se. In order for her to prevail on her claim for medical malpractice, Appellant must have presented expert evidence showing that Respondent offered an erroneous opinion that proximately caused her commitment. It is our view that Appellant did not do so. Point denied.
The judgment is affirmed.
SHRUM, P.J., concurs.
MONTGOMERY, J., concurs.
NOTES
[1] Prior to trial she dismissed her counts as to other defendants.
[2] Statutory references are to RSMo 2000.
[3] Section 632.305.1 provides that:
An application for detention for evaluation and treatment may be executed by any adult person, who need not be an attorney or represented by an attorney, including the mental health coordinator [defined as a `mental health professional' employed by the state of Missouri, per § 632.005(11) ], on a form provided by the court for such purpose, and must allege under oath that the applicant has reason to believe that the respondent is suffering from a mental disorder and presents a likelihood of serious harm to himself or to others. The application must specify the factual information on which such belief is based and should contain the names and addresses of all persons known to the applicant who have knowledge of such facts through personal observation.
Section 632.305.2 also provides, in pertinent part, that:
The filing of a written application in court by any adult person ... shall authorize the applicant to bring the matter before the court on an ex parte basis to determine whether the respondent should be taken into custody and transported to a mental health facility.
[4] Section 632.425 reads:
The physician-patient privilege recognized by section 491.060, RSMo, and the psychologist-patient privilege recognized by section 337.055, RSMo, shall be deemed waived in detention proceedings under this chapter. The fact that such privileges have been waived pursuant to this section does not by itself waive the privileges in any other proceeding, civil or criminal. The waiver of the privileges shall extend only to that evidence which is directly material and relevant to detention proceedings.
[5] "The trial court's authority is limited to such questions as are presented by the parties in their pleadings." Cottonhill Inv. Co. v. Boatmen's Nat. Bank, 887 S.W.2d 742, 743 (Mo.App.1994).
[6] In its Order for Detention, Evaluation and Treatment, the trial court did not express the reasons for its order. In our review of section 632.305, we discern that there is no statutory requirement for the probate court to first receive medical or psychiatric expert testimony as a prerequisite to ordering a patient to be detained for evaluation and treatment. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589297/ | 61 S.W.3d 722 (2001)
Harry K. MYERS, Appellant,
v.
Emory WALKER(IRA) Merrill Lynch, Appellee.
No. 11-99-00309-CV.
Court of Appeals of Texas, Eastland.
November 8, 2001.
Rehearing Overruled December 13, 2001.
*725 Timothy A. Duffy, Burleson, Pate & Gibson, Dallas, for appellant.
Scott Scher, Brown, McCarroll & Oaks Hartline, L.L.P., Dallas, for appellee.
Panel consists of: ARNOT, C.J., and WRIGHT, J., and McCALL, J.
Opinion
ARNOT, Chief Justice.
This appeal involves a claim for fraud arising from Harry K. Myers' breach of a settlement agreement. After a bench trial, the trial court entered judgment against Myers for actual damages of *726 $510,000 and exemplary damages of $660,000. We affirm.
Background Facts
Emory Walker, a pharmacist, had a qualified individual retirement account with Merrill Lynch. At the solicitation of Myers, Walker took $200,000, which was approximately two-thirds of his total savings, from his IRA and invested in Insured Medical Claims, Ltd. (IMC). With this investment, "Emory Walker(IRA) Merrill Lynch"[1] became a limited partner of IMC. According to the partnership agreement, IMC was in the business of buying insured, medical accounts receivables at a discount and then collecting them. The medical receivables were to be purchased in units of no more than $5,000. Myers controlled IMC and ran the business. Rather than purchasing insured receivables, Myers diverted most of the money invested by IMC's limited partners to various entities in which Myers also had an interest and which were indebted to one of IMC's general partners, United Mercantile Capital Corporation (UMCC). UMCC, which was also controlled by Myers, was licensed by the Small Business Administration (SBA) as a small business investment company. Because of UMCC's regulatory violations, the SBA called its loans. The diverted monies were ostensibly used to pay the debts owed to UMCC by the various other entities. Before investing in IMC, Walker had rejected Myers' request to borrow money in order to repay a loan to UMCC.
After discovering that IMC was not purchasing receivables, Walker sought the return of his investment from IMC in accordance with the partnership agreement. When IMC did not comply, Walker sued Myers and IMC for breach of contract, breach of fiduciary duties, and fraud (the 1995 lawsuit). Walker also filed a proof of claim in receivership proceedings that had been initiated by the United States Small Business Administration against UMCC.
During court-ordered mediation of the 1995 lawsuit, Myers insisted that Walker withdraw the proof of claim. Myers and Walker entered into a settlement agreement whereby Myers would pay a total of $110,000 in cash and would transfer stock worth $10,000. The cash was to be paid in two initial installments of $25,000 each and two subsequent installments of $30,000 each. The debt was to be secured by 300,000 shares of stock owned by Myers. Pursuant to the settlement agreement, Walker dismissed the 1995 lawsuit. Myers subsequently made both $25,000 payments, and Walker withdrew the proof of claim. Myers then breached the agreement by failing to deliver the stock for security, by failing to transfer the $10,000 worth of stock, and by failing to make either of the $30,000 installments. Walker attempted to modify or re-file his proof of claim but was precluded from doing so because of the expiration of statutory time limits. Walker sued Myers, asserting claims for breach of the settlement agreement and for fraud. The trial court entered judgment and awarded damages on the fraud claim only. Myers appeals from that judgment.
Issues for Review
Myers presents 21 issues for appellate review. In Issues Nos. 1 and 2, Myers *727 contends that the original petition does not support a claim for fraud and that the trial court erred by allowing Walker to file an amended petition. In Issues Nos. 4, 5, and 6, Myers argues that the evidence is legally and factually insufficient to show that Myers had no intent to perform under the settlement agreement, that Myers' representations were material, and that Walker relied on Myers' representations. In Issues Nos. 3, 8, 9, 10, 11, 12, and 13, Myers challenges the trial court's award of actual damages. In Issues Nos. 7, 14, 15, 16, 17, 18, and 19, Myers challenges the trial court's award of exemplary damages. In Issues Nos. 20 and 21, Myers complains that the trial court violated the statutory provisions of TEX. CIV. PRAC. & REM. CODE ANN. § 41.008 (Vernon 1997) in its award of damages.
Walker's Pleadings on Fraud
In the first issue, Myers argues that the trial court erred by permitting Walker to amend the petition after the trial court had heard the evidence in this case but before it signed the judgment. In the second issue, Myers contends that the judgment for fraud is erroneous because the fraud allegations in the original petition failed to allege Myers' intent not to perform. We disagree.
A trial court shall permit a party to amend its pleadings before judgment is entered unless (1) the opposing party presents evidence of surprise or prejudice or (2) the amendment asserts a new cause of action or defense and is, thus, prejudicial on its face. Greenhalgh v. Service Lloyds Insurance Company, 787 S.W.2d 938, 939 (Tex.1990); see TEX.R.CIV.P. 63 & 66. In a case where the trial amendment is not mandatory, the decision to permit or deny the amendment rests within the sound discretion of the trial court and may be reversed only upon the showing of a clear abuse of discretion. State Bar of Texas v. Kilpatrick, 874 S.W.2d 656, 658 (Tex.), cert. den'd, 512 U.S. 1236, 114 S.Ct. 2740, 129 L.Ed.2d 860 (1994).
Walker's original and amended petitions specifically alleged "Fraud" as the "SECOND CAUSE OF ACTION." The petitions stated:
18. At or about the time that Defendant Myers entered into the Settlement Agreement, he represented, assured, and promised Plaintiff, both through the promises and covenants contained in the Settlement Agreement and otherwise, that Defendant Myers would comply with and perform each of the terms of the agreement and that Plaintiff would not be required to institute any action or undertake any proceedings to enforce the terms thereof. While Plaintiff was understandably reluctant to enter into a settlement that required payments over time, yet required him to release the Prior Litigation and the UMCC Proof of Claim, Defendant Myers represented to Plaintiff that the releases were essential to assist UMCC and Defendant and to ensure that adequate resources would be available to perform under the Settlement Agreement.
19. The foregoing representations, including but not limited to the promises contained in the Settlement Agreement, were material, were made by Defendant with the intention that Plaintiff rely thereon and were relied upon by Plaintiff in entering into the Settlement Agreement.
20. Notwithstanding the foregoing, the above-referenced representations were false when made, were never intended by Defendant to be performed and Plaintiff (sic) [Defendant] knew, or reasonably should have known, of the falsity thereof. Defendant made each of *728 the misrepresentations to wrongfully induce Plaintiff to execute the Settlement Agreement and to release the claims asserted in the Prior Litigation and the UMCC Proof of Claim. (Emphasis added)
The underlined language was not included in the original petition but was contained in the amended petition.
We hold that the trial court did not abuse its discretion by allowing Walker leave to file the amended petition. The amended petition did not assert a new cause of action. Walker's original petition clearly stated that his second cause of action was for fraud and that the fraud was committed when Myers fraudulently induced Walker to enter into the settlement agreement by making material misrepresentations. Myers opposed the amendment and attempted to show that he would be prejudiced. The trial court rejected Myers' opposition. Because the amended petition did not materially alter Walker's claims, we hold that the trial court did not abuse its discretion in allowing the amendment. Consequently, the first and second issues for review are overruled.
Evidence of Fraud
In the fourth, fifth, and sixth issues, Myers argues that there is no evidence and that the evidence is insufficient to support the following findings: at the time he entered into the settlement agreement, Myers did not intend to perform his obligations thereunder; Walker relied upon Myers' representations; and the representations were material. In addressing a no-evidence point, we must view the evidence in the record in a light which tends to support the finding of the disputed fact and disregard all evidence and inferences to the contrary. If there is any evidence of probative force to support the finding, the no-evidence point must be overruled. Weirich v. Weirich, 833 S.W.2d 942, 945 (Tex.1992); In re King's Estate, 150 Tex. 662, 244 S.W.2d 660 (Tex. 1951); see also Merrell Dow Pharmaceuticals, Inc. v. Havner, 953 S.W.2d 706, 711 (Tex.1997), cert. den'd, 523 U.S. 1119, 118 S.Ct. 1799, 140 L.Ed.2d 939 (1998). In order to determine if the evidence is factually sufficient, we must review all of the evidence and determine whether the challenged finding is so against the great weight and preponderance of the evidence as to be manifestly unjust. Pool v. Ford Motor Company, 715 S.W.2d 629 (Tex. 1986); In re King's Estate, supra.
In general, fraud consists of the following elements: a material misrepresentation that was false, that was either known to be false when made or was asserted without knowledge of its truth, that was intended to be acted upon, that was relied upon, and that caused injury. Formosa Plastics Corporation USA v. Presidio Engineers and Contractors, Inc., 960 S.W.2d 41, 47 (Tex.1998); Sears, Roebuck & Company v. Meadows, 877 S.W.2d 281, 282 (Tex.1994); DeSantis v. Wackenhut Corporation, 793 S.W.2d 670, 688 (Tex. 1990), cert. den'd, 498 U.S. 1048, 111 S.Ct. 755, 112 L.Ed.2d 775 (1991). A promise of future performance constitutes an actionable misrepresentation if the promise was made with no intention of performing at the time it was made. Formosa Plastics Corporation USA v. Presidio Engineers and Contractors, Inc., supra at 48. Although a party's intent is determined at the time the party made the representation, it may be inferred from the party's actions after the representation is made. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex.1986). The intent to defraud generally must be proven by circumstantial evidence. Spoljaric v. Percival Tours, Inc., supra at 435. Although *729 the mere failure to perform a contract is not evidence of fraud, even slight circumstantial evidence of fraud is sufficient to support a finding of fraudulent intent when considered with the breach of a promise to perform. Spoljaric v. Percival Tours, Inc., supra; see also Formosa Plastics Corporation USA v. Presidio Engineers and Contractors, Inc., supra.
In this case, Walker presented evidence that Myers was an attorney and that he had intentionally and deceitfully avoided service of process in the 1995 lawsuit. Walker also showed that Myers had insisted that he withdraw the UMCC proof of claim as a requirement to settle the 1995 lawsuit. Walker testified that the UMCC release was important to Myers and that Myers wanted it done immediately. Walker's proof of claim was the only one that had been filed in the UMCC receivership. Walker also testified that, after reaching an agreement during mediation whereby he would withdraw the proof of claim after Myers made the second payment, Myers attempted to change the terms of the agreement. He sent Walker a written settlement agreement that required Walker to withdraw the proof of claim before Myers made any payments. After Walker rejected the new terms, a compromise settlement agreement was signed that reflected the mediated terms. Shortly after delivery of the final draft, Myers again requested that Walker execute a withdrawal of the proof of claim. Myers failed to deliver the $10,000 worth of stock that was due about 5 months after the final agreement was signed. Myers also failed to tender the 300,000 shares of stock to secure his debt. The settlement agreement stated that these shares were owned by Myers and that Myers was to deliver them to Walker within 60 days of the settlement agreement. Myers never delivered the stock certificates, and he subsequently failed to make either of the $30,000 installments. Walker testified that he relied upon Myers' representations. Walker also testified that the conditions of the settlement agreement with Myers were important to his decision to dismiss the 1995 lawsuit and to withdraw the proof of claim.
We hold that the evidence is both legally and factually sufficient to support the challenged findings on the issues of intent, reliance, and materiality. Issues Nos. 4, 5, and 6 are overruled.
Actual Damages
In Issues Nos. 3, 10, 11, 12, and 13, Myers contends that Walker was not entitled to damages for mental anguish or emotional distress and that Walker should have been limited to loss-of-benefit damages of $70,000 because he did not request consequential or special damages in his pleadings, because no pleading supported the award of mental anguish damages, because mental anguish damages are not permissible in a tort suit related to the breach of a contract, because the evidence is legally and factually insufficient to support the award of $360,000 in damages for mental anguish, and because the named plaintiff is a non-person who cannot suffer mental anguish. In Issues Nos. 8 and 9, Walker contends that the evidence is legally and factually insufficient to support the award of $510,000 in actual damages.
Walker pleaded that he had been damaged as a result of Myers' fraud and that the amount of damages was within the jurisdictional limits of the trial court. Myers correctly asserts that Walker's pleadings did not contain a claim for mental anguish or for special damages. See TEX.R.CIV.P. 56 (claims for special damages must be stated in pleadings). The record shows, however, that the trial court did not expressly include a recovery *730 for mental anguish. The trial court awarded actual damages in the lump sum of $510,000 in the judgment and stated in a finding of fact that Walker had "suffered direct and economic damages of at least $510,000." Mental anguish was not mentioned in the judgment or the findings of fact. Further, actual damages for fraud, including either the benefit-of-the-bargain measure or the out-of-pocket measure, need not be explicitly pleaded because they are direct, general damages from the fraud, rather than special damages. Green v. Allied Interests, Inc., 963 S.W.2d 205, 208 (Tex.App.-Austin 1998, pet'n den'd). Although Walker's pleadings were inartful, we find that they were sufficient to support the trial court's findings in this case.
The record does show, however, that the trial court allowed Walker to testify over objection about his mental anguish. Walker testified that he had suffered mental anguish because of Myers' actions and that he was requesting $360,000 in damages for his mental anguish, emotional distress, and pain and suffering. Walker testified that he was financially unable to retire because of Myers' fraudulent acts. Walker, who was almost 73 years old at the time of trial, testified that his hearing was impaired which made it difficult to hear prescriptions over the phone, that he had to stand on his feet hours a day, and that the situation had caused hardships in his life and in his relationship with his wife (who was "violently opposed" to the investment Walker made in IMC). Walker also requested $150,000 ($200,000 initial investment less the $50,000 received from Myers) in damages for his actual economic loss. The trial court awarded damages in the amount requested by Walker in his testimony, but the court awarded actual damages in one lump sum and did not expressly award any damages for mental anguish or emotional distress.
Neither the trial court's judgment nor the findings of fact reflect that any of the damages were awarded to Walker for mental anguish; therefore, the issues related to the award of mental anguish damages are overruled. Furthermore, we note that tort damages may be recovered in a cause of action for fraudulent inducement even though the fraud is related to the breach of a contract. Formosa Plastics Corporation USA v. Presidio Engineers and Contractors, Inc., supra at 46-47. We also note that Myers did not preserve a complaint regarding the capacity of the named plaintiff, a non-person IRA account that was itself not a legal entity but clearly referred to Walker. See TEX.R.CIV.P. 28 & 93. We overrule Issues Nos. 3, 10, 11, 12, and 13.
In order to address Myers' legal and factual sufficiency challenges in Issues Nos. 8 and 9, we will apply the well-recognized standards of review stated previously in this opinion.[2] Texas recognizes two measures of direct damages for fraud: the benefit-of-the-bargain measure and the out-of-pocket measure. Benefit-of-the-bargain damages allow recovery for the difference between the value as represented and the value received. Out-of-pocket *731 damages allow recovery for the actual injury suffered, which is measured by the difference between the value of that which the injured party has parted with and the value actually received. Fortune Production Co. v. Conoco, Inc., 52 S.W.3d 671, 681 (Tex.2000); Formosa Plastics Corporation USA v. Presidio Engineers and Contractors, Inc., supra at 49.
In this case, the out-of-pocket damages actually suffered by Walker include the value of what he parted with in consideration for the settlement agreement. See Samedan Oil Corporation v. Intrastate Gas Gathering, Inc., No. 12-99-00242-CV, 2001 WL 1153443 (Tex.App.-Tyler Sept. 28, 2001, no pet'n h.). Walker parted with his causes of action in the 1995 lawsuit and the UMCC proof of claim. In addition to his testimony regarding mental anguish damages of $360,000 and the loss of $150,000 from his IRA account, Walker also testified regarding the damages that he had requested in his 1995 lawsuit and in the UMCC proof of claim. In the 1995 lawsuit, Walker sought actual damages "in excess of $800,000" for breach of fiduciary duties and exemplary damages of at least $600,000. In that lawsuit, Walker also sought actual damages of "at least $200,000" for breach of contract and for fraud. In the proof of claim, Walker sought $200,000 in actual damages and $600,000 in exemplary damages. As proof of the value of the 1995 lawsuit and the proof of claim, Walker offered testimony and documentary evidence tending to prove the claims he made in those suits. Walker further testified that he had lost investment returns of at least $10,000 per year. Walker actually received $50,000 from Myers pursuant to the settlement agreement. We hold that the evidence is both legally and factually sufficient to show that Walker's out-of-pocket damages were at least $510,000. Issues Nos. 8 and 9 are overruled.
Punitive Damages
In Issues Nos. 7, 14, and 19, Myers contends that the award of exemplary damages is inappropriate because Walker did not prove a distinct tortious injury, because the award for actual damages is inappropriate, and because Walker failed to show actual malice. Exemplary damages may be awarded if the claimant proves by clear and convincing evidence that the harm for which he seeks recovery of exemplary damages resulted from fraud or malice. TEX. CIV. PRAC. & REM. CODE ANN. § 41.003(a)(1) (Vernon 1997). Walker pleaded and proved that Myers fraudulently induced him to enter into the settlement agreement. This type of claim supports the award of tort damages, including exemplary damages, regardless of whether the injury is distinct from any permissible contractual damages. Formosa Plastics Corporation USA v. Presidio Engineers and Contractors, Inc., supra at 46-47. Furthermore, we have upheld the award of actual damages in this case. Thus, we overrule Issues Nos. 7, 14, and 19.
In Issues Nos. 15, 16, 17, and 18, Myers challenges the legal and factual sufficiency of the evidence in support of the exemplary damages and asserts that the exemplary-damage award is not reasonably proportional to the actual-damage award. We disagree. The trier of fact has discretion in determining whether to award exemplary damages. TEX. CIV. PRAC. & REM. CODE ANN. § 41.010 (Vernon 1997). We must review the award of exemplary damages with careful scrutiny to ensure that the award is supported by the evidence, and we may vacate the award or suggest a remittitur only if the award is "so factually insufficient or so *732 against the great weight and preponderance of the evidence as to be manifestly unjust." Transportation Insurance Company v. Moriel, 879 S.W.2d 10, 30 (Tex. 1994). In order to determine if the exemplary damages awarded were reasonable, we consider factors such as the following: (1) the nature of the wrong, (2) the character of the conduct involved, (3) the degree of culpability of the wrongdoer, (4) the situation and sensibilities of the parties concerned, and (5) the extent to which such conduct offends a public sense of justice and propriety. Alamo National Bank v. Kraus, 616 S.W.2d 908, 910 (Tex. 1981).
In this case, Walker brought forth evidence showing the nature of the wrong. Myers fraudulently induced Walker to enter into a settlement agreement. In doing so, Walker was precluded from litigating the causes of action asserted in the 1995 lawsuit and the UMCC proof of claim. Walker showed the culpable character of Myers' conduct and the continuing pattern of that conduct. Myers, an attorney, took advantage of Walker, leaving him financially unable to retire at the age of 73, and then fraudulently induced Walker to settle his claims against Myers. Myers ceased performing under the settlement agreement as soon as Walker dismissed the 1995 lawsuit and withdrew the UMCC proof of claim that was so important to Myers. We hold that this evidence is sufficient to support the award of exemplary damages in the amount of $660,000, that the award is not excessive, that it is reasonable, and that the trial court did not abuse its discretion by awarding exemplary damages in this case. Issues Nos. 15, 16, 17, and 18 are overruled.
Section 41.008
In the final two issues, Myers complains that the trial court violated Section 41.008 by failing to separate economic damages from compensatory damages and by awarding punitive damages that exceeded the statutory cap. We disagree. Section 41.008 provides in relevant part:
(a) In an action in which a claimant seeks recovery of exemplary damages, the trier of fact shall determine the amount of economic damages separately from the amount of other compensatory damages.
(b) Exemplary damages awarded against a defendant may not exceed an amount equal to the greater of:
(1)(A) two times the amount of economic damages; plus
(B) an amount equal to any noneconomic damages found by the jury, not to exceed $750,000; or
(2) $200,000.
(c) Subsection (b) does not apply to a cause of action against a defendant from whom a plaintiff seeks recovery of exemplary damages based on conduct described as a felony in the following sections of the Penal Code if, except for Sections 49.07 and 49.08, the conduct was committed knowingly or intentionally:
(10) Section 32.45 (misapplication of fiduciary property or property of financial institution);
(11) Section 32.46 (securing execution of document by deception).
Myers' fraudulent conduct fell within the exceptions enumerated in Section 41.008(c). See Konkel v. Otwell, No. 11-00-00292-CV, 2001 WL 1298738 (Tex. App.-Eastland Oct. 25, 2001, no pet'n h.). Therefore, the statutory cap under Section 41.008(b) does not apply in this case. Because the cap does not apply, there was no error in failing to separate the economic damages from the other compensatory damages (if any) as required by Section *733 41.008(a). Issues Nos. 20 and 21 are overruled.
The judgment of the trial court is affirmed.
NOTES
[1] Although "Emory Walker(IRA) Merrill Lynch" was the named limited partner and the named plaintiff in the lawsuits, we will use the term Walker to refer to the plaintiff/appellee because Walker's IRA account at Merrill Lynch is not a legal entity and because Myers did not complain at trial about the plaintiff's name or capacity. See TEX. R.CIV.P. 28 & 93.
[2] For a no-evidence point, we must view the evidence in the record in a light which tends to support the finding of the disputed fact and disregard all evidence and inferences to the contrary. If there is any evidence of probative force to support the finding, the no-evidence point must be overruled. Weirich v. Weirich, supra; In re King's Estate, supra; see also Merrell Dow Pharmaceuticals, Inc. v. Havner, supra. For a factual sufficiency challenge, we must review all of the evidence and determine whether the challenged finding is so against the great weight and preponderance of the evidence as to be manifestly unjust. Pool v. Ford Motor Company, supra; In re King's Estate, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589925/ | 972 So.2d 269 (2008)
AMERICAN EXPRESS BANK INTERNATIONAL, Appellant,
v.
INVERPAN, S.A., a Panamanian corporation, Anna Hochman Britten and Haim Hochman, Appellees.
Nos. 3D07-678, 3D07-383.
District Court of Appeal of Florida, Third District.
January 9, 2008.
Mase & Lara and Joel V. Lumer; Kahan Shir PL and Paul E. Heimberg, Boca Raton, for appellant.
Meland, Russin & Budwick, Miami, and Peter D. Russin and Deborah B. Jofre, for appellees.
Before COPE and WELLS, JJ., and FLETCHER, Senior Judge.
PER CURIAM.
American Express Bank International appeals an amended final judgment awarding attorney's fees to Inverpan, S.A.[1] We reverse.
Inverpan, S.A., Anna Hochman Britten and Haim Hochman [collectively "plaintiffs"] sought account statements and related documents pertaining to Ms. Britten and Inverpan's accounts at American Express. When they were unable to obtain those documents from American Express, they filed an action against American Express seeking a judgment permitting discovery to obtain that information and any other documents pertaining to the accounts.[2],[3] In pertinent part, the amended *270 complaint alleged that the plaintiffs had retained a law firm and that they are obligated to pay that firm attorney's fees and costs. Neither the body of the complaint nor the "wherefore" clause includes a demand or request for fees. American Express filed an answer and questioned the law firm's authority to represent one or more of the defendants. As to the attorney's fee allegation, American Express stated that it was without knowledge, denied the allegation, and requested strict proof thereof. Subsequently, the plaintiffs filed a motion for summary judgment, which contained a demand for attorney's fees. The trial court entered summary judgment in favor of the plaintiffs on their claim for discovery of the account documents. Following two agreed motions for enlargement of time, the plaintiffs filed a motion for attorney's fees based on the account application and agreement and the incorporated contract ("Rules and Regulations Governing Accounts") between American Express and Inverpan. At the hearing, American Express objected to the fee award on several bases, including the failure to plead sufficiently a request for fees. The court rejected American Express' arguments and entered a judgment and an amended judgment for attorney's fees in favor of Inverpan.[4] American Express appeals.
American Express correctly argues that Inverpan waived its claim for attorney's fees by failing to request a fee award in its initial or amended complaint. As the court held in Stockman v. Downs, 573 So.2d 835, 837-38 (Fla.1991), "a claim for attorney's fees, whether based on statute or contract, must be pled. Failure to do so constitutes a waiver of the claim." See Caufield v. Cantele, 837 So.2d 371, 377-78 (Fla.2002); Scruggs v. Sutton, 970 So.2d 853 (Fla. 3d DCA 2007). Here, Inverpan failed to file any pleading requesting such relief. Its complaint merely stated that it had retained counsel and was obligated to pay fees to that firm. That allegation does not "plead specifically a request for attorney's fees" and is therefore insufficient.[5]See Res Panel Refrigeration Corp. v. Bill Collins Refrigeration Servs., Inc., 636 So.2d 569, 570 (Fla. 3d DCA 1994). In addition, Inverpan's subsequent filing of its motion for summary judgment requesting an award of fees does not justify a fee award. The request for such relief in a summary judgment motion does not satisfy Stockman. See Green v. Sun Harbor Homeowners' Ass'n, 730 So.2d 1261, 1263 (Fla. 1998) ("This Court's use of the phrase `must be pled' is to be construed in accord with the Florida Rules of Civil Procedure. Complaints, answers, and counterclaims are pleadings pursuant to Florida Rule of Civil Procedure 1.100(a)."); Sardon Found. v. New Horizons Serv. Dogs, Inc., 852 So.2d 416, 421 (Fla. 5th DCA 2003); Taylor v. T.R. Props., Inc. of Winter Park, *271 603 So.2d 1380, 1381 (Fla. 5th DCA 1992). Furthermore, the record does not show that American Express waived its objection to the failure to plead a claim for attorney's fees. See Stockman, 573 So.2d at 838; Sardon Found., 852 So.2d at 421-22; Taylor, 603 So.2d at 1381. Accordingly, we hold that Inverpan waived its claim for attorney's fees. The resolution of this issue renders moot the remaining points on appeal. The amended judgment awarding attorney's fees to Inverpan is therefore reversed.
Reversed.
NOTES
[1] Initially, the court entered a final judgment awarding fees. The amended judgment added a cost award.
[2] The plaintiffs alleged that all of their account documents had been destroyed in a fire.
[3] In response to the initial complaint, American Express filed a motion for an order requiring proof of the authority of plaintiffs' counsel to represent Ms. Britten. American Express also filed an answer denying the complaint allegations and asserting that the complaint named the incorrect corporate entity as the defendant. Plaintiffs filed a response to the motion requesting attorney's fees for filing that response. Subsequently, plaintiffs filed an amended complaint which named the proper party defendant.
[4] The judgment does not award fees to Ms. Britten or Haim Hochman.
[5] Inverpan's reliance on Florida Rule of Civil Procedure Forms 1.934 and 1.944 is misplaced. Those forms involve claims on a promissory note and for a mortgage foreclosure, respectively, and are inapplicable to the claim at issue. See Fla. R. Civ. P. 1.900(b) ("The . . . forms are sufficient for the matters that are covered by them."); see also Buchanan & Crowder, Inc. v. Kreamer, 120 Fla. 203, 162 So. 500, 501 (1935) (holding sufficient an allegation that plaintiffs are obligated to pay their attorney a reasonable fee "`to be fixed by this Court by reason whereof Plaintiffs claim of and from the defendants . . . a reasonable Attorney's fee . . . to be determined by this Court'") (emphasis added). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589940/ | 972 So.2d 1237 (2007)
Ammon L. MILLER, Jr.
v.
Desiree CHARBONNET as Recorder of Mortgages for Orleans Parish and Henderson Condominium Association, Inc.
No. 2007-CA-0646.
Court of Appeal of Louisiana, Fourth Circuit.
December 5, 2007.
John O. Pieksen, Jr., John Pieksen & Associates, LLC, Ammon L. Miller, Jr., Law Office of Ammon L. Miller, Jr., New Orleans, LA, for Plaintiff/Appellee.
T. Gregory Schafer, Schafer & Schafer, New Orleans, LA, for Defendant/Appellant.
(Court composed of Chief Judge JOAN BERNARD ARMSTRONG, Judge CHARLES R. JONES, Judge EDWIN A. LOMBARD).
EDWIN A. LOMBARD, Judge.
This appeal by defendant/appellant Henderson Condominium Association, Inc. ("the condominium association"), is from the trial court judgment granting the petition for a writ of mandamus filed by plaintiff/appellee Ammon L. Miller and ordering Desiree Charbonnet, as recorder of mortgages for the Parish of Orleans, to cancel the lien obtained by the defendants on the plaintiffs property. After review of the record in light of the applicable law and arguments of the parties, we affirm the judgment of the trial court.
Relevant Facts and Procedural History
In June 1996, the plaintiff purchased a condominium, Unit 312 at 700 Commerce Street in New Orleans, Louisiana. A dispute arose over payment of association dues between the plaintiff and the association and, in June 2006, without written notice to the plaintiff, the association filed a claim of privilege on the plaintiffs condominium which was recorded on June 28, 2006 in the mortgage records of Orleans Parish. On February 1, 2007, the plaintiff filed a petition for a writ of mandamus, seeking cancellation of the privilege, alleging that it was invalid because the defendant association knowingly filed an inaccurate statement of lien, ignored the plaintiffs repeated requests of an accounting and continued dispute of the amount allegedly owed, failed to provide prior notice of the filing of the lien as required by La.Rev.Stat. 9:1123.115, and never afforded the plaintiff an opportunity to formally dispute the amount allegedly due.
After a hearing held on February 16, 2007, the trial judge issued a written judgment signed on March 5, 2007, granting the plaintiffs petition for a writ of mandamus, *1239 ordering the recorder of mortgages to cancel the defendant's statement of lien on the plaintiffs property but deferring the issues of cost and attorney fees pending further proceedings by the defendant. On April 13, 2007, the defendant filed a timely petition for a suspensive appeal which was granted on April 16, 2007.
On May 29, 2007, the plaintiff/appellee filed a motion in this court to dismiss the appeal, arguing that the appeal was not timely filed within the delays provided for in La.Code Civ. Proc. art. 2123. On June 19, 2007, the plaintiffs motion was denied.
Discussion
On appeal, the defendant/appellant argues that the trial judge erred in finding that preservation of the privilege set forth in La.Rev.Stat. 9:1123.115 is dependent upon the condominium association serving upon the delinquent unit owner a sworn detailed statement of its claim at least seven days before the filing into the registry of privilege. However, nothing in the record indicates that the trial judge made such a finding. Specifically, no written reasons for judgment were issued and, although the appellant alleges that the trial judge cited its failure to comply with the written notice requirement of La.Rev.Stat. 9:1123.115(A)(3) as the basis for her judgment, there is nothing in the record to support the defendant's allegation. Thus, the only issue before the court is whether the trial judge was clearly wrong in granting the plaintiff's petition for a writ of mandamus and ordering the recorder of mortgages to cancel the defendant's statement of lien on the plaintiffs property.
Clearly, Lambert Bros., Inc. v. Ziegler, 361 So.2d 948 (La.App. 4 Cir.1978), the case cited by the defendant as authority, is not persuasive to the issue before the court. In Lambert, the question before the court was "whether the materialman has sufficiently followed the procedure of R.S. 9:4802 so as to preserve the privilege[1] which the law expressly granted." Lambert, 361 So.2d at 950 (emphasis added). Because the materialman in Lambert served the property owner by certified mail rather than registered mail as required by the statute, the court found in favor of the materialman, reasoning in dicta that the statute did "not purport to make preservation of the privilege depend upon service upon the owner" and, in any event, under La.Rev.Stat. 9:4802 recording the claim "is, apparently, a prerequisite only to the owner's personal liability [because] § 4806 provides that, if the bond is successfully objected to (but the contract was timely recorded), the owner is personally liable to claimants `who Recorded and served their claims as provided in R.S. 9:4802 . . .'" Lambert Bros., 361 So.2d at 951. Notably, this reasoning has never been cited or adopted by any court.
The statute at issue in this case, the Louisiana Condominium Act of 1974, provides that a condominium association shall have a privilege on a condominium parcel for all unpaid sums assessed by the association but that, at least seven days prior to filing a claim of privilege for registry in the mortgage record office, "[t]he association shall . . . serve upon the delinquent unit owner a sworn detailed statement of its claim for the delinquent assessment, which service shall be effected by personal service, or registered or certified mail." La.Rev.Stat. 9:1123.115(A)(3). The defendant association does not dispute that it failed to comply with this provision, arguing only that an examination of the statute "exhibits" that recordation of the claim is *1240 sufficient because the court in Lambert Brothers reasoned in dicta that recordation of a claim suffices to preserve a materialman's privilege.
First, as previously noted, there is nothing in the record to indicate the specific basis of the trial judge's judgment. The defendant does not dispute its failure to comply with the provision of the relevant statute which clearly requires service upon a delinquent unit owner of the association's claim prior to filing a claim of privilege with the recorder of mortgages. Moreover, unlike Lambert where notice had been served by certified mail, the lack of any written notice to the property owner prior to an action that could result in a deprivation of his property rights must raise a due process concern. Accordingly, under the circumstances of this case, we find no error in the trial court judgment granting the plaintiff's petition for a writ of mandamus.
Finally, the plaintiff/appellee contends in his brief that this appeal is moot because the defendant filed a second lien in the mortgage records on March 26, 2007, after the trial court issued the writ canceling the first lien but before this appeal was filed. A review of the record indicates that the plaintiff made reference to the filing of the second lien but did not raise it as an issue in his motion to dismiss the appeal which was denied by this court. Moreover, although a copy of the second lien is attached to the plaintiff's brief, it is not a part of the record on appeal and, accordingly, the issue is not properly before this court.
Conclusion
For the foregoing reasons, the judgment of the trial court is affirmed.
AFFIRMED.
NOTES
[1] "Privilege is a right, which the nature of the debt gives to the creditor, and which entitles him to be preferred before other creditors, even those who have mortgages." La.Civ. Code art. 3186. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589954/ | 270 S.W.3d 192 (2008)
The PRUDENTIAL INSURANCE COMPANY OF AMERICA and Four Partners, Llc d/b/a Prizm Partners and d/b/a United Commercial Property Services, Appellants,
v.
ITALIAN COWBOY PARTNERS, LTD., Francesco Secchi, and Jane Secchi, Appellees.
No. 11-05-00264-CV.
Court of Appeals of Texas, Eastland.
July 24, 2008.
Rehearing Overruled October 9, 2008.
*195 G. Luke Ashley, John A. Mackintosh, Jr., Richard B. Phillips, Jr., Thompson & Knight, L.L.P., Dallas, TX, for Appellants.
Luke Madole, Ricardo Rochetti, Thomas F. Allen, Carrington, Coleman, Sloman & Blumenthal, L.L.P., Dallas, TX, for Appellees.
Panel consists of WRIGHT, C.J., McCALL, J., and STRANGE, J.
OPINION
JIM R. WRIGHT, Chief Justice.
Asserting causes of action for statutory fraud, common-law fraud, negligent misrepresentation, mistake, breach of warranty of suitability, constructive eviction, and breach of the covenant of quiet enjoyment, Italian Cowboy Partners, Ltd. (ICP), Francesco Secchi, and Jane Secchi sued the Prudential Insurance Company of America and Prizm Partners in connection with the lease of restaurant property.[1] Prudential filed a counterclaim against ICP for unpaid rent and other damages. It also filed a counterclaim against the Secchis for breach of a personal guaranty. After a bench trial, the trial court entered judgment for ICP and the Secchis for $1,286,084.60. It also awarded appellate attorney's fees of $75,000 in the event of an appeal to the court of appeals, $40,000 if a "petition for review is made" to the supreme court, and $25,000 in the event the petition is granted by the supreme court. The trial court also awarded $50,000 as exemplary damages against Four Partners, LLC d/b/a Prizm Partners and d/b/a United Commercial Property Services.[2] The trial court also denied Prudential's counterclaims. We reverse and render judgment that ICP and the Secchis take nothing. We reverse and remand on the issue of Prudential's damages and attorney's fees.
Background Facts
The Secchis had been in the restaurant business as operators or owners for about twenty-three years. They had been involved in the restaurant business in the Dallas area since1981. In 1983, the Secchis opened, with financial help from investors, a restaurant known as Ferrari's. Ferrari's was an upscale restaurant first located on Market Street in the West End area of Dallas next to Spaghetti Warehouse. In 1990, the Secchis relocated Ferrari's to the Brewery Building in the same general area, but away from the West End. The Secchis relocated Ferrari's to a location in Addison in 1994, and they changed the name to Ferrari's Villa. Ferrari's Villa was still operating profitably at the time this lawsuit was tried in 2005.
With the aid of additional investors, the Secchis expanded and opened a second restaurant, Il Grano, in 1997. Il Grano was a "self-service" restaurant located in *196 Plano. The Secchis also were operating this restaurant profitably at the time of the trial.
The Secchis wanted to expand their restaurant business. In late 1999 and early 2000, with the help of their real estate broker, the Secchis began to look for additional restaurant property. As the Secchis had done when they opened or relocated their other restaurants, they performed demographic studies of various locations, studied restaurant reports prepared by the Texas Alcoholic Beverage Commission, and drove by or visited many sites in connection with their search for a location for their new restaurant. Hudson's Grill was a restaurant located in a building at Keystone Park Shopping Center. Keystone Park, as well as the Hudson's Grill building, was owned by Prudential. The Secchis' broker told them that Hudson's Grill was probably going to close and that the restaurant site might be coming up for lease. The Secchis were familiar with the shopping center and had driven by it before. As a part of their continuing feasibility study, they often ate at other restaurants located in Keystone Park. These restaurants included Razzoo's, Bone Daddy's, and El Chico's. Using various means at their disposal, the Secchis discovered that the other restaurants in Keystone Park were operating profitably.
Prizm was a property manager for Prudential. In February 2000, the Secchis met with Frances Fox Powell, Director of Property Management for Prizm, and discussed the Hudson's Grill building. In May 2000, the Secchis executed a letter of intent to lease the property. The parties began to negotiate the terms of the lease and of a personal guaranty to be signed by the Secchis. The Secchis' broker and attorney assisted them in negotiating the final lease terms. At least seven different drafts of the lease were circulated during this period of time. Also, during this period of time, the Secchis visited the site that is the subject of this lawsuit on several occasions. At times, the Secchis met with Prizm's agents at the property, and at other times, they would get a key from Prizm and go to the property without anyone from Prizm being present. Hudson's Grill had closed by this time, and no restaurant operations were being conducted on the premises.
Negotiations continued for about five months. The parties signed the lease in October 2000. The lease was executed by Francesco Secchi as manager of Secchi, LLC, the General Partner of ICP. The Secchis executed a personal guaranty of the lease.
After the parties executed the lease, ICP began remodeling the property. In December 2000, while ICP was remodeling the building, several different persons told Francesco Secchi that there had been a sewer gas odor problem in the restaurant when it was operated by Hudson's Grill. Francesco Secchi also personally noticed the odor. He told Powell about the problem but continued to remodel.
Italian Cowboy actually opened on March 1, 2001 (the "soft opening"), but the grand opening was not until April 9, 2001. After Italian Cowboy was operational and opened for business, the sewer gas odor problem continued.
Although Prudential attempted to solve the problem, the transient sewer gas odor remained the same.[3] Italian Cowboy remained *197 open, and ICP paid rent on the premises in March, April, May, and June 2001. ICP did not pay rent for July 2001 or for any month after that. Italian Cowboy closed on July 14, 2001. This lawsuit was filed two days earlier on July 12, 2001.
After a bench trial, the trial court made detailed findings of fact and conclusions of law. We have not been cited to any standards of review, but they are well known. Findings of fact entered after a bench trial have the same force and effect as jury answers. Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex.1991). We conduct a review of those findings for factual sufficiency under the same standards that we apply when reviewing jury answers. While a court of appeals cannot make original findings of fact, it can "unfind" facts. Tex. Nat'l Bank v. Karnes, 717 S.W.2d 901, 903 (Tex.1986). Although conclusions of law may not be reviewed for factual sufficiency, a court of appeals may review them to determine their correctness under the facts. Keisling v. Landrum, 218 S.W.3d 737, 741 (Tex.App.-Fort Worth 2007, pet. denied). We review conclusions of law de novo. Reliance Nat'l Indem. Co. v. Advance'd Temps., Inc., 227 S.W.3d 46 (Tex.2007); Bastian Material Handling, L.L.C. v. Stelluti Kerr, L.L.C., 229 S.W.3d 407, 409 (Tex.App.-Eastland 2007, no pet.).
Fraud and Negligent Representation Claims
We will first address issues surrounding the common-law fraud claim, the statutory fraud claim, and the negligent misrepresentation claim made against Prudential and Prizm. Common-law fraud may be proven by a showing that there has been a material representation, that the representation was false, that it was known to be false when made or was made recklessly as a positive assertion without knowledge of its truth, that it was intended to be acted upon, that it was relied upon, and that it caused injury. Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998).
TEX. BUS. & COM.CODE ANN. § 27.01(a)(1) (Vernon 2002) is the basis for the statutory fraud claim. Section 27.01(a)(1) provides, in parts relevant to this section of our opinion, as follows:
(a) Fraud in a transaction involving real estate or stock in a corporation or joint stock company consists of a
(1) false representation of a past or existing material fact, when the false representation is
(A) made to a person for the purpose of inducing that person to enter into a contract; and
(B) relied on by that person in entering into that contract[.]
A cause of action for negligent misrepresentation requires proof that there has been a representation by a person in the course of business or in a transaction in which he has a pecuniary interest, that false information is supplied to another for the guidance of that other person in their business, that the one making the misrepresentation did not exercise reasonable care or competence in obtaining the information or communicating the information, and that there has been a pecuniary loss suffered by one justifiably relying on the misrepresentation. Fed. Land Bank Ass'n of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex.1991); Trans-Gulf Corp. v. Performance Aircraft Servs., Inc., 82 S.W.3d 691, 696 (Tex.App.-Eastland 2002, no pet.).
*198 The trial court found that Powell, the director of property for Prizm, made the following statements to the Secchis during lease negotiations:
a. The Secchis were lucky to be able to lease the Premises because the building on the Premises was practically new and was problem-free;
b. No problems had been experienced with the Premises by the prior tenant;
c. The building on the Premises was a perfect restaurant site and that the Secchis could get into the building as a restaurant site for next to nothing;
d. Given Fran Powell's superior and special knowledge, these matters were represented by PRIZM and Prudential as facts, not opinions. Fran Powell did not think the building was perfect at the time she told the Secchis it was.
The trial court also found that the statements were false; that Powell and therefore Prizm and Prudential knew that they were false; and that they intended for the Secchis and ICP to rely upon them. Further, the trial court found that the Secchis and ICP relied on the statements and would not have entered the lease and executed the guaranty if the representations had not been made. For purposes of this section of this opinion, we take those findings as true. See Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 178, 181 (Tex.1997).
Prudential and Prizm argue that common-law fraud, statutory fraud, and negligent misrepresentation all have the common element of reliance and that ICP disclaimed any reliance on representations not contained in the lease. They maintain that the disclaimer conclusively negates reliance and, therefore, that ICP and the Secchis cannot recover under any of these three theories.
The lease between Prudential and ICP contained, in relevant part, the following provisions:
14.18 Representations. Tenant acknowledges that neither Landlord nor Landlord's agents, employees or contractors have made any representations or promises with respect to the Site, the Shopping Center or this Lease except as expressly set forth herein.
14.21 Entire Agreement. This Lease constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and no subsequent amendment or agreement shall be binding upon either party unless it is signed by each party.
When fraudulent or negligent misrepresentations have been made before a contract is executed, may a party successfully prosecute fraud claims and negligent misrepresentation claims when the contract contains provisions by which it is agreed that there are no representations outside of the contract and that the writing constitutes the entire agreement of the parties? We believe that the answer to that question depends upon the circumstances surrounding the particular transaction.
In Schlumberger, 959 S.W.2d 171, the court discussed the history of Texas cases in which disclaimer of reliance and merger clauses were addressed. The court made the observation that the early decisions on the subject were "not entirely consistent." Schlumberger, 959 S.W.2d at 178. Because the supreme court has already reviewed those early cases, we see no need to repeat that review here. Instead, we will begin with a review of Schlumberger.
In Schlumberger, the parties became involved in a dispute over their business arrangement involving diamond mining operations on the ocean floor off the coast of South Africa. They reached an agreement by which they resolved their dispute, and *199 they executed a release in accordance with that agreement. The release contained a disclaimer of reliance. Later, claiming that Schlumberger had misrepresented the viability and value of the project, the Swansons filed suit claiming that, as a result of the misrepresentations, they had been fraudulently induced to enter into the release. The jury found for the Swansons on all issues. The trial court rendered a judgment notwithstanding the verdict. That judgment was reversed by the court of appeals, and judgment was rendered in accordance with the jury verdict. We think that it is of special note that, in reversing the court of appeals, the supreme court specifically stated that it was required to assume that Schlumberger made the representations and that they constituted actionable fraudulent inducement. Schlumberger, 959 S.W.2d at 178, 181.
The Schlumberger court referred to its decision in Dallas Farm Machinery Co. v. Reaves, 158 Tex. 1, 307 S.W.2d 233 (1957), and noted the rule from that case that, as a matter of policy, the effect of a merger clause can be avoided based on fraud in the inducement. Against that matter of public policy, however, the Schlumberger court recognized "a competing concern the ability of parties to fully and finally resolve disputes between them." Schlumberger, 959 S.W.2d at 179. This court has held that the court's reasoning is not limited to those situations involving releases. ISG State Operations, Inc. v. Nat'l Heritage Ins. Co., 234 S.W.3d 711 (Tex.App.-Eastland 2007, pet. denied). By providing for valid disclaimers of reliance and merger clauses, parties can rely on the validity of these provisions to settle current disputes as well as avoid future ones. Acknowledging that such clauses can be effectual even in the face of fraud in the inducement, the court said in Schlumberger, "The question is under which circumstances such disclaimers are binding." 959 S.W.2d at 179.
Well-established rules of contract construction govern whether disclaimer and merger clauses are valid. Id. We look to the lease and the circumstances surrounding its formation to determine whether, in Paragraphs 14.18 and 14.21 of the lease, ICP gave the requisite clear and unequivocal expression of intent necessary to disclaim reliance on any misrepresentations of Prudential and Prizm. Id.
In Schlumberger, the court found these factors to be important to its decision that the fraudulent inducement claim was foreclosed: (1) the parties were attempting to end a situation in which they had become embroiled in a dispute over the value and feasibility of the subject project, (2) highly competent and able legal counsel were involved in negotiating the release, (3) the parties were negotiating at arm's length, and (4) the parties were knowledgeable and sophisticated in business. Schlumberger, 959 S.W.2d at 180.
Here, Prudential, Prizm, and the Secchis had been negotiating the lease for approximately five months. During this five-month period of time, the Secchis had visited the property many times, both with and without Prizm personnel being present.
The Secchis were successful restauranteurs. They were operating two other restaurants profitably at the time of the negotiations for the Keystone Park location. They had negotiated three separate leases on three separate locations for Ferrari's and one lease for Il Grano. Before they engaged in any business or leased any property, including this one, the Secchis performed detailed demographic studies, ate at different restaurants in the areas, studied restaurant reports from the Texas Alcoholic Beverage Commission, studied financial *200 figures from other restaurants in the areas, as well as other studies. They also performed detailed projections of income so that they could measure "how the business [was] going to go" for the benefit of themselves as well as any investors or any lenders. On all of these other occasions, the Secchis had partners who were attorneys, and they were represented by counsel in all of the transactions. In the negotiations for this lease and guaranty, they were represented by counsel as well as by their real estate broker. There were at least seven drafts containing negotiated revisions of the lease that were circulated over five months during the negotiations. Although Francesco Secchi testified that he never read these drafts, Jane Secchi said that she read the leases and discussed them with their attorney.
Not every disclaimer of reliance or merger clause will bar a fraudulent inducement claim. Schlumberger, 959 S.W.2d at 181. However, when we review this record and consider the circumstances surrounding the formation of the lease, we find that the parties were represented by counsel as well as real estate brokers both before and during the negotiations leading up to the signing of the lease and guaranty. The record also reveals that the parties to this arm's length transaction were sophisticated in dealings involving the leasing and the operation of restaurant properties, that several drafts of the lease were circulated, and that various changes were negotiated and made to both the lease and the guaranty.
We assume parties to a contract intend that every provision in it is to have some meaning. Lenape Res. Corp. v. Tenn. Gas Pipeline Co., 925 S.W.2d 565, 574 (Tex.1996). When sophisticated business parties who have fully negotiated a contract and who have been represented by attorneys or other professionals in the field are dealing at arm's length, they should be able to enter a contract in which they effectively disclaim reliance, or in which they agree that there are no representations outside of the written contract, or in which they otherwise provide for merger. Such a rule will result in agreements with predictable results and liability limitations that are well-defined.[4] Further, *201 we believe that in this negotiated, redrafted lease agreement the disclaimer and merger clauses must be considered to be a part of that negotiated agreement and not simply boilerplate as found by the trial court. Under such circumstances, sophisticated parties who are represented by counsel and other professionals certainly can bargain to have the details of any representations upon which they are relying inserted into the contract, rather than agreeing that there are none.
After examining the circumstances surrounding the formation of the lease under this record, we hold that the sophisticated business parties in this arm's length transaction clearly and unequivocally expressed their intent that they were not relying on any representations made outside of the agreement. The agreement that there were no representations outside of the contract and that the lease constituted the entire agreement between Prudential and ICP conclusively negates the element of reliance in the common-law fraud claim, the statutory fraud claim, and the negligent misrepresentation claim. Here, there can be no recovery on those claims, and for the reasons we have stated, Prudential and Prizm's issues on appeal relative to those claims are sustained.
Breach of the Implied Warranty of Suitability
Because the trial court also found in favor of ICP and the Secchis on their claim for breach of the implied warranty of suitability, we next address that issue.
In Davidow v. Inwood North Professional Group-Phase I, 747 S.W.2d 373, 377 (Tex.1988), the court held that, in a commercial lease, the lessor makes an implied warranty that the premises are suitable for the intended commercial purpose. It said that what that meant was (1) at the inception of the lease, (2) there were no latent defects in the facilities (3) that were vital to the use of the premises (4) for their intended commercial purpose and (5) these essential facilities would remain in a suitable condition. 747 S.W.2d at 377. It seems to be clear that using the clause, "these essential facilities will remain in a suitable condition," presupposes that the lessor had a continuing duty to repair such "essential facilities" that contained the latent defects (emphasis added). That is underscored by the court's statement that, if "the parties to a lease expressly agree that the tenant will repair certain defects, then the provisions of the lease will control" (emphasis added). Id. Therefore, the indication was that the implied warranty of suitability for commercial purposes could be altered or waived.
In Gym-N-I Playgrounds, Inc. v. Snider, 220 S.W.3d 905, 910 (Tex.2007), the court acknowledged that it did not decide in Davidow the manner in which that waiver might occur. In Snider, the parties expressly agreed that the landlord made no express or implied warranties regarding "fitness or suitability for a particular purpose or otherwise." Id. at 907 n. 1. They also expressly agreed that "any implied warranties are expressly disclaimed and excluded." Id. The lease also contained a provision that the tenant accepts the premises "as is." While specifically not deciding what the effect of the "as is" provision would have been absent the express waiver contained in the lease, the court did hold that the implied warranty of suitability in a commercial lease could be *202 expressly disclaimed. Snider, 220 S.W.3d at 912.
As a contrast to the implied warranty of suitability in the commercial lease context, the court in Snider cited Centex Homes v. Buecher, 95 S.W.3d 266, 274 (Tex.2002). Centex involved the implied warranty of habitability in a residential transaction. That case stands for the proposition that "the warranty of habitability can be waived only to the extent that defects are adequately disclosed." Centex, 95 S.W.3d at 274. It would seem, then, that, in a residential transaction, the warranty of habitability cannot be waived as to latent defects. If disclosed, defects are not latent. We write about this because, in Snider, the court said: "We recognize that our holding today stands in contrast to the implied warranty of habitability, which `can be waived only to the extent that defects are adequately disclosed.'" Snider, 220 S.W.3d at 913 (citing Centex, 95 S.W.3d at 274). We take that to mean that, in the commercial lease context, an express waiver of the implied warranty of suitability can be effective even in the absence of disclosure.
Here, there is no express waiver of the implied warranty of suitability. Rather, the parties rely upon the placement of repair responsibilities in support of their respective positions.
ICP argues, and the trial court so found, that Paragraph 5.1 of the lease expanded Prudential's repair obligations. However, Paragraph 5.1 of the lease addresses the requirement that, before ICP could make any exterior or structural alterations, it must first obtain Prudential's approval. As a matter of law, this paragraph does not place any repair responsibilities on either party; it requires Prudential's approval before ICP makes any exterior or structural alterations.
In Paragraph 5.2 of the lease, the parties agreed that Prudential would make all repairs to the "Common Areas" adjacent to the premises "(other than the Premises and its perimeter sidewalks)." Prudential was also responsible for making "repairs to structural components of the Premises (other than the roof)."
The parties defined "Common Areas" as follows in Paragraph 1.1 of the lease:
Those areas, facilities, utilities, improvements, equipment and installations in the Shopping Center which are provided, or which may be designated by Landlord, for the nonexclusive use or benefit of Landlord and tenants of the "Shopping Center," their employees, agents, customers, licensees and invitees, including but not limited to the parking areas, driveways, entrance/exitways, sidewalks, landscaped areas, water, gas (if available), electric, storm and sanitary sewer lines and appurtenant equipment.
The parties also agreed in Paragraph 5.2 of the lease that ICP had the responsibility to make:
[A]ll repairs to the interior and non-structural components of the Premises, including but not limited to the exterior and interior of the Premises and its perimeter sidewalks, whether structural or non-structural, foreseen or unforeseen, including but not limited to the storefront and all interior and exterior doors and plateglass, and all electrical, plumbing, heating, ventilating, air conditioning, sprinkler systems, and any other mechanical installations or equipment serving the Premises or located therein, whether or not in or under the floor slab or on the roof of the premises.
Prudential and Prizm argue that the cause of the sewer odor problem was related to plumbing, ventilating, air conditioning, or some other mechanical installation. *203 They take the position that, because the lease placed the burden to repair those things upon ICP, those provisions control over the implied warranty of suitability. In their arguments, ICP and the Secchis contend that Prudential and Prizm ignore findings of fact regarding problems with a grease trap that contributed to the sewer gas odor problem. They also argue that, because the grease trap was located in the "Common Area," Prudential was obligated to repair it.
First, in regard to findings of fact, when a contract is not ambiguous, the construction of the written instrument is a question of law for the court. See MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 650-51 (Tex.1999). We review the trial court's legal conclusions de novo. See Barber v. Colo. Indep. Sch. Dist., 901 S.W.2d 447, 450 (Tex.1995).
Prudential argues that, in accordance with the terms of the lease, ICP was required to make all repairs "foreseen or unforeseen" to the plumbing, ventilating, air conditioning, and "any other mechanical installations or equipment serving the Premises or located therein" (emphasis added). It is the position of Prudential and Prizm that this specific provision of the lease controls over the implied warranty of suitability. We agree. The phrase "foreseen or unforeseen" clearly includes latent defects that might exist at the inception of the lease. Any other reading would render the phrase meaningless. Generally, the parties to an instrument intend every provision to have some effect. Lenape, 925 S.W.2d at 574.
Again, in Davidow, when the court defined the warranty of suitability, it included this clause: "[A]nd that these essential facilities will remain in a suitable condition." Davidow, 747 S.W.2d at 377. We believe that the addition of that clause by the court makes it clear that the warranty exists only as to those conditions for which the landlord bears the responsibility of repair. In Coleman v. Rotana, Inc., 778 S.W.2d 867 (Tex.App.-Dallas 1989, writ denied), the court held that the warranty of suitability applied only with respect to those physical or structural defects that the landlord had the duty to repair. We agree with the Dallas Court and with the position asserted by Prudential and Prizm.
We hold as a matter of law that the lease placed the burden upon ICP to make any needed repairs, foreseen or unforeseen, to plumbing, heating, ventilating, air conditioning, and mechanical installations or equipment serving the premises. As pointed out in the brief filed by ICP and the Secchis, Skoot's, the tenant that leased the premises after ICP left, made repairs that eliminated the odor problem. Although ICP and the Secchis argue that the owner of Skoot's "totally altered the plumbing," the record shows that there was one sewer gas line that was "hooked up at the wrong line going up to the roof." That was corrected, and the vent pipes on the roof were raised; the problem was eliminated. Although the owner of Skoot's did not make any repairs to the grease trap when it eliminated the sewer gas odor, there was testimony regarding an earlier inspection in which it was discovered that a grease trap had been incorrectly installed and that that contributed to the odor. ICP and the Secchis argue that this grease trap was located in the "Common Area" and, therefore, that it was Prudential's responsibility to repair the problem. The trial court also found that the grease trap was located in the "Common Area." However, if we take it to be true that the grease trap did contribute to the problem and that it was located in the common area, the implied warranty of suitability would not be implicated. The implied warranty of suitability covers only the leased *204 premises. See Davidow, 747 S.W.2d at 377; see also Coleman, 778 S.W.2d at 871. Because the lease placed the burden of these repairs upon ICP, those lease terms control over the implied warranty of suitability. We sustain Issue B(1) and B(2).
Constructive Eviction and Covenant of Quiet Enjoyment
The trial court also granted relief to ICP upon the causes of action for constructive eviction and for breach of the covenant of quiet enjoyment. The parties agree that both of these causes of action require the same proof. The elements for both causes of action are: (1) an intention on the part of the landlord that the tenant shall no longer enjoy the premises, (2) a material act by the landlord that substantially interferes with the tenant's intended use and enjoyment of the premises, (3) an act that permanently deprives the tenant of the use and enjoyment of the premises, and (4) abandonment of the premises by the tenant within a reasonable time after the commission of the act. Lazell v. Stone, 123 S.W.3d 6, 11-12 (Tex.App.-Houston [1st Dist.] 2003, pet. denied); Holmes v. P.K. Pipe & Tubing, Inc., 856 S.W.2d 530, 539 (Tex.App.-Houston [1st Dist.] 1993, no writ).
Prudential and Prizm maintain that there is no evidence of any intent that ICP would no longer enjoy the premises. They also argue, in effect, that there is no evidence that they engaged in any conduct, affirmative or otherwise, that substantially interfered with ICP's intended use and enjoyment of the premises. According to Prudential and Prizm, to show their lack of intent, they undertook to assist with the repairs at a time that they maintain they were not required to do so. ICP and the Secchis counter that, by misrepresenting and omitting material facts, Prudential and Prizm breached the covenant of quiet enjoyment and constructively evicted ICP.
ICP and the Secchis rely upon Holmes. In Holmes, a certain tract of land had been used to dump chemical waste. The Texas Department of Water Resources mandated a clean-up and approved a waste disposal closure plan. Subsequently, Holmes, the owner of the property, leased it to Tenneco. Tenneco used the property to store pipe. Only a portion of the property had been used as a chemical waste dump. But, that was the part upon which the initial pipe inventory was stored. Tenneco later sold the pipe to P.K. Pipe & Tubing, Inc. P.K. Pipe contacted Holmes about entering into a lease so that they could continue to store the pipe they had bought from Tenneco as well as other pipe there. There was a dispute as to whether Holmes told P.K. Pipe about the dump.
Later, it was discovered that the storage of the pipe over the waste dump potentially could cause a problem with the reclamation and remediation work that had been done there. P.K. Pipe was required to move the pipe, and it sued Holmes for breach of the lease agreement, misrepresentation, and another cause of action not relevant here. The case ultimately turned upon the Houston Court's finding that P.K. Pipe did not abandon the premises within a reasonable time after the discovery of any misrepresentation and that, therefore, there was no breach of the covenant of quiet enjoyment. The court mentioned in its opinion that it "is clear that a material act by [Holmes] (his silence concerning the existence of the waste disposal site) deprived P.K. Pipe of use and enjoyment of a portion of the premises." Holmes, 856 S.W.2d at 539.
Prudential and Prizm take the position that the latter comment by the court in Holmes is dicta and further that precontractual behavior cannot be the basis for *205 establishing post-contractual intent. We agree with Prudential and Prizm that precontractual behavior cannot be the basis for establishing post-contractual intent. To hold otherwise would be to allow for constructive eviction or the breach of the covenant of quiet enjoyment before a tenant came into possession of the property under a lease. We have not been able to find other cases in which the court holds that acts occurring prior to the lease agreement constitute constructive eviction or a breach of the covenant of quiet enjoyment.
The cases to which we have been cited and those that we have been able to find involve acts of commission or omission occurring during the lease or rental period. See, e.g., Lazell, 123 S.W.3d 6 (The landlord changed the locks on the property during the term of the lease and instructed the tenant that she was no longer welcome on the property.); Fid. Mut. Life Ins. Co. v. Robert P. Kaminsky, M.D. P.A, 768 S.W.2d 818 (Tex.App.-Houston [14th Dist.] 1989, no writ) (A part of Dr. Kaminsky's practice involved performing elective abortions. Protestors were causing problems at his clinic located at the leased premises. In the lease agreement, the landlord agreed that it would provide certain security and other things that it did not do. The lease also had an express covenant of quiet enjoyment.); Downtown Realty, Inc. v. 509 Tremont Bldg., Inc., 748 S.W.2d 309 (Tex.App.-Houston [14th Dist] 1988, no writ) (The air conditioning system at the leased premises failed during the lease term. The landlord failed to make air conditioning repairs during the lease term that it was required to make under the terms of the lease.).
Even if we assume that Powell did knowingly make false statements, she did not make those statements during the lease term, and any such statements could not form the basis for constructive eviction or for a breach of the covenant of quiet enjoyment as a matter of law. Prudential and Prizm's Issue B(3) is sustained.
Mutual or Unilateral Mistake
In order to avoid an agreement based upon mutual mistake, a party must show that there has been a mistake of fact, that the mistake is mutual, and that the mutual mistake materially affects the agreed-upon exchange. Barker v. Roelke, 105 S.W.3d 75, 84 (Tex.App.-Eastland 2003, pet. denied). When there is a unilateral mistake of fact, courts will grant relief when the conditions of remedial mistake are present. James T. Taylor & Son, Inc. v. Arlington Indep. Sch. Dist., 160 Tex. 617, 335 S.W.2d 371, 373 (1960). Although there may be others, some of the conditions of remedial mistake as set forth by the Taylor court are:
(1) the mistake is of so great a consequence that to enforce the contract as made would be unconscionable; (2) the mistake relates to a material feature of the contract; (3) the mistake must have been made regardless of the exercise of ordinary care; and, (4) the parties can be placed in status quo in the equity sense, i.e., rescission must not result in prejudice to the other party except for the loss of his bargain.
Id.
In their initial briefing, Prudential and Prizm direct their arguments to a claim that ICP ratified the lease after discovering the sewer gas odor problem. In their reply brief, they attempt to expand their argument to include attacks on one element of proof related to mutual mistake: that the mistake materially affects the agreed-upon exchange (see Barker, 105 S.W.3d at 84) and one element of proof related to unilateral mistake (that the mistake is of such a great consequence that to *206 enforce the contract as made would be unreasonable) (see James T. Taylor, 335 S.W.2d at 373). Prudential and Prizm do not, either in their original brief or in their reply brief, attack any of the other elements related to either mutual mistake or unilateral mistake. Because it was the only issue raised in the initial briefing, we will consider only the ratification argument. See Howell v. Tex. Workers' Comp. Comm'n, 143 S.W.3d 416, 439 (Tex.App.-Austin 2004, pet. denied). Further, even if we were to address mutual mistake and unilateral mistake, none of the remaining elements of either are challenged. Insofar as Prudential and Prizm may have addressed mutual mistake and unilateral mistake, those challenges are overruled, and we will proceed to review their claim of ratification.
Ratification
This court has held that a party ratifies an agreement when it recognizes the validity of the agreement by acting under it, performing under it, or affirmatively acknowledging it. Barker, 105 S.W.3d at 84. Ratification may be express or it may be implied from a course of conduct. Id. After a party has ratified an agreement, it may not withdraw the ratification and attempt to avoid the agreement. Id. Acts that are inconsistent with an intent to avoid the agreement have the effect of ratifying it. Id. at 85. A person ratifies an agreement as a matter of law if the evidence is not controverted or is incontrovertible. Id.
Prudential and Prizm argue in their original briefing that "the evidence conclusively establishes the [ICP and the Secchis] ratified the Lease and the Guaranty after learning about the odor." We agree. Assuming for the purposes of this section of our opinion the Secchis' testimony to be accurate, we acknowledge that, each time Francesco Secchi noticed the sewer gas odor, he contacted Powell and told her about the problem. One day before the opening of Italian Cowboy, Francesco Secchi noticed the sewer gas odor and again called Powell. The "soft opening" of Italian Cowboy was on March 1, 2001. On March 5, 2001, an inspector from the City of Dallas Department of Environmental Health Services came to Italian Cowboy in response to a sewer odor complaint made by one of Italian Cowboy's customers. The inspector issued a notice of violation. Italian Cowboy had to close from 1:15 p.m. to 5:00 p.m. that day. Francesco Secchi again called Powell to report the continuing problem. According to Francesco Secchi, Powell's response to him was that she could not understand why he complained all of the time. He contacted her because he was operating under the assumption that Prudential was responsible for taking care of the cause of the odor problem. The trial court found that ICP's interpretation of the lease was that these repairs were Prudential's responsibility.
In June 2001, the Secchis met Darla Wahl. Darla and her husband came to Italian Cowboy as customers. Darla worked for Hudson's Grill from February 1999 until it closed in February 2000. She told the Secchis that the same odor was in the building when she worked for Hudson's Grill. She also told them about customers of Hudson's Grill complaining about the odor. Francesco Secchi testified that, after he had talked with Wahl, he "realized that the landlord was not honest with us and we lost already half a million dollars and that's our decision not to lose any more money."
Whether mutual or unilateral, the mistake of fact relied upon by ICP and the Secchis was the fact of the presence of the sewer gas odor. From the time that the Secchis noticed the sewer gas odor problem, *207 they consistently reported the problem to Prizm. Prudential attempted, at its expense, to resolve the odor problem. This would have been in accordance with Francesco Secchi's understanding of Prudential's obligations under the lease.
We hold as a matter of law that, by continuing to insist upon Prudential's performance under the lease, ICP and the Secchis' conduct in insisting that Prudential perform under the lease according to their understanding of the lease (that the sewer gas odor problem was Prudential's task to repair) constitutes conduct that is inconsistent with an intention of avoiding the lease. By insisting that Prudential perform on its perceived obligations under the lease, ICP indicated that it was relying on the validity of the lease, and such conduct had the effect of waiving the right of rescission. This is consistent with ICP and the Secchis leaving the premises only after receiving a letter from Powell, dated June 22, 2001, in which she notified ICP that, in essence, Prudential was not going to continue to attempt to solve the sewer gas problem unless certain conditions were met. Prudential would pay for certain currently recommended repairs only if the contractor would guarantee that the repairs would solve the sewer gas odor problem and if ICP would agree to assume all future repairs needed to solve any unresolved problems with sewer odors. There were other conditions that are not relevant here. ICP and the Secchis did not agree to the conditions. When ICP and the Secchis learned that Prudential was no longer going to abide by what the Secchis believed Prudential's responsibilities to be, they filed this lawsuit on July 12, 2001, and the restaurant closed on July 14, 2001.
A matter is conclusively established if ordinary minds could not differ as to the conclusion to be drawn from the evidence. Triton Oil & Gas Corp. v. Marine Contractors & Supply, Inc., 644 S.W.2d 443, 446 (Tex.1982). The trial court found that ICP had made that interpretation of the lease provisions regarding repairs. One can only conclude that ICP was expecting Prudential to perform under its interpretation of the contract. The evidence we have set forth conclusively establishes that ICP ratified the lease by taking actions that were inconsistent with an intent to avoid it.
Damages Issues
Because we have held that ICP and the Secchis are not entitled to recover on any of the causes of actions alleged, we need not reach the arguments addressing damages.
Exemplary Damages
The trial court awarded ICP judgment for exemplary damages in the sum of $50,000 against Prizm. From a reading of the briefs of the parties, it is clear that the award of exemplary damages related to the statutory fraud claim. Because we have held that the statutory fraud claim (as well as the other tort claims) is not viable, we reverse the award of exemplary damages against Prizm. Issue D(2) is sustained.
Attorney's Fees
Because we are remanding a part of this cause and because ICP and the Secchis are no longer the prevailing parties, we set aside the award of attorney's fees to ICP and the Secchis.
Prudential's Counterclaims
The trial court concluded that Prudential and Prizm were to take nothing from ICP and the Secchis. Therefore, there were no findings of fact regarding the amount of Prudential's damages. As we have stated, this court cannot find *208 facts; we can only "unfind" them. Tex. Nat'l Bank, 717 S.W.2d at 903. Because we have found that ICP could not avoid the lease on any of the theories alleged and because ICP quit paying rent to Prudential, ICP breached its lease with Prudential. Prudential is entitled to recover for that breach in an amount to be determined by the trial court on remand. Issue C(1) is sustained. For the same reasons, Prudential is entitled to recover on the Secchis' guaranty those sums as found by the trial court on remand. Issue C(2) is sustained. Furthermore, neither can we find facts with respect to Prudential and Prizm's request for attorney's fees. Any amounts awarded to Prudential and Prizm must be determined by the trial court. We reverse and remand Prudential's damage claim and Prudential and Prizm's claim for attorney's fees to the trial court.
This Court's Ruling
We reverse the judgment of the trial court and render judgment that ICP and the Secchis take nothing in their suit against Prudential and Prizm. We render judgment that ICP breached its lease agreement with Prudential and that the Secchis are liable upon their guaranty. We remand the issues regarding the amount of damages due Prudential and the amount of any attorney's fees to be awarded to Prudential and Prizm.
NOTES
[1] The record shows that Prizm Partners and United Commercial Property Services were names under which Four Partners, LLC, conducted business. The judgment in this case was entered against Prudential and Four Partners, LLC. The notice of appeal in this case was filed on behalf of Prudential and Four Partners, LLC d/b/a Prizm Partners and d/b/a United Commercial Property Services.
[2] We will refer to this entity as "Prizm."
[3] Although Prudential attempted to solve the sewer gas problem, it and Prizm maintain that those repairs were the responsibility of ICP under the terms of their lease. The next tenant of the premises, Michael David Leatherwood, associated with Razzoo's and Bone Daddy's, opened a restaurant called "Skoot's." He remedied the sewer gas problem by extending the height of the sewer vent pipes on the roof and by rerouting a sewer gas line going to the roof.
[4] See generally, Glenn D. West, letter to the Clerk of the Supreme Court of Texas, dated September 8, 2006, and accompanying attachments filed as amicus curiae in support of the petition for review in Celotex Corporation v. Warehouse Assocs. Corporate Centre II, Inc., No. 06-0384, now pending in the Supreme Court of Texas: Glenn D. West & Benton B. Bodamer, Corporations, 59 SMU L. REV. 1143 (2006), and Glenn D. West & Benton B. Bodamer, Avoiding Fraud and Other Extra-Contractual Claims: There May Be More to the Deal than the Contract (presented to the Mergers and Acquisitions Institute, September 7-8, 2006, Dallas, Texas). West and Bodamer take the position that sophisticated parties to a contract should be able to enter into an agreement by which they might "predictably define their rights, liabilities, and obligations by contract rather than open themselves up to a less clear and less defined body of tort law to which their bargain was deliberately not made subject." West & Bodamer, Corporations, 59 SMU L. REV. at 1164.
In Warehouse Assocs. Corp. Ctr. II, Inc. v. Celotex Corp., 192 S.W.3d 225 (Tex.App.-Houston [14th Dist.] 2006, pets. filed), the purchaser of commercial property sued the seller alleging fraudulent inducement. The buyer had agreed that it was not relying upon any representations made by the seller (there were other agreements pertinent to the question of reliance that do not exist in the case before us). In its lawsuit, Warehouse Associates claimed that Celotex and its employees fraudulently induced Warehouse Associates into buying the property by not disclosing the fact that there was asbestos on the premises. The trial court granted summary judgment to Celotex on all claims. The court of appeals reversed and remanded the case to the trial court. The essence of the holding, among other things, is that the parties to a contract cannot make an agreement that forecloses them from later asserting that the contract was induced by fraud, except in those situations in which the parties are settling an existing dispute. Warehouse Assocs., 192 S.W.3d 225. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589896/ | 14 So.3d 20 (2009)
Karen KUEBEL
v.
DEPARTMENT OF WILDLIFE AND FISHERIES and Office of Risk Management.
No. 2008-CA-1018.
Court of Appeal of Louisiana, Fourth Circuit.
April 15, 2009.
*21 Daniel E. Becnel III, LaPlace, LA, for Plaintiff/Appellant.
James D. "Buddy" Caldwell, Attorney General, Henry S. Provosty, Special Assistant Attorney General, Eric R.G. Belin, Special Assistant Attorney General, Brian R. Radcliffe, Special Assistant Attorney General, Provosty & Gankendorff, L.L.C., New Orleans, LA, for Defendants/Appellees.
(Court composed of Judge CHARLES R. JONES, Judge MICHAEL E. KIRBY, Judge ROLAND L. BELSOME).
ROLAND L. BELSOME, Judge.
Plaintiff-Appellant, Karen Kuebel, appeals the trial court's judgment sustaining Defendant-Appellee's exceptions of no cause of action and lack of subject matter jurisdiction. For the reasons that follow, we affirm.
FACTS AND PROCEDURAL HISTORY
At the time of her injury, Appellant Karen Kuebel was a Biologist II for Appellee, the Louisiana Department of Wildlife and Fisheries ("DWF"). As a Biologist II, Appellant traveled on vessels to various *22 test sites. On August 24, 2000, Appellant injured her neck and back while gathering samples in a seine net. The trial court found that Appellant's injuries were caused by DWF's negligence in failing to follow proper guidelines and failing to provide Appellant with a safe work environment. The court also found that the vessel on which Appellant traveled was unseaworthy due to its lack of equipment to assist Appellant in the pulling of the seine nets.
Appellant filed suit on August 21, 2001, seeking damages under the Jones Act, 46 U.S.C. § 30104[1] ("Jones Act") and general maritime law for her injuries. On November 12, 2007, Appellee filed exceptions of no cause of action and lack of subject matter jurisdiction, asserting that because Appellant was a State employee, she was precluded from relief pursuant to the state's sovereign immunity; thus, Appellee argued that Appellant's sole remedy was the Louisiana Workers' Compensation Act ("WCA").
Appellant argued in her opposition to the exceptions that issues of material fact existed regarding her seamen status, as evidenced by the affidavit and deposition of Appellant's coworker, Jack Cahill, who testified as to the amount of time that Appellant spent on vessels as a Biologist II for the DWF. Appellant further argued that because of the amount of time she worked on vessels, genuine issues of fact existed regarding the applicability of the Jones Act and general maritime law, and whether the "seamen's exception" within the WCA applied.
A hearing on the exceptions was conducted on May 12, 2008, at which time Appellant argued that the State waived its right to the exceptions because it had made maintenance and cure payments for the past several years. The trial court requested briefs regarding the specific issue of waiver. Appellee filed a supplemental brief to the trial court, arguing that the State did not waive its immunity as a sovereign entity in making payments to Appellant and could therefore not be subject to suit under the Jones Act or general maritime law.[2] The trial court signed a judgment granting Appellee's exceptions on May 22, 2008. This appeal followed.
STANDARD OF REVIEW
This Court articulated the de novo standard of review for exceptions of *23 no cause of action in Southern Tool & Supply, Inc. v. Beerman Precision, Inc., 03-0960 (La.App. 4 Cir. 11/26/03), 862 So.2d 271:
We review a trial court's decision on an exception of no cause of action de novo "because the exception raises a question of law and the lower court's decision is based only on the sufficiency of the petition." City of New Orleans v. Board of Comm'rs of Orleans Levee Dist., 93-0690, p. 28 (La.7/5/94), 640 So.2d 237, 253. In doing so, we are confined to the allegations of the petition. No evidence can be introduced to support or to controvert an exception of no cause of action. La. C.C.P. art. 931. Rather, we must accept as true the well pleaded factual allegations set forth in the petition. Based thereon, our job is to determine "whether, on the face of the petition, the plaintiff is legally entitled to the relief sought." Everything on Wheels Subaru v. Subaru South, Inc., 616 So.2d 1234, 1235 (La.1993).
A defendant's peremptory exception of no cause of action is designed to test the legal sufficiency of the plaintiff's petition. It poses the question "whether the law affords a remedy on the facts alleged in the pleading." Id. Louisiana has a system of fact pleading, and "[t]he mere conclusion of the pleader unsupported by facts does not set forth a cause or right of action." Montalvo v. Sondes, 93-2813, p. 6 (La.5/23/94), 637 So.2d 127, 131. As we recently noted, "[i]t is insufficient to state a cause of action where the petition simply states legal or factual conclusions without setting forth facts that support the conclusions." Bibbins v. City of New Orleans, 02-1510, p. 5 (La.App. 4 Cir. 5/21/03), 848 So.2d 686, 691, writ denied, 03-1802 (La.10/10/03), 855 So.2d 357.
The exceptor has the burden of proving that the petition fails to state a cause of action. This burden serves the public policy of affording the plaintiff his day in court to present his case. "When it can reasonably do so, the court should maintain a petition against a peremptory exception so as to afford the litigant an opportunity to present his evidence." Kuebler v. Martin, 578 So.2d 113, 114 (La.1991). "An exception of no cause of action is likely to be granted only in the unusual case in which the plaintiff includes allegations that show on the face of the petition that there is some insurmountable bar to relief." City of New Orleans v. Board of Directors of Louisiana State Museum, 98-1170, p. 10 (La.3/2/99), 739 So.2d 748, 749.
Id. at pp. 6-7, 862 So.2d at 278.[3]
DISCUSSION
Appellant asserts three assignments of error: 1) that the trial court erred in finding no cause of action against the State arising out of Appellant's admiralty claims and disregarding this Court's opinion in Higgins v. State of Louisiana, 627 So.2d 217 (La.App. 4 Cir.1993) and the U.S. Supreme Court's opinion in Chandris, Inc. v. Latsis, 515 U.S. 347, 115 S.Ct. 2172, 132 L.Ed.2d 314 (1995); 2) the trial court erred in not finding that the "seamen's exception" to the WCA applied to Appellant; and 3) that the trial court erred in allowing the issue of Appellee's compensation to Appellant to factor into the court's determination that Appellant did not have a cause of action for Jones Act or general maritime law claims.
*24 ASSIGNMENT OF ERROR # 1
In Appellant's first assignment of error, she asserts that the trial court erred in finding no cause of action against the State pursuant to the Jones Act[4] or general maritime law. To determine whether Appellant may bring a Jones Act or general maritime claim against the DWF, an arm of the State of Louisiana, we must first examine Louisiana and U.S. Supreme Court jurisprudence.
The leading case in this Circuit is Higgins v. State of Louisiana, 627 So.2d 217 (La.App. 4 Cir.1993). Higgins addressed this precise issue and held that an injured state employee could bring suit against the State of Louisiana under the Jones Act and general maritime law. In making this determination, this Court relied, in part, on Hilton v. South Carolina Public Railways Commission, 502 U.S. 197, 112 S.Ct. 560, 116 L.Ed.2d 560 (1991), which held that an employee of a state-owned railroad could bring suit against its employer under the Federal Employers' Liability Act ("FELA") in state court. The Jones Act and FELA have historically received similar treatment by the courts. See Welch v. Texas Department. of Highways and Public Transportation, 483 U.S. 468, 476-77, 107 S.Ct. 2941, 97 L.Ed.2d 389 (1987); James E. Pfander, Jones Act Claims Against the States After Alden v. Maine: The Surprisingly Strong Case for a Compulsory State Court Forum, 36 J. Mar. L. & Com. 1 at n. 6 (2005). Unlike the case sub judice, however, the injured State employee in Higgins did not have a remedy under the WCA at that time because of his seaman status. Higgins, 627 So.2d at 221. Moreover, since Higgins, fundamental changes in the law have occurred.
Appellee argues, and the trial court found, that the U.S. Supreme Court case of Alden v. Maine is contrary to the assertion that state employees may sue the state as their employer for claims under the Jones Act and general maritime law in state court. In Alden, a group of probation officers sued the State of Maine, their employer, for alleged violations of overtime provisions of the Fair Labor Standards Act ("FLSA"), seeking compensation and damages. Alden v. Maine, 527 U.S. 706, 711, 119 S.Ct. 2240, 2246, 144 L.Ed.2d 636 (1999). The Court held that "the powers delegated to Congress under Article I of the United States Constitution do not include the power to subject nonconsenting States to private suits for damages in state courts." Alden, supra, at 712, 119 S.Ct. 2240 (emphasis added). The Court further held that Maine did not consent to suits for overtime pay and damages under the FLSA. Id. Accordingly, the state's sovereign immunity operated to prevent individuals from litigating to enforce federal statutory rights against the states.[5] Thus, "[Maine]'s refusal to consent did not improperly discriminate against a federal cause of action but permissibly *25 invoked the state's own constitutional right to freedom from litigation that the Court viewed as an affront to the state's sovereign and dignitary interest." Pfander, 36 J. Mar. L. & Com. 1, 2. The Court further found that "[a] broad immunity was necessary ... to prevent the "`indignity of subjecting a State to the coercive process of judicial tribunals at the instance of private parties ...'" because to hold otherwise, "the Court reasoned, states would "face the prospect of being thrust, by federal fiat and against [their] will, into the disfavored status of a debtor...." Sean M. Monohan, A Tempest in the Teapot: State Sovereign Immunity and Federal Administrative Adjudications in Federal Maritime Commission v. South Carolina State Ports Authority, 88 Cornell L.Rev. 1794, 1801-1805 (2003)(quoting Alden, supra). "The Court based its decision on structural principles and state dignity, as well as on a perceived need to protect its Seminole Tribe decision from erosion through efforts to shift the assertion of federal law claims into state courts." Pfander, 36 Mar. L. & Com. at 7.
Alden and its progeny indisputably represent significant changes in U.S. Supreme Court and federal law. Alden has generated much debate and has been considered by many to be a departure from the U.S. Supreme Court's previous jurisprudence.[6] One author has described the Alden, Seminole Tribe, and College Savings Bank decisions (the "Alden trilogy") as "represent[ing] a highly activist rejection of more than twenty years worth of constitutional decisions that had established Congress' powers to subject states to suit under federal laws."[7] Vicki C. Jackson, Seductions of Coherence, State Sovereign Immunity, and the Denationalization of Federal Law, 31 Rutgers L.J. 691, 696 (2000). Since 1996, the Supreme Court has arguably "reversed course .... overruling] two of its own earlier decisions (Union Gas and Parden),"[8] and "discount[ing] assumptions about sovereign immunity in state courts made in at least six other decisions ..."[9] Jackson, supra, 31 Rutgers *26 L.J. at 696-97. Another author determined that "the most valid understanding of the interpretive process deployed in Alden is that a majority of the Court preferred state autonomy, fiscal predictability, and political accountability, and disapproved of individuals' ability to influence the course of government through litigation." Roger C. Hartley, Alden Trilogy: Praise and Protest, 23 Harv. J.L. & Pub. Pol'y 323, 350 (2000).
As Louisiana has not addressed this precise issue in the wake of the Alden trilogy, an examination of other jurisdictions' opinions applying Alden v. Maine to facts which mirror the instant case is also warranted. Predictably, courts have generally interpreted Alden as disallowing suits against the state[10] for maritime and railroad personal injuries.[11] See Pfander, supra, at 7. For example, an employee of the Port of Portland who sustained injuries on a vessel and received state workers' compensation benefits subsequently sought to recover damages under general maritime law and the Jones Act, alleging the Port's negligence in causing his injuries. Norgaard v. Port of Portland, 223 Or.App. 543, 546, 196 P.3d 67, 69 (2008). After extensively quoting Alden, the Oregon appeals court found that because the Port of Portland was not an arm of the state, it was not entitled to sovereign immunity from suit in state court. Norgaard, 223 Or.App. at 545-46, 196 P.3d at 69. The court noted, however, that "there is no question that the states enjoyed immunity from private actions before the ratification of the federal constitution and that they continue to enjoy such immunity." Id.
Similarly, in Midgett v. North Carolina Dep't of Transp., 152 N.C.App. 666, 568 S.E.2d 643 (2002), a seaman and an employee of the state's Department of Transportation ("DOT") appealed the Industrial Commission's dismissal of his Jones Act claims against the DOT for lack of jurisdiction. As in Norgaard, supra, the plaintiff in Midgett had previously received a workers' compensation settlement. Midgett, 568 S.E.2d at 644. The court examined the language of the state's Tort Claims Act, finding that the Act constituted a specific statutory waiver of immunity under certain circumstances. Id. at 645. *27 Relying upon Alden,[12] the court held that although the state's Tort Claims Act expressed the statutory waiver of immunity to some claims, the state did not consent to be sued under the Jones Act. Id. at 647. The court further held that the legislature "did not by `plain, unmistakable mandate' waive the State's immunity to suit under the Jones Act in a tort claim." Id. at 648.
The court also dismissed the plaintiff's assertion that by not specifically addressing the Jones Act, the U.S. Supreme Court left open the possibility that states were subject to litigation in state court by private parties for Jones Act claims. Id. at 647. The court cited Federal Maritime Com. v. SCSPA, 535 U.S. 743, 767, 122 S.Ct. 1864, 152 L.Ed.2d 962 (2002),[13] where the Court found that Seminole Tribe precluded a `maritime commerce' exception to state sovereign immunity, stating that "[e]ven when the Constitution vests in Congress complete lawmaking authority over a particular area, the Eleventh Amendment prevents congressional authorization of suits by private parties against unconsenting States." Midgett, supra (quoting Federal Maritime Com., 535 U.S. at 767, 122 S.Ct. 1864)(citing Seminole Tribe of Florida v. Florida, 517 U.S. 44, 72, 116 S.Ct. 1114, 1131, 134 L.Ed.2d 252, 277 (1996)).
Perhaps most significantly,[14] the Supreme Court of Alaska recently found that *28 the Jones Act did not provide a state employee who was also a seaman the right to bring suit against the state (in state court) without the state's consent in Glover v. State, Dep't. of Transp., Alaska Marine Highway Sys., 175 P.3d 1240 (Alaska 2008). In 2003, Alaska's legislature added a provision to a statute regarding waiver of immunity from suit in state court, effectively barring suit in state court if the claim, inter alia, results from an injury, death, or illness from a seaman during the course of or arising out of employment with the state. Pfander, supra, at 8-9 (citing Alaska Stat. § 09.50.250(5), 2003 Alaska Sess. Laws ch. 30 (July 1, 2003)). Alaska's Supreme Court upheld the statute, finding that it did not violate due process or equal protection rights; that the Jones Act did not supercede the statute; that the statute did not violate the provision of Alaska's constitution for providing for suits against the state; and that the statute was not prohibited by either the Supremacy Clause or the Admiralty and Maritime Jurisdiction Clause. See generally, Glover, supra, 175 P.3d 1240. The Glover court examined U.S. Supreme Court jurisprudence in light of Alden v. Maine and concluded that because Alaska did not consent to suit in state court under the Jones Act or general maritime law, the state employee's exclusive remedy was workers' compensation. Glover, 175 P.3d at 1255, 1260-63.
The Louisiana Workers' Compensation Act provides, in pertinent part:
A. The provisions of this Chapter shall apply to every person in the service of the state or a political subdivision thereof, or of any incorporated public board or commission authorized to hold property and to sue and be sued, under any appointment or contract of hire, express or implied, oral or written, except an official of the state or a political subdivision thereof or of any such incorporated public board or commission; and for such employee and employer the payment of compensation according to and under the terms, conditions, and provisions set out in this Chapter shall be exclusive, compulsory, and obligatory; provided that one employed by a contractor who has contracted with the state or other political subdivision, or incorporated public board or commission through its proper representative, shall not be considered an employee of the state, or other political subdivision, or incorporated public board or commission; further, provided that members of the police department, or municipal employees performing police services for any municipality who are not elected officials shall be covered by this Chapter and shall be eligible for compensation; and provided further that criminal deputy sheriffs for the parish of Orleans shall be covered by this Chapter and shall be eligible for compensation as provided herein.
* * * *
D. Employees of the state, but not those of political subdivisions, shall be provided compensation under this Section by the office of risk management of the Division of Administration in accordance with R.S. 39:1527, et seq. For purposes of this Section, "employees of the state" means the employees of "state agencies" as defined by R.S. 39:1527(1). Employees of political subdivisions shall be provided compensation *29 under this Section by the governing authorities of their respective political subdivisions. The fact that the state may grant to an employee of a political subdivision any additional or supplemental pay or otherwise provide funds for the payment of such employee's salary shall not make such employee, in whole or in part or in any way, an employee of the state.
La. R.S. 23:1034(A) and (D) (emphasis added). There are two provisions in the WCA that address seamen. The first provides, in pertinent part:
[N]othing in this Chapter shall be construed to apply to any work done on, nor shall any compensation be payable to the master, officers or members of the crew of, any vessel used in interstate or foreign commerce not registered or enrolled in the State of Louisiana.
La. R.S. 23:1037. The second provision states, in pertinent part:
No compensation shall be payable in respect to the disability or death of any employee covered by the Federal Employer's Liability Act [FELA], the Longshoreman's and Harbor Worker's Act, or any of its extensions, or the Jones Act.
La. R.S. 23:1035.2.
Louisiana does not have a torts claims act. See Monteville v. Terrebonne Parish Consol. Government, 567 So.2d 1097, 1104 (La.1990). Although the Louisiana Constitution mandates that the State is not immune in tort or contract, Article 12, Section 10 of the Louisiana Constitution, entitled "Suits against the State", also provides that the legislature may waive or limit the State's liability:
(A) No Immunity in Contract and Tort. Neither the state, a state agency, nor a political subdivision shall be immune from suit and liability in contract or for injury to person or property.
(B) Waiver in Other Suits. The legislature may authorize other suits against the state, a state agency, or a political subdivision. A measure authorizing suit shall waive immunity from suit and liability.
(C) Limitations; Procedure; Judgments. Notwithstanding Paragraph (A) or (B) or any other provision of this constitution, the legislature by law may limit or provide for the extent of liability of the state, a state agency, or a political subdivision in all cases, including the circumstances giving rise to liability and the kinds and amounts of recoverable damages. It shall provide a procedure for suits against the state, a state agency, or a political subdivision and provide for the effect of a judgment, but no public property or public funds shall be subject to seizure. The legislature may provide that such limitations, procedures, and effects of judgments shall be applicable to existing as well as future claims. No judgment against the state, a state agency, or a political subdivision shall be exigible, payable, or paid except from funds appropriated therefor by the legislature or by the political subdivision against which the judgment is rendered.
La. Constitution Art. XII § 10.[15] Read in conjunction with the WCA, Louisiana has established a procedure for suits against *30 the State by providing that injured State employees may bring claims under the WCA. Accordingly, we find that article 12, section 10 of the Louisiana Constitution does not evidence the state's consent to be sued and cannot operate as an absolute waiver of sovereign immunity such that the legislature has no authority to assert immunity for specific types of claims.[16] Accordingly, we find that the State of Louisiana has not consented to be sued in its own courts by individuals seeking recovery under the Jones Act.[17]
In Oshinski v. Northern Indiana Commuter Transp. Dist, 843 N.E.2d 536 (Ind. Ct.App.2006), the court considered a similar issue. In Oshinski, an employee of the Northern Indiana Commuter Transportation District ("NICTD") filed suit under FELA against NICTD, alleging negligence by failing to provide proper safety equipment. Oshinski, 843 N.E.2d at 538. NICTD's affirmative defenses included the assertion of sovereign immunity and noncompliance with the Indiana Torts Claims Act ("ITCA"), upon which the trial court ultimately granted summary judgment in NICTD's favor. Id.
With regard to sovereign immunity, the plaintiff argued that Indiana had provided blanket consent to be sued for FELA actions in state court, without regard for the ITCA. Id. at 539. NICTD conceded that the ITCA provided qualified consent for suits against the state. Id. at 540. The Oshinski court first cited College Savings Bank for the principle that "[a] state may not be sued in its own courts unless it has waived sovereign immunity by expressly consenting to such suit through a `clear declaration' of that consent." Id. at 539 (quoting Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd, 527 U.S. 666, 680, 119 S.Ct. 2219, 2228, 144 L.Ed.2d 605 (1999). The court then recognized the "significant evolution" of the U.S. Supreme Court's jurisprudence during the last few decades, particularly the Court's overruling of Parden v. Terminal Railway of Alabama State Docks Department, 377 U.S. 184, 84 S.Ct. 1207, 12 L.Ed.2d 233 (1964) in College Savings Bank.[18]Oshinski, 843 N.E.2d at 540.
Plaintiff Oshinski argued that certain language in Alden[19] evidenced that Indiana consented to FELA suits in state court by composing its workers' *31 compensation statutes to exclude railroad workers. Oshinski, 843 N.E.2d at 543. The court of appeals disagreed:
We can not conceive of any way in which the worker's compensation statutes could be read as an unambiguous statement of Indiana's blanket consent to FELA suits against the State in Indiana state courts. Indiana Code Section 22-3-2-2(b) simply provides that Indiana's worker's compensation statutes do not apply to railroad workers. The legislature makes no mention of FELA in that statute, and we are aware of no Indiana case in which our judiciary has made a statement regarding the State's blanket consent in FELA cases. We have already identified Campbell [v. State, 284 N.E.2d 733, 737, 259 Ind. 55, 63 (Ind. 1972)] and ITCA as unequivocal statements by the judiciary and legislature declaring Indiana's qualified consent in tort claims. Those statements are unfalteringly clear in their purpose, and there is no similarity between the level of clarity in those statements and in that which Oshinski contends is present in the worker's compensation statutes.
Even if we were persuaded there is merit in the premise Oshinski sets forth, his argument remains unconvincing. At the very most, Indiana's worker's compensation statutes could be read as some sort of implied waiver of Indiana's sovereign immunity. A waiver by implication simply is not good enough. As in the context of federal sovereign immunity, a state's waiver of its sovereign immunity may not be implied. See Coll. Sav. Bank, 527 U.S. at 682, 119 S.Ct. at 2229.
Finally, Oshinski posits that the Supreme Court held in Hilton and Alden that Indiana has given blanket consent to FELA suits against the State in Indiana state courts. As we commented during oral argument, Oshinski seems to be asking us to read the Supreme Court's tea leaves. We are not persuaded that the Court's statements in Hilton and Alden should be assigned as much significance as Oshinski urges. Instead, we read them to be mere obiter dicta, meaning they were unnecessary to the opinions and lack precedential effect. See Black's Law Dictionary 1100 (7th ed.1999).
Id. at 544-45 (footnotes omitted).[20] Similarly, we do not find that the Louisiana WCA's "seaman's exception" operates as consent or waiver for private litigants to bring suit against Louisiana under the Jones Act or general maritime claims in state court.
*32 Likewise, an Alabama court considered a similar issue regarding a FELA claim and concluded that Alabama's constitution did not demonstrate any waiver of state sovereign immunity. Alabama State Docks Terminal Ry. v. Lyles, 797 So.2d 432, 438 (Ala.2001). The state's constitution provided "that `the State of Alabama shall never be made a defendant in any court of law or equity.'" Lyles, supra; Article I § 14, Alabama Constitution of 1901. The Lyles court acknowledged that "[w]hile the Eleventh Amendment governs the jurisdiction of federal courts over the states and immunizes the states from certain actions in the federal courts, the Eleventh Amendment is not the source of a state's immunity from actions in its own courts." Lyles, 797 So.2d at 436 (citing Alden v. Maine, 527 U.S. 706, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999)). Rather, "[a] state's immunity from actions in its own courts derives from other bases, including common-law sovereign immunity and state constitutional sovereign immunity, such as the immunity guaranteed the State of Alabama by Art. I, § 14, Alabama Constitution of 1901. Id. Therefore, the court concluded, "the State [of Alabama] and its agencies have absolute immunity from suit in any court." Lyles, 797 So.2d at 435.
Accordingly, because we find that Louisiana has not consented to be sued under the Jones Act in this case, we now turn to the issue of whether Congress, pursuant to the Jones Act, has validly abrogated the requirement that a state must consent to suit.[21]
In considering this precise issue, the Glover court noted that "[t]he [U.S.] Supreme Court has issued two conflicting rulings on the applicability of the Jones Act to non-consenting states": Welch v. Texas Department of Highways and Public Transportation, 483 U.S. 468, 107 S.Ct. 2941, 97 L.Ed.2d 389 (1987) and Hilton v. South Carolina Public Railways Commission, 502 U.S. 197, 112 S.Ct. 560, 116 L.Ed.2d 560 (1991). Glover, 175 P.3d at 1255. The Glover court adopted the appellate court's reasoning[22] that Hilton has been so significantly narrowed by its subsequent decisions in Alden v. Maine, supra, Seminole Tribe of Florida v. Florida, supra, and College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 527 U.S. 666, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999) that its findings are inapplicable to state employees seeking to bring suit against a state under the Jones Act in state court.
First, the court discussed Hilton with regard to Glover's argument that because the State of Alaska chose to enter the field of maritime commerce, it constructively consented to Jones Act and maritime litigation in its state courts:
Hilton concerned an injured employee of a state-owned railroad that sued his state employer under the Federal Employers' Liability Act (FELA). The Court held that South Carolina was subject to suit by an injured state employee suing under FELA (and, by implication, the Jones Act) and that the Eleventh Amendment immunity of the state did not bar the suit. The Hilton decision relied on the court's 1964 interpretation *33 of FELA language in Parden v. Terminal Railway of Alabama Docks Department and general principles of stare decisis that courts should generally stand by settled principles of law. In the 1964 decision in Parden the Court held that "when Congress enacted FELA and used the phrase `[e]very common carrier by railroad,' 45 U.S.C. § 51, to describe the class of employers subject to its terms, it intended to include state-owned railroads." The Parden Court further held that states that engaged in interstate commerce by operating railroads constructively consented to suits under FELA. The Parden Court also held that FELA was enacted in the exercise of Congress' "constitutional power to regulate interstate commerce."
In 1987, the U.S. Supreme Court overruled that portion of Parden that stood for the proposition that FELA constituted a waiver of the Eleventh Amendment in Welch v. Texas Department of Highways & Public Transportation. In Welch, a Jones Act suit against the State of Texas was brought in federal court. The Court held that the Jones Act, which applies the FELA's remedial provisions to seamen, does not amount to a clear statement of Congressional intent to abrogate the states' Eleventh Amendment sovereign immunity. The Court held that employee Welch could not bring her Jones Act claim against the state in federal court in the absence of a clear statement in the legislation to abrogate state sovereign immunity.[23]
Hilton was decided in 1991. The Hilton majority concluded that upsetting the long-standing FELA liability rule set forth in Parden in state court actions would be unfair, particularly since Hilton would be left with no remedy for his injuries unless his FELA claim was recognized and since many states' workers' compensation laws specifically exclude railroad workers from coverage because of the assumption that FELA provides adequate protection for those workers. The Hilton court recognized that its decision represented an exception to the "clear statement rule" announced in Welch. The court held that the cases were distinguishable because the Eleventh Amendment does not apply in state courts and, thus, the Parden decision was based solely on principles of statutory construction of FELA as opposed to the constitutional construction issues presented in Welch.
Id. at 1260-61 (footnotes and internal citations omitted). The court then turned to Alden v. Maine, supra, and its finding that Hilton is to be narrowly construed:
The Alden Court explained that suit against the state in Hilton was allowed because the state, [by entering into the railroad business after the Court had earlier held that all who operated railroads would be subject to suit by injured *34 workers under FELA effectively] consented to suit by its injured railroad workers. Sovereign immunity was not raised as an issue in Hilton, likely because the case was decided after the Court had decided Parden v. Terminal Railway of Alabama Docks Department, which held that Alabama had "constructively" consented to suit by engaging in the railroad business after the enactment of FELA, but before the Court subsequently completely overruled Parden's theory of constructive waiver in College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board.[24]
Id. at 1261-62 (emphasis added) (citations omitted). Finally, the court examined the language in Alden which found that Hilton was not an acknowledgment of congressional authority to subject nonconsenting states to private lawsuits in their own courts:
Our decision was "controlled and informed" by stare decisis. A generation earlier we had held that because the FELA made clear that all who operated railroads would be subject to suit by injured workers, States that chose to enter the railroad business after the statute's enactment impliedly waived their sovereign immunity from such suits.... Some States had excluded railroad workers from the coverage of their workers' compensation statutes on the assumption that the FELA provided adequate protection for those workers. Closing the courts to FELA suits against state employers would have dislodged settled expectations and required an extensive legislative response.
There is language in Hilton which gives some support to the position of petitioners here but our decision did not squarely address, much less resolve, the question of Congress' power to abrogate States' immunity from suit in their own courts. The respondent in Hilton ... neither contested Congress' constitutional authority to subject it to suits for money damages nor raised sovereign immunity as an affirmative defense....... When so read, we believe the [Hilton] decision is best understood not as recognizing a congressional power to subject nonconsenting States to private suits in their own courts, nor even as endorsing the constructive waiver theory of Parden, but as simply adhering, as a matter of stare decisis and presumed historical fact, to the narrow proposition that certain States had consented to be sued by injured workers covered by the FELA, at least in their own courts.
Glover, 175 P.3d at 1262 (quoting Alden v. Maine, 527 U.S. at 736-38, 119 S.Ct. 2240, 144 L.Ed.2d 636) (citations omitted)(emphasis added).
The Glover court concluded that because the "constructive consent" of Parden, supra, had been overruled by the Supreme Court, and no express consent to suit by the state was evidenced, no basis for constructive consent to suit existed. Nor, the court found, was the scenario in Glover analogous to Hilton, as the Alaska statute expressly provided for workers' compensation act benefits. Glover, supra, at 1263. The court noted that "[t]his distinction is particularly compelling because Hilton emphasized the importance of the `practical *35 adverse effects' of allowing an assertion of sovereign immunity, whereas here the state employees are eligible for workers' compensation." Glover, supra, at 1254-55 (footnotes omitted). Moreover, the court noted that where a sovereign declines to consent to suit under the Jones Act,[25] "no constitutional principles are violated by substituting workers' compensation." Glover, 175 P.3d at 1254.[26]
The court in Glover thus followed Alden's mandate that states are free to decide when and under what terms they will consent to suit for private state court damage actions regarding federal claims brought against the state, "absent evidence that `the State has manipulated its immunity in a systematic fashion to discriminate against federal causes of action.'" Roger C. Hartley, Alden Trilogy: Praise and Protest, 23 Harv. J.L. & Pub. Pol'y 323, 361 (2000)(quoting Alden, 119 S.Ct. at 2268). "[I]n most cases it does not matter if a state waives its sovereign immunity in state tort or contract actions because a state may withhold consent on similar federal claims."[27] Hartley, supra, 23 Harv. J.L. & Pub. Pol'y at 368.
It is unlikely that many states have consented to suit in their own courts on damage claims by individuals alleging violation of federal rights. Alden makes plain that Maine, for example, has not consented to FLSA overtime actions. Alden-type litigation was routine prior to the [Alden] Trilogy. In addition to Maine, cases were brought in Arkansas, Florida, Iowa, Louisiana, Maryland, Massachusetts, New Jersey, New Mexico, New York, Tennessee, and Wisconsin.[28] One can say with reasonable *36 assurance that in these states there was no waiver of sovereign immunity permitting state courts to hear damage claims based on the federal causes of action in those cases. Otherwise, there would have been no need to litigate whether nonconsenting states can be sued for damages in state court-the issue in these cases.
Hartley, 23 Harv. J.L. & Pub. Pol'y at 368.
Notably, Alden did not explicitly overrule Hilton, which has been argued by some as preserving a provision for state courts to hear federal maritime personal injury claims. See Pfander, supra, at 3. However, as in Glover, supra, the case sub judice is distinguishable from Hilton because the Appellant has access to remedies afforded under the state workers' compensation act, while the injured employee in Hilton did not. See Glover, 175 P.3d at 1255 (citing Hilton, 502 U.S. at 202-03, 112 S.Ct. at 560). Moreover, Hilton has been significantly narrowed by the Supreme Court's subsequent decisions, namely Alden, supra, Seminole Tribe, supra, and College Savings Bank, supra.[29]
*37 Accordingly, as the law currently stands pursuant to the U.S. Supreme Court's "Alden trilogy" decisions, Appellant may not bring suit against the State of Louisiana under the Jones Act in State court without its consent.[30] Therefore, applying the foregoing U.S. Supreme Court jurisprudence to the facts of the case sub judice, we find that Appellant, as an employee of the DWF, an arm of the State, is governed by the exclusive remedies available under the Louisiana Workers' Compensation Act.
Assignment of Error # 2
Appellant asserts that Chandris, supra, controls in establishing her seaman status; that defendants did not set forth evidence that Appellant was not engaged in commerce and that the vessel was employed to execute Louisiana's police and administrative powers. As previously noted herein, *38 it is unnecessary to reach the issue of whether Appellant established seaman status, as Appellant, a state employee, is governed by the exclusive remedies of the WCA, and the State of Louisiana has not given its consent to suit under the Jones Act.
Assignment of Error # 3
In her final assignment of error, Appellant asserts that the trial court erred in considering Appellees' maintenance and cure payments in the context of determining her seaman status and the merits of her Jones Act and maritime claims.
A review of the record evidences[31] that Appellant initially received maintenance checks beginning on September 1, 2000 at a rate of $175.00 per week. Starting on January 20, 2002, Appellant's benefits were changed to the State workers' compensation rate of $298.17 per week. Appellant was issued a check for the difference between the maintenance rate and the State rate on February 5, 2002. Appellant's medical bills have also been paid.
As Appellant acknowledges, Appellees were essentially required to issue maintenance and cure payments to Appellant immediately.[32] We agree with the trial court's findings that the initial payment of maintenance and cure did not constitute a waiver of any defenses, particularly considering that our brethren in the Third Circuit found that such payments do not constitute waiver of an employer's defenses. Thurman v. Patton-Tully Transp. Co., 619 So.2d 879, 881 (La.App. 3rd Cir.1993)("The payment of maintenance and cure prior to suit does not constitute a waiver of any defenses which might be asserted."). Thurman further held that an employer may be held liable for compensatory damages if a claim for maintenance and cure is unreasonably denied.[33]Id. Therefore, we conclude that the aforementioned payments did not constitute a waiver of any Jones Act defenses.
CONCLUSION
For the foregoing reasons, the trial court's judgment is hereby affirmed.
AFFIRMED.
NOTES
[1] A seaman injured in the course of employment or, if the seaman dies from the injury, the personal representative of the seaman may elect to bring a civil action at law, with the right of trial by jury, against the employer. Laws of the United States regulating recovery for personal injury to, or death of, a railway employee apply to an action under this section.
46 U.S.C. § 30104 (2008).
[2] The State argued that because Karen Kuebel's status had not yet been determined by the court, the State had initiated maintenance and cure to avoid possible penalties. The State maintained that while the maintenance and cure remedy is construed expansively and paid almost automatically to an injured seaman, it does not constitute a settlement with a plaintiff. The State submitted that it opposed Ms. Kuebel's alleged seaman status from the inception of the lawsuit in its Answer to Ms. Kuebel's petition. Furthermore, the State argued that although it initially paid maintenance and cure, it subsequently determined that Ms. Kuebel was more likely a State employee and therefore entitled to full Workers' Compensation benefits in 2002, attaching a letter to Ms. Kuebel from the State as an exhibit. The State further noted that full Workers' Compensation benefits are greater than maintenance and cure benefits, and that when it stopped paying the maintenance and cure, it issued a check to Ms. Kuebel for the difference between the maintenance rate and the Workers' Compensation rate for her disability benefits, as evidenced by the letter. Accordingly, the State argued that Ms. Kuebel had been receiving Workers' Compensation benefits, not maintenance and cure payments, for the previous six years.
[3] Appellate courts review a trial court's judgment on an exception of lack of subject matter jurisdiction by an application for supervisory writs, if it is arguably incorrect. Robinson v. Simmons Co., XXXX-XXXX (La. App. 4 Cir. 11/18/98), 725 So.2d 27 at n. 1.
[4] The Jones Act allows a seaman injured in the course and scope of her employment to bring a civil action against an employer. 46 U.S.C. § 30104.
[5] The Alden Court noted that petitioners originally filed the action in the United States District Court for the District of Maine. While that suit was pending, the U.S. Supreme Court decided Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996), "which ma[de] clear that Congress lacks power under Article I to abrogate States' sovereign immunity from suits commenced or prosecuted in the federal courts." Alden, supra, at 712, 119 S.Ct. 2240. Pursuant to Seminole Tribe, the District Court of Maine dismissed petitioners' claims; the dismissal was affirmed by the Court of Appeals. Id. The claimants subsequently filed an identical action in state court, and the state court dismissed the action on the basis of sovereign immunity, which the Maine Supreme Judicial Court affirmed. Id.
[6] See, e.g., Sean M. Monohan, A Tempest in the Teapot: State Sovereign Immunity and Federal Administrative Adjudications in Federal Maritime Commission v. South Carolina State Ports Authority, 88 Cornell L.Rev. 1794, 1801-1805 (2003)(referring to Alden v. Maine as "the [U.S. Supreme] Court's most significant and controversial Eleventh Amendment decision to date").
[7] See Pennsylvania v. Union Gas, 491 U.S. 1, 109 S.Ct. 2273, 105 L.Ed.2d 1 (1989) (upholding provisions subjecting states to suit in federal court under the Superfund Act); Parden v. Terminal Ry., 377 U.S. 184, 84 S.Ct. 1207, 12 L.Ed.2d 233 (1964) (upholding provisions subjecting states to suit in federal court as employers under the Federal Employers' Liability Act); see also Petty v. Tennessee-Missouri Bridge Comm'n, 359 U.S. 275, 79 S.Ct. 785, 3 L.Ed.2d 804 (1959) (upholding federal jurisdiction over Jones Act suit against bi-state agency whose compact included sue and be sued clause and intent to preserve federal jurisdiction).
Vicki C. Jackson, Seductions of Coherence, State Sovereign Immunity, and the Denationalization of Federal Law, 31 Rutgers L.J. 691, n. 22 (2000).
[8] See note 7, supra. "Parden's constitutional conclusion was overruled in College Savings Bank; Union Gas was overruled in Seminole Tribe." Jackson, supra, 31 Rutgers L.J. at n. 23. Union Gas and Parden are also discussed at length infra.
[9] See Hilton v. South Carolina Pub. Ry., 502 U.S. 197, 204-05, 112 S.Ct. 560, 116 L.Ed.2d 560 (1991); Will v. Michigan Dep't of State Police, 491 U.S. 58, 63-64, 109 S.Ct. 2304, 105 L.Ed.2d 45 (1989) (noting that Eleventh Amendment does not apply in state courts and referring to a state's common law immunity from being sued without its consent); Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 240 n. 2, 105 S.Ct. 3142, 87 L.Ed.2d 171 (1985); Maine v. Thiboutot, 448 U.S. 1, 9 n. 7, 100 S.Ct. 2502, 65 L.Ed.2d 555 (1980) (asserting that "No Eleventh Amendment question is present, of course, where an action is brought in state court"); Nevada v. Hall, 440 U.S. 410, 418-21, 99 S.Ct. 1182, 59 L.Ed.2d 416 (1979) (noting that no constitutional immunity protects a state from being sued in the courts of another state); Employees of the Dep't of Pub. Health and Welfare v. Department of Pub. Health and Welfare, 411 U.S. 279, 286, 93 S.Ct. 1614, 36 L.Ed.2d 251 (1973) (noting that Fair Labor Standards Act arguably permits suits in state courts, but describing that as a question the court need not reach); id. at 297 n. 11, 93 S.Ct. 1614 (Marshall, J., concurring in the judgment) (arguing that states can be sued in state court); General Oil Co. v. Crain, 209 U.S. 211, 228, 28 S.Ct. 475, 52 L.Ed. 754 (1908) (treating state sovereign immunity rules in state courts as insufficient to bar the Supreme Court from reviewing whether defendant's enforcement of state statute would violate the constitution).
Jackson, supra, 31 Rutgers L.J. at n. 24.
[10] The State of Alaska's legislature amended its statutory waiver of immunity subsequent to Alden, ostensibly to articulate that Alaska plainly wished to invoke its immunity from federal maritime personal injury claims, thus leaving state Workers' Compensation as the remedy available to employees. Pfander, Jones Act Claims, supra, at 2; Alaska Stat. § 09.50.250(5), 2003 Alaska Sess. Laws ch. 30 (July 1, 2003).
[11] See, e.g., Glover v. State, Dep't. of Transp., Alaska Marine Highway Sys., 175 P.3d 1240 (Alaska 2008)(holding that a state-employed seaman could not bring suit against its employer in state court under the Jones Act or general maritime claims); Alabama State Docks Terminal Ry. v. Lyles, 797 So.2d 432, 438 (Ala.2001)(holding that the state of Alabama was immune from suit for FELA claims and that the state constitution definitively established that sovereign immunity was not waived).
[12] "To the extent [a State] has chosen to consent to certain classes of suits while maintaining its immunity from others, it has done no more than exercise a privilege of sovereignty concomitant to its constitutional immunity from suit." Midgett, 568 S.E.2d at 647-48 (quoting Alden, 527 U.S. at 758, 119 S.Ct. at 2268, 144 L.Ed.2d at 680-81)(emphasis added).
[13] See note 14 infra.
[14] Other noteworthy U.S. Supreme Court decisions include Federal Maritime Commission v. South Carolina State Ports Authority, 535 U.S. 743, 122 S.Ct. 1864, 152 L.Ed.2d 962, 2002 AMC 1372 (2002)(holding that sovereign immunity operates to protect nonconsenting states from having to answer private complaints before the Federal Maritime Commission) and Raygor v. Regents of the University of Minnesota, 534 U.S. 533, 122 S.Ct. 999, 152 L.Ed.2d 27 (2002)(holding that state sovereign immunity can shield a state from the limitations-tolling provision in the federal supplemental jurisdiction statute). See David W. Robertson and Michael F. Sturley, Recent Developments in Admiralty and Maritime Law at the National Level and in the Fifth and Eleventh Circuits, 27 Tul. Mar. L.J. 495, 499-502 (2003).
Additionally, in reversing an unpublished decision of the United States Court of Appeals for the Eleventh Circuit, the Supreme Court in Northern Insurance Co. v. Chatham County, 547 U.S. 189, 193-93, 126 S.Ct. 1689, 1695, 164 L.Ed.2d 367 (2006), held that a county is not entitled to sovereign immunity from suits in admiralty when it is not acting as an arm of the state. See David W. Robertson and Michael F. Sturley, Recent Developments in Admiralty and Maritime Law at the National Level and in the Fifth and Eleventh Circuits, 31 Tul. Mar. L.J. 463, 473-74 (2007). The unanimous Court explained:
This Court's cases have recognized that the immunity of States from suit "is a fundamental aspect of the sovereignty which the States enjoyed before the ratification of the Constitution, and which they retain today... except as altered by the plan of the Convention or certain constitutional amendments." Alden v. Maine, 527 U.S. 706, 713[, 119 S.Ct. 2240, 144 L.Ed.2d 636] (1999); see Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 55-56, 116 S.Ct. 1114, 134 L.Ed.2d 252] (1996); Principality of Monaco v. Mississippi, 292 U.S. 313, 322-323[, 54 S.Ct. 745, 78 L.Ed. 1282] (1934). Consistent with this recognition, which no party asks us to reexamine today, we have observed that the phrase "`Eleventh Amendment immunity' ... is convenient shorthand but something of a misnomer, for the sovereign immunity of the States neither derives from, nor is limited by, the terms of the Eleventh Amendment." Alden, 527 U.S. at 713, 119 S.Ct. at 2240.
A consequence of this Court's recognition of preratification sovereignty as the source of immunity from suit is that only States and arms of the State possess immunity from suits authorized by federal law.
Chatham County, 547 U.S. 189, 126 S.Ct. at 1693 (quoting Alden v. Maine, 527 U.S. at 713, 119 S.Ct. at 2240)(emphasis added). See Robertson and Sturley, supra, 31 Tul. Mar. L.J. at 474 (2007).
[15] With regard to immunity in tort or contract, the Louisiana Constitution provides that "[n]either the state, a state agency, nor a political subdivision shall be immune from suit and liability in contract or for injury to person or property." LSA-Const. Art. 12 § 10. The section further provides that "[t]he legislature may authorize other suits against the state, a state agency, or a political subdivision. A measure authorizing suit shall waive immunity from suit and liability." Id.
[16] Furthermore, even if the State of Louisiana had absolutely waived sovereign immunity, the State could ostensibly mandate that the WCA is the vehicle by which such litigation should proceed. See Glover, 175 P.3d at 1252.
[17] "[T]he doctrine that a sovereign could not be sued without its consent was universal in the States when the [U.S.] Constitution was drafted and ratified." Alden, 527 U.S. at 715-16, 119 S.Ct. 2240.
[18] As noted herein, the Supreme Court, in College Savings Bank, overruled Parden and its constructive-waiver theory (the theory that Alabama waived its immunity from FELA suits because it operated a railroad used in interstate commerce). Coll. Sav. Bank, 527 U.S. at 680-82, 119 S.Ct. 2219.
[19] The plaintiff in Oshinski relied upon the following language from Alden:
Hilton, then, must be read in light of the doctrinal basis of Parden, the issues presented and argued by the parties, and the substantial reliance interests drawn into question by the litigation. When so read, we believe the decision is best understood not as recognizing a congressional power to subject nonconsenting States to private suits in their own courts, nor even as endorsing the constructive waiver theory of Parden, but as simply adhering, as a matter of stare decisis and presumed historical fact, to the narrow proposition that certain States had consented to be sued by injured workers covered by FELA, at least in their own courts.
Alden, 527 U.S. at 737-38, 119 S.Ct. at 2258.
[20] The Oshinski court further noted:
In the alternative, if the Supreme Court did intend for its statements to be more than dicta, they do not affect our holding in this case. The Hilton Court stated, "Worker's compensation laws in many States [(e.g. Indiana)] specifically exclude railroad workers from their coverage because of the assumption that FELA provides adequate protection for those workers." Hilton, 502 U.S. at 202-03, 112 S.Ct. at 564. In Alden, the Court said that Hilton "is best understood ... as simply adhering, as a matter of stare decisis and presumed historical fact, to the narrow proposition that certain States had consented to be sued by injured workers covered by FELA, at least in their own states." Alden, 527 U.S. at 737-38, 119 S.Ct. at 2258.
Even if we read these statements as holdings regarding Indiana's consent to be sued in state court under FELA, nothing in them suggests blanket consent. In particular, the Hilton Court seemed to opine that states, such as Indiana, excluded railroad workers from their worker's compensation statutes with the expectation that FELA would provide those workers with a cause of action. Our holding in this case does not run contrary to that policy consideration because we conclude that FELA claims against the State remain available to workers who comply with ITCA's qualifications.
Oshinski, 843 N.E.2d at 545.
[21] Pursuant to Alden v. Maine, a private party may sue the state only if (1) the state consented, (2) if Congress had validly abrogated the need for state consent, or (3) under Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). Alden, 527 U.S. at 755-58, 119 S.Ct. 2240. Appellant does not assert that Ex Parte Young is applicable to the facts of the instant case.
[22] The superior court's discussion was adopted and attached as "Appendix A" to the Alaska Supreme Court's opinion.
[23] Petitioner's argument [that Congress has abrogated the States' Eleventh Amendment immunity from suit under the Jones Act] fails in any event because Congress has not expressed in unmistakable statutory language its intention to allow States to be sued in federal court under the Jones Act. It is true that the [Jones] Act extends to `[a]ny seaman who shall suffer personal injury in the course of his employment," § 33 (emphasis added). But the Eleventh Amendment marks a constitutional distinction between the States and other employers of seamen. Because of the role of the States in our federal system, `[a] general authorization for suit in federal court is not the kind of unequivocal statutory language sufficient to abrogate the Eleventh Amendment.'
Welch v. Texas Dept. of Highways and Public Transp., 483 U.S. 468, 475-76, 107 S.Ct. 2941, 2947, 97 L.Ed.2d 389 (1987).
[24] "We think the constructive-waiver experiment of Parden was ill-conceived, and see no merit in attempting to salvage any remnant of it.... Whatever may remain of our decision in Parden is expressly overruled." Glover, 175 P.3d at 1262 (quoting College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 527 U.S. 666, 680, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999))(emphasis added).
[25] "[W]aivers of sovereign immunity normally are drawn narrowly and seldom include waiver of individual damage actions based on federal law." Hartley, supra, 23 Harv. J.L. & Pub. Pol'y at 368.
[26] Two factors lead to a different conclusion regarding the constitutionality of a state remedy for state-employed seamen. First, the federal government provides at least some of its employed seamen with federal workers' compensation, as do several other states. These cases suggest that where a sovereign declines to submit to Jones Act suits, no constitutional principles are violated by substituting workers' compensation. Second, the case law justifying preemption has either failed to weigh the conflicting federal principle of state sovereign immunity at issue here or has been significantly narrowed by more recent U.S. Supreme Court cases, as discussed extensively below. These factors lead us to conclude that the Federal Constitution does not prohibit the application of state workers' compensation to state-employed maritime workers, and therefore allows us to evaluate Glover's rights and the state's assertion of sovereign immunity in light of the fact that Glover is entitled to receive the remedy of workers' compensation.
Glover, 175 P.3d at 1254 (footnotes and citations omitted).
[27] "In Alden, for example, the Court never addressed petitioner's argument that Maine had consented to state law-based claims similar to the FLSA claims because there was no allegation that Maine had systematically manipulated its immunity to discriminate against federal claims." Hartley, supra, 23 Harv. J.L. & Pub. Pol'y at n. 227 (citing Alden, 119 S.Ct. at 2268).
[28] See Chavez v. Arte Publico Press, 157 F.3d 282, 291 (5th Cir.1998) (finding that, even if copyright suits against the states cannot be brought in federal court because Congress lacks Section 5 power to enact the copyright laws and noting in dicta that the Eleventh Amendment only shields states from being sued in federal court); Aaron v. Kansas, 115 F.3d 813, 817 (10th Cir.1997) (holding that an FLSA action for damages against the state may not be brought in federal court, but suggesting in dicta that "the employee can sue in state court for money damages under the FLSA as a state court of general jurisdiction is obligated by the Supremacy Clause to enforce federal law"); Wilson-Jones v. Caviness, 99 F.3d 203, 211 (6th Cir.1996) ("[S]tate employees may sue in state court for money damages under the FLSA, and a state court would be obligated by the Supremacy Clause to enforce federal law."); see also Coolbaugh v. Louisiana, 136 F.3d 430, 441 (5th Cir.1998) (Smith, J., dissenting) (concluding that a finding that Congress lacks Section 5 authority to enact the ADA would not "eviscerate the basic protections the ADA gives disabled individuals against discriminatory state action [because] the plaintiff could still sue a state in state court to enforce the obligations the state owes the disabled under the ADA").
Hartley, 23 Harv. J.L. & Pub. Pol'y at n. 78 and n. 229.
See, e.g., Ahern v. New York, 244 A.D.2d 7, 11[, 676 N.Y.S.2d 232] (N.Y.App.Div.1998) ("In Seminole Tribe v. Florida ..., the United States Supreme Court merely held that the 11th Amendment prevents a private party from suing a State in Federal court, not that Federal statutes do not apply equally to both non-State and State defendants" because the sovereign immunity principle animating the Eleventh Amendment is not "`immunity from suit in any forum.'" (quoting Bartlett v. Bowen, 816 F.2d 695, 610 [710] (D.C.Cir.1987))). Other states have taken the same position. See Whittington v. State, [126 N.M. 21,] 966 P.2d 188 (N.M.Ct.App.1998), vacated, [527 U.S. 1031,] 119 S.Ct. 2388[, 144 L.Ed.2d 790] (1999); Bunch v. Robinson, [122 Md. App. 437,] 712 A.2d 585 (Md.Ct.Sp.App. 1998); Jacoby v. Arkansas Dep't of Educ., [331 Ark. 508,] 962 S.W.2d 773 (Ark. 1998), vacated, [527 U.S. 1031,] 119 S.Ct. 2387[, 144 L.Ed.2d 789] (1999); Ribitzki v. School Bd. of Highlands County, 710 So.2d 226 (Fla.Dist.Ct.App. 1998); Clover Bottom Hosp. & Sch. v. Townsend, 513 S.W.2d 505 (Tenn.1974).
Hartley, 23 Harv. J.L. & Pub. Pol'y at n. 79 and n. 229.
See, e.g., Allen v. Fauver, [327 N.J.Super. 14,] 742 A.2d 594 (N.J.Super.Ct.App.Div.1999); Keller v. Dailey, [124 Ohio App.3d 298,] 706 N.E.2d 28 (Ohio Ct.App.1997); Alden v. State, 715 A.2d 172, 174 (Me.1998), affd, [527 U.S. 706,] 119 S.Ct. 2240[, 144 L.Ed.2d 636] (1999) (dismissing claim under the overtime provisions of the FLSA); Jackson v. State, 544 A.2d 291, 298 (Me. 1988), cert. denied 491 U.S. 904[, 109 S.Ct. 3185, 105 L.Ed.2d 694] (1989) (dismissing claim under the federal Rehabilitation Act); Board of Comm'rs. v. Splendour Shipping & Enters., 255 So.2d 869 (La.Ct.App.1972); see also Morris v. Massachusetts Maritime Academy, [409 Mass. 179,] 565 N.E.2d 422, 426 (Mass. 1991) ("Although the Supreme Court has never addressed the question whether States may claim immunity in their own courts when the Eleventh Amendment bars suit in Federal Court, we think that, absent congressional command to the contrary, they may.")
Hartley, supra, at n. 80 and n. 229.
[29] Justice Souter dissented from the majority in Alden, with Justices Stevens, Ginsburg, and Breyer joining, asserting that the majority erroneously referred to sovereign immunity as an "inherent notion of statehood" that was preserved by the Tenth Amendment. Ann Althouse, The Alden Trilogy: Still Searching for a Way to Enforce Federalism, 31 Rutgers L.J. 631, 653 (2000).
Because sovereign immunity lacks a constitutional text, it needs something more to have the capacity to survive the creation of federal legislative powers, according to Justice Souter. He assumes that whether this capacity exists or not depends on whether sovereign immunity deserves the appellation "natural law." He proceeds to analyze at length whether sovereign immunity is "natural law" or mere common law, even though the majority does not agree that this distinction determines whether Congress' original powers entail the power to abrogate immunity. But, Justice Souter's analysis of whether sovereign immunity is "natural law" or merely common law really only boils down to asking whether or not sovereign immunity is "defeasible by statute." In other words, it is another way of asking the same old question: Does Congress have the power to abrogate sovereign immunity?
Althouse, supra, 31 Rutgers L.J. at 655 (footnotes omitted). The dissenting opinion expressed concern for the state employees who could be adversely affected by the majority's decision:
For the dissenters, straightforward normative reasoning seems to demand that these workers receive their lost wages. One senses Justice Souter's frustration with the recalcitrant state when he wonders why it did not see fit to end all of this litigation by simply paying the workers what the FLSA required and when he ridicules, as mere "whimsy," the majority's idea that the Secretary of Labor can serve the litigation interests of the nation's 4.7 million state workers.
Id. at 658-59 (footnotes omitted). The author concludes that Alden necessarily protects states from excessive litigation:
Because Congress can still impose on the states, though only in a particular, deferential way, Alden is an example of the moderate version of enforcing federalism. In comparison to overruling Garcia [v. San Antonio Metropolitan Transit Authority, 469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1985)(as being averse to judicial enforcement of federalism)], Alden can be seen as better because it does not restrict Congress from regulating in all areas and protects the states from the excesses of litigation by permitting only federal officials to bring lawsuits for retrospective relief. Not only can this be seen as a preferable way to balance state and federal interests, but it is a better way to use judicial resources. Garcia spares courts from having to figure out where to draw the line between what Congress can and cannot regulate, and Alden relieves courts of all but the lawsuits that federal officials deem worthwhile.
Id. at 660 (footnotes omitted).
[30] Prior to Alden, the Supreme Court could, and did, soften the blow of denying plaintiffs a federal forum by suggesting that plaintiffs still could enforce federal rights in state court. Alden now precludes that mollification.
Hartley, 23 Harv. J.L. & Pub. Pol'y at 366-67 (footnotes omitted). However, a different outcome in Alden, as previously noted, would have resulted in even more confusion:
Had Alden been decided differently, state courts would have experienced an abundant influx of private damage actions to enforce federal rights against the state. The inevitable result would have been an increased demand on the Supreme Court to mediate the fairness of local procedural rules at a time when the Court's precedent is somewhat chaotic. This is no-win work for the Court. Either the Court imposes federal procedural rules on discontented state court judges and officials or it abandons plaintiffs to the vicissitudes and burdens of local rules. The Alden decision liberated the Court from this trap.
Hartley, 23 Harv. J.L. & Pub. Pol'y at 359.
[31] Correspondence dated May 22, 2008 from a claims adjuster for the State of Louisiana to counsel for Appellees referenced Appellant's name, claim number, date of injury, dates and amounts of compensation, and further indicated that Appellant's medical bills were paid.
[32] When a seaman becomes ill or injured while in the service of his ship, the shipowner must pay him maintenance and cure regardless of whether the shipowner was at fault or whether the ship was unseaworthy. See Morales v. Garijak, Inc., 829 F.2d 1355, 1358 (5th Cir.1987). "Maintenance" is the right of a seaman to food and lodging if he falls ill or becomes injured while in the service of the ship. "Cure" is the right to necessary medical services. This duty to pay maintenance and cure is of ancient vintage, and its origin is customarily traced back to the medieval sea codes. See The Osceola, 189 U.S. 158, 169, 23 S.Ct. 483, 484-85, 47 L.Ed. 760 (1903); see generally Grant Gilmore & Charles L. Black, Jr., The Law of Admiralty § 6-6, at 281 (2d ed.1975); Thomas J. Schoenbaum, Admiralty and Maritime Law § 6-28, at 348 (2d ed.1994).
Guevara v. Maritime Overseas Corp., 59 F.3d 1496, 1499 (5th Cir.1995).
[33] Should the defendant ultimately be found to have unreasonably denied the claim, then the defendant may be liable for compensatory damages in addition to maintenance and cure. If the defendant's conduct is further found to be arbitrary and capricious, then the defendant is subject to the additional penalty of punitive damages.
Thurman v. Patton-Tully Transp. Co., 619 So.2d 879, 881 (La.App. 3rd Cir. 1993). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1593236/ | 45 F.Supp. 691 (1942)
DOYLE TRANSFER CO., Inc., OF GLASGOW, KY.,
v.
UNITED STATES et al.
No. 15012.
District Court of the United States for the District of Columbia.
June 2, 1942.
*692 Roberts & McInnis and Edgar Turlington, all of Washington, D. C., for plaintiff.
Irvin L. Stephenson, Daniel W. Knowlton, and Nelson Thomas, all of Washington, D. C., for defendants.
Before MILLER, Associate Justice, United States Court of Appeals for the District of Columbia, and O'DONOGHUE and McGUIRE, Associate Justices, District Court of the United States for the District of Columbia.
McGUIRE, Associate Justice.
This is an action brought by the plaintiff to set aside an order of the Interstate Commerce Commission.
The order under review, issued February 2, 1942, denied the plaintiff's application for a contract carrier permit (Docket No. MC925, Filed Dec. 31, 1935) under the so-called "grandfather" provisions of the Motor Carrier Act, 49 U.S.C.A. §§ 301, 306 (a), 309(a), but did grant it a common carrier certificate under the same provisions of the act, by virtue of an application (Docket No. MC924) seeking the same, filed on the same date as that seeking the contract carrier permit referred to above. The Commission on April 16, 1942 extended the effective date of this order to June 1, 1942. Pursuant to Title 28 U.S. C.A. § 47, the case was heard by a three judge court.
The essential facts with respect to the plaintiff's activities were found substantially to be as follows:[1]
*693 It is a Kentucky corporation and has for more than ten years past performed transportation service as a common carrier of general commodities, with certain exceptions, in interstate commerce over a regular route between Louisville, Kentucky, and Nashville, Tennessee.
For about the same length of time under individual contracts concluded for a period of several years with a single shipper, it has transported the same general commodities, more specifically cotton piece goods, cotton work clothing, buttons, thread, wire goods, and cardboard boxes for all practical purposes over the same route from the shipper's warehouse in Nashville to manufacturing plants in small Kentucky towns, and has transported the same commodities in the finished form of work clothing, principally overalls, jumpers, and shirts, from the manufacturing plants referred to to another warehouse of the shipper in Nashville, (T. 7, 24, 56, 58) Under Section 210 of the Act, 49 U.S.C.A. § 310,[2]*694 these dual operations in the same territory cannot be performed unless they be found consistent with the public interest and the national transportation policy.
The plaintiff claims that the Commission erred in denying its application for a contract carrier permit, and in its finding that the operations conducted by it under contract with the single shipper have been those of a common carrier.
It contends:
1. The Commission has erroneously construed the statutory definition of a contract carrier by motor vehicle.
2. The so-called test of "specialization" applied by the Commission should not have been applied, and if it should, it was applied arbitrarily and capriciously in the present case.
3. The Commission's findings as to material facts are not supported by substantial evidence.
4. The denial of the plaintiff's application as a contract carrier by motor vehicle and the imposition upon it of the duties of common carrier exclusive of its relationship with the individual shipper is at variance with the principles of the Fifth Amendment.
We find no merit in these contentions.
As to the first that the Commission has erroneously construed the statutory definition of a contract carrier by motor vehicle, Part II of the Interstate Commerce Act, 49 U.S.C.A. Chapter 8, as amended September 18, 1940, reads:
"Sec. [§] 303. Definitions and exceptions
"(a) Definitions.
* * * * *
"(14) The term `common carrier by motor vehicle' means any person which holds itself out to the general public to engage in the transportation by motor vehicle in interstate or foreign commerce of passengers or property or * * * for compensation, * * *.
"(15) The term `contract carrier by motor vehicle' means any person which, under individual contracts or agreements, engages in the transportation (other than transportation referred to in paragraph (14) and the exception therein) by motor vehicle of passengers or property in interstate * * * commerce * * *."
The Commission in the instant case not only applied the statutory definition of common carriage thus set forth, which is essentially that of the common law, but went further and applied also the so-called secondary test of "specialization" used by it to determine as to whether or not there was an actual "holding out", thus bringing the plaintiff within the terms of the statute.
This specialization test so applied has been held to consist either in the nature of the actual physical operations or in respect to the shippers served, and that in the absence of such, contract carriage could not be found to exist.[3] The rulings of the Commission in construing the definition of *695 the contract carrier in the Act of 1935 before its amendment by the Act of 1940 appear to be uniform.
In Pregler Extension of Operation, 23 M.C.C. 691, 695, it was held a contract carrier must perform "special and individual service which is required by the peculiar needs of a particular shipper."
This strict construction of the definition of "contract carrier" is also in accord with the declaration of policy found in Section 202(a) of the original Motor Carrier Act, and now found in Section 1 of the Transportation Act of 1940, 49 U.S.C.A. preceding section 301.[4]
Again this strict construction appears also to be plainly within the intent of Congress.[5]
One of the purposes indicated in the statement of policy that motivated the Congress in the passage of the act, infra, was to do away with "unfair or destructive competitive practices * * *" which would prevail if a contract carrier was permitted to operate in the area served by common carrier.
The fact that the so-called Craig decision was one not made by a unanimous Commission is of no significance, as the legal effect of such a finding is the same as if supported by all the members. Baltimore & O. Railroad Co. v. United States, 298 U.S. 349, 56 S.Ct. 797, 80 L.Ed. 1209.
The rulings of the Commission are entitled to great weight, and the function of the courts is to construe the language of the statute so as to give effect to the intent of Congress. This is axiomatic and especially true where the interpretations involve "contemporaneous construction of a statute by the men charged with the responsibility of setting its machinery in motion; of making the parts work efficiently and smoothly while they are yet untried and new." United States v. American Trucking Associations, 310 U.S. 534, at page 549, 60 S.Ct. 1059, at page 1067, 84 L.Ed. 1345; Norwegian Nitrogen Co. v. *696 United States, 288 U.S. 294, at page 315, 53 S.Ct. 350, 77 L.Ed. 796.
The correctness of the conclusion of the Commission which the plaintiff challenges, that under the specialization test so applied, it is a common rather than a contract carrier, is demonstrated by the finding and borne out by the evidence.
The finding was that the plaintiff had devoted three vehicles exclusively out of a total of thirteen to the shipper's transportation needs between the points for which authority was requested. (T. 18.)
The equipment consisted of ordinary trucks not especially made or adapted to fit the shipper's transportation needs, while the applicant has held itself out to the public to transport general commodities as a common carrier between points and over the same route for which authority was requested to operate as a contract carrier. (T. 41, 56, 57.) Again it was found that "neither the mode of receiving, transporting, and delivering of freight, the type of commodities transported, the class of shippers served, nor any other feature can be pointed to as distinguishing applicant's service for the shipper from common carriage." (Docket No. MC925, 286.) "Although it is necessary for the shipper to have the daily use of applicant's vehicles, its representative admitted that outside of the rate advantage, he knew of no reason why applicant's service for his company could not be performed equally as satisfactorily as a common carrier * * *." Id.
Except for a rate concession, the same service was held out to all other shippers under slightly different arrangements.
The plaintiff, however, argues further that the test of specialization is met by it by virtue of its contract with the shipper and the fact that the shipper is able to continue its "farming-out" method of production, and that thus the plaintiff's service is "coordinated with shipper organization." (T. 39, 40.) We cannot agree. If there is any such, it appears to be the reduced rate which the shipper received, while the specialization of physical operation, so-called, appears to be that of the shipper rather than of the plaintiff.
"Whether an applicant seeking exemption [from the requirement of proving factual convenience and necessity] had in fact been in operation within the immunizing period of the statute was bound to raise controverted matters of fact. Their determination Congress entrusted to the Commission." United States v. Maher, 307 U.S. 148, 154, 155, 59 S.Ct. 768, 771, 83 L.Ed. 1162.
The provisions of the act requiring proof of public convenience and necessity, upon which the necessary certificate or permit is issued for operators otherwise inhibited, are remedial, to which the so-called "grandfather" sections (206(a) and 209(a) establish exceptions, and such sections must be read in harmony with the purpose of the act itself and extend to those carriers plainly within its terms. McDonald v. Thompson, 305 U.S. 263, 59 S.Ct. 176, 83 L.Ed. 164.
After full hearing, the Commission has found and set forth basic and primary findings which lead as they must to its final conclusion of fact that the operations of the plaintiff are those of a common carrier. This is sufficient. Saginaw Broadcasting Co. v. Federal Communications Comm., 68 App. D.C. 282, 96 F.2d 554, 559, 560; United States v. Baltimore & O. Railroad, 293 U.S. 454, 464, 465, 55 S.Ct. 268, 79 L.Ed. 587.
It cannot be said that the Commission's finding deprives the plaintiff of its property without due process of law. The test applied represents no departure from the fundamental concepts involved. After a full examination of the record, we hold that the finding made had a basis in substantial evidence and was not arbitrary or capricious. Shields v. Utah Idaho Cent. Railroad Co., 305 U.S. 177, 185, 59 S.Ct. 160, 83 L.Ed. 111.
The Fifth Amendment in the field of federal activity does not prohibit governmental regulation for the public welfare. It, like the Fourteenth as applied to the States, conditions or limits the exercise of the admitted power, by seeing that the end accomplished shall be achieved by methods consistent with due process, which demands only that the law shall not be unreasonable, arbitrary, or capricious, and that the means chosen shall have a real and substantial relation to the object sought to be attained the reasonableness of each regulation depending upon the pertinent facts. Nebbia v. People of State of New York, 291 U.S. 502, 525, 54 S.Ct. 505, 78 L.Ed. 940, 89 A.L.R. 1469; United States v. Joint Traffic Association, 171 U.S. 505, 559, 571, 573, 19 S.Ct. 25, 43 L.Ed. 259; Atlantic Coast Line v. Riverside Mills, *697 219 U.S. 186, 31 S.Ct. 164, 55 L.Ed. 167, 31 L.R.A.,N.S., 7; Chicago, B. & Q. Railroad Co. v. McGuire, 219 U.S. 549, 31 S.Ct. 259, 55 L.Ed. 328.
We do not feel that the plaintiff on the facts presented is being compelled to transmute or to alter radically its type of operation, but on the contrary, by denominating it a common carrier, the Commission has catalogued its activities within their proper sphere. Fordham Bus Corp. v. United States, D.C.S.D.N.Y., 41 F.Supp. 712.
With reference to the suggestion of the applicant, that such discrimination as might arise, if dual authority were granted it, could be obviated by deleting from its certificate of common carriage the commodities for which contract carriage authority is sought, we express no opinion. The only matter before this court is the validity of the order under review.
The complaint is dismissed, and parties may submit proposed findings and decree.
NOTES
[1] "In No. MC-925, by application filed December 21, 1935, as amended, under the `grandfather' clause of section 209(a) of the Interstate Commerce Act, Doyle Transfer Company, Inc., of Glasgow, Ky., seeks a permit authorizing continuance of operation as a contract carrier by motor vehicle, in interstate or foreign commerce, of cotton piece goods, cotton work clothing, thread, buttons, wire goods, (overall loops and hooks), and cardboard boxes, between Louisville, Ky., and Nashville, Tenn., over a regular route, from Louisville over U. S. Highway 31W to Elizabethtown, Ky., thence over U. S. Highway 31E to Nashville, serving Scottsville, Glasgow, and Elizabethtown, Ky., as intermediate points. Certain rail and motor carriers oppose the application, and the Washington Manufacturing Company intervened on behalf of the applicant.
"In the prior report, 29 M.C.C. 284, division 5, found that applicant's operations were and are those of a common carrier by motor vehicle and that it was entitled to a certificate under the `grand-father' clause of section (206(a) of the act authorizing operation, in interstate or foreign commerce, of cardboard boxes and materials used in the manufacture of cotton garments from Nashville, Tenn., to Scottsville, Ky., and of finished cotton garments from Elizabethtown, Ky., to Nashville, over a specified route, and denied the application in all other respects. Upon petition of applicant we reopened the proceeding for reconsideration on the record as made and vacated and set aside the prior order herein. At the same time we also reopened for reconsideration, upon our own motion, applicant's common carrier application, No. MC-924, which has been handled informally. For convenience and in order that our discussion of the issues presented may be clear, we shall restate certain of the facts set forth in the prior report.
"On November 13, 1940, in No. MC-924, division 5, granted applicant a certificate authorizing operation, in interstate or foreign commerce, as a common carrier by motor vehicle of general commodities, with certain exceptions, between Louisville and Nashville over the same route applicant here seeks authority to use as a contract carrier, with service at certain intermediate and off-route points, which, insofar as here pertinent, restricts service from and to Scottsville and all intermediate points between Scottsville and Nashville to southbound traffic, and from and to Hodgenville and those between Hodgenville and Louisville and to northbound traffic.
"In addition to the above authorized carrier operations, applicant has, since 1931, transported cotton piece goods, cotton work clothing, buttons, thread, wire goods, and cardboard boxes for the Washington Manufacturing Company of Nashville, hereinafter called the shipper. From 1931 until January 1, 1934, this service was performed under an oral arrangement with the shipper. Operations performed since January 1, 1934, have been conducted under a written contract. The service consists of the transportation of cotton piece goods, buttons, thread, wire goods (overall loops and hooks), and flat cardboard boxes from the shipper's plant or warehouse at Nashville to `cut-make-and-trim' factories at Scottsville, Glasgow, Elizabethtown, and Louisville, where the materials are made into work clothing, principally overalls, jumpers, and shirts, and of the return of the finished garments to the shipper's warehouse at Nashville. At times applicant also has transported these commodities between the designated factory points. This transportation performed between the named Kentucky points appears to be intrastate in character and no authority is required from this Commission for the continuance thereof. The tonnage handled by applicant under its contract with the shipper varies from 1½ to 2 million pounds annually."
[2] "Unless, for good cause shown, the Commission shall find, or shall have found, that both a certificate and a permit may be so held consistently with the public interest and with the national transportation policy declared in the Interstate Commerce Act
"(1) no person, or any person controlling, controlled by, or under common control with such person, shall hold a certificate as a common carrier authorizing operation for the transportation of property by motor vehicle over a route or within a territory, if such person, or any such controlling person, controlled person, or person under common control, holds a permit as a contract carrier authorizing operation for the transportation of property by motor vehicle over the same route or within the same territory; and
"(2) no person, or any person controlling, controlled by, or under common control with such person, shall hold a permit as a contract carrier authorizing operation for the transportation of property by motor vehicle over a route or within a territory, if such person, or any such controlling person, controlled person, or person under common control, holds a certificate as a common carrier authorizing operation for the transportation of property by motor vehicle over the same route or within the same territory. Feb. 4, 1887, c. 104, Part II, § 210, as added Aug. 9, 1935, c. 498, 49 Stat. 554 and amended Sept. 18, 1940, c. 722, Title I, §§ 16, 21(a), 54 Stat. 919, 923."
[3] N.S. Craig Contract Carrier Application, decided Dec. 1, 1941. Docket No. MC5724:
"The specialization which we have in mind may consist in the rendition of other than the usual physical services for the purpose of supplying the peculiar needs of a particular shipper, such, for example, as the furnishing of equipment especially designed to carry a particular type of commodity, the training of employees in the handling of the particular commodities, or in the supplying of related nontransportation services such as the assembling, placing, or servicing of machinery. Or it may consist of nothing more than the devotion of all of a carrier's efforts to the service of a particular shipper, or at most a very limited number of shippers under a continuing arrangement which makes the carrier virtually a part of the shipper's organization.
"We recognize, of course, that even a specialization in physical operations does not necessarily negative a common carrier status where, for example, such physically specialized services are affirmatively held out to all shippers in that particular class of the public having need therefor. But, on the other hand, we are convinced that the lack of one or the other forms of specialization above-indicated conclusively negatives contract carriage as contemplated by Section 203(a) 15 of the act.
[4] The Act of September 18, 1940, Chapter 722, Title 1, 54 Stat. 899, amended the Interstate Commerce Act by inserting before Part 1 thereof the following provision:
"It is hereby declared to be the national transportation policy of the Congress to provide for fair and impartial regulation of all modes of transportation subject to the provisions of this Act. (chapters 1, 8, and 12 of this title), so administered as to recognize and preserve the inherent advantages of each; to promote safe, adequate, economical, and efficient service and foster sound economic conditions in transportation and among the several carriers; to encourage the establishment and maintenance of reasonable charges for transportation services, without unjust discriminations, undue preferences or advantages, or unfair or destructive competitive practices; to cooperate with the several States and the duly authorized officials thereof; and to encourage fair wages and equitable working conditions;all to the end of developing, coordinating, and preserving a national transportation system by water, highway, and rail, as well as other means, adequate to meet the needs of the commerce of the United States, of the Postal Service, and of the national defense. All of the provisions of this Act (chapters 1, 8, and 12 of this title) shall be administered and enforced with a view to carrying out the above declaration of policy."
[5] When the conference report on the bill which subsequently became the Transportation Act of 1940 was introduced in the Senate, it was specifically stated by Senator Truman, (86 Congressional Record 11,546) who was in charge of the legislation, "It is intended by the definition of contract carriers to limit that group to those who operate under individual contracts and who render a specialized service which is required by the peculiar needs of a particular shipper and who do not come within the definition of common carriers."
And further, "It is intended that all over-the-road truckers shall whenever possible fall within the description of common carriers." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1593106/ | 19 So.3d 233 (2009)
Timothy BURLESON
v.
Vicki A. BURLESON.
2071218.
Court of Civil Appeals of Alabama.
March 27, 2009.
*235 Matthew B. LeDuke of Lowe, Mobley & Lowe, Haleyville, for appellant.
Jerry F. Guyton, Hamilton, for appellee.
MOORE, Judge.
Timothy Burleson ("the former husband") appeals from an August 18, 2008, order entered by the Marion Circuit Court, denying his motion to set aside a default judgment that was entered against him and in favor of Vicki A. Burleson ("the former wife") in a divorce action on October 13, 2006. We affirm.
On November 10, 2003, the former wife filed a complaint in the Marion Circuit Court ("the trial court"), seeking a divorce from the former husband. The former husband filed an answer through an attorney on December 8, 2003. The pleadings revealed a dispute between the parties regarding several issues, including the custodial arrangement for the parties' three minor children, the basis for calculating the former husband's wages for purposes of child support, postminority support for the children, the disposition of the marital residence, and the payment of the mortgage on the marital residence. After a hearing, the trial court entered a pendente lite order on December 23, 2003, awarding custody of the children to the former wife, with scheduled visitation being awarded to *236 the former husband, and ordering the former husband to pay the former wife $500 per month in child support and $890 per month to cover one-half of the monthly mortgage expense. The order also allowed the former wife to remain in possession of the marital residence. The evidence indicates that the former husband paid approximately $4,900 in child support and that the former husband's father paid $1,100 in child support to the former wife on behalf of the former husband. The former husband's father, who was a cosigner on the parties' mortgage, also paid 16 payments of $890 from November 2003 to February 2005.
Following the entry of the December 23, 2003, pendente lite order, the former husband apparently failed to pay his attorney. On April 15, 2004, the trial court entered an order allowing the attorney to withdraw from the case.[1] Thereafter, the former husband did not retain an attorney to represent him in the divorce action, and he did not inform the clerk of the trial court of his address for service of notice of further proceedings.
On October 7, 2004, the trial court set the divorce action for a final hearing. According to the former wife, that hearing did not take place because of the withdrawal of the former husband's attorney. The trial court then set a hearing to take place on June 14, 2005. According to the former wife, the trial court canceled that hearing when the former husband did not appear.
On June 23, 2006, the trial court again set the final hearing to take place on July 20, 2006. The trial-court clerk sent notices of the hearing to the former husband,[2] but those notices were returned bearing marks on the envelopes indicating "no mail receptacle" and "not deliverable as addressed-unable to forward." On July 20, 2006, the trial court called the case for trial. The former husband did not appear. The former wife's attorney stated on the record that he had sent notices of the hearing to the former husband's parents. The former wife's attorney also represented that he had attempted to personally serve the former husband through the sheriff of Wilcox County without success. Additionally, the former wife testified that she had left a message on the former husband's answering machine indicating the date of the hearing. She also testified that she did not have an address for the former husband.
The trial court proceeded to take testimony from the former wife on the issues presented in her divorce complaint. Based on that testimony, the trial court entered a judgment divorcing the parties on October 13, 2006. That judgment awarded the former wife sole custody of the parties' children; found that the former husband was voluntarily unemployed and imputed to him income of $3,000 per month; awarded the former wife $863 per month in child support; found the former husband in contempt and awarded the former wife $10,000 in back child support; awarded postminority support for the children; ordered the former husband to pay all medical expenses incurred on behalf of the minor children not covered by the former wife's medical insurance; ordered the former husband to pay $890 per month to cover one-half of the monthly mortgage expense on the marital residence; awarded *237 the former wife $36,945 for reimbursement of moneys expended and borrowed to support her and the children; awarded the former wife all personal property in her possession; awarded the former wife $20,000, representing one-half of the amount the former husband had withdrawn from a 401(k) account just before the divorce action was filed; and awarded the former wife $800 per month in alimony.
Thereafter, on August 3, 2007, the trial court entered a judgment finding the former husband in contempt of court for failing to pay child support, and it issued a warrant for his arrest. On January 13, 2008, the former husband was arrested.
The former husband filed a motion to set aside or to modify the divorce judgment on March 5, 2008. In that motion, the former husband asserted that the trial court should exercise its discretion under Rule 60(b)(6), Ala. R. Civ. P., to vacate the divorce judgment because, the former husband alleged, he had not received notice of the trial date and he was suffering from a chemical dependency. The former wife opposed that motion. The trial court set a hearing on the motion, which took place on June 19, 2008.
At the hearing on the motion to set aside the divorce judgment, the former husband testified that he did not receive notice of the entry of the divorce judgment; that his January 13, 2008, arrest constituted the first notice to him of the divorce judgment; that, after his attorney withdrew from the divorce case, he had moved several times over the next few years; that, although he was aware that his divorce case remained pending, he did not take any steps to check on its progress; that he had kept in contact with the former wife but that they did not discuss court dates; that he did not receive any telephone messages from the former wife; that he had lost contact with his parents for a period; that, at the time the divorce judgment was entered, he was abusing alcohol; that, at some point in 2007, he had become addicted to methadone; and that he had enrolled in an alcohol-rehabilitation program in December 2007. The former husband also testified that, despite his alcohol abuse, he had worked between 2004 and 2007 without missing a day and that he had not paid the former wife any of the amounts ordered in the divorce judgment.
The former wife testified as follows: that she had relied on her savings, her wages from her employment as a school teacher, and on support from her parents to sustain herself and the children; that, after the former husband's father ceased paying one-half of the mortgage, she had soon run out of money, the mortgage had been foreclosed on, and, as a result, she had lost the marital residence; that she and the children had moved into a rental house; that she had filed for bankruptcy and, upon her discharge from bankruptcy, she had retained only an automobile and some furniture; and that, because she could not afford to assist the parties' oldest child with her educational expenses, the child had been forced to drop out of college.
The former husband's father also testified at the hearing on the motion to set aside the divorce judgment. He denied receiving any notice from the former wife's attorney regarding the final hearing in the divorce action and testified further that he had not known the former husband's whereabouts at the time of the parties' final divorce hearing.
Following the June 19, 2008, hearing, the trial court accepted briefs from the parties. On August 18, 2008, the trial court denied the former husband's *238 motion to set aside the divorce judgment.[3] The former husband asked the trial court to reconsider that ruling on September 8, 2008.[4] The trial court denied the "motion to reconsider" on September 12, 2008, stating:
"The Court remembers well that [the former husband] . . . simply chose to quit participating in his case once a ruling he did not like on temporary issues was issued. This is evidenced by the fact that he almost immediately terminated the services of his attorney, refused to participate further in the divorce action and basically dropped out of sight for an extended period. While it is argued that [the former husband] was abusing alcohol at the time, there was no credible evidence offered to show that he was incapable of participating in this case. . . ."
The former husband timely appealed on September 26, 2008.
"A trial court's decision to deny a motion, filed pursuant to Rule 60(b), Ala. R. Civ. P., for relief from a final judgment is itself a final judgment that will support an appeal; however, the only matter reviewable in such an appeal is the propriety of the denial." Williams v. Williams, 910 So.2d 1284, 1286 (Ala.Civ.App.2005). Except for motions brought pursuant to Rule 60(b)(4), whether a movant has established grounds for relief under Rule 60(b) is a matter within the sound discretion of the trial court. Ex parte Wal-Mart Stores, Inc., 725 So.2d 279 (Ala.1998). On appeal, this court will reverse a judgment denying relief under Rule 60(b) only if the trial court has exceeded its discretion. See Price v. Clayton, 18 So.3d 370 (Ala.Civ. App.2008).
The parties agree that the trial court entered a default judgment against the former husband because of his failure to appear at the final hearing on July 20, 2006. See Sumlin v. Sumlin, 931 So.2d 40, 46 n. 2 (Ala.Civ.App.2005) (noting that trial court can enter a default judgment under Rule 55(a), Ala. R. Civ. P., based on a failure of party to "otherwise defend" action and under Rule 55(b)(1), Ala. R. Civ. P., because of a party's "failure to appear"). A party seeking to set aside a default judgment may move to have that default judgment set aside under Rule 55(c), Ala. R. Civ. P., if that motion is filed "not later than thirty (30) days after the entry of the judgment." In this case, the former husband did not file his motion to set aside the default judgment within 30 days; therefore, Rule 55(c) does not apply.
*239 As the Committee Comments on 1973 Adoption of Rule 55 state: "Rule 60 becomes available when more than thirty days has passed since the entry of the judgment by default." "A party seeking to set aside a default judgment pursuant to Rule 60(b) must prove one of the grounds for relief set out in the rule and must allege and prove a meritorious defense to the action." Godard v. AT & T Credit Corp., 690 So.2d 383, 384 (Ala.Civ.App. 1996) (citing American Home Assurance Co. v. Hardy, 378 So.2d 710 (Ala.1979)).
In this case, the former husband initially asserts that the default judgment should be set aside because he did not receive notice of the July 20, 2006, final hearing date. It is the prevailing rule in Alabama "that a litigant . . . has responsibility for keeping track of his case and knowing its status." D. & J. Mineral & Mining, Inc. v. Wilson, 456 So.2d 1099, 1100 (Ala.Civ.App.1984). Therefore, a trial court "owes no duty to notify a party of the setting of a case or to continue a case because of the absence of a party. . . ." D. & J. Mineral, 456 So.2d at 1100-01. Moreover, Rule 5(b), Ala. R. Civ. P., provides that, even when a copy of an order is required to be served on a pro se litigant whose address is not known, service may be effected by leaving a copy of an order with the clerk of the court, which was done in this case. Rule 5(b) places the burden on a pro se litigant of formally notifying the clerk of his or her proper service address; that burden cannot be shifted to the clerk or the opposing party. See State ex rel. Halder v. Fuerst, 118 Ohio St.3d 142, 143-44, 886 N.E.2d 849, 850 (2008).
Our caselaw recognizes that the failure of a party to advise the clerk of a proper service address may "fall into the category of excusable neglect. . . ." DeQuesada v. DeQuesada, 698 So.2d 1096, 1099 (Ala.Civ.App.1996). A motion to set aside a default judgment due to excusable neglect is a Rule 60(b)(1) motion, even if not denominated as such by the movant. See R.E. Grills, Inc. v. Davison, 641 So.2d 225, 229 (Ala.1994) (holding that substance of motion not nomenclature determines which subpart of Rule 60(b) applies). A Rule 60(b)(1) motion must be filed within four months of the date of the entry of the judgment. See Rule 60(b), Ala. R. Civ. P. The former husband did not file his motion within the time limits of Rule 60(b)(1). Thus, even assuming that the former husband had a valid claim of excusable neglect, which does not appear to be the case, see, generally, Taylor v. Williams, 455 So.2d 893 (Ala.Civ.App.1984) (trial court did not exceed its discretion in denying motion to set aside default judgment in divorce-modification action when movant failed to convince trial court that lack of notice of hearing was due to excusable neglect), the trial court could not possibly have exceeded its discretion in denying that motion.
The former husband sought to circumvent the time strictures of Rule 60(b)(1) by classifying his motion as one under Rule 60(b)(6).
"The `catch all' provision of clause (6) of Rule 60(b) allows a trial court to grant relief from a judgment for `any other reason justifying relief.' Barnett v. Ivey, 559 So.2d 1082, 1084 (Ala.1990). `"Relief under Rule 60(b)(6) is reserved for extraordinary circumstances, and is available only in cases of extreme hardship or injustice."' Chambers County Comm'rs v. Walker, 459 So.2d 861, 866 (Ala.1984) (quoting Douglass v. Capital City Church of the Nazarene, 443 So.2d 917, 920 (Ala.1983)). Clause (6), however, is mutually exclusive of the specific grounds of clauses (1) through (5), and a party may not obtain relief under clause (6) if it would have been available under *240 clauses (1) through (5). See, e.g., Insurance Management & Admin., Inc. v. Palomar Ins. Corp., 590 So.2d 209 (Ala. 1991); Barnett, 559 So.2d at 1084; Smith v. Clark, 468 So.2d 138, 140 (Ala. 1985); Chambers County Comm'rs v. Walker, 459 So.2d 861 (Ala.1984); Ex parte Hartford Ins. Co., 394 So.2d 933, 935-36 (Ala.1981); Rebel Oil Co. v. Pike, 473 So.2d 529 (Ala.Civ.App.1985); Charles Townsend Ford, Inc. v. Edwards, 374 So.2d 900, 902 (Ala.Civ.App. 1979). Because clause (6) operates exclusively of the specific grounds listed in clauses (1) through (5), this Court has stated that a party may not escape the four-month limitation applicable to clauses (1) through (3) merely by characterizing the motion as seeking relief under clause (6). Ex parte Hartford Ins. Co., 394 So.2d at 936; see also Rebel Oil Co., 473 So.2d at 532.
"Although grounds for relief under Rule 60(b)(1) generally cannot be valid grounds under Rule 60(b)(6), this Court has recognized an exception when, in the interest of justice, aggravating circumstances may be considered sufficient to allow the trial court to treat what would otherwise be a Rule 60(b)(1) motion as within Rule 60(b)(6). Chambers County Comm'rs v. Walker, 459 So.2d 861 (Ala. 1984); Giles v. Giles, 404 So.2d 649 (Ala. 1981); Rebel Oil Co. v. Pike, 473 So.2d 529 (Ala.Civ.App.1985)."
R.E. Grills, Inc., 641 So.2d at 229.
In Ex parte Oden, 617 So.2d 1020 (Ala.1992), the supreme court recognized that if extraordinary circumstances, such as the mental illness of the attorney, prevent counsel for a party from attending a hearing, then a court may vacate a judgment under Rule 60(b)(6). We assume, without deciding, that the same standard would apply to a pro se litigant such that if, due to some extraordinary circumstances, the party could not attend to his own legal affairs, those "aggravating circumstances" would allow the trial court to exercise its discretion under Rule 60(b)(6) to prevent the inherent injustice of allowing to stand a default judgment to which the party has a meritorious defense. However, in this case, the former husband asserted his alcoholism as the only "aggravating circumstance" that would excuse his failure to keep track of his case.[5] The former husband testified that his alcoholism did not prevent him from attending work every day between 2004 and 2007 or from communicating with the former wife. As the trial court found, the former husband presented no credible evidence indicating that his alcoholism so impaired him that he could not provide the clerk of the court with his address for service or contact the clerk to determine the status of his case. Thus, the former husband did not present sufficient evidence of any "aggravating circumstances" that would warrant relief under Rule 60(b)(6).
In his brief, the former husband argues extensively that the default judgment should be set aside pursuant to the test established in Kirtland v. Fort Morgan Authority Sewer Service, Inc., 524 So.2d 600 (Ala.1988). In Kirtland, the supreme court held that, in determining whether to set aside a default judgment under Rule 55, the trial court should presume that the case should be decided on the merits whenever practicable and
"that a trial court's broad discretionary authority under Rule 55(c) should not be *241 exercised without considering the following three factors: 1) whether the defendant has a meritorious defense; 2) whether the plaintiff will be unfairly prejudiced if the default judgment is set aside; and 3) whether the default judgment was a result of the defendant's own culpable conduct."
524 So.2d at 605. The Kirtland factors are likewise applied when a movant seeks to set aside a default judgment under Rule 60(b). Rooney v. Southern Dependacare, Inc., 672 So.2d 1, 3 (Ala.1995). However, the initial determination in all Rule 60(b) cases is whether the motion has been timely filed. See State ex rel. Fuller v. Fuller, 623 So.2d 332, 334-35 (Ala.Civ.App.1993). We conclude that the former husband did not timely file his Rule 60(b) motion, because the only grounds asserted in his motion fell within Rule 60(b)(1). Hence, we pretermit any discussion of whether the trial court exceeded its discretion in concluding that the default judgment should not be set aside under Kirtland.[6]
The judgment of the trial court is due to be affirmed.
AFFIRMED.
THOMPSON, P.J., and PITTMAN, BRYAN, and THOMAS, JJ., concur.
NOTES
[1] The record contains a nearly identical order dated December 21, 2004, granting the attorney's motion to withdraw. That order corrected an error in the original order, which referred to the attorney as the attorney for the "plaintiff" instead of the "defendant."
[2] The record does not disclose the source for the address the clerk used to send the notices.
[3] Although the trial court did not resolve the former husband's motion to modify the divorce judgment, we conclude that the judgment is a final judgment that will support an appeal. The filing of a motion to modify a divorce judgment is a separate action requiring the payment of a filing fee. Ex parte Davidson, 782 So.2d 237, 240 (Ala.2000). The record discloses that the former husband did not pay a filing fee; hence, the motion to modify filed by the former husband did not properly invoke the jurisdiction of the trial court. See Farmer v. Farmer, 842 So.2d 679 (Ala.Civ.App.2002). By adjudicating the Rule 60(b) motion, the trial court conclusively decided all the issues properly before it. See Bean v. Craig, 557 So.2d 1249, 1253 (Ala. 1990) (holding that a final judgment is one that "conclusively determines the issues before the court and ascertains and declares the rights of the parties involved").
[4] Our rules of civil procedure do not provide for successive Rule 60(b) motions styled as "motions to reconsider." Ex parte Keith, 771 So.2d 1018 (Ala.1998). However, the former husband filed his notice of appeal within 42 days of the entry of the August 18, 2008, judgment; thus, any error committed by the trial court in ruling on the motion to reconsider did not affect the timeliness of the former husband's appeal. We have jurisdiction under Rule 4, Ala. R.App. P., to consider this appeal.
[5] The former husband tangentially argues that he was also addicted to drugs, but he testified that he did not become addicted to drugs until 2007, after the default judgment had been entered; therefore, that addiction could not possibly have affected his ability to monitor and attend to his case.
[6] We recognize that we are deciding this case on a different ground from the trial court, but we are authorized to affirm a judgment on any valid legal ground, even one not considered by the trial court. See General Motors Corp. v. Stokes Chevrolet, Inc., 885 So.2d 119, 124 (Ala.2003). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589290/ | 972 So.2d 184 (2008)
McDONALD
v.
McDONALD.
No. 2D07-5728.
District Court of Appeal of Florida, Second District.
January 22, 2008.
Decision without published opinion. App. dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589402/ | 14 So.3d 311 (2008)
J. Robert WOOLEY, As Commissioner of Insurance for the State of Louisiana
v.
Thomas S. LUCKSINGER, Michael D. Nadler, Stephen J. Nazarenus, Scott Westbrook, Michael K. Jhin, William F. Galtney, John P. Mudd, Executive Risk Indemnity, Inc., Executive Risk Management Associates, Executive Risk Specialty Insurance Co., Executive Liability Underwriters and Greenwich Insurance Co., AmCareco, Inc., AmCare Management, Inc.
J. Robert Wooley, Commissioner of Insurance for the State of Louisiana, In his Capacity as Liquidator of AmCare Health Plans of Louisiana
v.
Foundation Health Corporation, Foundation Health Systems, Inc., and Health Net, Inc.
J. Robert Wooley, Commissioner of Insurance for the State of Louisiana, As Liquidator for AmCare Health Plans of Louisiana, Inc., In Receivership
v.
PriceWaterhouseCoopers, LLP.
Nos. 2006 CA 1140 to 2006 CA 1145, 2006 CA 1158 to 2006 CA 1163.
Court of Appeal of Louisiana, First Circuit.
December 30, 2008.
Opinion on Rehearing February 13, 2009.
*334 Joseph E. Cullens, Jr., Baton Rouge, LA, Guy M. Hohmann, Austin, TX, Kimberly S. Morgan, Edward J. Walters, Jr., Baton Rouge, Sue Buser, Gonzales, LA, Jonathan C. Augustine, Baton Rouge, LA, for Plaintiff-Appellee, J. Robert Wooley, as Acting Commissioner of Insurance and Liquidator of AmCare Health Plans of Louisiana, Inc.
James C. Percy, David M. Kerth, Baton Rouge, LA, Robert B. Bieck, Jr., New Orleans, LA, for Defendant-Appellant, Health Net, Inc.
Joseph J. McKernan, Baton Rouge, LA, for Plaintiff-Appellee, Jean Johnson as Texas Special Deputy Receiver.
David M. Latham, Keary L. Everitt, New Orleans, LA, for Plaintiff-Appellee, Louisiana Department of Insurance.
Gary P. Koederitz, Baton Rouge, LA, for Defendant-Appellee, BestCare, Inc.
Wendell Clark, Baton Rouge, LA, for Defendant-Appellee, Thomas S. Lucksinger, Michael D. Nadler and Stephen J. Nazarenus.
Claude F. Reynaud, Jr., Baton Rouge, LA, for Defendant-Appellee, Proskauer Rose, L.L.P. and Stuart L. Rosow.
Harry J. Philips, Jr., Baton Rouge, LA, for Defendant-Appellee, William Galtney, Jr. and Michael K. Jhin.
Mary Olive Pierson, V. Thomas Clark, Jr., Baton Rouge, LA, for Defendant-Appellee, PriceWaterhouseCoopers, L.L.C.
Robert J. Burns, Jr., Baton Rouge, LA, David H. Topol, Washington, D.C., for Defendant-Appellee, Greenwich Insurance Company.
George B. Hall, Jr., New Orleans, LA, Merril Hirsh, Washington, D.C., Kelsey Kornick Funes, Baton Rouge, LA, for Defendant-Appellee, Executive Risk Management *335 and Executive Risk Specialty Ins. Co.
David L. Guerry, Baton Rouge, LA, for Defendant-Appellee, Scott Westbrook.
William C. Kaufman, III, Baton Rouge, LA, for Defendant-Appellee, M. Lee Pearce.
Dominique J. Sam, Michael Charles Guy, Baton Rouge, LA, for Amicus Curiae, Charles C. Foti, Jr., Atty. Gen., On Behalf of the Commissioner of Insurance-Liquidator of AmCare Health Plans of Louisiana, Inc.
Before CIACCIO, LANIER and CLAIBORNE, JJ.[1]
Table of Contents
I. GENERAL FACTS ............................................................................... 338
II. PROCEDURAL HISTORY .......................................................................... 346
III. INTERPRETATION OF LAWS ...................................................................... 350
IV. STANDARDS FOR APPELLATE REVIEW OF FACTS AND LAW ............................................. 351
V. CONFLICT OF LAWS ............................................................................ 353
A. Conflict of Laws Facts ................................................................... 354
B. The Ruling of the Trial Court on the Issue of Choice-of-Law .............................. 354
C. Applicable Conflict of Laws Rules ........................................................ 356
1. Law Applicable to the Texas Case ...................................................... 362
2. Law Applicable in the Louisiana Case .................................................. 363
3. Law Applicable in the Oklahoma Case ................................................... 369
D. Conclusion ............................................................................... 372
VI. STANDARD OF REVIEW OF FACTS IN THE TEXAS CASE
A. The Trial Court's Duty to Instruct a Jury ................................................ 373
B. The Trial Court's Duties to Rule on Requests for Jury Instructions and to Inform
the Parties of Proposed Jury Instructions Prior to Arguments to the Jury ............... 374
1. Right to Submit Jury Instructions ..................................................... 375
2. Trial Court Duty to Inform Parties of Proposed Jury Instructions and
Interrogatories ..................................................................... 378
3. Right of a Party to Object to Proposed Jury Instructions .............................. 379
C. Patent Jury Instruction Error ............................................................ 383
D. Jury Instruction and Interrogatory Errors ................................................ 384
1. Failure to Give Instruction ........................................................... 384
2. Erroneous Instructions ................................................................ 401
E. Inconsistencies Between the Texas Jury Verdicts and JNOV and the Judgments
and Reasons for Judgment in the Louisiana and Oklahoma Cases ........................... 428
1. Negligent Misrepresentation ........................................................... 428
2. Proximate Cause ....................................................................... 429
3. Fraud ................................................................................. 429
4. Allocation of Fault ................................................................... 430
5. Existence of Pledged Capital for an HMO by Health Net ................................. 434
6. Conclusion ............................................................................ 434
F. Recapitulation of Errors Affecting the Texas Jury Verdict ................................ 434
G. Conclusion ............................................................................... 435
VII. STANDARD OF REVIEW OF FACTS IN THE LOUISIANA AND OKLAHOMA
JUDGE TRIAL CASES ......................................................................... 435
A. Proximate Cause in the Louisiana Case .................................................... 435
B. The Tort of Conspiracy in the Louisiana Case ............................................. 435
C. Unfair or Deceptive Acts or Practices in Violation of the Texas Insurance Code ........... 436
D. Allocation of Fault ...................................................................... 436
*336
E. Refusal to Provide Adequate Written Findings of Fact and Reasons for Judgment ............ 438
1. Facts ................................................................................. 438
2. Supplemental Assignments of Error ..................................................... 442
3. Applicable Law ........................................................................ 442
4. The Trial Court's Reasons for the Nineteen (19) Month Delay ........................... 446
5. The Trial Court's Failures to Comply with the Order to Provide Written
Findings of Fact and Reasons for Judgment ........................................... 447
6. Conclusion ............................................................................ 448
F. Application of Erroneous Texas Law in the Louisiana and Oklahoma Cases ................... 448
G. Conclusion ............................................................................... 449
VIII. PRESCRIPTION/PEREMPTION: STATUTES OF LIMITATIONS AND REPOSE ................................. 449
A. The Proper Procedure to Assert Prescription/Peremption ................................... 450
1. Affirmative Defense ................................................................... 451
2. Objection of No Cause of Action ....................................................... 452
3. Summary Judgment ...................................................................... 453
4. Prescription/Peremption ............................................................... 454
B. Choice-of-Law ............................................................................ 457
1. Liberative Prescription or Peremption in the Louisiana Case ........................... 458
2. The Texas and Oklahoma Exceptions ..................................................... 467
C. Conclusion ............................................................................... 468
IX. SHAM SALE ................................................................................... 468
X. PIERCING THE CORPORATE VEILSINGLE BUSINESS ENTERPRISE .................................. 482
A. The Trial Court's Reasons ................................................................ 482
B. The Law .................................................................................. 483
1. Texas Law ............................................................................. 483
2. Louisiana Law ......................................................................... 484
3. Oklahoma Law .......................................................................... 487
C. Burden of Proof and Persuasion ........................................................... 488
D. Common SBE Circumstances Pre- and Post-Sale .............................................. 489
1. Pre-Sale Health Net/AmCareco SBE Issue ................................................ 489
2. Post-Sale Health Net/AmCareco SBE Issue ............................................... 490
XI. LIABILITY FOR FRAUD ......................................................................... 492
A. Fraud in Obtaining Regulator Approval of the Sale ........................................ 494
1. The Stock Purchase Agreement and Side Letter Contract ................................. 495
2. The Financial Spreadsheet For The Sale ................................................ 497
3. Failure to file Side Letter ........................................................... 539
4. Failure to file Letter of Intent ...................................................... 540
5. Failure to file Closing Agreement ..................................................... 542
B. Fraud in Financial Reporting to Regulators After the Sale ................................ 544
1. Facts ................................................................................. 545
2. The Law of Fraud ...................................................................... 554
3. Conclusion ............................................................................ 557
C. Conclusion ............................................................................... 557
XII. LIABILITY FOR BREACH OF FIDUCIARY DUTY ...................................................... 557
A. The Texas Case ........................................................................... 557
B. The Louisiana Case ....................................................................... 560
C. The Oklahoma Case ........................................................................ 563
D. Conclusion ............................................................................... 564
XIII. LIABILITY FOR VIOLATION OF THE TEXAS INSURANCE CODE ......................................... 564
A. The Texas Case ........................................................................... 564
B. The Louisiana and Oklahoma Cases ......................................................... 566
C. Conclusion ............................................................................... 567
XIV. LIABILITY FOR CONSPIRACY .................................................................... 567
A. The Texas Case ........................................................................... 567
B. The Louisiana Case ....................................................................... 568
C. The Oklahoma Case ........................................................................ 570
D. Conclusion ............................................................................... 570
*337
XV. COSTS ....................................................................................... 511
A. Facts .................................................................................... 511
B. Conflict of Laws on Costs ................................................................ 511
C. Louisisana Law on Costs .................................................................. 572
D. Allocation of Costs ...................................................................... 574
LANIER, J.
These matters come before this Court on appeal from judgments rendered by the trial court in the consolidated matters of J. Robert Wooley v. Thomas S. Lucksinger, Nineteenth Judicial District Court Docket Number 499,737, J. Robert Wooley v. Foundation Health Corp, et al, Nineteenth Judicial District Court Docket Number 509,297, and J. Robert Wooley v. PriceWaterhouseCoopers, LLC, Nineteenth Judicial District Court Docket Number 512,366. These three separate trial court actions (La.C.C.P. art. 421) were consolidated (La.C.C.P. art. 1561) for trial.
The first and third numbered actions (District Court Docket Number 499,737 and District Court Docket Number 512,366) assert tort causes of action by J. Robert Wooley, Commissioner of Insurance for the State of Louisiana, in His Capacity as Liquidator for AmCare Health Plans of Louisiana, Inc. ("the Louisiana Receiver"). In the second numbered action (District Court Docket Number 509,297), the trial court permitted the cumulation of the Louisiana Receiver's tort causes of action with a pre-existing action that asserted a contract cause of action by the Louisiana Receiver. The Louisiana contract cause of action was not asserted in either the first or third numbered actions.
Carroll Fisher, Commissioner of Insurance for the State of Oklahoma, in his capacity as Receiver, ("the Oklahoma Receiver") and Jean Johnson, Texas Special Deputy Receiver ("the Texas Receiver"), intervened in all three actions asserting identical tort causes of action as those asserted by Wooley in the first and third numbered actions. The tort causes of action of the Texas Receiver were tried and factually decided by a jury under the docket numbers of all three trial court actions.[2] The Louisiana and Oklahoma tort causes of action each were tried and decided by the trial court under the docket numbers of all three trial court actions. The Louisiana contract cause of action was tried and decided by the trial court under the docket numbers of all three trial court actions. For clarity of adjudication, we will adjudicate all issues pertaining to the tort causes of action in a lead opinion, all issues pertaining to the Louisiana contract cause of action in a second opinion, and will dispose of the Texas Receiver's appeal in a third opinion. The title sheets of our opinions will show the District Court Docket Number for the particular trial court action and the Court of Appeal Docket Numbers that have been assigned to the judgment being adjudicated by this Court in each action.[3]
*338 For the following reasons, we reverse the trial court judgments in favor of the Louisiana, Oklahoma, and Texas Receivers on the tort causes of action in District Court Docket Numbers 499,737, 509,297, and 512,366 and render judgment and dismiss those claims with prejudice.
I. GENERAL FACTS
Foundation Health Corporation (Foundation), a Delaware corporation with its principal place of business in California, owned all of the stock of health maintenance organizations (HMOs) that were incorporated and operated in Louisiana, Oklahoma, and Texas. Foundation Health, a Louisiana Health Plan, Inc., was the Louisiana HMO; Foundation Health, an Oklahoma Health Plan, Inc., was the Oklahoma HMO; and Foundation Health, a Texas Health Plan, Inc., was the Texas HMO. In 1997, Foundation merged with Health Systems International and became Foundation Health Systems, Inc. This corporation is now known as Health Net, Inc. (Health Net)[4]
Beginning in 1994, Dr. Malik M. Hasan served as Chairman of the Board of Directors and Chief Executive Officer (CEO) of Health Net. Health Net acquired the three HMOs in the 1997 merger and, shortly thereafter, Hasan "came to the conclusion that we were better off disposing of those plans, which may include closing them down or selling them." At this time Curtis Westen served as Senior Vice President and General Counsel for Health Net. Although Hasan had concerns about the viability and/or profitability of the HMOs, he told Westen he could "negotiate" with a buyer "but you will not slow down the winding-down process."[5] Hasan directed that there could be a sale if three conditions are met: (1) the buyer knows "what challenge he has;" (2) the buyer "has the requisite capital;" and (3) "the regulators approve."[6] Hasan retired as President and CEO of Health Net in August of 1998 and Jay Michael Gellert became CEO.
Shattuck Hammond Partners, a partnership providing investment banking services, was retained by Health Net and identified a group of investors headed by Thomas S. Lucksinger, who is domiciled in Texas, as a potential buyer for the HMOs. Lucksinger is a Texas lawyer who was also a certified public accountant, had been a partner in the Vinson & Elkins Texas law firm, had been the CEO of a successful Texas HMO named NYLCARE that had approximately 500,000 members, taught a course on health care policy at the University of Texas, and served on the Solvency Oversight Committee of the Texas Department *339 of Insurance. The Lucksinger group formed AmCareco, Inc. (AmCareco), a corporation chartered in Delaware with its principal place of business in Texas. Lucksinger served as President of AmCareco. Other individuals who were associated with and/or served as officers and/or directors of AmCareco and its subsidiaries included Michael D. Nadler, Chief Operation Officer (COO), Stephen J. Nazarenus, Chief Financial Officer (CFO),[7] Scott Westbrook, Michael K. Jhin,[8] William F. Galtney, Jr., John P. Mudd, and Dr. M. Lee Pearce. These persons are domiciled in Texas and Florida. Correspondence concerning the possible sale and purchase of the stock of the HMOs was exchanged between Shattuck Hammond, individuals at Health Net, and individuals in the Lucksinger group. The correspondence discussed possible scenarios whereby Health Net would: (1) recoup loans it had made to the HMOs; (2) acquire preferred shares of AmCareco stock;[9] and (3) "cash sweep" funds out of the HMOs back to Health Net.
On April 17, 1998, Health Net and AmCareco signed a "Letter of Intent" that outlined an agreement to negotiate the sale and purchase of the stock of the HMOs. According to the terms of the Letter of Intent, both parties would negotiate in good faith and a target date for a definitive agreement was set as May 18, 1998.[10]
The Letter of Intent included a "Term Sheet" as an attachment. The Term Sheet set forth "the principal terms for the acquisition by [AmCareco] ... of the stock of the [HMOs] from [Health Net]." The Term Sheet included specific terms, including: "Purchase Price/Cash Sweep," "Reserve/Receivable True-Up," "Put Rights," and "Right of First Refusal." The term "Purchase Price/Cash Sweep" included a calculation for "the `book value' of the [HMOs] as of closing (after the Restructuring Reserve (as defined below) reversal referenced below) less ... the ... Cash Sweep (as defined below)," and "[Health Net] would reverse prior to closing all non-cash restructuring and merger related liabilities and reserves (the "Restructuring Reserves")" and "settle prior to closing all inter-company accounts...." Exhibit A attached to the Term Sheet set forth "an estimated calculation of such [Health Net] Cash Sweep ... as of February 28, 1998, assuming the Restructuring Reserve reversal referenced above has been effected." The attachment contained a line item "Cash Sweep [$8.5]" and the following notations: "[a]ssumes the reversal of $6.3 million in Restructuring Reserves prior to the closing" and "[b]racketed numbers will change in the event the Louisiana Local Deposit may be used to meet the Statutory Requirements." A review of the Letter of Intent shows that it specially states that "[t]his letter of intent and the term sheet are for the purpose of setting forth the substance of the discussions between Acquiring Co. [AmCareco] and [Health Net] and to serve as the basis for continuing discussions and preparations of definitive agreements for the Proposed Acquisitions" and that "[t]his letter of intent and term sheet do not constitute an agreement to consummate the Proposed Acquisitions or create any binding obligation in connection therewith, and no *340 such binding obligation shall arise unless and until such definitive agreements are executed by [AmCareco] and [Health Net]." (Emphasis added.)
Pursuant to a "Stock Purchase Agreement" dated November 4, 1998, Health Net agreed to sell and AmCareco agreed to buy all of the stock of the HMOs. Assisting AmCareco in the drafting of the Letter of Intent and the Stock Purchase Agreement was Proskauer Rose, a law firm with its principal place of business in New York, represented by one of its partners, Stuart Rosow, a resident of New York. The Stock Purchase Agreement included the terms of the sale, an outside date of closing of January 31, 1999,[11] representations and warranties by both the buyer and seller, and other additional provisions. In particular, the Stock Purchase Agreement provided for the issuance of preferred stock in AmCareco to Health Net and a Cash Payment from the HMOs to Health Net. The Cash Payment was to be an amount determined pursuant to a formula contained in the Stock Purchase Agreement and was based on financial figures contained in an Estimated Balance Sheet.
Additional provisions of the Stock Purchase Agreement provided that "all non-cash restructuring and merger related liabilities and reserves (the "Restructuring Reserves") shall be reversed" and "all inter-company accounts between [the HMOs] and [Health Net] shall be settled." The Stock Purchase Agreement also included stock redemption provisions pertaining to "put" and "call" rights.[12] Health Net's right to compel AmCareco to redeem Heath Net's AmCareco stock was secured by a $2 million letter of credit in favor of Health Net. A mechanism for a "true-up"[13] one year after the closing would be used to determine the necessity of any adjustments to the Cash Payment or the number of shares of preferred stock issued and would be based on figures contained in a Final Balance Sheet.
In addition, AmCareco and Health Net entered into a letter agreement (the "Side Letter") on November 4, 1998. The Side Letter provided that AmCareco would attempt to acquire between $5-$15 million in additional private financing. The Side Letter also provided that if the closing was delayed beyond January 15, 1999, and Health Net was required to supply additional premium deficiency reserve funds (PDR)[14] to the HMOs, the parties would negotiate a method for Health Net to be repaid any cash loaned[15] to the HMOs that was contributed to the PDRs.
*341 When the closing was delayed beyond January 15, 1999, Health Net loaned $6.3 million to the HMOs. Specifically, Health Net loaned $700,000 to the Texas HMO in December 1998, $3.3 million to the Texas HMO in March 1999, and $2.3 million to the Louisiana HMO in March 1999.[16] AmCareco raised only $8.5 million in additional private financing.
In anticipation of the purchase of the stock of the HMOs, AmCareco engaged the Texas law firm of Vinson & Elkins to prepare the required "Form-A" applications for regulatory approval of the acquisitions. Virtually identical Form-A applications[17] were submitted to the Departments of Insurance of Louisiana, Oklahoma, and Texas. The Louisiana Form-A application for acquisition of the Louisiana HMO contained a list of investors as of March 1, 1999. The investors and their respective investment amounts were identified on the Louisiana Form-A as: Foundation $12,000,000 ("in the form of contributed HMO assets to be exchanged for AmCareco Class A Preferred Shares"); Luxor Holdings II, LLC or Assignee (Pearce) $5,000,000; St Luke's Healthcare System (Jhin) $500,000; Lucksinger $500,000; Jeff D. Nesmith $250,000; Brian Parsley, M.D. $250,000; James Considine, M.D. $250,000; Jon D. Epstein/J. Evans Atwell $250,000.[18] The Form-A applications contained copies of the Stock Purchase Agreement, the Side Letter, and financial statements and spreadsheets relating to the HMOs and AmCareco, including a "Cash Sweep and Preferred A Share Calculation." This document, prepared by Shattuck Hammond, was an estimated balance sheet of the three HMOs and AmCareco after the acquisition.
On April 29, 1999, Susan Conway, the attorney with Vinson & Elkins who represented AmCareco in the application process, forwarded to each state's Department of Insurance an updated version of the Cash Sweep and Preferred A Share Calculation. This calculation was based on balance sheets for the quarter ending March 31, 1999.[19] It reflected "accounting adjustments and fund transfers to be made in connection with the closing." According to the Cash Sweep line item on the calculation sheet forwarded to the Louisiana Department of Insurance (LaDOI), $243,531 was to be swept from the Louisiana HMO; on the sheet forwarded to the Oklahoma Department of Insurance (OkDOI), $2,903,761 was to be swept from the Oklahoma HMO; and in the cover letter of the *342 calculation sheet forwarded to the Texas Department of Insurance (TxDOI), $2,920,123 was to be swept from the Texas HMO. The total of these proposed sweeps was $6,067,415. On April 30, 1999, the regulators in each state approved the acquisition of the stock of the HMOs by AmCareco. Upon the purchase of the stock of the HMOs by AmCareco, the HMOs became known as AmCare Health Plans of Texas, Inc., (AmCare-TX), AmCare Health Plans of Louisiana, Inc., (AmCare-LA) and AmCare Health Plans of Oklahoma, Inc. (AmCare-OK)
A Closing Agreement between AmCareco and Health Net was executed between April 30 and May 6, 1999. In the Closing Agreement, the parties finalized the transaction, waived certain conditions set forth in the Stock Purchase Agreement, and agreed to additional terms and conditions. The financial provisions of the spreadsheet remained the same. It appears the Closing Agreement was not given to the regulators before or after approval of the acquisition.[20]
The terms of the Closing Agreement included:
3. Post-Closing Covenants.
. . .
(q) The Parties hereby acknowledge and agree that the premium deficiency reserves of the acquired corporations [HMOs] should be considered a "Restructuring Reserve" and therefore reversed pursuant to Section 2.1 of the Stock Purchase Agreement in order to calculate the Cash Payment, which reversal has been reflected in the FHS Cash Sweep and Preferred A Share Calculation prepared for Closing and attached as Exhibit E to this Agreement.
The Cash Sweep and Preferred A Share Calculation attached as an exhibit to the Closing Agreement reflected a cash sweep from Louisiana of $2,543,530, from Oklahoma of $2,903,761, and from Texas of $2,920,123, for a total of $8,367,414. The $2,543,530 represented the repayment of the $2,300,000 PDR loan and a Cash Payment of $243,531. The issuance of preferred stock resulted in Health Net acquiring a forty-seven percent (47%) ownership interest in AmCareco.
Following approval of the sale of the stock by the regulators, each HMO was a wholly-owned subsidiary of AmCareco. The HMOs subsequently were managed by AmCare Management of Texas, Inc., (AmCare-MGT) a wholly-owned subsidiary of AmCareco that was incorporated by AmCareco. After the acquisition, Lucksinger continued to serve as President and the CEO of AmCareco and the HMOs, Nazarenus served as the CFO, and Nadler served as the COO.
During the period immediately following the sale of the stock, Health Net and AmCareco entered into a Transition Services Agreement. This agreement provided that Health Net would provide certain administrative and operational services to the HMOs, such as E-mail and computer system assistance, until AmCareco could assume those activities. By the express terms of the agreement, AmCareco retained "ultimate authority and responsibility," with Health Net merely providing the contracted services to the HMOs.
The Cash Payment was implemented on or about May 3, 1999. At that time, the account authorizations at financial institutions where the HMOs' accounts were located did not authorize AmCareco to transfer funds within the accounts. *343 Therefore, Health Net, with the concurrence of AmCareco, initiated wire transfers of the funds for the Cash Payment from the HMOs' accounts to Health Net. The sum of $2,543,530 was transferred from the Louisiana HMO, $2,903,761 was transferred from the Oklahoma HMO and $2,920,123 was transferred from the Texas HMO, for a total Cash Payment to Health Net of the $8,367,414.
The Stock Purchase Agreement also required AmCareco to purchase a $2 million letter of credit to secure Health Net's redemption right. This letter of credit was established at Chase Bank on May 3, 1999.
According to state regulators approving the sale of stock, AmCare-LA was required to maintain a minimum of $4 million in capital,[21] AmCare-OK was required to maintain a minimum net worth of $750,000,[22] and AmCare-TX had a surplus statutory requirement of $700,000,[23] for a total of $5,450,000.
The first quarterly statements reported by the HMOs were for the period ending June 30, 1999. Amended documents prepared by AmCare-LA and filed with La-DOI[24] reflect AmCare-LA's net worth at $3,785,007; documents prepared by AmCare-OK and filed with OkDOI stated AmCare-OK's net worth at $2,129,991; amended documents prepared by AmCare-TX and filed with TxDOI[25] reflect AmCare-TX's net worth at $936,947, for a combined new worth of the three HMOs of $6,851,945.
Based on the reported Louisiana financial statement, LaDOI contacted AmCare-LA in November of 1999, requesting that additional contributions be made to bring AmCare-LA's net worth up to the required $4 million. Correspondence between AmCare-LA and LaDOI over the next several months indicates LaDOI's continued concern regarding this deficiency. Because AmCare-LA continued to be below the net worth requirement, in April 2000, AmCare-LA requested and LaDOI approved a monthly, rather than quarterly, financial reporting schedule in lieu of an immediate cash infusion from AmCareco.
Texas Department of Insurance officials were concerned about the financial condition and operations of AmCare-TX, and a meeting to discuss their concerns was held in November 1999. At the meeting, items to be discussed included "[t]he HMO's current statutory deposit" and "the HMO's [PDR] and the methods used to calculate the reserve." Notes from the meeting show that Nazarenus "indicated the paperwork is being processed on the [statutory deposit and is almost completed." As to the issue of the PDR, Nazarenus "indicated *344 that the PDR reserve set up initially by Foundation [Health Net] included a wind down reserve, as of 12/31/98. AmCare [AmCare-TX] didn't think this reserve was necessary so they amortized the full amount in the second quarter of 1999." Specific follow-up actions discussed were that Nazarenus "will follow up later with questions concerning the PDR calculation" and "[t]he HMO will submit to [TxDOI] a request to release part of the Statutory Deposit by 1/15/2000 ...".
PriceWaterhouseCoopers (PWC) audited AmCareco and its subsidiaries for the eight-month period from April 30, 1999, through December 31, 1999. PWC reported AmCareco sustained a net loss of $9,192,165 and noted "one of the Company's subsidiaries has not met the prescribed minimum net worth requirements for the state of Louisiana." Following the date of the sale of stock, the number of enrollees in the HMOs increased from 33,550 in 1999 to 82,468 in 2000 and to approximately 105,000-110,000 in 2001.
After the sale in 1999, all AmCareco personnel were employed by AmCare-MGT, and it provided services to the HMOs pursuant to management agreements.
During the first two quarters of 2000, the HMOs continued to experience financial difficulties. Upon initial compilation of the required second quarter 2000 financial filings, Lucksinger informed Nazarenus and Nadler by E-mail on May 11, 2000 of the need to discuss "the Oklahoma filing if it is going to show us out of statutory compliance. If we are[,] then I believe we should think about making some sort of intercompany receivable/capital contribution in order to not submit showing noncompliance.... If we show compliance, regardless of how we get there, they should not push us on this issue at this time.... We will also need to immediately fund the amount that we show as the intercompany payable." Nazarenus responded back, "We can reflect an I/C [intercompany] receivable and a capital contribution to get us into compliance at 3/31/00; the funding of this contribution is a problem."
After finalizing the second quarter 2000 filings, Nazarenus informed Lucksinger and Nadler:
Louisiana requires a $200K capital contribution to maintain the $4M net worth requirement
[LaDOI] will be expecting an immediate cash transfer to satisfy the capital contribution based upon the agreement I reached with them earlier this year....
Oklahoma the cash position was $0; actually it was an overdraft of $780K[.]
net worth was $770K, but we now have a capital contribution due to the plan of $2.25M to achieve this minimum net worth....
ODI/ODH [the Oklahoma Department of Insurance] have been very hands off but I suspect that the lack of cash and the minimum N/W [net worth] may change their position....
Texas the cash position was $0; actually it was an overdraft of $200K[.]
AmCareco received over $3.8 million in additional funding in September 2000. In exchange for this amount of cash, AmCareco issued promissory notes to the investors who included Health Net, Pearce, and Galtney. In particular, AmCareco issued to Health Net one promissory note in the amount of $1,750,000.00.
In September and December 2000, AmCareco acquired two additional health plans, AmeriHealth and Sierra Texas Health Services, Inc., and it purchased and began using a new claims adjudication computer system. According to Mark Tharp, an insurance industry claims *345 auditor, during the implementation and use of the new claims computer system, approximately $11 million was paid out in ineligible payments, overpayments, and/or duplicative payments. Following the acquisition of AmeriHealth, AmCareco reported to TxDOI an $8 million receivable in conjunction with the acquisition, which resulted from "balance sheet differences and medical loss ratio guarantees." TxDOI approved this recording treatment but noted, "Should the collectability of this receivable become questionable or a dispute between the parties arise[,] then AmCare should report the receivable as a non-admitted asset." In addition, during 2000 and 2001, AmCareco continued to record intercompany receivables from AmCareco to the HMOs to maintain statutory requirements. However, according to an April 30, 2001 investor update by Lucksinger, "AmCareco does not have the resources to pay off these intercompany payables at this time."
On August 17, 2001, Lucksinger sent a memo to some individual investors and to some officers at Health Net summarizing the difficult financial condition of AmCareco and the HMOs and stating, "We are now basically living from hand to mouth on our cash flow." The memo confirms AmCareco was "judiciously utilizing the various accounting treatments available to AmCareco, intercompany payables and cash on hand to stretch $2-3 million in total consolidated capital around to cover approximately $16 million in regulatory capital and cash reserve requirements" and admits that AmCareco has "run out of smoke and mirrors." The memo concludes with a request for approximately $8 million in additional funding.
The accounting treatments that Lucksinger mentioned included moving cash among the HMOs, AmCareco, and AmCare-MGT, sometimes on a daily or hourly basis. For example, documents reveal that during the business day of July 17, 2001, AmCare-MGT engaged in the following transactions (which are sometimes referred to as the "cash swirl"): (1) $1,941,875.65 was transferred from AmCare-LA to AmCareco; (2) $2,829,360.13 was transferred from AmCareco to AmCare-OK; (3) $1,021,075.75 was transferred from AmCare-OK to AmCare-LA; (4) $89,450.76 was transferred from AmCare-TX to AmCare-OK; (5) $462,535 was transferred from AmCare-TX to AmCare-LA; (6) $200,000.00 was transferred from AmCare-LA to AmCare-MGT; and (7) $900,000.00 was transferred from AmCare-MGT to AmCareco.
Although Lucksinger identified and approached potential investors requesting additional capital, they and officers at Health Net declined to provide any additional funding for AmCareco.
In 2001, AmCareco had offices in the following locations: (1) Houston, Dallas, and San Antonio, Texas; (2) Baton Rouge, Shreveport, and New Orleans, Louisiana; and (3) Tulsa and Oklahoma City, Oklahoma. AmCareco had 258 fulltime employees, including 43 managerial and executive personnel and 56 temporary employees, and operation centers in Houston and Tulsa. At this time, 7,575 shares of Class B Preferred Stock had been issued to 14 shareholders; 7,830 shares of Common Stock had been issued to 15 shareholders; and 7,050 employee stock options had been issued to 42 persons.
On May 1, 2002, LaDOI informed AmCare-LA that it had been placed under administrative supervision.[26]
At the June 17, 2002 meeting of the Board of Directors of AmCareco, Nazarenus' *346 finance report stated AmCareco's net worth was negative $16.7 million, the intercompany receivables were $29.6 million, processed but unpaid claims totaled approximately $15.8 million, and unprocessed claims totaled $23 million.
On July 26, 2002 pursuant to the terms of the Stock Purchase Agreement, Health Net exercised its redemption right and collected the $2 million provided for by the letter of credit.
II. PROCEDURAL HISTORY
J. Robert Wooley, the Louisiana Commissioner of Insurance (the Commissioner), had AmCare-LA placed in Rehabilitation on September 23, 2002,[27] based on a determination by the Commissioner that AmCare-LA was financially troubled. The order of Rehabilitation vested in the Commissioner title to all property and other assets of AmCare-LA, empowered the Commissioner to commence and defend any and all legal actions concerning AmCare-LA, and provided for continuing the business affairs of AmCare-LA. On October 7, 2002, the Commissioner filed a petition for the liquidation of AmCare-LA and an order of injunction and an order of liquidation were entered the same day.
On December 16, 2002, AmCare-TX was placed into receivership and a Texas Receiver was appointed. On January 21, 2003, AmCare-TX was placed in permanent receivership.
On April 30, 2002, AmCare-OK's license to conduct business in Oklahoma expired. At that time, AmCare-OK filed an application for renewal of its license. On September 18, 2002, AmCare-OK's operations were limited to "conclusion of business" and AmCare-OK's application to renew its business license was denied effective October 1, 2002. On July 8, 2003, AmCare-OK was placed in receivership and an Oklahoma Receiver was appointed. (The three state-appointed Receivers are hereinafter sometimes referred to collectively as "the Receivers.")
On June 30, 2003, the Louisiana Commissioner filed three actions in the 19th Judicial District Court in and for East Baton Rouge Parish, Louisiana. The first action, Docket Number 499,737, was filed against the directors and officers of AmCare-LA, AmCareco and AmCare-MGT (hereinafter referred to as the "D & O action").[28] This action is a tort action alleging the directors and officers failed to properly manage AmCare-LA. Health Net was not named as a party defendant in this action at this time. A second action, Docket Number 509,297, was filed against FHC, Foundation Health Systems, Inc., and its successor, Health Net, Inc., seeking enforcement of a parental guarantee (suretyship contract) executed by FHC for the Louisiana HMO in 1996 (the "Louisiana parental guarantee action"). The third action, Docket Number 512,366, was filed against PriceWaterhouseCoopers, LLC, a Delaware corporation doing business in Louisiana (the "PWC action"). The third action asserted claims in tort for accounting negligence and breach of contract *347 by PWC, AmCare-LA's auditor.[29]
On September 30, 2003, the Texas receiver filed an action in the 250th Judicial District Court in Travis County, Texas, entitled Johnson v. PWC, Cause Number GN303897 (the "Johnson action"). The Johnson action, which the Oklahoma Receiver joined, essentially named the same defendants as the Louisiana actions and asserted the same substantive tort claims as the Louisiana actions.
On September 1, 2004, the Oklahoma Receiver filed a petition for intervention in the D & O and the PWC actions in Louisiana asserting tort causes of action.[30] On September 13, 2004, the Louisiana, Oklahoma, and Texas Receivers filed a motion in the D & O action seeking approval for the "joint litigation" and prosecution of their claims. The district court granted the order for joint litigation on September 21, 2004.
On September 27, 2004, the Texas Receiver filed petitions for intervention in the D & O and PWC actions asserting tort causes of action and naming as defendants PWC, Lucksinger, Nadler, Nazarenus, Mudd, Jhin, and Galtney. Health Net was not named as a party defendant in these interventions.
On October 15, 2004, the Texas Receiver filed a petition for intervention in the Louisiana parental guarantee action. This petition cumulated Texas tort claims with the Louisiana contract action. For the first time the Texas Receiver named Health Net as a party defendant in these proceedings. On October 15, 2004, the three Receivers filed a joint motion to consolidate the three pending actions. The minute entry for November 8, 2004 states, "Next urged was a motion for intervention and motion to consolidate filed on behalf of Oklahoma and Louisiana Receivers.... [T]he motions were granted."[31]
Further, on October 15, 2004, the Commissioner and the Oklahoma Receiver filed an amended and restated petition in the consolidated actions which cumulated the tort claims with the Louisiana contract claim. Named as defendants were Lucksinger, Nadler, Nazarenus, Jhin, Galtney, Mudd, Westbrook, Pearce, Executive Risk Indemnity, Inc., Executive Risk Specialty Insurance Company, Executive Risk Management Association, Greenwich Insurance Company, XL Specialty, Foundation Health Corporation, Foundation Health Systems, Inc., Health Net, Inc., PWC, Proskauer Rose, Stewart Rosow, and AmCareco, Inc. This petition raised claims of fraud, conspiracy, gross negligence, negligence, unjust enrichment, breach of fiduciary duties and breach of contract. The Commissioner and the Oklahoma Receiver sought compensatory and exemplary (punitive) damages and attorney fees.
Finally, on October 15, 2004, the Texas Receiver filed a first supplemental and amending petition in the three consolidated actions naming as defendants PWC, Lucksinger, Nadler, Nazarenus, Mudd, Jhin, Galtney, Pearce, Foundation Health Corporation, Foundation Health Systems, Inc., Proskauer Rose, Rosow, and Health *348 Net. The Texas Receiver's amended petition asserted claims of negligent misrepresentation, violation of the Texas Insurance Code, fraud, conspiracy, and breach of fiduciary duty and sought compensatory and exemplary (punitive) damages and attorney fees.
Several of the defendants and Health Net filed exceptions raising objections of lis pendens, lack of personal jurisdiction, lack of subject matter jurisdiction, prematurity, vagueness, improper cumulation, prescription, peremption, res judicata, improper joinder, no cause of action, and no right of action. These exceptions were overruled. Health Net filed a declinatory exception raising the objection of improper venue. The exception was overruled and Health Net appealed.
While Health Net's appeal of the venue issue was pending, the trial court proceeded with the three "joint litigation" and consolidated actions. On February 4, 2005, Health Net filed its answer to the "Consolidated, Amended and Restated Petition of the Louisiana and Oklahoma Receivers." On February 14, 2005, Health Net filed an amended answer and a reconventional demand against several named defendants and a third party demand against the LaDOI, raising claims of indemnity, contribution, detrimental reliance and regulator fault.[32] Upon motion by the Louisiana Receiver, on May 9, 2005, the trial court judge ruled as a matter of conflict of laws (law) that Louisiana law applied to all procedural issues and Texas law applied to all substantive issues raised by these actions. Health Net filed its answer to the Texas Receiver's petitions on June 13, 2005. Before the trial began on June 16, 2005, all defendants except Health Net settled.[33] In a common trial, the trial court judge decided the claims of the Louisiana and the Oklahoma Receivers, and a jury decided the facts for the claims of the Texas Receiver.
On June 30, 2005, in the Texas case, the jury returned a verdict finding Health Net eighty-five percent (85%) at fault and "Any other Company" fifteen percent (15%) at fault and awarded $52,400,000.00 in compensatory damages which was reduced to $44,540,000.00 in the subsequent trial court judgment that memorialized the jury verdict. The jury awarded Texas $65,000,000.00 in punitive damages. The jury also awarded Health Net a dollar-for-dollar *349 settlement credit reduction. Health Net sought a Judgment Notwithstanding the Verdict (JNOV) or alternatively a new trial. On November 3, 2005, the trial court granted Health Net's JNOV as to fault allocation, apportioning fifteen percent (15%) fault to "other persons", and reduced the jury award of punitive damages by thirty percent (30%). Health Net's motion for a new trial was denied. Both the judgment memorializing the jury verdict and the judgment rendering the JNOV were issued under all three trial court docket numbers.
On November 4, 2005, the trial court rendered separate judgments in favor of the Louisiana and Oklahoma plaintiffs, and each judgment reflected that it was rendered in all three of the trial court actions. The trial court found Health Net to be seventy percent (70%) at fault, "Any other Company" fifteen percent (15%) at fault and "Any other Person(s)" fifteen percent (15%) at fault, and found Health Net liable for attorney fees and punitive damages, with quantum for the attorney fees and punitive damages to be determined at a subsequent bifurcated trial. The Louisiana plaintiff was awarded $9,511,624.19 in compensatory damages, reduced to $6,658,136.93. Health Net also was held liable under the Louisiana parental guarantee for the full amount of $9,511,624.19.[34] The Oklahoma plaintiff was awarded $24,426,005.00 in compensatory damages, reduced to $17,098,203.50.
Health Net took suspensive appeals from the judgments in the three docketed trial court actions. The Texas Receiver took a devolutive appeal from the trial court judgment and the judgment granting the JNOV in the three trial court actions. The Louisiana Receiver and the Oklahoma Receiver each filed answers to Health Net's appeals of the judgments in their favor.[35]
On December 6, 2005,[36] after the bifurcated trial on the issues of quantum for the Louisiana and Oklahoma plaintiffs' punitive damages and attorney fees claims, the trial court judge found the Louisiana plaintiff failed to meet his burden of proof for these claims and dismissed the claims. On December 12, 2005,[37] the trial court judge found the Oklahoma plaintiff failed to meet her burden of proof for these claims and dismissed the claims. The Louisiana and Oklahoma plaintiffs then filed a motion seeking an award of treble damages. Health Net responded with a motion to strike the election, which was granted. In addition, the trial court granted Health Net's request for a preliminary injunction enjoining the Texas and Oklahoma plaintiffs from pursuing their claims against Health Net in the Johnson action pending in Travis County, Texas. The trial court also sustained the Louisiana plaintiffs exception raising the objection of no cause of action as to Health Net's third party demand against LaDOI asserting regulator fault.
*350 This Court, in Wooley v. AmCare, 2005-2025 (La.App. 1 Cir. 10/25/06), 944 So.2d 668, affirmed the trial court's ruling holding venue for the Texas and Oklahoma interventions was proper in East Baton Rouge Parish. In Wooley v. AmCare, XXXX-XXXX-XXXX (La.App. 1 Cir. 1/17/07), 952 So.2d 720, this Court held that the judgments dismissing the Louisiana and Oklahoma exemplary damage and attorney fees claims were absolute nullities, reinstated the original judgments, and dismissed those appeals. In Wooley v. Lucksinger, XXXX-XXXX-XXXX (La.App. 1 Cir. 5/4/07), 961 So.2d 1225, this Court held the preliminary injunction granted to Health Net was moot. In Wooley v. Lucksinger, XXXX-XXXX-XXXX (La.App. 1 Cir. 5/4/07), 961 So.2d 1228, this Court affirmed the trial court's dismissal of Health Net's detrimental reliance claims and third party demands against LaDOI and referred the regulator fault claim to the merits. These judgments are final and definitive. La. C.C.P. art. 2166.
III. INTERPRETATION OF LAWS
Louisiana Revised Statutes 24:177 is entitled "Legislative intent, text, history and other indices of intent" and provides, in pertinent part, as follows:
A. When the meaning of a law cannot be ascertained by the application of the provisions of Chapter 2 of the Preliminary Title of the Louisiana Civil Code and Chapter 1 of Title 1 of the Louisiana Revised Statutes of 1950, the court shall consider the intent of the legislature.
B. (1) The text of a law is the best evidence of legislative intent.
Chapter 2 of the Preliminary Title of the Louisiana Civil Code is entitled "Interpretation of Laws" and is comprised of La. C.C. arts 9 through 13. Chapter 1 of Title 1 of the Louisiana Revised Statutes is entitled "Interpretation of Revised Statutes" and is comprised of La. R.S. 1:1 through 17. When construing a law or a constitutional provision, the word "shall" universally is considered to mean mandatory. La. R.S. 1:3; La. C.C.P. art. 5053; La.C.Cr.P. art. 5; La. Ch.C. art. 107; Champagne v. Ward, XXXX-XXXX, p. 21 (La.1/19/05), 893 So.2d 773, 786.
Accordingly, the interpretation (construction) of a law or a constitutional provision must start by applying the rules found in the designated provisions of the Civil Code and the Revised Statutes to the language of the law or the constitutional provision at issue. P. Lamonica & J. Jones, 20 La. Civ. Law Treatise, Legislative Law and Procedure, § 7.4, pp. 136-38 (2004), and the authorities cited therein; see Wooley, XXXX-XXXX at p. 12, 961 So.2d at 1237.
In Holly & Smith Architects, Inc. v. St. Helena Congregate Facility, Inc., XXXX-XXXX, pp. 9-10 (La.11/29/06), 943 So.2d 1037, 1045, appears the following:
When we are called upon to review legislative provisions, this Court follows certain guidelines, as we did in Louisiana Municipal Association v. State, 04-0227 (La.1/19/05); 893 So.2d 809. In Louisiana Municipal Association [XXXX-XXXX at pp. 35-36, 893 So.2d at 836-37], this Court recognized:
Questions of law, such as the proper interpretation of a statute, are reviewed by this court under the de novo standard of review. After our review, we "render judgment on the record, without deference to the legal conclusions of the tribunals below. This court is the ultimate arbiter of the meaning of the laws of this state."
"Legislation is the solemn expression of legislative will, and therefore, the interpretation of a law involves primarily the search for the legislature's intent." The interpretation of a statute starts *351 with the language of the statute itself. When a law is clear and unambiguous and its application does not lead to absurd consequences, the law shall be applied as written, and no further interpretation may be made in search of the intent of the legislature.
The laws of statutory construction require that laws on the same subject matter must be interpreted in reference to each other. The legislature is presumed to have acted with deliberation and to have enacted a statute in light of the preceding statutes involving the same subject matter. "Under our long-standing rules of statutory construction, where it is possible, courts have a duty in the interpretation of a statute to adopt a construction which harmonizes and reconciles it with other provisions dealing with the same subject matter."
A statute must be "applied and interpreted in a manner that is logical and consistent with the presumed fair purpose and intention the Legislature had in enacting it." In addition, "courts are bound to give effect to all parts of a statute and cannot give a statute an interpretation that makes any part superfluous or meaningless, if that result can be avoided." (Emphasis added; footnote omitted.)[38]
See also M.J. Farms, Ltd. v. Exxon Mobil Corp., 2008 WL 2811534, 2007-2371, pp. 12-14 (La.7/1/08), 998 So.2d 16, 26-27.
IV. STANDARDS FOR APPELLATE REVIEW OF FACTS AND LAW
These consolidated actions assert causes of action that accrued in the states of Louisiana, Oklahoma, and Texas. When an action is filed in a state asserting that a cause of action arose or accrued in another state, initially the applicable state law is determined by whether the issue involved is a matter of substance (right) or a matter of procedure (remedy). Matters of procedure are determined by the law of the forum, i.e., the place where the action is filed. Wooley, 2005-2025 at p. 17, 944 *352 So.2d at 678, and the authorities cited therein.
In Louisiana, the standards for appellate review are considered procedural in nature and the constitution, law, and jurisprudence of this state control. Milstead v. Diamond M Offshore, Inc., 95-2446, p. 11 (La.7/2/96), 676 So.2d 89, 95-96. Accordingly, we will review these consolidated actions pursuant to the Louisiana standards for the appellate review of facts and law.
Pursuant to LA. CONST, art. V, § 10(A) and (B), Courts of Appeal have appellate jurisdiction to review "all civil matters" and have the power and authority to review "law and facts." This language is clear and unambiguous. This constitutional jurisdiction to review the law and facts is plenary and unlimited. See also LA. CONST, art. V, § 5(C). Such a review is referred to as a de novo review. A de novo review or an appeal de novo is "[a]n appeal in which the appellate court uses the trial court's record but reviews the evidence and law without deference to the trial court's rulings." (Emphasis added.) BLACK'S LAW DICTIONARY 94 (7th ed.1999).
The constitution is implemented by La. C.C.P. art. 2164, which provides, in pertinent part, as follows:
The appellate court shall render any judgment which is just, legal, and proper upon the record on appeal.
Official Revision Comment (a) for Article 2164 provides as follows:
(a) The purpose of this article is to give the appellate court complete freedom to do justice on the record irrespective of whether a particular legal point or theory was made, argued, or passed on by the court below. This article insures that the "theory of a case" doctrine, which has served to introduce the worst features of the common law writ system into Louisiana is not applicable to appeals under this Code. See Hubert, The Theory of a Case in Louisiana, 24 Tul.L.Rev. 66 (1949). (Emphasis added.)
See also La. C.C.P. arts. 1635 and 2129.[39] In F. Maraist & H. Lemmon, 1 La. Civ. Law Treatise, Civil Procedure, § 14.9, p. 382 (1999), appears the following:
An appellate court, vested with the authority to render any judgment that is just, legal and proper upon the record, may consider an issue raised for the first time on appeal or may even consider an issue not raised by the parties if its resolution is necessary for a proper judgment on the record. (Emphasis added; footnote omitted.)
Although the constitutional power and authority of appellate courts to review facts in civil cases is plenary and unlimited, jurisprudence has evolved that requires that trial court findings of fact must be reviewed on appeal pursuant to the manifest error (clearly wrong) standard of review. Hebert v. Rapids Parish Police Jury, XXXX-XXXX, p. 24 (La.4/11/07), 974 So.2d 635, 653-54 (on rehearing); Arceneaux v. Domingue, 365 So.2d 1330, 1333 (La.1978); Maraist & Lemmon, 1 La. Civ. Law Treatise, Civil Procedure, § 14.14, p. 391-98. This standard of appellate review is a two-part test: 1) the appellate court must find from the record whether there is a reasonable factual basis for the finding of the factfinder; and 2) the appellate court must further determine whether the record establishes the finding is not manifestly erroneous (clearly wrong). Mart v. Hill, 505 So.2d 1120, 1127 (La.1987). Factual findings should not be reversed on appeal absent manifest *353 error. Rosell v. ESCO, 549 So.2d 840, 844 (La.1989). If the trial court's or jury's factual findings are reasonable in light of the record reviewed in its entirety, the court of appeal may not reverse. Sistler v. Liberty Mutual Ins. Co., 558 So.2d 1106, 1112 (La.1990). Consequently, when there are two permissible views of the evidence, the factfinder's choice between them cannot be manifestly erroneous. Stobart v. State, Through Department of Transportation & Development, 617 So.2d 880, 883 (La.1993); Sistler, 558 So.2d at 1112.
Finally, in Maraist & Lemmon, 1 La. Civ. Law Treatise, Civil Procedure, § 14.14, at 395-96, appears the following:
The manifest error rule assumes that the trier of fact applied the correct law in reaching its conclusion. If the trier of fact applied the incorrect law because of erroneous and prejudicial jury instructions or because of erroneous and prejudicial procedural or evidentiary rulings, and if the appellate court determines the error could have affected the outcome below, the manifest error rule does not apply, and the appellate court makes an independent determination of the facts from the record on appeal. The appellate court then decides the case on the record facts without according any deference to the factual findings of the trial court, whether judge or jury. However, if the error in instructions or in evidentiary rulings affects only one of several parts of a verdict or judgment, the appellate court may disregard those factual findings affected by the error while according the usual deference to the unaffected findings. (Emphasis added; footnotes omitted.)
Questions of law are reviewed by appellate courts in Louisiana under the de novo standard. Holly & Smith Architects, Inc., XXXX-XXXX at p. 9, 943 So.2d at 1045; Louisiana Municipal Association v. State, XXXX-XXXX, p. 35 (La.1/19/05), 893 So.2d 809, 836; Hall v. Folger Coffee Co., XXXX-XXXX, p. 10 (La.4/14/04), 874 So.2d 90, 99. Cf. Branch-Hines v. Hebert, 939 F.2d 1311, 1317 and 1320 (5th Cir. [La.] 1991). Accordingly, we will review the law applicable herein without deference to the trial court's rulings of law.
V. CONFLICT OF LAWS
Louisiana's choice-of-law rules are found in La. C.C. art 3515 et seq. and apply in Louisiana actions that involve contacts with other states. La. C.C. arts. 14 and 3517. La. C.C. art. 14 provides as follows:
Unless otherwise expressly provided by the law of this state, cases having contacts with other states are governed by the law selected in accordance with the provision of Book IV of this Code.
In Champagne, XXXX-XXXX at p. 11, 893 So.2d at 780, appears the following:
Choice of Law Provisions
Unless otherwise expressly provided by the law of this state, cases having contacts with other states are governed by the law selected in accordance with the provisions of Book IV of the Civil Code. La. C.C. art. 14. The residual nature of the provisions of Book IV is established by the introductory phrase of La. C.C. art. 14 that reads "unless otherwise expressly provided by the law of this state." La. C.C. art. 14 Revision Comment (b). This phrase means that the provisions of Book IV are not intended to supercede more specific choice-of-law rules contained in other Louisiana statutes, such as the Insurance Code (See, La. R.S. 22:611 et seq.). Id. When applicable, those rules, being more specific, will prevail over the provisions *354 of Book IV of the Civil Code.[[40]] (Emphasis added.)
A. Conflict of Laws Facts
The nominal plaintiffs in these consolidated and "Joint/Source Proceedings" are the Insurance Commissioners and Receivers for Liquidation for the states of Louisiana, Oklahoma, and Texas. These plaintiffs are acting on behalf of, and in the interest of, the policyholders, enrollees, members, subscribers, providers, and creditors of the Louisiana, Oklahoma, and Texas HMOs that are in liquidation and the three HMOs. All of the Commissioners and Receivers are domiciled in their respective states. The three HMOs were incorporated in and had their principal places of business in their respective states.
The domiciles of the defendants are in numerous states. Lucksinger, Nadler, Nazarenus, Jhin, and Galtney are domiciled in Texas. Mudd and Pearce are domiciled in Florida. Rosow is domiciled in New York. Health Net was incorporated in Delaware and its principal place of business is in California. AmCareco was incorporated in Delaware and its principal place of business is in Texas. PWC is a partnership chartered in Delaware with partners residing in Louisiana and it does business in Louisiana. Proskauer Rose is a foreign law firm operating as a limited liability partnership under New York law, has its principal place of business in New York, and is qualified to do business in Louisiana. Several foreign insurers doing business in Louisiana also were named as defendants. La. C.C. arts. 3518 and 3548.
The conduct of which the plaintiffs complain allegedly occurred in the states of Louisiana, Oklahoma, Texas, California, and New York. A substantial majority of the conduct occurred in Texas. The following conduct occurred in Louisiana and Oklahoma: (1) selling memberships or policies; (2) collecting premiums; (3) processing of claims; (4) day-to-day operations; (5) commercial advertising; and (6) failing to pay claims, benefits or other contractual obligations of policyholders, enrollees, members, subscribers, providers, employees, and other creditors. The three HMOs did business only in their respective states.
The extent of the alleged injury caused by the conduct can be estimated by the compensatory damage awards given in the trial court. Those awards were: (1) $52,400,000.00 (61%) for Texas; (2) $9,511,624.19 (11%) for Louisiana; and (3) $24,426,005.00 (28%) for Oklahoma.
B. The Ruling of the Trial Court on the Issue of Choice-of-Law
On October 15, 2004, the Louisiana and Oklahoma Receivers filed a joint motion *355 in limine to "determine ... the law applicable to various substantive issues in this matter." (Emphasis added.) On May 9, 2005, a contradictory hearing was held on this motion in the trial court. The following is the pertinent portion of the hearing transcript:
THE COURT: Court overruled the final exception. Now, we need to get back to the choice of law.
It appears, Mr. Cullens [Counsel for the Louisiana and Oklahoma Receivers], to this court, and I know Mr. Percy [Counsel for Health Net] will correct me, but it appears that what you allege and contend in your petition, that there was a design and an enterprise which resulted in fraud, negligence, unfair trade practice, that it had its genesis in the state of Texas, that it had its tentacles that reached into five other of the fifty states, that the damage was treble [sic] because it had a ripple effect, so that the damage occurred in Texas as well as in the five other states on the front line and in the secondary to the forty-five other states.
That is what I have gleaned from reading the several petitions filed in this matter and the innumerable memoranda and all of the argument. That's what it appears that you are trying to get to trial on. Is that correct or incorrect?
MR. CULLENS: Yes, in the nutshell, Your Honor, and we also not that there is any magic to the words, but fiduciary duty claims as well.
THE COURT: That being the case, it appears to this court that there is a single business enterprise very akin in the criminal law to but I don't want to say those dirty words, Mr. Percy, and send you into cardiac arrest but you know the words I am thinking of. We have been down that aisle before.
But, in any event, it seems that the Texas substantive law should indeed apply because, in the opinion of this court, as outlined in the foregoing statements, that the genesis occurred in Texas, the enterprise, the design, the impact, quite a bit of the damage, and that it had a ripple effect.
The court views this as no more than multistate litigation which this court has certainly handled many times before, and parties are aligned in accordance with parallel interests.
Additionally, these parties are clothed with the indicia of some governmental authority allowed to exercise a delegation within the police power of the Executive Branch of the several sister states, allowing them to adjudicate claims that they are peculiarly situated to have addressed in any one or more fora.
Each of the several states having joined the compact on the uniform law, a substantial abiding interest in seeing that its consumers, policyholders, citizens, other persons, including juristic persons are protected to the full extent of the law and which claims should be justiciable quickly, efficiently, without undue delay and without undue expense.
Therefore, with respect to the choice of law, the court is going to apply Texas law on the substantive issues of law as outlined and is going to apply Louisiana law on the procedural issues. Whether an issue is substantive or procedural, there is quite a bit of jurisprudence. Of course, each circuit has its own jurisprudence on that issue, but we can get through that, Mr. McKernan [Counsel for the Texas Receiver].
Therefore, the court will sign judgment in accordance with its ruling. *356 Five days to take writs. Anything further?[[41]] (Emphasis added.)
C. Applicable Conflict of Laws Rules
The threshold question in determining the application of La. C.C. art. 3515 et seq. is whether there is a true conflict, a false conflict, or no conflict. Champagne, XXXX-XXXX at p. 22, 893 So.2d at 786; Arceneaux v. AmStar Corp., XXXX-XXXX, p. 3 (La.App. 4 Cir. 12/14/05), 921 So.2d 189, 191; Tolliver v. Naor, 115 F.Supp.2d 697, 701 (E.D.La.2000); In re Combustion, Inc., 960 F.Supp. 1056, 1067 (W.D.La. 1997). Louisiana Civil Code Article 3515 is the first article in Book IV entitled "CONFLICT OF LAWS" and states the basic and general policy that "an issue in a case having contacts with other states is governed by the law of the state whose policies would be most seriously impaired if its law were not applied to that issue." (Emphasis added.) Obviously, if the laws of two states are substantially identical, then there is no conflict. Thus, La. C.C. art. 3544(1) provides, in pertinent part, "[p]ersons domiciled in states whose law on the particular issue is substantially identical shall be treated as if domiciled in the same state." Revision Comments 1991(f)[42] for Article 3544 provides as follows:
Parties domiciled in states with identical law. The second sentence of subparagraph (1) provides that persons domiciled in states whose law on the particular issue of loss distribution is substantially identical should be treated as if domiciled in the same state. This legal fiction is justified by both policy and practical considerations. From a policy viewpoint, this rule is supported by the same factors as the common-domicile rule. See comment (e), supra. From a practical viewpoint, this rule will alleviate the court's choice-of-law burden by properly identifying and resolving as `false conflicts' all cases in which the victim and the tortfeasor were domiciled in states whose law on the issue of financial protection was substantially identical. This rule will also prove useful in cases involving multiple victims or multiple tortfeasors because it will enable the court to treat as domiciliaries of the same state those victims or tortfeasors who are domiciled in states with substantially identical law. (Emphasis added.)
See also Tolliver, 115 F.Supp.2d at 702. A false conflict occurs when it is determined that only a single state has an interest in the application of its law to an issue and the other state involved has no interest in the application of its law to the issue. Arceneaux, XXXX-XXXX at p. 3, 921 So.2d at 191; In re Combustion, Inc., 960 F.Supp. at 1067.
Once a true conflict is identified, courts are required to apply the rules of La. C.C. art. 3515 et seq. on an "issue-by-issue" or "issue specific" basis. In Favaroth v. Appleyard, XXXX-XXXX, p. 4 (La.App. 4 Cir. 5/2/01), 785 So.2d 262, 265, appears the following:
*357 Under Louisiana's choice of law rules, a sweeping determination that the law of one state applies to the case, as opposed to an issue in a case, constitutes a derogation of the appropriate analysis. When a conflict exists with regard to more than one issue, each issue should be analyzed separately. One result of this analysis might be that the laws of different states may be applied to different issues in the same dispute, or dépeçage. Comment (d) to LSA-C.C. art. 3515. (Emphasis added.)
Revision Comments 1991(d) for La. C.C. art. 3515 provides as follows:
Issue-by-issue analysis and dépeçage. The use of the term "issue" in the first paragraph of this Article is intended to focus the choice-of-law process on the particular issue as to which there exists an actual conflict of laws. When a conflict exists with regard to only one issue, the court should focus on the factual contacts and policies that are pertinent to that issue. When a conflict exists with regard to more than one issue, each issue should be analyzed separately, since each may implicate different states, or may bring into play different policies of these states. Seen from another angle, each state having factual contacts with a given multi-state case may not have an equally strong interest in regulating all issues in the case, but only those issues that actually implicate its policies in a significant way.
This so-called issue-by-issue analysis is an integral feature of all modern American choice-of-law methodologies and facilitates a more nuanced and individualized resolution of conflicts problems. One result of this analysis might be that the laws of different states may be applied to different issues in the same dispute. This phenomenon is known in conflicts literature by its French name of dépeçage. Although infrequently referred to by this name, this phenomenon is now a common occurrence in the United States and has received official recognition in Europe. This Article does not prohibit dépeçage. However, dépeçage should not be pursued for its own sake. The unnecessary splitting of the case should be avoided, especially when it results in distorting the policies of the involved states.
See also Murden v. Acands, Inc., XXXX-XXXX, p. 5 (La.App. 4 Cir. 12/14/05), 921 So.2d 165, 169, writ denied, XXXX-XXXX (La.4/17/06), 926 So.2d 526; Rigdon v. Pittsburgh Tank & Tower Co., Inc., 95-2611, p. 5 (La.App. 1 Cir. 11/8/96), 682 So.2d 1303, 1306; Thomas v. Fidelity Brokerage Services, Inc., 977 F.Supp. 791, 794 (W.D.La.1997); In re Ford Motor Co. Bronco II Product Liability Litigation, 177 F.R.D. 360, 370-71 (E.D.La.1977); F. Maraist & T. Galligan, Louisiana Tort Law, § 22.05, p. 22-23 (2d ed.2007). A review of the trial judge's ruling at the hearing to determine the appropriate choice of law rules reflects that she made "a sweeping determination that the law of one state" applied (Texas), and she did not conduct an "issue-by-issue" analysis as required by La. C.C. art. 3515 et seq. This is error and it was exacerbated by the initial refusal of the trial court judge to timely file written findings of fact and reasons for judgment in the Louisiana and Oklahoma cases and her subsequent refusal to comply with the order of this Court that she state the pertinent constitutional provisions, laws, and jurisprudence upon which her various decisions were based.[43]
*358 The record does not reflect that Health Net excepted to the trial court choice-of-law ruling. However, La. C.C.P. art. 1635 provides as follows:
Formal exceptions to rulings or orders of the court are unnecessary. For all purposes it is sufficient that a party, at the time the ruling or order of the court is made or sought, makes known to the court the action which he desires the court to take or his objection to the action of the court and his grounds therefor; and, if a party has no opportunity to object to a ruling or order at the time it is made, the absence of an objection does not thereafter prejudice him. (Emphasis added.)
Health Net has not assigned error for the choice-of-law ruling in this appeal. In Georgia Gulf Corp. v. Board of Ethics for Public Employees, 96-1907, p. 4 (La.5/9/1997), 694 So.2d 173, 175-76, appears the following:
From the outset, the Ethics Commission asserts that the due process issues were not raised in the administrative proceedings, were not assigned as error on the appellate level, and are not properly before us. We disagree.
La.Code Civ.P. art. 2129 provides that an assignment of errors is not necessary in any appeal. Code of Practice of 1870, Art. 896, one of the source provisions for La.Code Civ.P. art 2129, provided that if the trial court record was not certified by the clerk of court of the lower court as containing all of the testimony, the supreme court would only judge the case on a statement of the facts. Code of Practice of 1870, Art. 897, another source provision for La.Code Civ.P. art. 2129, provided that an appellant who did not rely wholly or in part on a statement of facts, an exception to the judge's opinion, or a special verdict, but on an error of law appearing on the face of the record, would be allowed ten-days after the lodging of the record to file a statement alleging any errors. The Official Revision Comments under La.Code Civ.P. art. 2129 records that the jurisprudence under the old Code of Practice articles construed them to mean that where there was a certified transcript containing all of the testimony and the grounds for reversal were apparent from the face of the record, no assignment of errors was required. La.Code Civ.P. art. 2129 simply codified this jurisprudence.
Moreover, La.Code Civ.P. art. 2164 provides that an appellate court "shall render any judgment which is just, legal and proper upon the record on appeal." As noted in the Official Revision Comments under Art. 2164, the appellate court has "complete freedom to do justice on the record irrespective of whether a particular legal point or theory was made, argued, or passed on by the court below." In a similar vein, Uniform Rules of Louisiana Court of Appeal, Rule 1-3 provides that even in the absence of an assignment of errors, the appellate court can review such issues if the "interest of justice clearly requires...."
Under the codal authorities cited herein above, it is clear that the appellate court had the right to consider the issue of due process even though there was no assignment of error in that regard. Accordingly we find that the due process issue is also properly before us.
See also Berg v. Zummo, XXXX-XXXX, p. 13, n. 5 (La.4/25/01), 786 So.2d 708, 716, n. 5; Nicholas v. Allstate Ins. Co., 99-2522, pp. 6-10 (La.8/31/00), 765 So.2d 1017, 1022-1024. Determining the proper choice-of-law law to be applied to an issue is a question of law for which this court has the plenary and unlimited constitutional power *359 and authority to review de novo. Foshee v. Torch Operating Co., 99-1863, pp. 17-18 (La.App. 3 Cir. 5/17/00), 763 So.2d 82, 92-93. Cf. Duhon v. Union Pacific Resources, Co., 43 F.3d 1011, 1013 (C.A.5 (La.) 1995). Accordingly, we will conduct the required issue-by-issue de novo analysis to decide the assignments of error in this case and, if the trial court committed error, determine whether this trial court error was prejudicial for any issue so decided.[44] See the excellent discussion of the effect of a legal error in Duzon v. Stallworth, XXXX-XXXX, pp. 30-32 (La.App. 1 Cir. 12/11/02), 866 So.2d 837, 860-861, writ denied, XXXX-XXXX (La.5/2/03), 842 So.2d 1101, and XXXX-XXXX (La.5/2/03), 842 So.2d 1110.
With the exception of the Louisiana contractual claim pertaining to the Health Net parental guarantee,[45] all of the other causes of action asserted by the plaintiffs involve delictual obligations. The choice of law rules for delictual obligations (torts) are provided for in Title VII of Book IV of the Civil Code, comprised of La. C.C. arts. 3542-3548.
Louisiana Civil Code Article 3542 provides as follows:
Except as otherwise provided in this Title, an issue of delictual or quasi-delictual obligations is governed by the law of the state whose policies would be most seriously impaired if its law were not applied to that issue.
That state is determined by evaluating the strength and pertinence of the relevant policies of the involved states in the light of: (1) the pertinent contacts of each state to the parties and the events giving rise to the dispute, including the place of conduct and injury, the domicile, habitual residence, or place of business of the parties, and the state in which the relationship, if any, between the parties was centered; and (2) the policies referred to in Article 3515, as well as the policies of deterring wrongful conduct and of repairing the consequences of injurious acts.
The first paragraph of Article 3542 repeats the basic premise of Louisiana choice-of-law that the impairment of other states' interests in Louisiana litigation should be minimized. The second paragraph lists the following factors to be considered when determining whether a state's policies may be impaired if its law was not applied to a particular issue: (1) place of conduct; (2) place of injury; (3) domicile of the parties; (4) state in which the relationship between the parties is centered; (5) policy for deterring wrongful conduct; and (6) policy for repairing the consequences of injurious acts.
What constitutes domicile is provided for in La. C.C. arts. 3518 and 3548. Article 3518 provides as follows:
For the purposes of this Book, the domicile of a person is determined in accordance with the law of this state. A juridical person may be treated as a domiciliary of either the state of its formation or the state of its principal place of business, whichever is most pertinent to the particular issue.
The Louisiana substantive law on domicile *360 is found in La. C.C. arts. 38-46.[46] Louisiana Civil Code Article 3548 provides as follows:
For the purposes of this Title, and provided it is appropriate under the principles of Article 3542, a juridical person that is domiciled outside this state, but which transacts business in this state and incurs a delictual or quasi-delictual obligation arising from activity within this state, shall be treated as a domiciliary of this state.
When determining a choice of law problem involving delictual and quasi-delictual obligations, the most important issues are those pertaining to a state's standards of conduct and safety and its policies pertaining to loss distribution and financial protection. Louisiana Civil Code Article 3543 provides as follows:
Issues pertaining to standards of conduct and safety are governed by the law of the state in which the conduct that caused the injury occurred, if the injury occurred in that state or in another state whose law did not provide for a higher standard of conduct.
In all other cases, those issues are governed by the law of the state in which the injury occurred, provided that the person whose conduct caused the injury should have foreseen its occurrence in that state.
The preceding paragraph does not apply to cases in which the conduct that caused the injury occurred in this state and was caused by a person who was domiciled in, or had another significant connection with, this state. These cases are governed by the law of this state.
Louisiana Civil Code Article 3544 provides as follows:
Issues pertaining to loss distribution and financial protection are governed, as between a person injured by an offense or quasi-offense and the person who caused the injury, by the law designated in the following order:
(1) If, at the time of the injury, the injured person and the person who caused the injury were domiciled in the same state, by the law of that state. Persons domiciled in states whose law on the particular issue is substantially identical shall be treated as if domiciled in the same state.
(2) If, at the time of the injury, the injured person and the person who caused the injury were domiciled in different states: (a) when both the injury and the conduct that caused it occurred in one of those states, by the law of that state; and (b) when the injury and the conduct that caused it occurred in different states, by the law of the state in which the injury occurred, provided that (i) the injured person was domiciled in that state, (ii) the person who caused the injury should have foreseen its occurrence in that state, and (iii) the law of that state provided for a higher standard of financial protection for the injured person than did the law of the state in which the injurious conduct occurred.
The distinction between issues of "standards of conduct and safety" and those of "loss distribution and financial protection" is set forth in Revision Comments 1991 of La. C.C. art. 3543 as follows:
(a) Scope and terminology. This Article applies to "issues pertaining to standards of conduct and safety" as distinguished from "issues of loss distribution *361 and financial protection" which are governed by Article 3544, infra. This distinction draws from the substantive law of torts and its two fundamental objectives deterrence and compensation. By way of illustration, so-called "rules of the road" establish or pertain to "standards of conduct and safety", whereas rules that impose a ceiling on the amount of compensatory damages or provide immunity from suit are "rules of loss-distribution and financial protection". From the choice-of-law perspective, the reason for distinguishing between conduct-regulating rules and lossdistribution rules is the fact that their operation in space abides by different principles. Thus, while conduct-regulating rules are territorially oriented, compensation or loss-distribution rules are usually not so oriented. A state's policy of deterrence embodied in its conduct-regulating rules is implicated in all substandard conduct that occurs within its territory, even if the parties involved are not domiciled in that state. Conversely, a state's loss-distribution policy may or may not extend to non-domiciliaries acting within its territory, but does extend to domiciliaries even when they act outside the state. For the origin and rationale of this distinction in American conflicts law, see Symeonides, `Choice of Law for Torts', 441-44. (Emphasis added.)
Finally, the relationship of Article 3542 with Articles 3543-3546 is described in Revision Comments 1991 for Article 3542 as follows:
(b) Relation to other articles of this Title. The approach of this Article is further implemented by specific rules contained in Articles 3543-3546, infra, which are a priori legislative determinations of "the state whose policies would be most seriously impaired if its law were not applied". Being more specific, these Articles should, when applicable, prevail over this Article. However, as with any a priori rules. Articles 3543-3546 may in exceptional cases produce a result that is incompatible with the general objective of Article 3542, in pursuance of which they were drafted. In order to avoid such a result. Article 3547 contains an "escape clause" which, when applicable, refers these cases back to Article 3542. Moreover, Articles 3543-3546 do not cover the entire spectrum of cases or issues that might fall under the general hearings of these Articles, but only those cases that appeared to be susceptible to a clear and noncontroversial choice-of-law rule. The remaining cases or issues are governed by this Article as the residual article. Thus, Article 3542 is intended to perform a general as well as a residual role. In its residual role, this Article applies to all cases and issues that are not included within the scope of Articles 3543-3546. In its general role, this Article will help determine whether issues that do fall within the general scope of Articles 3543-3546 should be decided under the rules contained therein or under the escape clause of Article 3547 which refers them back to Article 3542. (Emphasis added.)
Louisiana Civil Code Article 3547 provides as follows:
The law applicable under Articles 3543-3546 shall not apply if, from the totality of the circumstances of an exceptional case, it is clearly evident under the principles of Article 3542, that the policies of another state would be more seriously impaired if its law were not applied to the particular issue. In such event, the law of the other state shall apply. (Emphasis added.)
*362 See generally, S. Symeonides, Louisiana's New Law of Choice of Law for Tort Conflicts: An Exegesis, 66 Tul. Law Rev. 677 (1992).
1. Law Applicable to the Texas Case
Louisiana Civil Code Article 3543 is clear and unambiguous in providing that "[i]ssues pertaining to standards of conduct and safety are governed by the law of the state in which the conduct that caused the injury occurred, if the injury occurred in that state or in another state whose law did not provide for a higher standard of conduct." The record on appeal shows that a majority of the conduct complained of occurred in Texas and, based on the quantum of the damages awarded, sixty-one percent (61%) of the total injuries in this litigation occurred in Texas. Revision Comments 1991(d) for Article 3543 provides as follows:
Conduct and injury in the same state: Application of the law of that state. The first paragraph of this Article provides that when both the tortfeasor's conduct and the victim's injury occur in the same state, the law of that state applies, regardless of the domicile of the parties or any other factors. As long as the issue is one pertaining to regulation of conduct and safety, the state where both the conduct and the injury occur has the best, if not the exclusive, claim for applying its law. This is true regardless of the content of that law, that is, regardless of whether that law provides for a standard of conduct that is lower or higher than, for instance, the law of the state in which either party is domiciled. (Emphasis added.)
Subparagraph (2) of La. C.C. art. 3544 is clear and unambiguous in providing that for issues pertaining to loss distribution and financial protection "[i]f, at the time of the injury the injured person and the person who caused the injury were domiciled in different states: (a) when both the injury and the conduct that caused it occurred in one of those states, by the law of that state...." The Texas plaintiff is domiciled in Texas, a majority of the conduct complained of occurred in Texas, and all of the injury complained of by the Texas plaintiff occurred in Texas. AmCare-TX is incorporated in Texas and had it principal place of business there. Texas has a comprehensive HMO law. V.T.C.A. Ins.Code §§ 843.001 to 843.464. Revision Comments 1991(g) for Article 3544 provides, in pertinent part, as follows:
Domicile of either party. Subparagraph (2) deals with cases in which, at the time of the injury, the tortfeasor and the victim were not domiciled in the same state. Clause (a) of that subparagraph provides that when both the injurious conduct and the resulting injury occurred in a state where either the tortfeasor or the victim was domiciled, the law of that state shall apply, regardless of whether it provides for a higher or lower standard of financial protection than the law of the domicile of the other party. For rationale and supporting authority, see Symeonides, `Choice of law for Torts', 453-56. When a person is injured in his home state by conduct in that state, his rights should be determined by the law of that state, even if the person who caused the injury happened to be from another state. The law of the latter state should not be interjected to the victim's detriment or benefit. (Emphasis added.)
Thus, even assuming that Health Net is domiciled in either California or Delaware, insofar as the Texas litigation is concerned, the trial court judge correctly ruled that Texas law applies to issues pertaining to standards of conduct and safety and to those pertaining to loss distribution and financial protection. The Texas plaintiff *363 initially sought in a Texas forum the same basic relief sought in this Louisiana forum. Louisiana courts have recognized the "compelling interest" Texas has in regulating issues involving Texas insurance in Texas. Murden v. Acands, Inc., XXXX-XXXX, p. 7 (La.App. 4 Cir. 12/14/05), 921 So.2d 165, 169-170, and the case cited therein. Thus, applying Texas law in this Texas intervention does not impair Texas policies in general. Applying Texas law in a Texas insurance case in a Louisiana forum generally will not impair Louisiana policies; it does affect the amount of work involved for Louisiana court dockets. La. C.C. arts. 3515 and 3542. However, the law of another state will be applied if La. C.C. art. 3547 or another provision of Louisiana's law requires it for a particular issue.
2. Law Applicable in the Louisiana Case
As previously indicated, the domiciles of the original defendants in the Louisiana case are located in the states of Texas, Florida, New York, Delaware, California, and Louisiana; the conduct complained of occurred in varying degrees in the states of Louisiana, Oklahoma, Texas, California, and New York; and all of the injury complained of in the Louisiana case occurred in Louisiana. The Louisiana HMO was incorporated in Louisiana, had its principal place of business in Louisiana, and only did business in Louisiana. The Louisiana HMO advertised its product, sold contracts to enrollees for health care benefits, collected premiums, processed claims, entered into contracts with providers, conducted day-to-day operations, hired employees, contracted for goods and services, and failed to pay claims, benefits, and other contractual obligations of enrollees, members, subscribers, providers, employees, and other creditors that it was contractually obligated to pay in Louisiana.
For the purposes of Article 3543, the majority of the conduct that caused the injury in Louisiana occurred in Texas. However, the alleged conduct of continuing to conduct business operations when insolvent so that Louisiana conventional obligations could not be met occurred in Louisiana. Louisiana also has asserted delictual causes of action in its petition alleging that these torts caused the failure to perform resulting in multiple breaches of Louisiana contracts involving Louisiana domiciliaries. Louisiana has a very strong interest in the sanctity of its conventional obligations. La. C.C. art. 3537 et seq. All of the injury claimed by Louisiana occurred in Louisiana.
Revision Comments 1991(h), (i), and (j) for Article 3543 provide as follows:
(h) Conduct in more than one state. Cases in which the injurious conduct occurs in more than one state should be approached under the principles of causation of the law of the forum. Ordinarily, these principles will make it possible to determine which particular conduct was, legally speaking, the principal cause of the injury. Following such a determination, the case will be governed by either the law of the state of that conduct or the law of the state of injury, depending on which paragraph of this Article is applicable, and subject always to the "escape clause" of Article 3547, infra. In the latter case, as well as in all cases in which the principles of causation would not yield a clear answer, the applicable law will be determined in accordance with Article 3542. It is also possible that the fact that the injurious conduct was not localized in any single state could, in appropriate circumstances, evoke the escape clause of Article 3547. even without resorting to the principles of causation.
*364 (i) Injury sustained in more than one state. Cases involving multiple victims who sustained their respective injuries in different states should be handled independently for each victim. Cases where the same victim sustained injury in more than one state should be resolved by a factual determination of where the injury was primarily suffered. Following such a determination, the case will be governed by either the law of the state of injury or the law of the state of conduct, depending on which paragraph of this Article is applicable, and subject always to the escape clause of Article 3547.
(j) The third paragraph: Conduct in Louisiana. The third paragraph of this Article is intended to ensure that conduct in Louisiana by persons domiciled in, or having another similarly significant relationship with, this state will not be subjected to higher standards of another state where the injury might occur. (Emphasis added.)
Revision Comments 1991 (b), (c), (d), (e) and (f) for Article 3544 provide, in pertinent part, as follows:
(b) Scope: persons. This Article applies to issues of loss-distribution "as between a person injured by an offense or quasi-offense and the person who caused the injury"....
When one tortfeasor causes injury to more than one person, the applicable law should be determined separately with regard to each victim. When one person is injured by more than one tort-feasor, the latter's obligations vis-a-vis the victim and the law governing these obligations should be determined separately with regard to each tortfeasor.
....
(c) Relation to Article 3542. Like Article 3543, this Article is derived from the general principles of Article 3542. When applicable, this Article, being more specific, prevails over Article 3542. However, according to Article 3547, infra, the rules provided in this Article may, in exceptional cases, be subordinated to the principles of Article 3542. See comment under Article 3547, infra. Moreover, this Article does not cover the entire spectrum of cases involving issues of loss distribution. As with Article 3543, the objective of this Article is to lighten the court's choice-of-law burden by attempting to identify those cases for which a safe choice-of-law rule could be established in advance based on accumulated experience. Because this experience does not yield safe choice-of-law rules for all cases, this article is purposefully left open-ended. For instance, this article does not cover situations in which the wrongful conduct, the resulting injury, and the domicile of each party are each located in different states. Such cases are, therefore, governed by Article 3542, the residual Article.
(d) Domicile. Based on the premise that laws of loss distribution are usually not territorially oriented, this Article pays less attention to territorial factors and focuses instead on the domicile of the parties.... For the domicile of juridical persons, see article 3518, supra, and Article 3548, infra. For the purposes of this Article, the pertinent domicile is the domicile at the time of the injury. This is stated expressly in the article or implied by the use of the past tense. However, a post-injury change of domicile may well be pertinent for the purposes of Article 3542. See Allstate Insurance v. Hague, 449 U.S. 302, 101 S.Ct. 633, 66 L.Ed.2d 521 (1981).
Domicile has been chosen as the primary connecting factor for the purposes of this Article because domicile connotes *365 a permanent, factual, consensual, and formal bond between a person and a given society. Because of this bond, the person participates, however indirectly, in the shaping of that society's values and may reasonably expect the protection of its laws. Correspondingly, that society has both a right and a duty to be concerned about that person's welfare. When the domiciliary bond is attenuated for whatever reason, both the person's expectations and the society's concerns may also be diminished accordingly. Thus, when a person is only nominally domiciled in one state, but habitually resides in another or has another substantial factual connection with another state that is pertinent to the particular issue, the interest of the latter state in protecting him may be stronger than that of the former state. Depending on the other factors in the case, such a case may be a good candidate for invoking the "escape clause" of Article 3547, infra.
(e) Common domicile. The first sentence of subparagraph (1) of this article deals with situations in which, at the time of the injury, both the tortfeasor and the victim were domiciled in the same state. This provision calls for the application of the law of the common domicile regardless of whether that law provides for a higher or a lower standard of financial protection for the victim than does the law of the state where the conduct and/or the injury occurred. In cases where the law of the state of the common domicile provides for a higher standard of financial protection than does the state of conduct and/or the injury, the application of the law of the common domicile has become routine in all states that have abandoned the traditional lex loci delicti rule....
(f) Parties domiciled in states with identical law. The second sentence of subparagraph (1) provides that persons domiciled in states whose law on the particular issue of loss distribution is substantially identical should be treated as if domiciled in the same state. This legal fiction is justified by both policy and practical considerations. From a policy viewpoint, this rule is supported by the same factors as the common-domicile rule. See comment (e), supra. From a practical viewpoint, this rule will alleviate the court's choice-of-law burden by properly identifying and resolving as "false conflicts" all cases in which the victim and the tortfeasor were domiciled in states whose law on the issue of financial protection was substantially identical. This rule will also prove useful in cases involving multiple victims or multiple tortfeasors because it will enable the court to treat as domiciliaries of the same state those victims or tortfeasors who are domiciled in states with substantially identical law. (Emphasis added).
Finally it must be noted that "Comment (g) to Article 3544 reflects the legislative belief that choice of law should be decided on a state's interest in the case, rather than the potential benefit or detriment to the litigants." Tolliver, 115 F.Supp.2d at 703. See generally, S. Symeonides, supra.
The fact that Congress has allowed each of the fifty states to have its own system governing insurance strongly suggests that a state-specific system for insurance is a legitimate public purpose. Champagne, XXXX-XXXX at p. 26, 893 So.2d at 788; Dunlap v. Hartford Ins. Co. of the Midwest, XXXX-XXXX, p. 7 (La.App. 1 Cir. 3/24/05), 907 So.2d 122, 126; Abraham v. State Farm, 465 F.3d 609, 613-14 (C.A.5 (La.) 2006). Louisiana's system for regulating insurance is particularly state-specific.
*366 The insurance industry in Louisiana is pervasively affected by public policymaking and is heavily regulated. La. R.S. 22:2 A(1); Segura v. Frank, 93-1271, p. 19 (La.1/14/94), 630 So.2d 714, 730. The reasons for this are discussed in W. McKenzie & H. Johnson, 15 La. Civ. Law Treatise, Insurance Law and Practice § 3, pp. 4-6 (3d ed.2006), as follows:
It is often said that the contract of insurance, and indeed the entire field of insurance law, is so substantially infused with public policy concepts that it is impossible to discuss the subject of insurance without a heavy dose of public policy considerations at every turn. The authors currently adhere to that philosophy, and indeed respectfully suggest that the reader will not have a complete understanding of the subject matter unless the marriage between insurance and public policy is made absolutely clear at the outset of this work.
It is certainly understandable that the legislature and the courts of a state, especially the former, would be very concerned about a relationship into which citizens place enormous amounts of money and in turn have equally substantial expectations about what they will receive in turn. Insurance contracts are so pervasive now that it may be safely predicted that almost every citizen either is now, has been, or may soon be a party to such a contract. We count on insurance contracts to protect our most basic financial and physical resources: our person, our property, and our potential liability for harm to others. It is difficult to imagine our society without contracts of insurance.
In light of the significant involvement of our citizens with these particular contracts, concomitant governmental involvement is easily predictable. Moreover, the nature of the contract is such that it may tend toward an adhesion relationship. The insured is often an individual with relatively little bargaining power and similarly slight expertise in the field of insurance. The insurer is very often a company of both substantial size and expertise. Together these factors invite, though do not require, a relationship of adhesion. In such a potential relationship, the usual rule found in the Civil Code that the parties may make law between themselves by contract, and are free to include virtually whatever is not prohibited in such an agreement, is not entirely appropriate. Rather one finds the parameters of the bargaining arena between the insurer and the insured sharply limited and carefully patrolled by regulatory authorities.
Given the intense interest by government in this particular type of contract, some of the principles that we encounter in this subject matter are easily explainable. For example, it is easy to see why the principles having to do with interpretation that are mentioned in the next section have developed, and why a court might be willing to reform a contract as discussed in the section following that. It is also easy to see why the legislature requires that certain provisions be included in the various insurance contracts, or provisions more favorable to the insured. Sometimes the legislature will mandate that certain types of coverage be offered in conjunction with basic coverages, and will presume that the insured opted for such coverage unless it is clear that he rejected it. The law may also require, for example, that if a certain medical expense is reimbursable when performed by a physician, it cannot be rejected when done by another health care provider with his licensed authority.
*367 Cancellations are rigorously regulated; forfeiture of built up values are protected; penalties and attorney's fees for arbitrary denial of claims are mandated. The list could go on and on, but the theme becomes very clear. This is not an area of the law in which the legislature or the courts have been willing to leave the players to their own devices. Either because of the substantial monetary investment by citizens, or of the perils to which they would be exposed without the coverage they may have thought they were purchasing, or of the disparity between the size and expertise of the contracting parties, or perhaps for all three reasons, the playing field is sharply circumscribed and closely umpired. (Emphasis added.)
The people of Louisiana have found insurance so important they have given constitutional status to the office of Commissioner of Insurance and LaDOI by providing for them in the Executive Branch of state government. LA. CONST. art. IV, §§ 1 and 11. In particular, LaDOI is one of twenty departments in the Executive Branch of state government. LA. CONST. art. IV, §§ 4(B). Finally, the legislature has provided for the organization, structure, powers, and functions of LaDOI and the powers and functions of the Commissioner in La. R.S. 36:681, et seq.
The legislature has dedicated an entire Title of the Louisiana Revised Statutes for the Louisiana Insurance Code. La. R.S. 22:1-3312. Health and Accident Insurance has been classified as a specific type of insurance and has been defined, in part, as "[ijnsurance of human beings against bodily injury, disablement, or death by accident or accidental means, or the expense thereof, or against disablement, or expense resulting from sickness or old age...." La. R.S. 22:6(2)(a). HMOs are specially provided for in La. R.S. 22:2001-2027.
For the purpose of La. R.S. 22:2001 et seq. (1) an enrollee is "an individual who is enrolled in a health maintenance organization"; (2) a provider is "any physician, hospital, or other person, organization, institution, or group of persons licensed or otherwise authorized in this state to furnish health care services"; and (3) a subscriber is a "person who is responsible for payment to a health maintenance organization or whose employment or other status, except for family dependence, is the basis for eligibility for enrollment in the health maintenance organization." La. R.S. 22:2002(4), (8) and (9). The function of an HMO is to "provide or arrange for the provision of basic health care services to enrollees." La. R.S. 22:2002(7).
A review of La. R.S. 22:2001 et seq. reflects a very strong public policy for the protection of the rights of enrollees when they contract with HMOs for health care services. The enrollee application form is provided for in extensive detail in La. R.S. 22:2026. Enrollee grievance procedures are provided for in La. R.S. 22:2022. La. R.S. 22:2018 A(1) and C require that HMO-provider contracts shall set forth that "in the event the health maintenance organization fails to pay for covered health services ..., the subscriber or enrollee shall not be liable to the provider for any sums owed by" the HMO and that "(n)o contracting provider ... may maintain any action at law against a subscriber or enrollee to collect sums owed by" the HMO.[47] La. R.S. 22:2007 A provides that any director, officer, or employee of an HMO who receives, collects, disburses, or *368 invests funds in connection with the activities of an HMO "shall be responsible for such funds in a fiduciary relationship to the" HMO. La. R.S. 22:2007 C provides that no asset of an HMO may be encumbered, pledged, or utilized to secure a loan or to confer a personal benefit on any officer, director, employee, agent, stockholder, or any beneficiary of any trust of any other person responsible to the HMO. See also La. R.S. 22:2, 20, 2010, and 2012-15. Finally, the legislature has conferred upon the Commissioner of Insurance the policymaking power to "promulgate such rules and regulations, as may be necessary or proper to carry out the provisions of this Part." La. R.S. 22:2014. Pursuant to La. R.S. 22:2013 F, "[t]he commissioner shall be authorized to issue appropriate regulations to implement an orderly procedure to wind up the affairs of any financially troubled health maintenance organization." (Emphasis added.) See 37 ADC Pt. XIII, §§ 1305-1307.
Louisiana has a vital interest in the liquidation of insolvent insurance companies which operate in the State. Brown v. ANA Insurance Group, 2007-2116, p. 4 (La.10/14/08), 994 So.2d 1265, 1267, reh'g denied, (La.11/21/08). Liquidation proceedings are designed to protect creditors, policyholders, and the general public. Id. The obvious purpose and public policy for the provisions on rehabilitation, liquidation, conservation, dissolution, and administrative supervision of HMOs in the Insurance Code is to ensure the HMOs give their enrollees the health care services contracted for, or, if not, to conserve the assets of the failing HMO as much as possible for the benefit of the enrollees.
The public policy reflected by the Louisiana constitutional provisions on insurance and the enabling legislation that has been enacted pursuant thereto reflects an extremely strong public policy to protect the basic health care needs of the people of Louisiana. This is particularly true with reference to legislation enacted to protect the health care of health insurance insureds and HMO enrollees. Lack of good health diminishes the ability of a person to enjoy life and his or her assets.
On October 7, 2002, the trial court judge rendered a judgment in the Louisiana actions that provided, in pertinent part, as follows:
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Commissioner be and hereby is granted all legal and equitable relief as may be necessary to fulfill his duties as Liquidator and for such other relief as the nature of the case and the interests of AmCare's [sic] member, enrollees, subscriber, policyholders, providers and other creditors, or the public, may require, including but not limited to the Receiver's appointment and authorization to prosecute all action which may exist on behalf of policyholders, members, stockholders or creditors of the insurer against any existing or former officer, director or employee of Am Care [sic] or any other person.
See La. R.S. 22:733 B, 22:734, 22:734.1 and 22:736 B and C. This judgment implements the strong Louisiana public policy pertaining to insurance in general and to health care matters in particular. This judgment has not been contested in this appeal.
Because the insurance industry in Louisiana is so pervasively affected by public policymaking and is so heavily regulated, Louisiana law should be applied to an action brought by a Louisiana Receiver and/or the Louisiana Commissioner in a Louisiana court "on behalf of [Louisiana] policyholders, stockholders or creditors," unless for a particular issue the totality of the circumstances in an exceptional instance *369 indicates that the policies of another state would be more seriously impaired than those of this state if the law of that state was not applied to that particular issue. We arrive at this conclusion after considering the following: (1) the laws of Louisiana, Oklahoma, and Texas; (2) the relationship of each of those states to the parties and the disputes; (3) the policies upholding the justified expectations of the parties; (4) minimizing the adverse consequences of subjecting a party to the law of more than one state; (5) the contacts of each state to the parties and the events that gave rise to the disputes; (6) the state in which a relationship between parties was centered; (7) the general policy of each state for deterring wrongful conduct; and (8) the general policy of each state for repairing the consequences of the injurious acts.
After considering La. C.C. arts. 3515, 3542, 3543-3544 and 3547, the following factors are most important in reaching this result. Public policy for regulating insurance in general, and that for regulating health insurance in particular, is state-specific. In an action instituted by a state insurance regulator against a person whose conduct is subject to the state's regulations and/or against those persons who aid, abet, counsel, or procure the person regulated, it reasonably can be expected that the law of the state imposing the regulations will be applied. This is particularly true when a person engaged in providing health care coverage chooses to conduct business operations in multiple states. Cf. Boutte v. Firemen's Fund, XXXX-XXXX, pp. 27-28 (La.App. 3 Cir. 5/10/06), 930 So.2d 305, 322, writs denied, XXXX-XXXX, 1484 (La.9/29/06), 937 So.2d 864; CXY Chemicals U.S.A. v. Gerling Global General Insurance Co., 991 F.Supp. 770, 777 (E.D.La.1998). Making a choice-of-law decision on this basis minimizes the consequences of subjecting a party to the law of more than one state in each state. Finally, this policy will tend to discourage forum shopping on state-specific issues like insurance. Official Revision Comments 1991(c) for La. C.C. art. 3515; Marchesani v. Pellerin-Milnor Corp., 269 F.3d 481, 488 (C.A.5 (La.) 2001).
3. Law Applicable in the Oklahoma Case
We will apply Oklahoma law in the Oklahoma case in the same manner that we will apply Louisiana law in the Louisiana case. AmCare-OK was incorporated in and had its principal place of business in Oklahoma. It is alleged that Health Net, AmCareco, and the Oklahoma HMO transacted business in Oklahoma and incurred obligations from activity within that state. The unpaid claims complained of in the Oklahoma case are owing and due in Oklahoma.
A keystone of the Oklahoma legal system is that liability follows tortious conduct and remedy is afforded for every wrong. The Constitution of the State of Oklahoma provides, in pertinent part:
The courts of justice of the State shall be open to every person, and speedy and certain remedy afforded for every wrong and for every injury to person, property, or reputation; and right and justice shall be administered without sale, denial, delay, or prejudice.
OKLA. CONST, art. II, § 6.
The people of Oklahoma have placed regulatory supervision of the business of insurance under the jurisdiction of the Oklahoma Department of Insurance. OKLA. CONST. art. VI, § 22; 36 OKLA. STAT. § 301. The Insurance Department is charged with the execution of all law in relation to insurance and insurance companies doing business in the state. Id. The Commissioner of Insurance is a member of *370 the Executive Branch of Oklahoma state government. OKLA. CONST. art. VI § 1. The Insurance Commissioner is the chief executive officer of the Insurance Department. 36 OKLA. STAT. § 301.
The system for regulating insurance conducted within the state of Oklahoma is state-specific. 36 OKLA. STAT. § 301 et seq. Oklahoma insurance companies "have come to be looked upon as at least quasi-public in nature, subject to state control for the general benefit of not only the policyholders but of the public." Oklahoma Benefit Life Association v. Bird, 1943 OK 103, ¶ 12, 135 P.2d 994, 997. Oklahoma considers the insurance industry to be a unique industry in that, unlike ordinary business corporations, insurance is highly regulated by the State. Crain v. National American Insurance Co., 52 P.3d 1035, 1039-40 (Okla.Civ.App. Div. 2, 2002). Regulation of the insurance industry is contained in 36 OKLA. STAT. § 301 et seq. and reflects a strong public policy for protection of the insurance needs of the people of Oklahoma. Finally, Oklahoma has a comprehensive Health Maintenance Organization law. 36 OKLA. STAT. §§ 6901 to 6936.
After consideration of the La. C.C. art. 3515 et seq. factors in the determination of which state's law should be applied, we conclude that Oklahoma's law should be applied to the action brought by the Oklahoma Receiver. Oklahoma is the place of the alleged conduct in the Oklahoma action wherein claims by enrollees, providers and other creditors of AmCare-OK were left unpaid, and Oklahoma is the state in which the relationship between the AmCare-OK enrollees and AmCare-OK was centered. Oklahoma has a strong policy for regulating the insurance industry, deterring wrongful conduct, and repairing the consequences of injurious acts.
The Oklahoma Receiver, jointly with the Louisiana Receiver, filed a consolidated, amended, and restated petition in these proceedings. This pleading does not cite any Oklahoma law. In the Oklahoma Receiver's appellee brief, the only Oklahoma law cited is the statutory law pertaining to the right of the Oklahoma Receiver to act on behalf of Oklahoma policyholders, members, stockholders, and creditors herein. 36 OKLA STAT. §§ 1902, 1903 and 1921.
Louisiana Code of Evidence Article 202 A was enacted by Acts 1988, No. 515, effective January 1, 1989, and provides as follows:
Mandatory. A court, whether requested to do so or not, shall take judicial notice of the laws of the United States, of every state, territory, and other jurisdiction of the United States, and of the ordinances enacted by any political subdivisions within the court's territorial jurisdiction whenever certified copies of the ordinances have been filed with the clerk of that court. (Emphasis added.)
Comments (a) and (b) to Article 202 provide, in pertinent part, as follows:
(a) This Article essentially follows prior Louisiana law.
....
(b) The term "law" as used in Paragraph A of this Article includes common law as well as statutory law thus incorporating all judicial decisions that are authoritative in their respective jurisdictions, and embraces decisions that interpret or apply both the common law and statutes.[[48]]
*371 As previously indicated, when construing a law, the word "shall" universally is considered to mean mandatory.
Prior to enactment of Article 202, the issue of judicial notice of the laws of other states was provided for in La. C.C.P. art. 1391, which was repealed by 1988 La. Acts No. 515 § 7. In Gathright v. Smith, 368 So.2d 679, 687 (La.1978), Article 1391 was interpreted as follows:
The first two paragraphs of art. 1391, provide us with the authority to inform ourselves, on our own initiative, and take judicial notice of foreign law, even when the foreign law's applicability has not been called to the attention of the trial court. But see Cambre v. St. Paul Fire & Marine Ins. Co., 331 So.2d 585 (1st Cir.1976), writ denied, 334 So.2d 434 [, 435] ([La.] 1976) (where the foreign law was not cited or relied upon in brief or oral argument). Furthermore, we recognize that the reason often stated for demanding notice in those states which require that the foreign law be pleaded, see Annot., 23 AX.R.2d 1437, 1449, is that without such notice the opponent would not be warned beforehand that the court may take judicial notice of foreign law and might not be able to prepare himself on that law. Respondent in the instant case, although not given notice of relators' intention to rely on California law on the trial level, has been given sufficient opportunity to research the relevant law since the argument was raised in brief in the appellate court. Consequently, we may refer to California law to determine the status of funds derived from the sale of the California property.
See also Mahmud v. Mahmud, 444 So.2d 774, 776 (La.App. 4 Cir.1984); Cambre v. St. Paul Fire & Marine Insurance Co., 331 So.2d 585, 591 (La.App. 3 Cir.1976), writs denied, 334 So.2d 434, 435 (La. 1976).[49]
In Gill v. Matlack, Inc., 94-2546, p. 3 (La.App. 1 Cir. 10/6/95), 671 So.2d 395, 398, this Court construed Article 202 as follows:
The worker's compensation insurance policy in this case was issued to C & S Trucking, a Mississippi corporation, by a national company, Liberty Mutual, through a Mississippi insurance agency. In contrast, Louisiana's contact arose only after the insurance policy had been issued and after Liberty Mutual took actions to cancel the policy. Louisiana's sole connection with this case occurred when Mr. Gill, a Louisiana resident, filed his claim in Louisiana against Matlack, a Louisiana corporation.
In light of these principles, we find that Mississippi law should be applied in determining whether this insurance policy was properly canceled.FN6
FN6. A Louisiana appellate court may, on its own initiative, inquire into another state's law, where applicable. See LSA-C.E. art. 202; Gathright v. Smith, 368 So.2d 679 (La. 1978) (on rehearing); Mahmud v. Mahmud, 444 So.2d 774 (La.App. 4th Cir.1984). Also, we note that counsel for Matlack raised the conflicts of law issue in his opposition to Liberty Mutual's motion for summary judgment; his post-trial memorandum to the hearing officer; and in his brief to this court. Thus, Liberty Mutual had sufficient notice of the conflicts of law issue.
See also Kirby v. Kirby, 579 So.2d 508, 514 (La.App. 4 Cir.1991), writ denied, 582 So.2d 1308 (La.1991). The Third Circuit still follows the Cambre case. Iberia Parish *372 School Board v. Sandifer & Son Construction Co., 98-0319, p. 3 (La.App. 3 Cir. 10/28/98), 721 So.2d 1021, 1022; E & L Lumber Co., Inc. v. Ashy Enterprises, Inc., 594 So.2d 948, 949 (La.App. 3 Cir. 1992).
In Maraist & Lemmon, 1 La. Civ. Law Treatise, Civil Procedure, § 11.7(5), p. 289, appears the following:
Although the Code of Civil Procedure originally provided that "[ejvery court of this state shall take judicial notice of the common law and statute of every state," the courts often held that if the law of another state applies and the parties do not offer proof of that law, the court will presume that the law of the foreign state is the same as that of Louisiana. The code of Evidence now provides that "[a] court, whether requested to do so or not, shall take judicial notice of the laws of ... every state...." This legislative repudiation of the judicial "presumption" may, like its predecessor, have fallen upon deaf judicial ears. (Footnotes deleted.)
See also F. Maraist, 19 La. Civ. Law Treatise, Evidence and Proof, § 4.1, p. 63 (2d ed.2007).
Article 202 A is clear and unambiguous. By using the paragraph title of "Mandatory" and the verb "shall," Article 202 requires us to take judicial notice of the laws of Oklahoma insofar as they are applicable under our conflict of laws analysis. The doctrine of jurisprudence constante does not require that we follow the Cambre or any other jurisprudence if it conflicts with Article 202. In our civilian system, legislation trumps jurisprudence. La. C.C. arts. 1, 2, 3 and 4; Willis-Knighton Medical Center v. Caddo-Shreveport Sales & Use Tax Com'n., XXXX-XXXX, pp. 21, 25-26, 32 (La.4/1/05), 903 So.2d 1071, 1084-85, 1087-88, 1091.
D. Conclusion
Because we have ruled that Louisiana law applies in the Louisiana case and Oklahoma law applies in the Oklahoma case, the trial court has committed reversible error by applying Texas law in those cases unless: (1) the laws of Texas and Louisiana or Texas and Oklahoma on an issue are substantially the same; (2) Texas is the only state that has an interest in the application of its law to the particular issue; (3) the policies of the State of Texas would be most seriously impaired if its law were not applied to the issue; or (4) the error is harmless.
Our decision to apply the laws of the three states as described hereinabove is fortified by the fact that Louisiana, Oklahoma, and Texas each has its own version of an HMO law. La. R.S. 22:2001 et seq.; V.T.C.A. Ins.Code § 843.001 et seq.; 36 OKLA. STAT. § 6901 et seq.
VI. STANDARD OF REVIEW OF FACTS IN THE TEXAS CASE
(Assignments of error TX-1, 2, 3, 4, 5, 6, 7, 9, 11, 12, 13, 14, 15, 16, 17, 29, 33, 34 and 36)[50]
The standard of appellate review of facts in the Texas case will be determined in part by the correctness of the jury instructions that were given and by the failure to *373 give essential instructions. Health Net has asserted nineteen (19) assignments of error pertaining to the jury instructions. These assignments of error fall into two categories: (1) failure to properly instruct on an issue; and (2) failure to instruct on an issue.
A. The Trial Court's Duty to Instruct a Jury
Louisiana Code of Civil Procedure Article 1792 B provides that "[a]fter the trial of the case and the presentation of all the evidence and arguments, the court shall instruct the jurors on the law applicable to the cause submitted to them." (Emphasis added.) La. C.C.P. art. 1812 A pertaining to special jury verdicts provides, in pertinent part, that "[t]he court shall give to the jury such explanation and instruction concerning the matter submitted as may be necessary to enable the jury to make its findings upon each issue." (Emphasis added.)
Finally, La. C.C.P. art. 1813 A pertaining to general jury verdicts provides, in pertinent part, that "[t]he court shall give such explanation or instruction as may be necessary to enable the jury both to make answers to the interrogatories and to render a general verdict, and the court shall direct the jury both to make written answers and to render a general verdict." (Emphasis added.) Implicit in this language is that "... the trial court give accurate and necessary instructions based upon the facts and evidence of the case." (Emphasis added.) Berg v. Zummo, XXXX-XXXX, p. 13 n. 5 (La.4/25/01), 786 So.2d 708, 716 n. 5. See also Held v. Aubert, XXXX-XXXX, p. 5 (La.App. 1 Cir. 5/9/03), 845 So.2d 625, 630; Maraist & Lemmon, 1 La. Civ. Law Treatise, Civil Procedure, § 11.10, p. 303. Because of the use of the word "shall" in these Code of Civil Procedure articles, a trial court judge has a mandatory duty to accurately instruct the jury on all necessary factual issues that the jury is required to decide based upon the facts and evidence of the case.
In Adams v. Rhodia, Inc., 2007-2110, pp. 6-8 (La.5/21/08), 983 So.2d 798, 804-05, appears the following:
Adequate jury instructions are those which fairly and reasonably point out the issues and which provide correct principles of law for the jury to apply to those issues. The trial judge is under no obligation to give any specific jury instructions that may be submitted by either party; the judge must, however, correctly charge the jury. If the trial court omits an applicable, essential legal principle, its instruction does not adequately set forth the issues to be decided by the jury and may constitute reversible error. Doyle v. Picadilly Cafeterias, 576 So.2d 1143, 1152 (La. App. 3 Cir. 1991).
Correlative to the judge's duty to charge the jury as to the law applicable in a case is a responsibility to require that the jury receives only the correct law. Melancon v. Sunshine Construction, Inc., 97-1167, p. 6 (La.App. 1 Cir. 5/15/98), 712 So.2d 1011, 1016; Doyle, 576 So.2d at 1152.
Louisiana jurisprudence is well established that an appellate court must exercise great restraint before it reverses a jury verdict because of erroneous jury instructions. Trial courts are given broad discretion in formulating jury instructions and a trial court judgment should not be reversed so long as the charge correctly states the substance of the law. The rule of law requiring an appellate court to exercise great restraint before upsetting a jury verdict is based, in part, on respect for the jury determination rendered by citizens chosen *374 from the community who serve a valuable role in the judicial system. We assume a jury will not disregard its sworn duty and be improperly motivated. We assume a jury will render a decision based on the evidence and the totality of the instructions provided by the judge.
However, when a jury is erroneously instructed and the error probably contributed to the verdict, an appellate court must set aside the verdict. In the assessment of an alleged erroneous jury instruction, it is the duty of the reviewing court to assess such impropriety in light of the entire jury charge to determine if the charges adequately provide the correct principles of law as applied to the issues framed in the pleadings and the evidence and whether the charges adequately guided the jury in its deliberation. Ultimately, the determinative question is whether the jury instructions misled the jury to the extent that it was prevented from dispensing justice. Nicholas v. Allstate Insurance Company, 99-2522, p. 8 (La.8/31/00), 765 So.2d 1017, 1023; see also Brown v. White, 405 So.2d 555, 560 (La.App. 4 Cir.1981), rev'd on other grounds on reh'g, 430 So.2d 16 (La.1983) (the question is whether the jury was misled to the extent that it was prevented from doing justice) and Jones v. Liberty Mutual Insurance Company, 568 So.2d 1091, 1094 (La.App. 5 Cir.1990), writ denied, 572 So.2d 72 (1991) (reversible error occurs when the jury is misled to such an extent as to prevent it from doing justice).
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. See Belle Pass Terminal, Inc. v. Jolin, Inc., 634 So.2d 466 (La.App. 1 Cir.), writs denied, 638 So.2d 1094 (La.1994). Because the adequacy of jury instruction must be determined in the light of jury instructions as a whole, when small portions of the instructions are isolated from the context and are erroneous, error is not necessarily prejudicial. Furthermore, the manifest error standard for appellate review may not be ignored unless the jury charges were so incorrect or so inadequate as to preclude the jury from reaching a verdict based on the law and facts. Thus, on appellate review of a jury trial the mere discovery of an error in the judge's instructions does not of itself justify the appellate court conducting the equivalent of a trial de novo, without first measuring the gravity or degree of error and considering the instructions as a whole and the circumstances of the case. Brown, 405 So.2d at 558.
B. The Trial Court's Duties to Rule on Requests for Jury Instructions and to Inform the Parties of Proposed Jury Instructions Prior to Arguments to the Jury
(Assignment of Error TX-33)
Health Net asserts that "[t]he trial judge clearly erred by failing to provide the parties with jury instructions and interrogatories prior to closing argument." The Texas Receiver responds by asserting that "Health Net was given the opportunity to discuss and object to the charge the evening before the jury was charged and prior to the time that the jury was charged. Health Net's characterization of the extent and nature of the charge conference misstates the record." Health Net responds that it "Did Not Waive Its Right to Challenge Judge Clark's Manifestly Defective Instructions" and it "Preserved its Objections to Judge Clark's Instructions."
*375 This assignment of error will be discussed in three sections: (1) the right of a party to submit jury instructions; (2) the duty of a trial court to inform the parties of the jury instructions it intends to give and the verdict form it intends to use prior to giving oral arguments; and (3) the right of a party to object to proposed jury instructions.
1. Right to Submit Jury Instructions[51]
The Texas Receiver asserts that "Health Net waived the right to complain of any failure to submit any requested instruction, because Health Net failed to comply with the Pretrial Order for submitting its requested instructions and issues." Health Net responds that the "actions of the court and parties reflected the fact Judge Clark had not entered an order fixing a date for submission of jury charges on pain of waiver," "on June 28, 2005, the Receiver filed objections to Health Net's proposed charges, but did not object on the grounds they had been untimely filed" and "the Receiver waived his right to raise this issue."
Louisiana Code of Civil Procedure Article 1793 A provides as follows:
At the close of the evidence, or at such earlier time as the court reasonably directs, a party may file written requests that the court instruct the jury on the law as set forth in the requests. (Emphasis added.)
Louisiana Code of Civil Procedure Article 1551, entitled "Pretrial and scheduling conference; order," provides, in pertinent part, as follows:
A. In any civil action in a district court the court may in its discretion direct the attorneys for the parties to appear before it for conferences to consider any of the following:
....
(8) Such other matters as may aid in the disposition of the action.
B. The court shall render an order which recites the action taken at the conference, the amendments allowed to the pleadings, and the agreements made by the parties as to any of the matters considered, and which limits the issues for trial to those not disposed of by admissions or agreements of counsel. Such order controls the subsequent course of the action, unless modified at the trial to prevent manifest injustice.
C. If a party's attorney fails to obey a pretrial order, or to appear at the pretrial and scheduling conference, or is substantially unprepared to participate in the conference or fails to participate in good faith, the court, on its own motion or on the motion of a party, after hearing, may make such orders as are just, including orders provided in Article 1471(2), (3), and (4). In lieu of or in addition to any other sanction, the court may require the party or the attorney representing the party or both to pay the reasonable expenses incurred by noncompliance with this Paragraph, including attorney fees.
Louisiana Code of Civil Procedure Article 1631 A, entitled "Power of the court over proceedings; exclusion of witnesses; mistrial," provides as follows:
The court has the power to require that the proceedings shall be conducted with dignity and in an orderly and expeditious manner, and to control the proceedings at the trial, so that justice is done.
*376 According to the Rules of the 19th Judicial District Court, all civil matters require a pretrial procedure which includes an order signed by the judge that states "TRIAL BRIEFS/SPECIAL JURY CHARGES AND VERDICT FORMS are to be submitted to the Court not later than ____" with space to fill in the date for submission. The Rules also provide that no amendments to the pretrial order shall be made except by signed consent of all counsel or after a contradictory hearing.
The record contains numerous case management orders (CMO) issued by the trial court judge. The first mention of a CMO in the record refers to a March 11, 2004 CMO which assigns the matter for bench trial on September 28, 2004. At this time, Health Net was only a named party defendant by the Louisiana Receiver asserting contractual claims with regard to the parental guarantee. On July 14, 2004, a thirty-day extension to the CMO was ordered. On August 12, 2004, the trial court judge signed a "Judgment on Motions" after an August 9, 2004 "status conference." The judgment states, "the parties will confer and submit, to the extent possible, an agreed Case Management Order for the Court's consideration not later than September 28, 2004," and orders a status conference be held on September 28, 2004. An "Order" memorializing the August 9, 2004 agreements was signed on August 31, 2004. The Texas intervention was filed on September 27, 2004, and Health Net was not named a party therein.
On October 7, 2004, following the September 28, 2004 status conference, a CMO was issued. Jury selection was fixed to begin on January 28, 2005, for a jury trial set for February 1, 2005. A January 25, 2005 deadline was set for the filing of a joint set of jury instructions and jury interrogatories.
Health Net was first named by the Texas Receiver as a party defendant who had tort liabilities in the Texas Supplemental and Amending Petition filed on October 15, 2004.[52]
On November 29, 2004, following a November 15, 2004 status conference, another CMO was issued. Jury selection was fixed to begin on April 28, 2005, and a jury trial was set for May 2, 2005. An April 22, 2005 deadline was set for the filing of a joint set of jury instructions and jury interrogatories. At a Monday, April 11, 2005 hearing on a motion to continue the trial date, the court set a new June 9, 2005 date for jury selection with the start of trial set for June 10, 2005. Counsel for the Louisiana Receiver stated the parties would "commit to having a revised CMO which backs off this date which [the trial court] can review by Wednesday."
At a Wednesday, June 1, 2005 hearing, the trial court granted a continuance, setting jury selection for June 16, 2005, with trial on the merits to commence on June 16, 2005. The trial court stated "on June 10th [2005], the court will allow counsel to argue their verdict forms and jury charges." Counsel for Health Net then stated, "[Counsel for the Louisiana Receiver] and I discussed this briefly yesterday and agreed to some extensions of the Case Management Order that the court has already entertained, but because the court is backing it up, could we perhaps...." The court interjected, "No, no, let's put a pin right there because there are things I want to clean up today.... [O]nce we have this streamlined trial on June 16th, it *377 should go very quickly because we will have no charge conference after. We will do that beforehand. We will have all the arguments and the objections on the verdict form. You will, by that time, have submitted a consolidated verdict form. Charges will be agreed to and writs [sic] by that point. So it will be real clean." (Emphasis added.) Counsel for Health Net later stated, "[Counsel for the Louisiana Receiver] indicated he would submit a revision to the Case Management Order." Counsel for the Louisiana Receiver responded, "I will do that today." The record does not contain a submitted or signed June 1, 2005 CMO.
Health Net initially prayed for a jury trial, but on June 3, 2005, withdrew its demand. On June 9, 2005, the Texas Receiver filed a demand for trial by jury. La. C.C.P. art. 1733 C. At the Friday, June 10, 2005 conference, the trial court granted Health Net's motion to withdraw its request and granted the Texas Receiver's demand for a jury trial. During the June 10, 2005 conference, counsel for the Louisiana Receiver asked if the court wanted "a formal pre-trial conference with a pre-trial order and jury instructions?" Judge Clark responded, "Yes, and I would like to have that done Tuesday [June 14, 2005]." (Emphasis added.) Counsel for Health Net added, "I think we're supposed to submit them on Tuesday." The trial court had ordered service of the Texas Receiver's petition of intervention on Health Net in open court on December 28, 2004. The record does not contain additional information concerning the actual service of the Texas intervention on Health Net; however, on June 10, 2005, the trial court ordered Health Net to file its answer to the Texas intervention by June 13, 2005. Health Net filed its answer to the Texas Receiver's intervention on June 13, 2005.
At the Tuesday, June 14, 2005 conference, counsel for the Louisiana Receiver asked Judge Clark "What is your honor's pleasure for jury charge conference?" Judge Clark responded, "As you know, we are required by the code to have a charge conference after all the evidence has been presented, unless the parties can agree to do it at some other time. You can save some time by doing it before, before trial. Also you can save a lot of time if you agree on the beforehand what is going to the jury, put in the bench book and let's go with it. You can also save some time by doing a joint set of charges and a joint verdict form. And don't put every question in America on the jury form Mr. Cullens [Counsel for the Louisiana Receiver]. You need to make sure it's real neat and real vanilla. Don't make those jurors have to answer too many questions." (Emphasis added.) The remainder of the June 14, 2005 conference was spent discussing stipulations on evidence, settlement negotiations with other defendants, and the admissibility of certain experts' testimony.
The next day, Wednesday, June 15, 2005, Health Net filed its requested jury charges. On June 16, 2005, Health Net supplemented its requested jury charges, adding one additional charge.
Before trial began on June 16, 2005, counsel for all parties signed a formal pre-trial order, it was "filed into the record" and portions of it were read to the jurors. However, the record on appeal does not contain a signed pre-trial order. The record on appeal does show the parties filed original, amended and second amended proposed jury interrogatories as late as June 29, 2005, and that these proposed interrogatories were considered at a charge conference held on June 29, 2005.
The trial court's order for a jury trial of the claims raised by the Texas Receiver *378 and a bench trial for the Louisiana and Oklahoma Receivers' claims was not issued until June 10, 2005, six days before trial began. As late as June 14, 2005, two days before trial began, the trial judge was making suggestions to the parties concerning jury verdict forms, instructions, and a bench book for use by the jury. It is evident that at the June 14th conference, neither the trial court judge nor any of the parties believed any party had waived its right to submit jury charges. Five days after the jury trial was ordered and one day after the trial court's comments suggesting a joint set of charges, Health Net submitted its requested jury charges. The record on appeal does not contain a pretrial order controlling the actual trial in this matter. Because the record does not show time requirements for submission of jury charges for the trial commencing on June 16, 2005, it does not support the claim that Health Net's request for jury charges was untimely or was waived.
The trial court judge committed error by ruling otherwise.
2. Trial Court Duty to Inform Parties of Proposed Jury Instructions and Interrogatories
Louisiana Code of Civil Procedure Article 1793 B provides as follows:
The court shall inform the parties of its proposed action on the written requests and shall also inform the parties of the instructions it intends to give to the jury at the close of the evidence within a reasonable time prior to their arguments to the jury. (Emphasis added.)
Comment 1983(b) for Article 1793 provides as follows:
Article 1793 as amended in 1983, requires the court to inform the parties of its decision upon their written requests. The 1983 amendment also requires the court to inform the parties of the instructions it intends to give to the jury. In addition, this information is to be given to the parties in sufficient time to enable them to make the appropriate arguments to the jury. (Emphasis added.)
Louisiana Code of Civil Procedure Article 1812 B pertaining to special verdict forms provides as follows:
The court shall inform the parties within a reasonable time prior to their argument to the jury of the special verdict form and instructions it intends to submit to the jury and the parties shall be given a reasonable opportunity to make objections. (Emphasis added.)
Comment 1983 (a) for Article 1812 provides as follows:
The 1983 amendment adds the requirements that the court inform the parties of the verdict form it intends to use and that the parties be given an opportunity to make objections. This is presently done with respect to jury instruction, and the same principles of fairness should apply to verdict forms. (Emphasis added.)
Louisiana Code of Civil Procedure Article 1813 B pertaining to general verdict forms provides as follows:[53]
The court shall inform the parties within a reasonable time prior to their arguments to the jury of the general verdict form and instructions it intends to submit to the jury, and the parties shall be given a reasonable opportunity to make objections. (Emphasis added.)
These Code articles impose mandatory duties of fundamental fairness *379 on trial court judges in the conduct of jury trials.
3. Right of a Party to Object to Proposed Jury Instructions
Louisiana Code of Civil Procedure Article 1793 C provides as follows:
A party may not assign as error the giving or the failure to give an instruction unless he objects thereto either before the jury retires to consider its verdict or immediately after the jury retires, stating specifically the matter to which he objects and the grounds of his objection. If he objects prior to the time the jury retires, he shall be given an opportunity to make the objection out of the hearing of the jury. (Emphasis added.)
In McCrea v. Petroleum, Inc., 96-1962, pp. 6-7 (La.App. 1 Cir. 12/29/97), 705 So.2d 787, 791, appears the following:
Additionally, we note that 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. It is the judge's responsibility to reduce the possibility of confusing the jury, and he or she may exercise the right to decide what law is applicable to prevent counsel from arguing law which the trial judge deems inappropriate. (Emphasis added.)
When construed together, La. C.C.P. arts. 1792, 1793, 1812, and 1813 impose a mandatory duty of fundamental fairness on the trial court when it is instructing a jury. The parties have the right to request that the court give specified instructions to the jury. A party may recognize the necessity for giving an essential instruction when the court does not. The court has a mandatory duty to act on a proposed instruction and inform the party proposing it of the court's action within a reasonable time prior to the time the parties present their arguments to the jury. This gives the party the opportunity to timely object to the action of the court if it is necessary.
The court also has a mandatory duty to inform the parties of the instructions it intends to give the jury within a reasonable time prior to the time the parties present their arguments to the jury.[54] This gives the parties the opportunity to object and give reasons for a possibly erroneous proposed jury instruction before it is given to the jury. The above procedure is designed to minimize the risk of an inappropriate and/or prejudicial instruction being given to the jury. Finally, this procedure allows the parties to tailor their arguments to the jury in accordance with the law given by the judge.
The record on appeal shows that on June 29, 2005, a charge conference was started. However, at that time, only jury interrogatories submitted by the parties were considered and discussed.
The record on appeal further shows that on June 30, 2005, the trial court judge advised the parties that "[t]he court has confected the interrogatories it intends to use. They are in very rough draft form and not typed yet but they are about ten in number and the court may modify them to a certain degree, but not a substantial degree." The court then proceeded to read the ten proposed interrogatories to the parties. These interrogatories are essentially *380 the same as those read to the jury.[55] Counsel for Health Net objected to interrogatory number 2 pertaining to the "fault" of third persons and/or companies because it provided for in globo (group) findings rather than listing each person or company. Counsel for Health Net also objected to the failure to have interrogatories on superseding cause, aiding and abetting, and judicial confession. Health Net did not object to being advised verbally of the proposed interrogatories, and it had a reasonable opportunity to make objections and did so.
This portion of Health Net's assignment of error 33 is without merit.
With reference to Health Net's assignment of error 33 insofar as it pertains to the failure of the trial court judge to provide the parties with the jury instructions prior to closing arguments, the record on appeal shows the following:
MR. BIECK [Counsel for Health Net]: One small matter to cover the record. We would like to enter an objection to the fact that we have not handled the charges until before closing.
THE COURT: I beg your pardon?
MR. BIECK: I said we would like to object to the failure to discuss the charges before closing.
THE COURT: Let's stop the closing and discuss them. Proceed.
MR. BIECK: Your Honor, we don't know what charges the court is going to submit.
THE COURT: I don't either, but go ahead and discuss them. This is a charge conference. You may discuss them.
MR. BIECK: Your Honor, we have submitted charges yesterday, those were amended charges that basically track
THE COURT: Untimely, untimely.
MR. BIECK: I understand. We will also have pending we also have timely submitted charges. These are simply cleaned-up charges that
THE COURT: All the charges were untimely submitted way after the order in the case management schedule.
MR. BIECK: Your Honor, we did submit timely charges.
THE COURT: No, Sir, they were untimely. All charges with [sic] untimely filed. Nonetheless, the court has read them, but they were untimely filed. Now tell me specifically what your objection is. Now, you're having a charge conference. This is our second charge conference.
MR. BIECK: Yes, Your Honor. Our objection is that we have not determined what the charges are prior to closing.
THE COURT: Well, go ahead. You determined what you wanted to submit. You only did that yesterday.
MR. BIECK: No, we submitted an initial round of charges timely, I believe, several weeks ago, in keeping with the court's order.
THE COURT: They were due way more than several weeks ago. But, in any event, I don't want to waste a lot of the jury's time on this, so go ahead and put your objections on the record, which laws you do not think apply and what you think applies. Just go right ahead.
MR. BIECK: Your Honor, we have submitted charges
THE COURT: Make your record. I'm letting you make a record.
MR. BIECK: That's what I am doing. We submitted charges one hundred through one hundred and three, and we object to the failure to specify *381 which of those charges will or will not be submitted to the jury.
THE COURT: What does one hundred say? You go down all of them because I want to make sure that the record reflects what the court is actually faced with at this juncture.
MR. GEORGE [Counsel for the Texas Receiver]: They submitted those charges Friday last, during trial.
MR BLACK [Counsel for Health Net]: We did submit timely originally, Your Honor. We supplemented just like they did during the trial.
THE COURT: They were untimely. All the pleadings have been submitted untimely on both sides, counselor. The good news is that the court has stamped them all in and the court of appeal will be able to see they were untimely filed. This case management order was issued several months ago. The court did not extend it, did not extend it, and these pleadings are untimely filed.
But, nonetheless, the court did read them and considered them and still considered them but there is only so much you can do simultaneously. This court was in session last night until almost eight o'clock. The court started this morning [at] quarter to seven. So put your complaints on the record one by one. Go down them.
MR. BLACK: I'm sorry, Your Honor. It's just hard to know what to object to when we don't know what the charges are that you're going to present to the jury.
THE COURT: Well, that is exactly what you presented to the court. Let's go down them one by one.
MR BLACK: Yes, ma'am.
MR BIECK: All right. Defendants requested charge number one. We object to not
THE COURT: What does number one say?
MR BIECK: When you retire for your deliberations, you may take with you, if you wish, a complete copy [of] all my instructions to you, or you may ask for a copy to be sent to you later. You may also ask to have in the jury room any document that has been admitted into evidence if you think physical examination of that document or object will help you reach a verdict.
THE COURT: Well, you may be advised that the substance of that will be conveyed to the jury.
MR. BIECK: Charge number two, you must deliberate on this case without regard to sympathy, prejudice, or passion for or against any party to this suit. This means
THE COURT: You may be advised further that the substance of that will be included in the court's general charges.
MR BEICK: Charge number three, the evidence which you are to consider consists of the testimony of the witnesses and the documents that have been admitted into evidence and any
THE COURT: Here's what you need to do. You look at Alston Johnson's charges and you go down them and delete those that do not comport with those and we will go on from there and pick this up. Meanwhile. I'm going to let Mr. George do his opening statement but you can go do that. All right. Mr. Bailiff, let's bring the jury in. It's a quarter to ten and I had wanted to start early today so they would have a chance.
REPORTER'S NOTE: Jury in, polling waived by all counsel. (Emphasis added.)
After the jury returned, the parties gave their closing arguments. When the closing arguments were concluded, the jury was released to go to lunch. The court remained *382 in session, and the trial court judge advised the parties that "[t]he next matter we need to address is the final law to be read to the jurors." During this session of court, counsel for Health Net objected to the fact that the proposed jury interrogatories did include interrogatories pertaining to prescription or peremption. Thereafter, the record on appeal reflects the following:
THE COURT: Let the record also reflect I have not received that one. I got a copy of the amended, the second amended, and I went through the last two hours again of proposed instructions and interrogatories and I didn't see a peremption one. Be that all as it may, I think the court is constrained to read to the jury that which will fairly place the evidence at issue and I think the court is prepared to do so. Ready to proceed?
MR BLACK: [Counsel for Health Net] Have you finished the jury charges?
THE COURT: No.
MR. BLACK: Okay. I was just wondering if we could see them before we start.
THE COURT: No, but you can pull your code out. I'm going to integrate them as I go.
MR. BLACK: Okay.
MR. BIECK: [Counsel for Health Net] I think we need to go on the record out of the hearing of the jury about the jury charges, do we not, under Article 1793?
THE COURT: I think you have been on the record, counselor, on the same issue.
MR. BIECK: Your Honor, as I read Article 1793, and the jurisprudence, we have to make specific objections to the charges given or charges omitted, otherwise we waive them.
THE COURT: Make your objection. I thought you made an objection.
MR. BLACK: Your Honor, we didn't know what the jury charge is going to say. We don't know what you are going the [sic] read to the jury.
THE COURT: All right. So what is your objection?
MR. BIECK: Well, under Article 1793 of the code, we have an obligation to object prior to the charges being given to the jury and we have to give specific objections.
THE COURT: Give them.
MR. BIECK: But we don't know what you're going to read.
THE COURT: Counselor, you can put any objection specifically on the record that you deem expedient.
MR. BIECK: Your Honor, I will be as brief as possible, but I have got a lot.
THE COURT: Go ahead and put them on the record.
MR. BIECK: To the extent the court will not give or does not give proposed jury charge number fourteen, we object on the grounds
THE COURT: What does number fourteen say?
MR. BIECK: Fourteen says that if a party makes an admission in a document filed with the court in the case it's called a judicial confession. It means the admission made in that type of document is full proof against the party making it. Therefore, when a defendant has admitted a fact that has been alleged by a plaintiff in a document filed with the court in this case, that admission is binding on both the plaintiff and defendant.
THE COURT: Well, the court will not read that instruction being firmly of the opinion that that is not the law in this case.
*383 MR. BIECK: The authority is Hibernia National Bank v.
THE COURT: You know, Mr. Bieck, I'm not going to let you waste all this jury time. You may be seated and once the case goes to the jury, the court will allow you to go on the record and make all the objections you want. Right now it's grossly unfair to keep that jury waiting.
MR. BIECK: We object to not being able to make our objections prior to the jury being charged. I will sit down.
THE COURT: All right. Bring in the jury, please, Mr. Jackson.
REPORTER'S NOTE: Jury in, polling waived by all parties.
THE COURT: Court will come to order. (Emphasis added.)
The trial court judge then gave the charges to the jury. After the jury was retired to deliberate, the trial court judge instructed the clerk "to fully reduce to writing and transcribe the charges that have been read to the jury, certify them and give a copy to all counsel."
While the jury was deliberating, there was a request from the jury for a copy of the instructions, several exhibits, and a witness's testimony. The jury was given the instructions and the exhibits but not the testimony. Deliberation continued and the jury subsequently propounded a question to the court pertaining to one of the interrogatories, and the court provided an answer. While the jury continued to deliberate, Health Net made numerous objections to the jury instructions. The jury instructions were not amended and no other instructions were given to the jury prior to the time that the verdicts were returned.
Louisiana Code of Civil Procedure Article 1793 B is clear and unambiguous in providing that "[t]he court ... shall ... inform the parties of the instructions it intends to give to the jury at the close of the evidence within a reasonable time prior to their arguments to the jury." (Emphasis added.) This is a mandatory duty. The trial court judge refused to comply with this duty even though she was repeatedly asked to do so. Health Net was unable to properly comply with La. C.C.P. art. 1793 C because of the trial judge's conduct. This is prejudicial error, and this portion of assignment of error has merit. In the particular factual posture of this case, Health Net did not waive its right to object to a particular instruction and all of the objections made by Health Net immediately after the charge and thereafter are timely. Davis v. United Parcel Serv., Inc., 427 So.2d 921, 924 (La.App. 3 Cir.1983), writ denied, 433 So.2d 1053 (La.1983).
This portion of the assignment of error has merit.
C. Patent Jury Instruction Error
As previously indicated, a trial court judge has a mandatory duty to accurately instruct the jury on all essential factual issues it is required to decide based upon the evidence in the case. Whether this is done is a question of law. Thus, where there is a "plain and fundamental" (patent) error in the giving or not giving of an essential jury instruction or interrogatory, the contemporaneous objection rule does not apply and an appellate court may recognize and review the issue de novo. Adams, 2007-2110 at pp. 6-8, 983 So.2d at 804-05; Berg, XXXX-XXXX at p. 13, 786 So.2d at 716; Nicholas v. Allstate Ins. Co., 99-2522, pp. 6-10 (La.8/31/00), 765 So.2d 1017, 1022-1024; Held v. Aubert, XXXX-XXXX, pp. 4-5 (La.App. 1 Cir 5/9/03), 845 So.2d 625, 630; Jones v. Peyton Place, Inc., 95-0574, pp. 10-11 (La.App. 4 Cir. 5/22/96), 675 So.2d 754, 760-761. Cf. Branch-Hines v. Hebert, 939 F.2d 1311, *384 1317 (C.A.[La.] 1991); Colburn v. Bunge Towing, Inc., 883 F.2d 372, 377 (C.A.[Miss.] 1989). Such a ruling is issue specific. Knight v. First Guar. Bank, 577 So.2d 263, 270 (La.App. 1 Cir.1991), writs denied, 581 So.2d 688 and 690 (La.1991).
D. Jury Instruction and Interrogatory Errors
1. Failure to Give Instruction
a. Sham Sale
(Assignment of Error TX-9; Proposed TX Jury Instructions 35, 62, 72 and 85)
As will be discussed in greater detail in Part IX of this opinion, the factual issue of whether the Stock Purchase Agreement executed by Health Net and AmCareco on November 4, 1998 is a sham is one of the most important factual issues in this case. If this contract is not valid, the legal relations between Health Net and AmCare-TX and its creditors are substantially different than if it was valid.
Health Net asserts that it "proposed numerous instructions distinguishing the pre-sale versus post-sale time periods regarding such critical matters as duties, conduct, causation and damages ... because each liability claim contained two chronologically distinct theories: one based on the 1999 sale, and the other based on Health Net's status years later as a supposed controlling shareholder." Health Net further asserts that "the Receiver claims the whole trial was about whether any sale ever occurred...." Although "the Receiver pursued two conceptually and chronologically distinct theories regarding each of her claims," the trial court judge submitted only a single, comingled interrogatory on each claim to the jury. Health Net asserts this was error because without separate disjunctive interrogatories (alternative, "or"), there is no way to know "which component of each claim the jury relied on, making it impossible to determine whether it based its findings on a proper legal theory."
The Texas Receiver responded, in part, as follows:
Because the date and even the nature of the transaction were disputed issues at trial, the Court could not have devised the instructions and interrogatories desired now by Health Net. Those instructions and interrogatories would have required or at least implied Health Net's positionthat it successfully "sold" its liability in the HMO to AmCareco on a particular date. Judge Clark correctly refused to make these implicit factual rulings and left the issue to the jury. (Emphasis added.)
After noting that "the form in which instructions and jury interrogatories are given is probably a matter of procedure to be governed by Louisiana law," out of an abundance of caution, the Texas Receiver cited the following Texas authorities to support her argument: (1) Rule 277 of the Texas Rules of Civil Procedure; (2) Crown Life Ins., Co. v. Casteel, 22 S.W.3d 378, 388 (Tex.2000); and (3) Formosa Plastics Corp. v. Kajima Int'l, Inc., 216 S.W.3d 436, 455 (Tex.App.-Corpus Christi 2006).
The Texas Receiver correctly observes that "the nature of the transaction" was a disputed factual issue. However, we do not agree that the trial court judge "could not have devised the instructions and interrogatories" appropriate for the jury to decide this factual issue (sham) and those other factual issues that are controlled by whether or not the transaction is a sham.
Rule 277 of the Texas Rules of Civil Procedure provide, in pertinent part, as follows:
In all jury cases the court shall, whenever feasible, submit the cause upon *385 broad-form questions. The court shall submit such instructions and definitions as shall be proper to enable the jury to render a verdict.
....
The court may submit a question disjunctively when it is apparent from the evidence that one or the other of the conditions or facts inquired about necessarily exists. (Emphasis added.)
In the Opinions of the Subcommittee on Interpretation of Rules following Rule 277 appear the following opinions:
Disjunctive submission
Although Rule 277 provides that "the court may submit disjunctively in the same question two inconsistent issues" where it is apparent that one or the other of the facts inquired about necessarily exists, such issues may be submitted disjunctively in two separate questions, since under Rule 1 the new rules should be given a liberal construction. For example, in a workmen's compensation case, an issue may be submitted inquiring if the disability is permanent, followed by a separate issue inquiring if the disability is temporary, prefacing the issue by: "If you have answered the foregoing question `yes' you need not answer the following issue, but if you have answered the foregoing question `no' you shall answer the following issue." 8 Texas B.J. 281 (1945).
Instructions and explanations
In a case where the fact issue is whether an instrument is a mortgage or a deed, the trial court would not be authorized to instruct the jury "You are instructed that evidence relied on for the purpose of affixing the character of a mortgage to a deed absolute must be clear, strong and convincing." Rule 277 does not contemplate such a general charge. Johnson v. Zurich General Accident & Liability Co., 1947, 146 T. 232, 205 S.W.2d 353, 11 Texas B.J. 276(1948). (Emphasis added.)
It is arguable that the law of Texas and that of Louisiana are essentially the same on this particular issue. Pursuant to Rule 277 "[t]he court shall submit such instructions and definitions as shall be proper to enable the jury to render a verdict." As previously indicated in Part VI, Sections B and C of this opinion, in Louisiana a trial court judge has a mandatory duty to accurately instruct the jury on all essential factual issues it is required to decide based upon the evidence in the case. As previously indicated, if the law of both states is the same, there is no conflict and the law of either state applies. Further, even though the instructions given by a trial court judge are an accurate statement of the law on a particular issue, if facts are presented at trial that require more precise charges be given for the jury to properly do its duty, the trial court is obligated to give those instructions. Boncosky Services, Inc. v. Lampo, 98-2239, pp. 7-12 (La.App. 1 Cir. 11/5/99), 751 So.2d 278, 284-287, writ denied, XXXX-XXXX (La.3/24/00), 758 So.2d 798. The issue of whether the transaction is a sham and other issues in this case are such issues.
If there is a conflict between the laws of Texas and Louisiana on the question of how to instruct the jury and submit the issue to it, Louisiana law applies. In Wooley, 2005-2025 at p. 17, 944 So.2d at 678, appears the following:
When an action is filed in a state asserting that a cause of action accrued in another state, the applicable state law is determined by whether the issue involved is a matter of substance (right) or a matter of procedure (remedy). The substantive rights of the parties are determined by the law of the state where the cause of action arose; matters of procedure *386 are determined by the law of the forum, i.e., the place where the action is filed. The court of the forum, subject to the limitations of the federal constitution, determines whether the question involved is one of substance or procedure.
....
Substantive laws establish or change substantive rules, rights and duties; procedural laws prescribe a method for enforcing a substantive right and relate to the form of the proceeding or the operation of the laws. (Citations omitted.)
As discussed in Part VI, Sections A and B of this opinion, civil jury trials in Louisiana are provided for in Chapter 7Jury Trial, of Title VTrial, of the Louisiana Code of Civil Procedure. In particular, charging the jury is provided for in Section 4Procedure in Jury Trials, of Chapter 7 and jury verdicts are provided for in Section 5Verdicts, of Chapter 7. The issues of charging the jury and the form and content of the jury verdict are issues pertaining to how the litigation is conducted (how the substantive law is presented to the jury for their factual findings) and are procedural issues determined by the law and jurisprudence of the forum (Louisiana). The Boncosky case previously cited is the latest expression of this Circuit this issue of jury charging and verdict questions, and it will be followed hereinafter.
The parties have conceded and the record reflects that the issue of whether the transaction was a sham was factually disputed at trial. The trial court judge refused to submit this critical factual dispute to the jury for a decision. Nevertheless, as will be discussed in greater detail hereinafter, the trial court judge based her judgments against Health Net in the Louisiana and Oklahoma cases on the factual conclusion that the transaction was a sham. Obviously, the trial court judge considered this an essential factual issue in the case; we agree.
The common law sham transaction and the Louisiana absolute simulation are essentially the same for purposes of these proceedings. Each is a contract that produces no legal effects between the parties. Corbin on Contracts, § 58.19; 37 AM.JUR. 2d, Fraudulent Conveyances and Transfers, § 37; 67 AM.JUR. 2d, Sales, §§ 293 and 420; BLACK'S, supra at 1380 and 1389; La. C.C. art.2025 et seq.
During the trial, the plaintiffs presented the testimony of Philip Preis, who was qualified as an expert witness in the field of corporate finance and complex corporate transactions and who testified that the sale was a sham transaction. Neither the Texas Receiver nor Health Net submitted a written request for a jury interrogatory on the sham issue. During oral argument, counsel for the Texas Receiver argued to the jury that the sale was a sham. The trial court did not instruct the jury on the law of what constitutes a sham transaction or submit an interrogatory to the jury on the sham issue.
However, the trial court judge did submit the following two interrogatories to the jury:
1. Do you find by the preponderance of the evidence that the defendant Health Net, Inc. was at fault in the transactions at issue with the Texas HMO?
....
2. Do you find by the preponderance of the evidence that any other person or company was at fault in the transactions at issue with the Texas HMO? (Emphasis added.)
While it was deliberating, the jury propounded several questions to the Court. One question pertained to "the actual sale *387 transaction" and the record shows the following:
THE COURT: You may be seated. The jury propounds the following question to the court. The transactions at issue with the Texas HMO, is this the actual sale transaction along with all transactions that occurred after?
MR. PERCY: [Counsel for Health Net] Your Honor, if you recall that is why we had a problem with the interrogatory as stated.
MR. HOHMANN: [Counsel for the Louisiana Receiver] The transactions.
MR. PERCY: They don't know what the transactions are.
THE COURT: That's for them to decide.
MR. PERCY: Transactions, I think is the question, what transactions.
THE COURT: The transactions at issue with the Texas HMO, is this the sale, they put quote marks, transaction along with all transactions that occurred after.
MR. GEORGE: [Counsel for the Texas Receiver] What is the question?
THE COURT: The question is the jury propounds the following question, number one, the transactions at issue with the Texas HMO, is this the actual, quote, sale, unquote, transaction alone with all the transactions that occurred after.
MR. GEORGE: And the answer is?
THE COURT: That is what we are talking about here.
MR. GEORGE: I think it is yes.
THE COURT: I think it is.
MR. HOHMANN: I do too.
MR. PERCY: We obviously don't and that's why we had a problem with way [sic] the interrogatory wasif you get a yes answer, what is the answer to which transaction?
THE COURT: The question is the transactions at issue with the Texas HMO, is this the actual, quote, unquote sale transaction along with all transactions that occurred after.
MR. McKERNAN: [Counsel for the Texas Receiver] Yes.
THE COURT: This case is about the deal between plaintiff and defendant with respect to
MR GEORGE: The whole thing.
MR. HOHMANN: All dealings.
THE COURT: That's what I thought.
MR. PERCY: Well obviously, Judge, there are not allegations about any other dealings after the sale and that was the issue.
THE COURT: The problem is they have to define when the sale was. There is testimony that the sale occurred on April 30th and then there is testimony that the sale occurred on May 3rd and then there's testimony that the sale occurred on May 4th. They have to make the determination of what is before and after. It would have been patently unfair for this court to propound an interrogatory to them saying, number one, this is a sale, this is a loan, this occurred on that date and this occurred on that date. And I didn't want to do that. That is prejudicial to the defendants and I would not be put in that position. So whether it's a sale or not is for them to decide. I don't know if it's a sale.
MR. PERCY: All I am suggesting is that the interrogatory is confusing to the jury for that reason.
THE COURT: All right
MR. PERCY: It's obviously confusing to the jury for that reason. That's my only objection.
*388 THE COURT: I just think they want a clarification, which is not unusual. They normally send four or find notes out for clarification. So the reason we are having this discussion is to make a determination as to how they should be further instructed. I think the answer would be yes, but I thought it would be better to say that includesthe deal is between plaintiff and defendant surrounding this event.
MR. PERCY: Then, perhaps, as you originally stated, that is for the jury to decide. And maybe the response to the jury is, that is for you to decide.
THE COURT: I have no problem with doing that if both sides agree. Both sides agree?
MR. McKERNAN: Yes. To say yes?
THE COURT: Mr. Percy suggests that we advise the jury that that is for them to decide.
MR. GEORGE: I don't havethat is ultimately what it is. The transaction includes all transactions involved in this case but you can say that is yes or that you have to decide what all the transactions are.
THE COURT: All right, Mr. Percy?
MR. PERCY: I'm sorry, Your Honor. Could he repeat that?
MR. GEORGE: You have to decide what all the transactions are.
MR. PERCY: Then the problem there is if there are various issues depending on what the transaction is, there should be separate questions as to each transaction.
THE COURT: Well, it didn't say that in this code, Mr. Percy. It didn't say that.
MR. McKERNAN: That is why you should say yes. I don't think we should start breaking it down like that this late.
THE COURT: Bring in the jury.
REPORTER'S NOTE: Jury in, polling waived by all parties.
THE COURT: Ladies and gentlemen of the jury, question one is propounded to the court by the jury and is as follows. The transactions at issue with the Texas HMO, is this the actual, quote, sale transaction along with all transactions that occurred after? The court has discussed this matter with counsel and counsel agrees that is for you to decide. All right? You may be retired. (Emphasis added.)
Determining factually whether the sale was a sham transaction is critically important in fixing Health Net's exposure for liability in its capacity as a shareholder in AmCare-TX or AmCareco. In Texas, a major purpose of the corporate structure is to shield shareholders from the liabilities of the corporation in which they own shares and a person (natural or juridical) may incorporate a business for the sole purpose of escaping liability for the debts of the corporation. Willis, 199 S.W.3d at 271-73. The exposure for liability of a controlling or other type of shareholder in a corporation in Texas is very limited. Tex. Bus. Corp. Act art. 2.21, recodified as Tex. Bus. Org. §§ 21.223-.226 (hereinafter referred to as Article 2.21). See the detailed discussion of liability pursuant to Article 2.21 in Part VI, Section D2a of this opinion.
Prior to the effective date of the sale, FHC (Health Net's predecessor) owned one hundred percent (100%) of the stock in the Texas HMO. In this corporate posture, FHC's exposure for liability as a shareholder was that provided for in Article 2.21. If the sale was valid and not a sham, the legal relations between Health Net, AmCare-TX, and AmCareco were changed and the following things occurred when the sale became effective: (1) Health Net transferred the ownership of all of its *389 stock in AmCare-TX to AmCareco; (2) Health Net ceased to be a shareholder in AmCare-TX and ceased to be exposed to liability as a shareholder of AmCare-TX pursuant to Article 2.21; (3) Health Net acquired ownership of forty-seven percent (47%) of the shares of stock of AmCareco; and (4) Health Net became exposed to liability as a shareholder in AmCareco pursuant to Article 2.21.
The Texas Receiver brought the Texas action "on behalf of AmCare-TX, AmCare Management, the claimants who assigned their proof of claims, and the other creditors of AmCare-TX and AmCare Management." Tex. Ins.Code art. 21.28. This action was not brought on behalf of AmCareco and its creditors. In this action, Health Net has no exposure for liability to AmCareco or its creditors because no claim has been made herein by, or on behalf of, AmCareco and/or its creditors.
If the sale was a sham and did not change the legal relations between Health Net, AmCare-TX, and AmCareco, the following legal relations remained in effect after the effective date of the agreement: (1) Health Net still owned one hundred percent (100%) of the AmCare-TX stock; (2) Health Net's exposure for liability as a shareholder in AmCare-TX was as provided for in Article 2.21; (3) Health Net was not a shareholder in AmCareco; and (4) AmCare-TX was not a wholly-owned subsidiary of AmCareco.[56]
As set forth in greater detail in Part IX of this opinion, there is conflicting evidence in the record concerning the issue of whether the contract is a sham. The jury in the Texas case could not have factually concluded that the sale was a sham because it was not instructed on the legal definition of a sham and was not given an interrogatory to factually reach that conclusion; the case necessarily was decided by the jury on other factual grounds. However, the trial court judge in her reasons for judgment in the Louisiana and Oklahoma cases stated the following factual conclusions: (1) AmCareco[57] was "a shell corporation created for the sole purpose of divesture of the three orphan HMOs"; (2) Health Net "simulated a transfer encroached in terms of sale"; and (3) "Health Net wholly owned the HMOs before, during, and after the purported sale."
The trial court judge found the sham issue to be factually essential and controlling in the Louisiana and Oklahoma cases; the jury did not consider it. As previously indicated, a trial court judge has a mandatory duty to correctly instruct the jury on all essential factual issues necessary to decide the case. The jury should have been given this issue to decide in the Texas case.
Failure to do so was patent error.
b. Piercing the Corporate VeilSingle Business Enterprise
(Assignment of error TX-7; proposed TX Jury Instructions 16, 34 and 37)
The trial court judge's factual findings and reasons for judgment in the Louisiana and Oklahoma cases reflect that in response to the question of what are "the legal and factual basis for holding the HMOs were a single business enterprise," the court responded "[T]his court finds that Health Net, AmCareco operated as a single business enterprise...." The record on appeal further reflects that the trial court judge did not instruct the jury on *390 what constituted a single business enterprise (hereinafter sometimes referred to as "SBE") and did not submit an interrogatory to the jury on this issue. This SBE issue is relevant in two disjunctive (alternative) factual settings: (1) when the sale is a sham; and (2) when the sale is not a sham.
Health Net asserts that the trial court judge erred by refusing to instruct the jury that AmCareco and the three HMOs operated as a single business enterprise and that the $8.5 million investor capital raised by AmCareco was available to decide "whether the HMOs were solvent." If the jury had been so instructed "they would have had to conclude the HMOs were not statutorily impaired." Further, "throughout the proceedings the three Receivers had asserted AmCareco and the HMOs were a single business enterprise" and at a pretrial hearing "Judge Clark `found' that AmCareco and the HMOs were a single business enterprise, and used that finding as the foundation for her decision to apply Texas law in all three cases." However, Health Net points out the Receivers were allowed to claim that the solvency of each HMO had to be determined by its assets only and "Health Net was not permitted to aggregate the assets of the fourth member of the enterprise, AmCareco, to demonstrate there was no shortfall." Since the Texas Receiver has asserted the single business enterprise doctrine "offensively" to prove liability on the part of Health Net, Health Net argues she has opened the door for Health Net to use this doctrine "defensively" to show that there is no liability.
The Texas Receiver responds that "Health Net's suggestion that the HMOs met the statutory minimum capital requirements after the cash sweep is not supported by any evidence adduced at the trial." The Texas Receiver then asserts that even if the HMOs were part of a "single business enterprise" based in Texas, they were still individually regulated by their respective states and were each required to maintain the net unrestricted assets required by the particular state that regulated them, so that each HMO individually could be assured of paying the claims submitted to that particular HMO by its providers, enrollees and creditors.
The Texas Receiver further contends that "[e]ven if assets are aggregated, however, the evidence clearly shows that the HMOs were still rendered insolvent by the cash sweep." The Texas Receiver then concludes that "[fjinally, even if the assets of the various AmCare entities could be aggregated and even if after aggregation, the HMOs were not immediately insolvent after the case sweep, the fact remains that because of Health Net's fraud and self-dealing, the HMOs were left with millions of dollars less in capital than Health Net had."
The only issue in this assignment of error is whether there is sufficient evidence of record to justify giving the instruction. The single business enterprise theory in Texas is an equitable doctrine used to disregard the separate existence of corporations for liability purposes when the corporations are not operated as separate entities and integrate their resources to achieve a common business purpose. If a single business enterprise factually exists, and legally applies in a particular case, the corporations involved in the enterprise are jointly and/or vicariously liable for the obligations of each other. Southern Union Company v. City of Edinburg, 129 S.W.3d 74, 86-90 (Tex.2003); Formosa Plastics Corp. v. Kajima International, Inc., 216 S.W.3d 436, 459-464 (Tex.App.Corpus Christi-Edinburg 2006); 2 Tex. Prac. Guide Bus. & Com. Litig. §§ 13:52, 13:53 and 13:66; Prosser & Keeton *391 on the Law of Torts § 72 (5th ed.1984). The laws of Texas and Louisiana on what constitutes a single business enterprise are substantially the same. Bujol v. Entergy Services, Inc., XXXX-XXXX, pp. 13-14 (La.5/25/04), 922 So.2d 1113, 1127-1128; Town of Haynesville v. Entergy Corp., 42,019 (La.App. 2 Cir. 5/2/07), 956 So.2d 192, 196; Andry v. Murphy Oil, U.S.S., Inc., XXXX-XXXX, pp. 15-16 (La.App. 4 Cir. 6/14/05), 935 So.2d 239, 249-250, writ denied, 2006-2256 (La.12/8/06), 943 So.2d 1093; Amoco Production Co. v. Texaco, Inc., 2002-240, pp. 13-17 (La.App. 3 Cir. 1/29/03), 838 So.2d 821, 832-34, writs denied, XXXX-XXXX, XXXX-XXXX (La.6/6/03), 845 So.2d 1096; Grayson v. R.B. Ammon and Associates, Inc., 99-2597, pp. 15-23 (La. App. 1 Cir. 11/3/00), 778 So.2d 1, 13-16, writs denied, XXXX-XXXX, XXXX-XXXX (La.1/26/01), 782 So.2d 1026, 1027 (holding that clear and convincing evidence is required to prove a single business enterprise). Simplistically, the Receivers want to use the SBE doctrine to make Health Net vicariously liable for any torts committed by AmCareco and the three HMOs, and Health Net wants to use it to show that collectively AmCareco and the three HMOs were solvent and initially met regulatory financial requirements. SBE also was asserted as relevant to maximize the number of persons to whom fault had to be individually allocated.
In Formosa Plastics Corp., 216 S.W.3d at 460, appears the following:
Factors to be considered in determining whether separate corporations should be treated as one enterprise include: (1) common employees; (2) common offices; (3) centralized accounting; (4) payment of wages by one corporation to another corporation's employees; (5) common business name; (6) services rendered by the employees of one corporation on behalf of another corporation; (7) undocumented transfers of funds between corporations; and (8) unclear allocation of profits and losses between corporations.
In Southern Union Co., 129 S.W.3d at 86-87, the Texas Supreme Court observed as follows:
This Court has never considered the "single business enterprise" concept in any detail. The only decision in which we have had occasion to comment at all on such a theory was in George Grubbs Enterprises, Inc v. Bien.FN33 In that case, the sole issue we addressed was whether it was proper to instruct the jury that in assessing punitive damages against a corporation, it could consider the "wealth or profitability" of a corporate entity related to the defendant even though that related corporate entity was not a party to the case, if the jury concluded that the defendant and its affiliate were "operated as and constitute a single business enterprise." In that case, the jury was instructed that a "`single business enterprise' exists when two or more corporations associate together and, rather than operate as separate entities, integrate their resources to achieve a common business purpose." In relating the procedural history, we said:
Prior to submission of the case to the jury, the defendants objected to this instruction on the grounds that it erroneously omitted the factors necessary to determine whether Grubbs Enterprises and Auto Park constituted a single business enterprise.
FN33. 900 S.W.2d 337 (Tex. 1995).
We then said: "Assuming without deciding that it would ever be proper for the jury to consider the wealth of a related corporate entity which had not been joined as a defendant, we find that the instruction was inadequate for the *392 reasons stated in the defendants' objection to the charge." We then explained that exemplary damages "rest on justifications similar to those for criminal punishment," that if corporate structures were to be disregarded, there must be "a fact-specific analysis of each case," and that disregarding the corporate structure "demands jury instructions that advise the jury concerning all the factors bearing on their decision." We held that "[bjecause this `single business enterprise' instruction seeks to disregard the corporate structure, the failure to submit all relevant factors to guide the jury's consideration was error." We said nothing in this opinion to indicate that a "single business enterprise" theory was different from other theories already recognized to disregard corporate structure and hold one corporation liable for the debt or tort of another. We certainly said nothing in George Grubbs to indicate that a "single business enterprise" theory could be used to view the contracts of distinct corporations as the contracts of a single, amalgamated entity.
We need not decide today whether a theory of "single business enterprise" is a necessary addition to Texas law regarding the theory of alter ego for disregarding corporate structure and the theories of joint venture, joint enterprise, or partnership for imposing joint and several liability. That is because whatever label might be given to the City's attempt to treat the Valero entities as a single entity, article 2.21 of the Texas Business Corporation ActFN40 controls, and the questions submitted to the jury were intended to embody the requirements of article 2.21.
FN40. TEX. BUS. CORP. ACT art. 2.21.
Since 1993, article 2.21 has provided that, with certain exceptions that do not apply in this case, section A of article 2.21 is the exclusive means for imposing liability on a corporation for the obligations of another corporation in which it holds shares. (Emphasis added; some footnotes omitted.)
In PHC-Minden v. Kimberly-Clark Corp., 235 S.W.3d 163, 173 and 175 (Tex. 2007), the Texas Supreme Court observed that "[h]ere, the court of appeals held that Province and Minden operated a single business enterprisea theory we have never endorsedand, therefore, Province's Texas contacts could be imputed to Minden" and that "fraudwhich is vital to piercing the corporate veil under section 21.223 [Article 2.21] of the Business Organizations Codehas no place in assessing contacts to determine jurisdiction."
Subsequently, in Academy of Skills & Knowledge, Inc., v. Charter Schools, USA, Inc., 260 S.W.3d 529, 538-39 (Tex.App.-Tyler 2008), appears the following:
Summary Judgment-Single Business Enterprise
In its fifth issue, ASK argues that the trial court improperly granted summary judgment as to all matters brought by ASK based upon breaches of contractual or common law duties allegedly committed by LC. According to ASK, the matters were brought pursuant to the "`single business enterprise' doctrine." ASK argues that a genuine issue of material fact existed as to the applicability of this doctrine and that, as such, summary judgment was not proper.
The single business enterprise doctrine is not a cause of action, but rather a theory for imposing liability where two or more business entities act as one. Under the doctrine, when businesses are not operated as separate entities but rather integrate their resources to achieve a common business purpose, *393 each business may be held liable for wrongful acts done in pursuit of that purpose. The single business enterprise doctrine is not synonymous with the doctrine of "alter ego." PHC-Minden, L.P. v. Kimberly-Clark Corp., 202 S.W.3d 193, 200 (Tex.App.-Tyler 2005), rev'd on other grounds, 235 S.W.3d 163 (Tex. 2007). Although the alter ego doctrine and the single business enterprise doctrine are both based on principles of equity, an important distinction is that the alter ego doctrine generally involves proof of fraud. Id. No proof of fraud is required under the single business enterprise doctrine. Id. Because of this significant difference between the two doctrines, we must address the viability of the single business enterprise doctrine under Texas law.
Texas law presumes that two separate corporations are distinct entities. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 798 (Tex.2002). The Fifth Circuit has noted that
[m]any wholly-owned subsidiaries and closely-held corporations are not factually distinct from their owners. Many are in fact controlled and operated in close concert with the interests of the owners, and do not have a distinct factual existence: separate employees, offices, or properties; consolidated financial reporting and tax returns; and the like. Such conduct is perfectly natural and proper and provides no basis for ignoring legal independence.
Gibraltar Sav. v. LDBrinkman Corp., 860 F.2d 1275, 1287 (5th Cir.1988). Further, we have stated that "[t]he separate entity [nature] of corporations will be observed by the courts even in instances where one may dominate or control, or may even treat it as a mere department, instrumentality, or agency, of the other." These statements are also applicable to the relationship between a parent corporation and its subsidiary limited liability company. Cf. PHC-Minden, 202 S.W.3d at 200 (implicitly reaching a similar conclusion).
The supreme court recently noted that the single business enterprise doctrine is "a theory [it had] never endorsed." PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, 173 (Tex.2007). Taking the entirety of Texas law into consideration, and considering the supreme court's explicit lack of endorsement for the single business enterprise doctrine, we hold that the doctrine does not exist under Texas law. But see, e.g., SSP Partners v. Gladstrong Invs. (USA) Corp., 169 S.W.3d 27, 43 (Tex.App.-Corpus Christi 2005, pet. granted); El Puerto de Liverpool, S.A. de C.V. v. Servi Mundo Llantero S.A. de C.V., 82 S.W.3d 622, 636 (Tex. App.-Corpus Christi 2002, pet. dism'd w.o.j.); N. Am. Van Lines, Inc. v. Emmons, 50 S.W.3d 103, 119 (Tex.App.-Beaumont 2001, pet. denied); Paramount Petroleum, 712 S.W.2d at 536. Therefore, we hold that summary judgment was proper. We overrule ASK's fifth issue. (Emphasis added.)
After reviewing Article 2.21 A(2) and the Southern Union Co., PHC-Minden, and Academy of Skills & Knowledge cases, it appears that: (1) alter ego rather than single business enterprise is the proper description for piercing the corporate veil in Texas; (2) for purposes of shareholder liability the corporate veil may be pierced in Texas only if the plaintiff alleges and proves that the defendant (whether a natural or juridical person) "caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee [plaintiff] primarily for the direct personal benefit of the" shareholder; (3) proving actual fraud *394 is a condition precedent to piercing the corporate veil; and (4) when the corporate veil is pierced the fault of the corporate defendants is imputed to (vicariously imposed on) the shareholder.
In her First Supplemental and Amending Petition in Intervention, the Texas Receiver alleged, in pertinent part, the following:
A. The Control Group
19.
From May 1, 1999 until April 2002, Lucksinger, Mudd, Pearce, Jhin, Galtney, Rosow and Health Net/Foundation (sometimes the "Control Group") conspired to and did operate AmCare-TX, AmCare-OK, and AmCare-LA (the HMO's) through their control of AmCareco. Each member of the control group was either an actual or de facto director of AmCareco and the single business entity. The Control Group did operate each of these entities to perpetuate a fraud on those who have assigned their claims to the SDR and did perpetuate this fraud for their own benefit. AmCareco completely controlled and dominated the operations of the HMO's. The Control Group operated the AmCareco entities in a coordinated fashion, and those entities became and were operated as a single business entity. (Emphasis added.)
In its answer, Health Net responded, in pertinent part, as follows:
19.
The allegations of paragraph 19 are denied, except the following is admitted:
From April 30, 1999 until April 2002, Thomas Lucksinger ("Lucksinger"), John Mudd ("Mudd"), Michael Jhin ("Jhin"), William F. Galtney ("Galtney"), Steve Nazarenus ("Nazarenus"), and Michael Nadler ("Nadler") conspired to and did operate AmCare-TX, AmCare-OK and AmCare-LA (the HMOs) through their control of AmCareco.
Lucksinger, Mudd, Jhin, Galtney, Nazarenus and Nadler were each either an actual or de facto officer/director of AmCareco and the single business entity.
AmCareco completely controlled and dominated the operations of the HMOs.
Lucksinger, Mudd, Jhin, Galtney, Nazarenus and Nadler operated the AmCareco entities in a coordinated fashion, and those entities became and were operated as a single business entity.
As previously indicated in Part V, Section B of this opinion the trial court judge stated "[t]hat being the case, it appears to this court that there is a single business enterprise very akin in the criminal law to...."
During Health Net's direct examination of Byron Jones, who was qualified as an expert CPA, the following occurred:
Q. [By Mr. Percy, Counsel for Health Net] And you're aware that the plaintiffs have actually alleged that Am-Careco and all of the HMOs were operated as a single business entity, are you not?
A. Yes.
Q. And that's actually no longer a disputed fact in this case, to your knowledge, is it?
A. Correct.
MR. GEORGE [Counsel for Texas Receiver]: Objection.
THE COURT: What is the objection?
Mr. GEORGE: The objection is he doesn't know what the disputed issues of fact are or not. I mean I haven't told him. He only knows from Mr. Percy and it's one sided.
MR. PERCY: I will be happy to share that.
*395 THE COURT: I will allow you to recross him on that issue, Mr. George.
The Texas Receiver proposed a jury interrogatory that stated "Did AmCareco, Inc., AmCare Management, AmCare-LA, AmCare-OK, and AmCare-TX operate as a single business enterprise?" Health Net proposed its jury charge 16 that provided as follows:
The Texas Receiver says that after the sale of the three HMOs to AmCareco, AmCareco and the three HMOs were treated as a single business entity. What that means is that AmCareco and the three HMOs were treated by their management as one company, instead of separate companies. Health Net agrees with the Texas Receiver on this issue and therefore, I instruct you that AmCareco and all of the AmCareco companies, including the three HMOs, are to be viewed by you as one single company. I will refer to this later in these instructions as the "single business entity."
However, the trial court judge did not submit the interrogatory to the jury and did not instruct the jury on the law of what constituted a single business enterprise.
Whether Health Net was engaged in a single business enterprise with AmCareco and AmCare-TX also is a critical factual issue if the sale is not a sham. As previously indicated, in that legal posture, Health Net is no longer a shareholder in AmCare-TX and is only exposed to liability as a shareholder in AmCareco pursuant to Article 2.21. If Health Net, AmCareco, and AmCare-TX operated a SBE, Health Net would be exposed to (1) liability for actual fraud pursuant to Article 2.21, (2) liability for unfair or deceptive acts or practices in violation of Tex. Ins.Code Article 21.21 and (3) Tex. Ins.Code § 843.401 (formerly Article 20A.08).
In her reasons for judgment the trial court judge ruled as follows:
(K) THE LEGAL AND FACTUAL BASIS FOR HOLDING THE HMOS WERE A SINGLE BUSINESS ENTERPRISE.
This court finds that Health Net, AmCareco operated as a single business enterprise in accordance with Health Net's stipulation on the record and in regards to the following particulars:
A) Fiduciary duty was owed from Health Net to the three HMOs each; that Health Net together with AmCareco and Thomas Lucksinger confected a design and an enterprise predicated upon fraudulent documents, transfers, half-truths in affidavits, which were drafted in Texas to have impact in several other states, and where damage occurred in other states, such as, to the HMOs in Louisiana and Oklahoma. (Emphasis added.)
As set forth in greater detail in Part X of this opinion, there was conflicting evidence on this issue. The jury in the Texas case could not have factually concluded that Health Net was engaged in a single business enterprise with AmCareco and AmCare-TX because it was not instructed on the legal definition of a single business enterprise and was not given an interrogatory to reach that factual conclusion; therefore, it is reasonable to infer that the case was decided by the jury on other grounds.
The trial court judge found the single business enterprise issue a factually controlling one in the Louisiana and Oklahoma cases; the jury in the Texas case was not allowed to consider it.
In this case, piercing the corporate veil is relevant (1) to the liability of Health Net as asserted by the Receivers and (2) to the issues of comparative fault and allocation of fault of AmCareco and its officers, directors, agents, and shareholders individually *396 as asserted by Health Net. There is sufficient evidence in the record to require that a properly tailored disjunctive instruction on this issue be given to the jury. The trial court judge failed to do so.
This assignment of error has merit.
c. Superseding Cause
(Assignments of Error TX-1, 2, 20 and 21; Proposed Texas Jury Instructions 81 and 82)
On April 4, 2005, Health Net filed a motion for summary judgment asserting, among other things, that "[p]laintiff cannot establish that any damages are attributable to Health Net." In particular, Health Net argued as follows:
Assuming arguendo that Health Net's actions within the months leading up to the sale of the HMOs to AmCareco and its exercise of its rights in receiving the cash payment and ultimately calling the letter of credit securing its put rights were somehow tortious conduct, those actions did not damage AmCare-LA. Rather, AmCareco's mismanagement of the HMO's claims payment system, including the overpayment of claims in the amount of $44.2 million, was a separate, independent and intervening cause of AmCare-LA's damages. The overpayment of claims by $45 million, all of which AmCare-LA's own experts attribute solely to AmCareco's management, put in motion a new chain of events, and became the independent and primary cause of any injuries suffered by AmCare-LA. Thus, even assuming arguendo that Health Net's actions were somehow tortious conduct, it was AmCareco's management, and not Health Net, that is chargeable with all legal responsibility for AmCare-LA's damages.
Utilizing the reports from AmCare-LA's own experts, it is clear that the superseding cause of the HMOs' insolvency is AmCareco's gross mismanagement of the claims payment process. If AmCareco had not grossly mismanaged the claims, the HMOs would have had an additional $44.2 million with which to pay claims. In short, the entire insolvency of the HMOs was caused by gross mismanagement of claims by the management of the HMOs and AmCareco, and not by Health Net. (Emphasis added.)
This motion was heard on April 25, 2005, and the motion was granted in part as to the issue of "Superseding and Intervening Cause."
On May 3, 2005, counsel for the Louisiana, Oklahoma, and Texas plaintiffs filed a motion to reconsider Health Net's motion for partial summary judgment regarding subsequent intervening cause or, in the alternative, motion for a new trial. The memorandum supporting this motion was submitted by the attorneys for all of the plaintiffs and contains the following pertinent observations:
Given this direct testimony of [Billy] Bostick [the assistant receiver for Amcare-OK] and [J.D.] Barringer [the deputy receiver for AmCare-LA], and drawing all factual inferences in favor of the non-mover as this Court must do in the context of a MSJ, there is clearly an issue of fact regardingnot only the amount of actual overpayments made by AmCare-LAbut also whether any actual overpayments made by AmCare-LA resulted from the type of "mismanagement" that would allow Health Net to arguemuch less establish as a matter of lawthat this intervening negligence constitutes a superseding cause which limits its potential damages.
....
CAUSATION ISSUES ARE FACTUAL IN NATURE AND SHOULD NOT *397 BE RESOLVED BY SUMMARY JUDGMENT
According to well-established Louisiana law, causation is an issue of fact that is generally decided at the trial on the merits.... Here, numerous factual disputes exist concerning the nature, extent, and cause of any overpayments made by the AmCare entities; therefore, Health Net's motion for partial judgment regarding this discreet issue of causation should be reconsidered and denied.
MATERIAL ISSUES OF FACT EXIST REGARDING WHETHER HEALTH NET CONSPIRED WITH AmCARECO AND THE D & O DEFENDANTS TO DEFRAUD PLAINTIFFS
This Court has already ruled that genuine issues of material fact relating to Health Net's alleged fraudulent conduct and participation in a conspiracy exist for trial. According to Your Honor:
Well, the Court is of the opinion that there is [sic] genuine issues of material fact as to whether or not they [Health Net and the AmCare entities] acted in concert, deliberately, or negligently in an effort to maintain the operation of a business to the detriment of the policyholders and whether or not it was an attempt to obfuscate the material presented to the regulator. Therefore, the court is going to deny the motion for summary judgment.
Once Health Net is proven to have acted fraudulently in concert with AmCareco and/or the D & O defendants, it logically follows that Health Net may be liable for all damages sustained by these HMO's [sic] and their policyholders and creditorswhether caused by mismanagement or not. Any attempt to separate this co-conspirator's actions versus that coconspirator's actions as an intervening cause necessarily fails. And for present purposes, even assuming such an exercise is possible, there are numerous unresolved issues of material fact which would preclude summary judgment.
MATERIAL ISSUES OF FACT EXIST REGARDING WHETHER HEALTH NET CONTROLLED AmCARECO AND THE AmCARE HMO'S [sic]
Similarly, this court has already ruled that genuine issues of material fact relating to Health Net's alleged control party status exist for trial. Once Health Net is proven to have acted as a controlling party of the AmCare entities, both prior to and after the 1999 acquisition, it logically follows that Health Net may be liable for all damages sustained by these HMO's [sic] and their policyholders and creditorswhether caused by mismanagement or not. Again, in any event, there are numerous issues of material fact involved in this analysis and summary judgment is inappropriate.
NUMEROUS ISSUES OF MATERIAL FACT REMAIN REGARDING THE NATURE AND EXTENT OF THE OVERPAYMENTS ACTUALLY MADE BY THE HMO'S [sic], WHETHER ANY SUCH OVERPAYMENTS WERE THE RESULT OF MISMANAGEMENT, AND TO WHAT EXTENT HEALTH NET (AS EITHER CO-CONSPIRATOR OR CONTROL PARTY) IS LEGALLY RESPONSIBLE FOR ANY ACTUAL OVERPAYMENTS
As is laid bare by the attached affidavits of Tharp, Barringer, Bostick, and Johnson, along with the attached deposition testimony of Barringer, Bostick, Tharp, and Lucksinger, at least the following *398 genuine issues of material fact remain disputed:
The amount, if any, of any overpayments/duplicative payments actually made by AmCare-LA;
The amount, if any, of any overpayments/duplicate payments actually made by AmCare-OK;
The amount, if any, of any overpayments/duplicate payments actually made by AmCare-TX;
Whether any actual overpayments/duplicate payments made by any of the AmCare HMO's [sic] were the result of mismanagement that is outside the normal, expected parameters of a typical HMO;
Whether Health Net, as a fraudulent co-conspirator, is jointly and severally liable along with any other AmCare actors responsible for actual overpayments/duplicate payments made by any of the AmCare HMO's [sic];
Whether Health Net, as a controlling party of the AmCare enterprise, is legally responsible for actual overpayments/duplicate payments made by any of the AmCare HMO's [sic].
Given these disputed issues of material fact, partial summary judgment is not appropriate. (Emphasis added.)"
This motion was heard on May 27, 2005. During the hearing, counsel for the Louisiana Receiver observed, in pertinent part, as follows, "Issues of causation are rarely, if ever, good issues for determination on summary judgment. That's a factual issue. The jury should hear it." The trial court judge initially took the issue under advisement but subsequently granted the reconsideration prior to the end of the court proceedings for the day. On June 14, 2005, the trial court rendered a written judgment stating "the Motion to Reconsider Health Net's Motion for Partial Summary Judgment Regarding Subsequent Intervening Cause, ... filed herein by AmCare-OK, AmCare-LA, and AmCare-TX is GRANTED."
At the charge conferences held on June 29-30, 2005, Health Net presented for consideration two proposed jury instructions and a proposed jury interrogatory on the superseding cause issue. The record on appeal contains jury instructions requested by the Texas Receiver and includes "Plaintiff's Second Supplemental Special Jury Instructions," which asked the trial court to instruct the jury as follows:
A superseding or intervening cause is a cause which comes into active operation in producing a result after the actor's negligent act or omission has occurred, A defendant ordinarily will not be relieved of liability by intervening cause which could reasonably have been foreseen nor by one which is [a] normal incident of risk created, but will be relieved only by unforeseeable and abnormal intervening cause which produces [a] result which could not have been foreseen. A superseding or intervening cause does not relieve the initial tort-feasor of consequences of his negligence, unless the superseding or intervening cause superseded [sic] original negligence and alone produced injury. (Emphasis in original.)
Health Net submitted Requested Jury Charge No. 82, which provided as follows:
Even if you find Health Net was at fault, you must still find in Health Net's favor if you also find that its fault was superseded, or followed, by the acts of another party, such as the mismanagement of the HMOs, and the superseding or "new and independent" acts were unforeseeable and were such that without *399 them the injury would not have occurred.
A "new and independent cause" is defined as an act or omission of a separate and independent agency, not reasonably foreseeable, that destroys the causal connection, if any, between the acts of omissions inquired about and the occurrence in question and thereby becomes the immediate cause of such occurrence.
The second paragraph of this proposed instruction essentially tracks the instruction contained in Texas Pattern Jury Charge (hereinafter sometimes referred to as "PJC") 3.1. The Comment for PJC 3.1 provides as follows:
When to usegiven in lieu of PJC 2.4. PJC 3.1 should be used in lieu of the usual definition of proximate cause (see PJC 2.4) if there is evidence that the occurrence was caused by a new and independent cause. See Tarry Warehouse & Storage Co. v. Duvall, [131 Tex. 466,] 115 S.W.2d 401, 405 (Tex.1938); Phoenix Refining Co. v. Tips, [125 Tex. 69,] 81 S.W.2d 60, 61 (Tex.1935). Submission if there is no such evidence is improper and may be reversible error. Galvan v. Fedder, 678 S.W.2d 596, 598 (Tex.App.-Houston [14th Dist] 1984, no writ). See also James v. Kloos, 75 S.W.3d 153, 162-63 (Tex.App.-Fort Worth 2002, no pet.).
Because a new and independent cause is in the nature of an inferential rebuttal, it should be submitted by instruction only. Tex.R. Civ. P. 277. For elements to consider when determining whether a new and independent cause exists, see Phan Son Van v. Pena, 990 S.W.2d 751, 754 (Tex.1999), and Teer v. J. Weingarten, Inc., 426 S.W.2d 610, 613 (Tex.Civ. App.-Houston [14th Dist.] 1968, writ ref'd n.r.e.). For a recent discussion of "new and independent cause," see Dew v. Crown Derrick Erectors, Inc., 208 S.W.3d 448, 49 Tex. Sup.Ct. J. 851 (June 30, 2006).
Definition. The above definition of "new and independent cause" was recognized by the Texas Supreme Court in Dillard v. Texas Electric Cooperative, 157 S.W.3d 429, 432 (Tex.2005).
Modify if "ordinary care" not applicable to all. If "ordinary care" is not the standard applicable to all whose conduct is inquired about (see PJC 2.2 and 2.3), the phrase the degree of care required of him should replace the phrase ordinary care in the second sentence of this definition of "proximate cause." See Rudes v. Gottschalk, [159 Tex. 552,] 324 S.W.2d 201, 206-07 (Tex.1959).
After the trial court judge advised the parties of the jury interrogatories that she intended to give, the following appears in the record on appeal:
MR. BLACK [Counsel for Health Net]: Your Honor, just for the record, one more objection. We would object to the fact that there is not a specific interrogatory on intervening and superseding cause.
MR. McKERNAN [Counsel for the Texas Receiver]: May I be heard on that?
THE COURT: You may.
MR. McKERNAN: We filed a supplemental memorandum which we think lays that out clearly and we wanted to file it with this court. We have filed it downstairs in the record, that that particular defense, or whatever you want to call it, is not available in this case, particularly since they have accused other parties, third parties as well as other situations as being at fault. And we know that the law is on that it must be the sole cause, the sole cause. And by their own admission, it's not the sole cause.
*400 THE COURT: Well, the court considered that and still considers that the jury may very well decide there is a supervening [sic] or intervening cause and may do so within the context of these interrogatories because it allow[s] them to allocate fault to any other person. They have plenty of room to write in here what they want to. (Emphasis added.)
The trial court judge did not instruct the jury specifically on superseding cause or submit a jury interrogatory on it. After the jury charge was given, Health Net objected "to the failure to give charge [proposed instruction] eighty-two on intervening and superseding cause based on Texas Pattern Jury Instruction 2.4."
On appeal, Health Net asserts that "[p]erhaps Judge Clark's most egregious error was her refusal to instruct at all on the defense of superseding cause." Health Net asserts the Texas Receiver advanced a theory of recovery that was overreaching and weak; "it essentially attributed $52 million in unpaid claims to (at most) a modest shortfall in statutory capital at closing." Health Net contends the massive losses were caused by the gross mismanagement and admitted fraud of AmCareco. "AmCareco had systematically cooked its books, acquired other distressed health plans, filed multiple false regulatory reports, and, through ineptitude, systematically over- and double-paid its claims." Health Net argues adequate instructions would have allowed the jury to properly consider this factual issue. Finally, Health Net argued as follows:
And it is no answer, as Judge Clark apparently thought, that the jury could have somehow considered superseding causation in the course of "allocating] fault to any other person." To begin with, although fault allocation and superseding causation at times may involve related factual inquiries, conceptually the two doctrines involve starkly different principles. Allocation of fault involved dividing responsibility amongst culpable parties. Superseding causation, on the other, involves an inquiry into whether the alleged tort-feasor is responsible at all for some or all of the losses in question.
Instructing the jury it could allocate fault as it saw fit did not inform it that the actions of others might relieve Health Net of some or all responsibility for the HMO's losses. And even if the jury could have divined that it could consider superseding causation in allocating fault, it was never instructed how to do so. (Record and case citations deleted.)
The Texas Receiver now responds that there was no legal basis for the jury to consider whether there was a superseding cause because the intervening acts alluded to by Health Net were not superseding in nature. The Texas Receiver contends the jury was instructed that it could find Health Net liable only if it caused damage, and that it could allocate fault to other parties, and accordingly "No special instruction on superseding cause was necessary." The Texas Receiver contends the conditions created by any initial wrongdoing would continue to contribute to the resulting, injuries and the original wrongful act remained a proximate cause. The actions of AmCareco, the Texas Receiver asserts, flowed directly from and were set in motion by, the original wrongful acts of Health Net. The Texas Receiver maintains the finding of causation by the judge and unanimous jury were not clearly wrong; they were clearly right.
In a reply brief, Health Net asserted the following:
Had AmCareco lived up to its obligations, there never would have been a *401 statutory insolvency and thus (even under the Receivers' expansive theory) no damages attributable to Health Net. And because the record contains no evidence Health Net had any reason to believe AmCareco would not honor its obligation, its failure to do so was an "unforeseeable" and "new and independent act" that broke any causal chain between Health Net's actions and the alleged injury.
In Texas, superseding cause is an inferential rebuttal instruction. In this case, it is potentially necessary in multiple factual settings depending on how the factual issues of sham sale and single business enterprise are resolved. If (1) the sale is valid, (2) Health Net is not in a single business enterprise with AmCareco, and (3) there was no fraud involved in securing any one or more of the three regulatory authorities, it then would be arguable that the intentional misconduct of AmCareco after the sale was a superseding cause. Disjunctive (alternative) jury instructions and interrogatories should have been drafted to recognize these alternative factual possibilities so that the jury could be properly advised. Assuming the facts presented at the trial by the parties resulted in factual disputes on these issues, the jury interrogatories and jury charges should have been crafted to accommodate all of these potential factual results.
After reviewing the pleadings of the parties and the facts in the record as will hereinafter be discussed in Part X of this opinion, we conclude that reasonable factual disputes were raised by the evidence pertaining to the superseding cause issue. The trial judge committed prejudicial error when she (1) refused to submit an interrogatory on this issue to the jury and (2) failed to instruct the jury on this issue pursuant to PJC 3.1 as requested.
These assignments of error have merit.
d. Texas Business Corporation Act Article 2.21
(Assignment of Error TX-12; Proposed Texas Jury Instructions 27.1 and 103)
Health Net asserts, "The trial court clearly erred by not instructing the jury that Health Net could not be liable as [a] shareholder unless it was proven that it used AmCareco to perpetuate actual fraud" as provided for in V.A.T.S. Bus. Corp. Act art. 2.21, citing Kingston v. Helm, 82 S.W.3d 755, 764-765 (Tex.App. 2002).
The Texas Receiver responds that Article 2.21 does not apply in this case because Health Net itself was actually liable for its own conduct and this is not an alter ego liability case. Further, "Health Net itself actually entered the contracts at issue; Health Net hired Shattuck Hammond that drafted many of the deceptive documents; Health Net actually signed the documents that changed the deal after regulatory approval; its CEO, as a director of the HMO, actually approved the sweep, and Health Net actually took the money that led to the failure of AmCare-TX." Finally, the Texas Receiver argues even if the failure to instruct on Article 2.21 was error, the jury found actual fraud as the basis of liability for Health Net, and, in this posture, the error was not prejudicial and cannot support reversal.
For the reasons set forth in Part VI, Sections D2a (Fiduciary Duty) and D2b (Fraud) of this opinion this assignment of error has merit.
2. Erroneous Instructions
a. Fiduciary Duty
(Assignment of Error TX-17; Texas Proposed Jury Instructions 20, 22, 24, 27, 27.1, 28, 29, 30, 31, 32, 35, 56, 60, 62, 63, 64, 65, 66 and 67)
*402 The trial court gave the following instructions on fiduciary duty:
Gross negligence means an act or omission by the entities or individuals that breached their fiduciary duty, which when viewed objectively from the standpoint of the entities or individuals that breach their fiduciary duty at the time of the occurrence, involved an extreme degree of risk considering the probability and magnitude of the potential harm to others, and of which the entities and individuals that breached their fiduciary duty had actual subjective awareness of the risk involved but nevertheless proceeded with conscious indifference to the rights, safety, and welfare of others.
Malice or gross negligence. Malice must be proven by clear and convincing evidence. Clear and convincing means that measure or degree of proof that produces in your mind a firm belief or conviction as to the truth of the allegations sought to be established. Malice means a specific intent by the entities or individuals that breached their fiduciary duty to the HMO and their creditors to cause substantial injury or harm to the HMOs and their creditors.
Malice means a specific intent to cause substantial injury or an act or omission which, when viewed objectively from the standpoint of plaintiff at the time of the occurrence, involved an extreme degree of risk considering the probability and magnitude of the potential harm to others, and of which the defendant had actual subjective awareness of the risk involved but nevertheless proceeded with conscious indifference to the rights, safety, or welfare of others.
To prove gross negligence a plaintiff must show the act or omission, when viewed objectively from defendant's standpoint at the time it occurred, involved an extreme degree of risk considering the probability and magnitude of the potential harm to others, and that the defendant had actual subjective awareness of the risk but still proceeded with a conscious indifference of the rights, safety, or welfare of others.
....
You are instructed that the controlling or dominating shareholders of a corporation, as well as the corporation's officers and directors, have fiduciary duties to the corporation and, when the corporation is insolvent or in the zone of insolvency, to the corporation's creditors and potential creditors as well.
Fiduciary duty means that as [sic] fiduciaries, directors, officers, and controlling shareholders must act with the highest degree of loyalty, care, trust, and allegiance toward the corporation and, when the corporation is insolvent, toward the corporation's creditors and potential creditors.
A controlling or dominating shareholder officer or director with fiduciary duties to the corporation and its creditors must prove by a preponderance of the evidence that transactions that the corporation enters into or transactions the controlling or dominant shareholder, officer, or director enters into, that affect the corporation or its creditors are inherently fair to the corporation and its existing or prospective creditors, and do not expose the corporation or its creditors or prospective creditors to a[sic] unreasonable risk of loss, and were entered into after full and complete disclosure to the creditors and prospective creditors.
A shareholder is a controlling or dominant shareholder if that shareholders [sic] possesses directly or indirectly the power to direct or cause the direction of *403 the management and policies of a corporation whether through the ownership of voting securities, by contract or otherwise, and has assumed a role in the formulation of strategic policy or a role in operational decisions.
A corporation is insolvent when it is unable to pay its debts as they become due or when the corporation has liabilities in excess of the reasonable market value of its assets.
A corporation is in the zone of insolvency when the corporation is close enough to insolvency that a reasonable person would know that its ability to pay creditors is significantly threatened.
If a regulated corporation like an HMO is required to maintain minimum capital and surplus amounts and/or minimum net worth amounts and it fails to meet these minimum levels at any time, it is considered statutorily insolvent.
....
An exception to the general rule that the corporations owe no duties to creditors arises when a corporation is insolvent. When a corporation is insolvent, the duty owed by the officers and directors, but not by a shareholder, of the corporation expands to include a duty to the creditors. Accordingly, when a corporation is insolvent, officers and directors of an insolvent corporation have a fiduciary duty to deal fairly with the corporations' creditors and that duty includes preserving the value of the corporate assets to pay corporate debts without preferring one creditor over another or preferring themselves to the injury of other creditors.
However, a creditor may pursue corporate assets and hold officers and directors, but not shareholders, liable only for that portion of the assets that would have been available to satisfy his debt if they had been distributed pro rata to all creditors.
This duty to creditors does not apply to shareholders of a corporation unless the shareholder is also an officer or director of the corporation or unless the shareholder is in actual control of the management of the corporation and, therefore, is a controlling shareholder as previously outlined.
Plaintiff has no right to recover from a defendant if the defendant did not breach a legal duty owed to plaintiff. Accordingly, plaintiff must establish that defendant owed a legal duty to it or to its creditors and that defendant breached the duty and that plaintiff or its creditors sustained damages as a result of the breach.[[58]] (Emphasis added.)
Health Net asserts that it did not owe any fiduciary duties to the HMOs before or after the sale of the HMOs to AmCareco. Health Net argues before the sale, the HMOs were wholly-owned subsidiaries, and a parent corporation owes no fiduciary duties to its wholly-owned subsidiaries or their creditors. Health Net maintains the sale of the HMOs to AmCareco was not a sham transaction. Health Net asserts the proper remedy to have a contract declared a sham is the law of fraudulent transfer found in 11 U.S.C. § 544(b)(1) and Texas Bus. & Comm.Code §§ 24.005 and 24.006, and the plaintiffs did not plead or prove such a claim. Health Net contends when a corporation is in the zone of insolvency, *404 the officers and directors of the corporation must discharge their fiduciary duties to the corporation and its shareholders by exercising their business judgment in the best interest of the corporation for the benefit of the shareholders (the business judgment rule). Health Net argues, the creditors of a corporation have no cause of action for breach of a fiduciary duty unless the corporation (1) is actually insolvent and (2) has ceased doing business. Health Net asserts that after the sale it had no ownership interest in the Texas HMO which then was wholly owned by AmCareco. Health Net argues any post-sale fiduciary duty claim against Health Net had to derive through AmCareco, and there was no such duty as a matter of law. According to Health Net, any fiduciary duties owed by a parent to a subsidiary were owed by AmCareco unless Health Net, as a minority shareholder, actually exercised control over AmCareco as a controlling shareholder, which it did not. Health Net argues the trial court erroneously instructed the jury that pursuant to V.A.T.S. Insurance Code Article 21.49-1, § 2(d), (repealed by Acts 2001, 77th Leg., Ch. 1419, § 31(a), effective June 1, 2003), Health Net was a controlling shareholder for the purpose of liability for the tort of breach of a fiduciary duty. Health Net argues this law applies only to matters pertaining to the regulatory approval of a change in control of an insurance company regulated in Texas provided in Article 21.49-1. Finally, Health Net asserts that the trial court instruction on the fairness duty owed by a fiduciary is "incomprehensible" and wrong as a matter of law.
The Texas Receiver responds that, at the time of the Health Net-AmCareco sale of the Texas HMO, Jay Gellert, Health Net's Chief Executive Officer (CEO) was a director of the Texas HMO; Gellert owed fiduciary duties to the HMO; Health Net was liable for Gellert's actions; and Gellert breached his fiduciary duties to the HMO when he approved the cash sweep that "left the Texas HMO actually insolvent." Further, the Texas Receiver asserts "there is ample evidence that the [sale] was a sham, ... and there is also ample evidence that Health Net's conduct with respect to the [sale], including the `cash sweep', was at least a cause of the damages suffered by the HMOs." The Texas Receiver maintains Health Net owed a fiduciary duty to the Texas HMO pursuant to Tex. Ins.Code Article 20A.08 (now § 843.401), and Health Net "breached its fiduciary duty by taking action benefiting the parent corporation (the cash sweep) knowing it would render the HMOs (the subsidiaries) unable to meet their statutory and other legal obligations." The Texas Receiver argues the HMOs were insolvent prior to the sale. Health Net injected money into the HMOs, according to the Texas Receiver, "to make the HMOs temporarily `solvent' for regulatory purposes." Thus, "[b]ecause the three HMOs were already insolvent prior to the sale to [AmCareco], Health Net owed pre-sale fiduciary duties to the creditors of the HMOs." The Texas Receiver contends the majority rule in Texas is that "Health Net owed fiduciary duties to the creditors of the HMOs once they entered the `zone of insolvency'." The claim that Texas law does not impose fiduciary duties on the directors of an insolvent, but still operating corporation, in favor of creditors is a minority position, according to the Texas Receiver. Pursuant to V.A.T.S. Ins. Code Article 21.49-1, § 2(d), [repealed by Acts 2001, 77th Leg., Ch. 1419, § 31(b)(13), effective June 1, 2003], Health Net was a controlling shareholder after the sale and continued to owe fiduciary duties to the creditors of the HMOs, argues the Texas Receiver. Finally, "[t]hese fiduciary *405 duties required Health Net to assure that the HMOs were operated in a manner that did not defraud the creditors or cause them an unreasonable risk of harm, and especially to refrain from engaging in or allowing activities that benefited Health Net at the expense of these creditors."
(1) What is a fiduciary duty?
A fiduciary duty is defined, in general, as follows:
A duty of utmost good faith, trust, confidence, and candor owed by a fiduciary (such as a lawyer or corporate officer) to the beneficiary (such as a lawyer's client or a shareholder); a duty to act with the highest degree of honest and loyalty toward another person and in the best interests of the other person (such as the duty that one partner owes to another).
BLACK'S, supra at 523.
Fiduciary duties are imposed in Texas on some relationships because of their special nature. However, it is impossible to give a definition of fiduciary duty that is comprehensive enough to cover all cases. Generally speaking, it is owed by any person who occupies a position of peculiar confidence towards another. It refers to integrity and fidelity. It contemplates fair dealing and good faith. Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 571, 160 S.W.2d 509, 512 (Tex.1942). Cf. Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171, 176-77 (Tex.1997); Crim Truck & Tractor Co. v. Navistar International Transp. Corp., 823 S.W.2d 591, 593-94 (Tex.1992).
(2) Cause of Action for Breach of Fiduciary Duty
The elements of a claim for breach of fiduciary duty are: (1) the existence of the duty; (2) breach; (3) causation; and (4) resulting damages. Jones v. Blume. 196 S.W.3d 440, 447 (Tex.App.-Dallas 2006); 3A West's Tex. Forms, Business Litigation, Chapter 9.6, Introduction. (2d ed.) A person in the position of a fiduciary is charged with unique duties and burdens not present in an arms-length transaction. A fiduciary duty contemplates fair dealing and good faith rather than legal obligation and requires the fiduciary to place the interest of the other party before his own. In determining the liability of a person for breach of a fiduciary duty, the first, and most important, question is whether the defendant is a fiduciary of the plaintiff. There are two forms of fiduciary relationships: (1) formal; and (2) informal. Id. The fiduciary relationships of corporate officers, directors, and controlling shareholders are formal. Id.
(3) Fiduciary Duty Owed by a Parent Corporation to a Wholly-Owned Subsidiary Corporation
It appears well settled that parent corporations do not owe fiduciary duties to wholly-owned subsidiaries. Trenwick America Litigation Trust v. Ernst & Young, L.L.P., 906 A.2d 168, 173-74 (Del.4/10/06), affirmed sub nom., 931 A.2d 438 (Del.Supr.8/14/07); Anadarko Petroleum Corp. v. Panhandle Eastern Corp., 545 A.2d 1171, 1174 (Del.1988); VFB LLC v. Campbell Soup Co., 482 F.3d 624, 634-35 (C.A.3d. Cir. [Del.] 3/30/07); Resolution Trust Corp. v. Bonner, 1993WL414679 (S.D. Tex-Houston 1993). The reason for this is discussed in VFB LLC, pp. 634-35, as follows:
VFB's second claim against Campbell is that Campbell aided and abetted a breach of the VFI directors' duty of loyalty to VFI when it entered into the spin transaction knowing that the VFI directors were simultaneously serving as officers of Campbell. New Jersey imposes *406 civil liability for knowingly aiding and abetting an agent's breach of a duty of loyalty to its principal. (Citations omitted.) To hold Campbell liable, VFI must of course show, among other things, that the VFI directors did in fact breach a duty of loyalty to VFI. (Citations omitted.) It is here that the district court rejected VFB's claim, holding that VFI's directors breached no fiduciary duty because VFI was solvent at the time of the spin.
Corporate directors must act in their shareholders' best interests and not enrich themselves at their expense. (Citations omitted.) The law enforces this duty of loyalty by subjecting certain actions to unusual scrutiny. Where a director acts while under an incentive to disregard the corporation's interests, she must show her "utmost good faith and the most scrupulous inherent fairness of the bargain." (Citations omitted.)
VFB urges that VFI's pre-spin directors had an incentive to and admittedly did disregard VFI's best interests in the context of the spin because they were simultaneously officers of Campbell. Normally, simultaneously serving two transacting companies will trigger heightened scrutiny. (Citations omitted.) However, scrutiny is unnecessary when the two companies are a parent and its wholly-owned, solvent corporate subsidiary. (Citations omitted.) Directors must act in the best interests of a corporation's shareholders, but a wholly-owned subsidiary has only one shareholder: the parent. There is only one substantive interest to be protected, and hence "no divided loyalty" of the subsidiary's directors and no need for special scrutiny of their actions. (Citations omitted.) The VFI directors looked out only for Campbell's interest because, substantively, that was their duty; whether they thought they were acting in the interest of VFI or Campbell "seems inconsequential."
VFB argues that Bresnick [v. Franklin Capital Corp., 10 N.J. Super 234, 77 A.2d 53 (App. Div.1951)] and Anadarko have not been followed and are bad law, urging that they would deny a wholly-owned subsidiary standing to sue its directors for a breach of fiduciary duty. But the two cases do not address the subsidiary's distinct legal existence and standing to enforce its directors' duties, a bedrock principle of corporate law. Rather, they address the distinct question of what duties a director owes the subsidiary. (Citations omitted.) Corporate duties should be as broad as their purpose requires, but it makes no sense to impose a duty on the director of a solvent, wholly-owned subsidiary to be loyal to the subsidiary as against the parent company. None of the cases VFB cites convinces us that the New Jersey Supreme Court would impose such a duty.
A duty of loyalty against the parent should arise whenever the subsidiary represents some minority interest in addition to the parent. That could happen if the subsidiary were not wholly-owned, (Citations omitted.) but VFB concedes that Campbell was VFI's sole stockholder at the time of the spin. It could also happen if the subsidiary were insolvent. Directors normally owe no duty to corporate creditors, but when the corporation becomes insolvent the creditors' investment is at risk, and the directors should manage the corporation in their interests as well as that of the shareholders.... (Emphasis added.)
Although a parent corporation may not owe a fiduciary duty to a wholly-owned subsidiary corporation, it may owe a fiduciary duty to the employees, enrollees, *407 providers, and creditors of a subsidiary HMO corporation.
In Interrogatory 5 submitted to the jury in the Texas case, the jury was asked to determine whether "HealthNet, Inc. [sic] breached a fiduciary duty that caused damage to the Texas HMO or its creditors?" The jury responded, "Yes." The judgments rendered in the Louisiana and Oklahoma cases show that the trial court found that Health Net breached a fiduciary duty that proximately caused damage to the Louisiana and Oklahoma HMOs and their creditors.
Prior to the sale, the Texas HMO was a wholly-owned subsidiary of Health Net and, in that factual posture, Health Net owed no fiduciary duty to the Texas HMO corporation. If the sale was a sham, then that legal relationship continued to exist at all times pertinent to these proceedings. If the sale was valid, then the Texas HMO because a wholly-owned subsidiary of AmCareco, Health Net became only a shareholder in AmCareco, and Health Net was not a shareholder in and owed no fiduciary duty to the Texas HMO.[59]
The trial court judge committed error by failing to instruct the jury about these distinctions.
(4) Fiduciary Duties of Corporate Officers, Directors and Shareholders in General
Whether a duty exists is a question of law. See Bradford v. Vento, 48 S.W.3d 749, 755 (Tex.2001).
Because a corporation is a juridical person and can act only through its officers or agents, a corporation is liable for the actions of a corporate officer or agent on its behalf that are authorized and not ultra vires. Holloway v. Skinner, 898 S.W.2d 793, 795 (Tex.1995).
A fiduciary relationship is an extraordinary one and will not be lightly created; the mere fact that one subjectively trusts another does not alone indicate that confidence is placed in another in the sense demanded by fiduciary relationships because something apart from the transaction between the parties is required. Hoggett v. Brown, 971 S.W.2d 472, 488 (Tex. App.-Houston 1997), review denied, (1/16/98).
In Texas, corporate officers and directors owe fiduciary duties to the corporation and must exercise their powers for the benefit of the corporation and its shareholders. Directors and officers owe fiduciary duties to shareholders because corporate property has been entrusted to them to be managed for the shareholders' benefit. The fiduciary duty of directors and officers runs to the corporation as a whole, not to the individual shareholders or even to a majority of the shareholders. Generally, shareholders do not owe fiduciary duties to each other. Flanary v. Mills, 150 S.W.3d 785, 794 (Tex.App.-Austin 9/30/04); see also Aitlqaid v. Soussan, 2001 WL 301430, p. 3 (Tex.App.-Houston 3/29/01); Hoggett, 971 S.W.2d at 488; Kaspar v. Thome, 755 S.W.2d 151, 155 (Tex.App.-Dallas 1988, no writ); Schoellkopf v. Pledger, 739 S.W.2d 914, 920 (Tex.App.-Dallas 1987), rev'd on other grounds, 762 S.W.2d 145 (Tex.1988). However, a majority shareholder may owe a fiduciary duty to minority shareholder. See Hoggett v. Brown, 971 S.W.2d 472, 488 n. 13 (Tex.App.-Houston [14th Dist.] 1997, pet. denied).
*408 It appears that the majority view under Texas common law is that a corporation and its officers and directors do not owe a fiduciary duty to corporate creditors until (1) the corporation becomes insolvent and (2) ceases doing business.[60]Hixson v. Pride of Texas Distrib. Co., Inc., 683 S.W.2d 173, 176 (Tex.App.-Fort Worth 1985); State v. Nevitt, 595 S.W.2d 140, 143 (Tex.App.-Dallas 1980); Fagan v. La Gloria Oil & Gas Co., 494 S.W.2d 624, 628-29 (Tex.App.-Houston 1973); 15 Tex. Jur.3d, Corporations, § 426. See the excellent discussion of this issue in Floyd v. Hefner, 2006 WL 2844245, pp. 10-16 (S.D.Tex. 2006). The Texas HMO did not cease doing business until December 16, 2002.
(5) Fiduciary Duties of Health Net as a Shareholder of a Corporation Pursuant to Tex. Bus. Corp. Act Article 2.21 (recodified at V.T.C.A. Business Organizations Code §§ 21.223-226)
Article 2.21. Liability of Subscribers and Shareholders
A. A holder of shares, an owner of any beneficial interest in shares, or a subscriber for shares whose subscription has been accepted, or any affiliate thereof or of the corporation, shall be under no obligation to the corporation or to its obligees with respect to:
....
(2) any contractual obligation of the corporation or any matter relating to or arising from the obligation on the basis that the holder, owner, subscriber, or affiliate is or was the alter ego of the corporation, or on the basis of actual fraud or constructive fraud, a sham to perpetrate a fraud, or other similar theory, unless the obligee demonstrates that the holder, owner, subscriber, or affiliate caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee primarily for the direct personal benefit of the holder, owner, subscriber, or affiliate[.]
....
B. The liability of a holder, owner, or subscriber of shares of a corporation or any affiliate thereof or of the corporation for an obligation that is limited by Section A of this article is exclusive and preempts any other liability imposed on a holder, owner, or subscriber of shares of a corporation or any affiliate thereof or of the corporation for that obligation under common law or otherwise, except that nothing contained in this article shall limit the obligation of a holder, owner, subscriber, or affiliate to an obligee of the corporation when:
(1) the holder, owner, subscriber, or affiliate has expressly assumed, guaranteed, or agreed to be personally liable to the obligee for the obligation; or
(2) the holder, owner, subscriber, or affiliate is otherwise liable to the obligee for the obligation under this Act or another applicable statute. (Emphasis added.)
In Willis, 199 S.W.3d at 271-73, the Texas Supreme Court discussed the public policy reasons for Article 2.21 as follows:
As a matter of law, the corporate shield from liability should operate in these circumstances. A bedrock principle of corporate law is that an individual can incorporate a business and thereby normally shield himself from personal liability for the corporation's contractual obligations.FN11 Avoidance of personal liability is not only sanctioned by the law; it is an essential *409 reason that entrepreneurs like Willis choose to incorporate their businesses. Not surprisingly, Willis testified that his intent always "was for the corporation to be bound by this agreement and not me individually." Donnelly's own counsel, in his opening statement to the jury, argued that Willis scratched his name off the agreement because he "didn't want to have anything to do with it in an individual capacity."
FN11. Castleberry v. Branscum, 721 S.W.2d 270, 271 (Tex.1986) ("The corporate form normally insulates shareholders, officers, and directors from liability for corporate obligations...."); see also Pabich v. Kellar, 71 S.W.3d 500, 507 (Tex.App.-Fort Worth 2002, pet. denied) ("A corporation is a separate legal entity that normally insulates its owners or shareholders from personal liability."); Aluminum Chems. (Bol.), Inc. v. Bechtel Corp., 28 S.W.3d 64, 67 (Tex.App.-Texarkana 2000, no pet.) ("[A] major purpose of the corporate structure is to shield its shareholders from liabilities of the corporation."); Nat'l Hotel Co. v. Motley, 123 S.W.2d 461, 465 (Tex.App.-Eastland 1938, writ dism'd judgm't cor.) ("[A]n individual whose business is authorized to be incorporated may incorporate such business for the sole purpose of escaping individual liability of the owner for the debts of the corporation.").
In Castleberry v. Branscum, we stated that incorporation normally protects shareholders, officers, and directors from liability for corporate obligations, "but when these individuals abuse the corporate privilege, courts will disregard the corporate fiction and hold them individually liable." 721 S.W.2d at 271. We also stated that "[w]e disregard the corporate fiction, even though corporate formalities have been observed and corporate and individual property have been kept separately, when the corporate form has been used as part of a basically unfair device to achieve an inequitable result." Id. The business community was displeased with the flexible approach to piercing the corporate veil embraced in Castleberry, and in response the Legislature in 1989 narrowly prescribed the circumstances under which a shareholder can be held liable for corporate debts.FN12
FN12. See Farr v. Sun World Savings Ass'n, 810 S.W.2d 294, 296 (Tex.App.-El Paso 1991, no writ) ("Largely because of the uproar in the business community over the ramifications of Castleberry on stockholder liability, the 71st Texas Legislature amended Article 2.21 A...."). The 1996 Bar Committee Comment to Article 2.21 of the Business Corporation Act states:
Castleberry, in particular its use of constructive fraud as a basis of piercing the corporate veil, was considered by many practitioners to be incorrectly decided. Further, while questionable in the context of tort claims, the use of constructive fraud as a means of piercing the corporate veil created a cloud on the sanctity of contract and the public policy of recognizing corporations as separate entities apart from their shareholders. In response to Castleberry, Article 2.21 of the TBCA was amended in 1989 to establish a clear legislative standard under which the liability of a shareholder for the obligations of a corporation is to be determined in the context of contractual obligations and all matters relating thereto. TEX. BUS. CORP. ACT ANN. art. 2.21 cmt. (Vernon 2003) (recodified at TEX. BUS. ORGS. CODE §§ 21.223-21.226).
Under current law, by statute, a shareholder "may not be held liable to the corporation or its obligees with respect to ... any contractual obligation of the corporation ... on the basis that the holder ... is or was the alter ego of the corporation or on the basis of actual or constructive fraud, a sham to perpetrate a fraud, or other similar theory...." The liability of a shareholder for *410 a contractual corporate debt under this statute "is exclusive and preempts any other liability imposed for that obligation under common law or otherwise." There is a statutory exception to this rule where the shareholder "caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee primarily for the direct personal benefit of the" shareholder. The jury rejected Donnelly's fraud claim.
....
To impose liability against the Willises under a common law theory of implied ratification because they accepted the benefits of the letter agreement would contravene the statutory imperative that, absent actual fraud or an express agreement to assume personal liability, a shareholder may not be held liable for contractual obligations of the corporation. We hold that characterizing the theory as "ratification" rather than "alter ego" is simply asserting a "similar theory" of derivative liability that is covered by the statute. (Emphasis added; some footnotes omitted.)
The language of Article 2.21 is clear and unambiguous. A shareholder (Health Net) "shall be under no obligation to the corporation" in which it holds shares (Texas HMO or AmCareco) with respect to "any contractual obligation ... or any matter relating to or arising from the obligation" of the corporation (Texas HMO or AmCareco) on the basis that the shareholder (Health Net) "was the alter ego of the corporation, or on the basis of actual fraud or constructive fraud, a sham to perpetuate fraud, or other similar theory" unless the obligee (the Texas HMO and/or its creditors as represented by the Texas Receiver) proves the following elements: (1) the shareholder (Health Net) caused the corporation (Texas HMO and/or AmCareco) to be used to perpetuate actual fraud on the obligee (Texas HMO and/or its creditors); and (2) this conduct was primarily "for the direct personal benefit" of the shareholder (Health Net). (Emphasis added.)
In Archer v. Griffith, 390 S.W.2d 735, 740 (Tex.1964), the distinction between actual fraud and constructive fraud was defined as follows:
The issue here is constructive or legal fraud and not actual fraud. Actual fraud usually involves dishonesty of purpose or intent to deceive, whereas constructive fraud is the breach of some legal or equitable duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others, to violate confidence, or to injure public interests.
See discussion of the interrelationship between constructive fraud and a fiduciary duty in Chien v. Chen, 759 S.W.2d 484, 494-96 (Tex.App.-Austin 1988).
Subsidiary corporations and parent corporations are separate and distinct "persons" as a matter of law, and the separate entity of corporations will generally be observed by the courts even where one company may dominate or control the other company, or treats the other company as a mere department, instrumentality, or agency. Valero South Tex. Processing Co. v. Starr County Appraisal Dist., 954 S.W.2d 863, 866 (Tex.App.-San Antonio 1997, pet. denied). The "single business enterprise" theory is an equitable doctrine used to disregard the separate existence of corporations when the corporations are not operated as separate entities, but rather integrate their resources to achieve a common business purpose. Old Republic Insurance Co. v. EX-IM Services Corp., 920 S.W.2d 393, 395-96 (Tex.App.-Houston [1st Dist.] 1996, no writ).
*411 In Texas-Ohio Gas, Inc. v. Mecom, 28 S.W.3d 129, 137 (Tex.App.-Texarkana 2000), the court interpreted the "any contractual obligation of the corporation or any matter relating to or arising from the obligation" language contained in Article 2.21. Texas-Ohio Gas, Inc. is an action arising out of a contractual agreement for the sale of natural gas where the plaintiff alleged others misrepresented facts concerning a merger between two separate entities which induced the plaintiff to allow credit purchases of natural gas by one of the corporations. This led the plaintiff to believe it was doing business with a larger and financially more secure corporation. When the purchaser entered bankruptcy proceedings, the plaintiff filed suit against one of the solvent entities and its officers alleging fraud, fraudulent inducement, negligent misrepresentation, and tortious interference with a contract. The plaintiff alleged the defendants participated in a scheme that induced the plaintiff to sell the natural gas to an insolvent entity. The court dismissed the corporate officers, stating, "All of [the plaintiffs] claims are attempting to hold shareholders personally liable for a `matter relating to or arising from' a contractual obligation of the corporation." Texas-Ohio Gas Inc., 28 S.W.3d at 137. The court went on to note "Article 2.21 limits liability for contractual obligations of the corporation and also limits liability for torts `relating to or arising from' such contractual obligations." Texas-Ohio Gas Inc., 28 S.W.3d at 137, n. 8. As authority, the court cited Menetti v. Chavers, 974 S.W.2d 168, 174 (Tex.App.-San Antonio 1998).
Menetti was a case brought by plaintiffs against a construction company and its shareholders for damages arising from faulty construction. The shareholders were eventually held personally liable and they appealed. The Menetti court stated the following:
In 1993, the TBCA was revised to state that no contractual liability could be found under alter ego or "similar" theories unless there was also a finding that the individual to be charged used the corporation to perpetuate and did perpetuate actual fraud on the obligee of the contract, primarily for the personal benefit of the individual. See Tex. Bus. Corp. Act. Ann. art. 2.21(A)(2) (Vernon Supp.1998). Prior to these amendments, commentators and courts agreed that all claims that were not contractual were governed by Castleberry, which required only a showing of constructive fraud in order to pierce the corporate veil. See James Gerard Gaspard, II, A Texas Guide to Piercing and Preserving the Corporate Veil, 31 Bull. Bus. L. Sec. St. B. Tex. 24, 34 (Sept.1994) (1993 amendments in no way limited alter ego tort claims); see also Stewart & Stevenson Serv., Inc. v. Serv-Tech, Inc., 879 S.W.2d 89, 107 (Tex.App.-Houston [14th Dist.] 1994, writ denied) (considering alter ego claim under Castleberry, without requiring showing of actual fraud, where parties had not entered into contract, and claim was in tort). Traditionally, Texas cases have attempted to treat contract claims and tort claims differently in determining whether to pierce the corporate veil. See Lucas v. Texas Industry, Inc., 696 S.W.2d 372, 375 (Tex. 1984) (pointing out differences between tort and contract alter ego cases). The 1989 amendments to article 2.21 apparently tried to keep this distinction alive.
One commentator has suggested that this distinction has existed because, in contract cases, the parties have voluntarily come together to conduct business, but in tort cases there is no such voluntariness: "The theory of the statute is that the Texas Business Corporations Act should be more stringent in *412 contract cases than in tort cases because in contract cases the plaintiff had the opportunity to select the entity with which he deals as opposed to tort cases in which no such choice exists." Gaspard, A Texas Guide to Piercing and Preserving the Corporate Veil, at 34.
Under 1997 amendments, article 2.21(A)(2) appears to blur the distinction between contractual obligations and other claims. The provision now states that it covers all contractual obligations of the corporation "or any matter relating to or arising from the obligation," Tex. Bus. Corp. Act Ann. art. 2.21(A)(2) (Vernon Supp.1998) (amended by Act of May 1, 1997, ch. 375, § 7, 1997 Tex. Sess. Law Serv. 1522-3) (emphasis added). The amendment took effect on September 1, 1997, and applies to all corporations, regardless of the date of their incorporation. Act of May 1, 1997, ch. 375, § 125, 1997 Tex. Sess. Law Serv. 1610. For all matters covered by this provision, the corporate veil may not be pierced absent a showing of actual fraud. The commentary following the 1996 amendments suggests that the actual fraud requirement should be applied, by analogy, to tort claims, especially those arising from contractual obligations. See Tex. Bus. Corp. Act. Ann. art. 2.21 comment (Vernon Supp. 1998).
In the case before the court, both contract and tort claims have been brought against the Menettis. Whether a showing of actual fraud is required to pierce the corporate veil in this case is, we believe, a question of some difficulty. However, after surveying the case law and the legislation, which seem to be somewhat at odds on the entire issue of corporate-veil piercing, we conclude that the claims before us do relate to or arise from a contractual obligation and therefore fall under the amended article 2.21. (Emphasis added.)
Menetti, 974 S.W.2d at 173-74.
The court found that the evidence did not establish actual fraud by the Menettis. "Because [A]rticle 2.21 requires a fraud finding to pierce the corporate veil by the methods outlined in the statute and by `other similar' theories, this finding eliminates individual liability for all the other theories pleaded by the [plaintiffs]." Menetti, 974 S.W.2d at 175.
By the express terms of the statute, Article 2.21 is the exclusive means of imposing liability. In Metal Building Components, LP v. Raley, 2007 WL 74316, p. 12 (Tex.App.-Austin 2007), the court stated:
Texas law precludes holding individual shareholders liable for corporate debts except in narrowly prescribed circumstances. Willis v. Donnelly, 199 S.W.3d 262, 271-72 (Tex.2006). A shareholder "may not be held liable to the corporation or its obligees with respect to ... any contractual obligation of the corporation... on the basis that the holder... is or was the alter ego of the corporation or on the basis of actual fraud or constructive fraud, a sham to perpetuate a fraud, or other similar theory." Tex. Bus. Orgs.Code Ann. § 21.223(a) (West Supp.2006) (previously codified at Tex. Bus. Corp. Act Ann. art. 2.21(A) (West 2003)). Liability of a shareholder under section 21.223 "is exclusive and preempts any other liability imposed for that obligation under common law or otherwise." Id. § 21.224 (West Supp. 2006). The only exceptions to this rule are where the shareholder "caused the corporation to be used for the purpose of perpetuating and did perpetuate an actual fraud on the obligee primarily for the direct personal benefit of the shareholder," or where the shareholder "expressly... agrees to be personally liable to the obligee for the obligation." *413 Id. §§ 21.223(b), .225(1) (West Supp. 2006). (Emphasis added.)
In Sarratt v. Alamo Square, Inc., 1997 WL 271702, 4 (Tex.App.-Amarillo 1997), the court observed as follows:
For instance, she likens the circumstances at bar to those addressed in Castleberry v. Branscum, 721 S.W.2d 270 (Tex.1986). There, the Texas Supreme Court discussed the means by which one could pierce the corporate veil to impose liability for corporate debt upon the entity's shareholders. For the most part, it held that such could occur when the "corporate form has been used as part of a basically unfair device to achieve an inequitable result." Id. at 271. Yet, Castleberry is no longer controlling law. In 1989, the state legislature amended article 2.21 of the Texas Business Corporation Act to negate portions of Castleberry. Now, the only way a shareholder may be held liable for the contractual obligations of a corporation is through article 2.21. Tex. Bus. Corp. Act Ann. art. 2.21 (Vernon Supp.1997) (1996 Comment of Bar Committee). As stated in the statute, the "liability of a [share]holder ... of a corporation for an obligation that is limited by Section A of this article is exclusive and preempts any other liability imposed on a holder, owner, or subscriber of shares of a corporation ... under common law or otherwise...." Id. at art. 2.21(B).FN6 Thus, if the shareholder is not liable as per article 2.21 or other statute, he is not liable. It is no longer enough to merely invoke the arcane theories of Castleberry and proffer the amorphous concept of inequity.FN7
FN6. Of course, the shareholder remains personally liable if he "expressly assumed, guaranteed, or agreed to be personally liable" or if he is otherwise liable under the provisions of the Business Corporation Act or other applicable statute. Tex. Bus. Corp. Act Ann. art. 2.21(B)(1) & (2) (Vernon Supp. 1997).
FN7. So, to the extent Sarratt suggests that Garnett could be held responsible, under the common law, for performance of the settlement agreement because he did not observe the corporate formalities of Alamo, she is wrong. Such a contention was expressly addressed in and rejected by subparagraph (A)(3), article 2.21, of the Business Corporation Act. Moreover, we do not read either Mancorp, Inc. v. Culpepper, 802 S.W.2d 226 (Tex., 1990) or Coastal Shutters & Insulation, Inc. v. Derr, 809 S.W.2d 916 (Tex.App.-Houston [14th Dist.] 1991, no writ) as suggesting that Castleberry remained viable law after the 1989 amendments to article 2.21 were enacted. Indeed, the trial in Mancorp was held before the amendments came into effect. Mancorp, Inc. v. Culpepper, 802 S.W.2d at 233 n. 2 (dissent). They being ineffective at the time, one can hardly suggest that the Mancorp court intended to subjugate them to Castleberry. Additionally, the panel in Coastal Shutters never addressed the interrelationship between the amendments and Castleberry which, in turn, implies that the amendments were again inapplicable at the time.
Finally, as previously indicated in Southern Union Co., 129 S.W.3d at 87, n. 40, the following appears:
Since 1993, article 2.21 has provided that with certain exceptions that do not apply in this case, section A of article 2.21 is the exclusive means for imposing liability on a corporation for the obligations of another corporation in which it holds shares. (Emphasis added; footnote omitted.)
To paraphrase, pursuant to Article 2.21B, the liability of Health Net as a shareholder of either the Texas HMO or AmCareco for any obligation that is covered by Section A of Article 2.21 is exclusive and preempts any other liability imposed on Health Net for that obligation under common law or otherwise. The only exceptions are that Health Net may be obligated to an obligee of the Texas HMO or AmCareco if: (1) Health Net *414 "assumed, guaranteed, or agreed to be personally liable to the obligee for the obligation," or (2) Health Net "is otherwise liable to the obligee for the obligation under this Act or another applicable statute." (Emphasis added.) The record on appeal does not reflect that Health Net has assumed, guaranteed, or agreed to be personally liable for any obligation of the Texas HMO or its creditors. The Texas Receiver has asserted causes of action against Health Net for unfair and deceptive acts and practices pursuant to Tex. Ins.Code Article 21.21 and breach of fiduciary duty pursuant to Tex. Insurance Code § 843.401.
(6) Fiduciary Duties of a Director, Officer, Shareholder or Other Person to an HMO Pursuant to Tex. Ins. Code § 843.401 (formerly Article 20A.08)
Section 843.401 of the Texas Insurance Code provides as follows:
A director, officer, member, employee, or partner of a health maintenance organization who receives, collects, disburses, or invests funds in connection with the activities of the health maintenance organization is responsible for the funds in a fiduciary relationship to the enrollees.
This provision is located in Subchapter LFinancial Regulation of Health Maintenance Organizations, of Chapter 843 Health Maintenance Organizations, of Subtitle C-Life, Health, and Accident Insurers and Related Entities, in the Texas Insurance Code.[61]
As previously indicated, prior to the sale, the Texas HMO corporation was a wholly-owned subsidiary of the Health Net corporation. Health Net was the sole shareholder of the Texas HMO. Section 843.401 is clear and unambiguous in imposing fiduciary responsibilities on the directors, officers, members, employees, and partners of a Texas HMO; it is also clear and unambiguous in not imposing fiduciary responsibility on a shareholder of a Texas HMO (like Health Net).
The time-honored rule of statutory construction of Expressio Unius est Exclusio Alterius (expression of one thing implies the exclusion of another) dictates that when the Texas legislature specifically enumerated a series of things, the legislature's omission of other items, which easily could have been included, is deemed intentional. CKB & Associates, Inc. v. Moore McCormack Petroleum, Inc., 734 S.W.2d 653, 655 (Tex.1987); State, Dep't of Public Safety & Corrections v. Louisiana Riverboat Gaming Comm., 94-1872, p. 17 (La.5/22/95), 655 So.2d 292, 302; Lamonica & Jones, 20 La. Civ. Law Treatise, Legislative Law and Procedure, § 7.6, pp. 147-48, Thus, prior to the sale, Health Net individually did not owe a fiduciary duty to the Texas HMO enrollees because it was not one of the types of persons listed in § 843.401. Further, because the Texas legislature provided for the fiduciary duty to flow from specified persons to HMO enrollees only, it is arguable that no fiduciary duty flows to HMO employees, providers, and other creditors (who were not named). Cf. Ransome v. Ransome, 2001-2361, p. 6-7, (La.App. 1 Cir. 6/21/02), 822 So.2d 746, 753.
The evidence in the record on appeal indicates that, prior to the sale, Jay Gellert, *415 Health Net's CEO, was on the boards of directors of the HMOs and Michael Jansen, Health Net's vice president, assistant general counsel and assistant secretary, was the secretary of each of the HMOs. Section 843.401 provides that only specified persons owe a fiduciary duty to enrollees and then only if they collect, disburse, or invest funds in connection with the activities of the Texas HMO. The record on appeal does not indicate that Gellert, acting as a director of the Texas HMO, or Jansen, acting as the secretary of the HMOs, engaged in any of these activities prior to the sale. Therefore, neither Gellert nor Jansen owed a fiduciary duty to the HMO enrollees prior to the sale. Accordingly, prior to the sale, in the Texas case Health Net could not be vicariously liable through Gellert and/or Jansen for a fiduciary duty owed to an enrollee as a matter of law.
The trial court instructions and interrogatory on fiduciary duty did not properly explain these various factual contingencies to the jury or obtain an appropriate response from them. The facts presented at the trial pertaining to this issue required that a more precise charge with alternative interrogatories be given to the jury. Boncosky Services, Inc., 98-2339 at pp. 10, 751 So.2d at 286.
If the sale was not a sham, the legal relations between the parties were modified when the sale was executed. In this factual posture, Health Net is a shareholder in AmCareco, is not a shareholder in the Texas HMO, is not a director, officer, member, employee, or partner of the Texas HMO and does not owe a fiduciary duty to the enrollees of the Texas HMO pursuant to Section 843.401 as a matter of law. AmCareco, as the parent corporation, would have the same liability exposure as Health Net had prior to the sale.
(7) Fiduciary Duties Owed by Shareholders of Corporations that are Solvent, Insolvent or in the Zone of Insolvency
The trial court judge gave the Texas jury extensive instructions concerning the fiduciary duty by a shareholder in a corporation that was solvent, insolvent, or in the zone of insolvency. These instructions were based on the Texas common law and not on Article 2.21 or § 843.401. Pursuant to Article 2.21B, Article 2.21A provides an exclusive remedy and preempts the Texas common law. The only pertinent exception to this rule in Article 2.21B(2) is if the shareholder is liable under another applicable statute. Section 843.401 is such a statute, and it does not provide for the distinction between solvent and insolvent corporations. Thus, the extensive trial court instructions erroneously instructed the jury on Texas law pertaining to the fiduciary duty owed by a shareholder in a corporation that is solvent, insolvent, or in the zone of insolvency.
(8) Conclusion
Common law causes of action in Texas against Health Net for breach of a fiduciary duty are preempted by Article 2.21. The only tort duty Health Net had as a shareholder according to Article 2.21 was a duty not to commit actual fraud. The cause of action for breach of fiduciary duty in § 843.401 is not preempted. The trial court judge instructed the Texas jury in accordance with the Texas common law on this issue and did not instruct the jury in accordance with Article 2.21 or § 843.401. This was prejudicial legal error.
These assignments of error have merit,
b. Fraud
(Assignments of Error TX-13, and 14; TX Proposed Jury Instructions 27.1, *416 41, 42, 44, 45, 46, 47, 49, 52, 53, 54, 55, 57 and 103)
The trial court judge gave the following jury instruction on fraud by misrepresentation and omission:
You are instructed that fraud occurs when a party fails to disclose a material [f]act within the knowledge of that party, that the party knows that the other party is ignorant of the fact and does not have an equal opportunity to discover the truth or the party intends to induce the other to take some action by failing to disclose a fact or the party suffers injury as a result of the act of acting without knowledge of the undisclosed fact.
In addition, fraud includes the successful use of cunning, deception, or artifice to cheat another to their [sic] injury. (Emphasis added.)
Health Net asserts that the second paragraph of this instruction purports to define fraud by misrepresentation (conventional fraud) and "omits virtually every element required to prove fraud under Texas law." Health Net argues that the instruction does not include the elements of "(1) a statement by the defendant; (2) falsity; (3) knowledge of falsity; (4) intent to induce reliance; and (5) reasonable reliance." Further, the instruction fails to have supporting "instructions correctly defining critical terms such as materiality, reliance, misrepresentation, and recoverable damages."
Health Net asserts that the first paragraph of this instruction that purports to define fraud by omission (fraud by concealment or by failure to disclose when there is a duty to disclose) was based on PJC 105.4 but "it deviated from 105.4 in two critical respects, making it prejudicially erroneous." First, the trial court judge used the disjunctive conjunction "or" rather than the conjunctive conjunction "and" (as used in PJC 105.4) to separate the last two elements of the tort from the first two elements. In this posture, the jury was instructed that it could find that fraud by omission occurred if only two of the four essential elements were found and could reach that conclusion three different ways, namely: (1) elements a and b; (2) elements a and c; and (3) elements a and d. Second, pursuant to the facts in this case, the only way that Health Net could commit this type of fraud was if it had a duty to disclose and the trial court judge failed to instruct the jury about this condition precedent.
The Texas Receiver responds that "[T]he fraud instruction was proper under Texas law." She asserts that for the instruction pertaining to fraud by misrepresentation, "Numerous Texas cases have approved jury instruction that contained this latter definition of fraud." She further asserts that, with reference to the instruction on fraud by omission, it is the province of the court to determine whether there is a duty of a person to speak or disclose, and, thus, this is a question of law and not a question of fact for the jury. Finally, she argues that Health Net cannot assert error in the fraud by omission instruction because it did not object to the instruction at trial as required by La. C.C.P. art. 1793 C.[62]
In Ernst & Young, L.L.P. v. Pacific Mutual. Life Ins. Co., 51 S.W.3d 573, 577 (Tex.2001), appears the following:
To prevail on its fraud claim, Pacific must prove that: (1) Ernst & Young made a material representation that was *417 false; (2) it knew the representation was false or made it recklessly as a positive assertion without any knowledge of its truth; (3) it intended to induce Pacific to act upon the representation; and (4) Pacific actually and justifiably relied upon the representation and thereby suffered injury. (Emphasis added.)
See also Johnson v. Brewer & Pritchard, 73 S.W.3d 193, 211, n. 45 (Tex.2002).
In Custom Leasing, Inc. v. Texas Bank & Trust Co. of Dallas, 516 S.W.2d 138, 142-43 (Tex.1974), the following appears:
The elements of actionable fraud in Texas were stated in Wilson v. Jones, 45 S.W.2d 572 (Tex.Comm.App. 1932, holding approved), as follows:
The authorities announce the general rule that to constitute actionable fraud it must appear: (1) That a material representation was made; (2) that it was false; (3) that, when the speaker made it, be [sic] knew it was false or made it recklessly without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by the party; (5) that the party acted in reliance upon it; and (6) that he thereby suffered injury. The gist of an action based upon fraud is found in the fraud of defendant and damage to plaintiff. Each of these elements must be established with a reasonable degree of certainty, and the absence of any one of them will prevent a recovery. 26 C.J. pp. 1062, 1063, 1064, and 1065; Wortman v. Young[,] (Tex.Civ.App.) 221 S.W. 660.3
FN3. This statement was quoted with approval in the more recent case of Oilwell Division, United States Steel Corp. v. Fryer, 493 S.W.2d 487, 491 (Tex.1973). (Page citation omitted; emphasis added.)
See also New Process Steel Corp. v. Steel Corp. of Texas, Inc., 703 S.W.2d 209, 213-14 (Tex.App. 1 Dist.1985); Compaq Computer Corp. v. Ergonome, Inc., 2001 WL 34104826, **5-6, 2001 U.S. Dist. LEXIS 23485, pp. 16-17 (2001); Prosser & Keeton, supra, § 105, p. 728.
Texas Pattern Jury Charge 105.2 provides as follows:
Fraud occurs when
a. a party makes a material misrepresentation,
b. the misrepresentation is made with knowledge of its falsity or made recklessly without any knowledge of the truth and as a positive assertion,
c. the misrepresentation is made with the intention that it should be acted on by the other party, and
d. the other party relies on the misrepresentation and thereby suffers injury.
"Misrepresentation" means:
[A false statement of fact [or]
A promise of future performance made with an intent, at the time of the promise was made, not to perform as promised [or]
A statement of opinion based on a false statement of fact [or]
A statement of opinion that the maker knows to be false [or]
An expression of opinion that is false, made by one claiming or implying to have special knowledge of the subject matter of the opinion.] [From PJC 105.3A-E.] (Emphasis added.)
The trial court judge failed to properly instruct the jury on the elements of fraud by misrepresentation and committed error. The Texas Receiver's argument to the contrary is without merit.
In Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171, 181 (Tex.1997), the Texas Supreme Court observed that *418 "[f]raud by nondisclosure is simply a subcategory of fraud because, where a party has a duty to disclose, the non-disclosure may be as misleading as a positive misrepresentation of facts." See also Cone v. Fagadau Energy Corp., 68 S.W.3d 147, 170 (Tex.App.-Eastland 2001). In Insurance Co. of North America v. Morris, 981 S.W.2d 667, 674 (Tex.1998), the Texas Supreme Court stated that "Generally, no duty of disclosure arises without evidence of a confidential or fiduciary relationship. Fiduciary duties arise as a matter of law in certain formal relationships, including attorney-client, partnership and trustee relationships." (Emphasis added.)
In American Tobacco Co., Inc. v. Grinnell, 951 S.W.2d 420, 436 (Tex.1997), the Texas Supreme Court observed that "Similarly, when circumstances impose upon a party a duty to speak and the party remains silent, the silence itself can be a false representation. Just as with affirmative misrepresentations, the allegedly defrauded party must have reasonably relied on the silence to his detriment."
Texas Pattern Jury Charge 105.4 on fraud by omission provides as follows:
Fraud occurs when
a. a party fails to disclose a material fact within the knowledge of that party,
b. the party knows that the other party is ignorant of the fact and does not have an equal opportunity to discover the truth,
c. the party intends to induce the other party to take some action by failing to disclose the fact, and
d. the other party suffers injury as a result of action without knowledge of the undisclosed fact. (Emphasis added.)
This charge on fraud by omission (failure to disclose when there is a duty to disclose) reflects the law of Texas on this issue that is cited in the Comment for the charge. This charge is clear and unambiguous and shows that the four elements of proof are connected with the conjunctive conjunction "and" and that all four elements must be proven to succeed on this cause of action. Liability cannot be proven based on only two elements. Because the trial court judge improperly replaced the conjunction "and" with two disjunctive conjunctions "or", the substantive meaning of the charge was radically and prejudicially modified. The word "or" is used to express an alternative or to give a choice of one among two or more things.[63] The trial judge committed error by changing "and" to "or", and, thus, improperly instructed the jury on the elements of fraud by omission.
As previously indicated, pursuant to Tex. Bus. Corp. Act Article 2.21, the only fraud duty owed by Health Net was actual fraud for its personal benefit. The instruction given did not instruct the jury on this issue. See PJC 108.4 and its Comment.
Finally, as previously indicated, the trial court judge has a mandatory duty to correctly instruct the jury on the law on all essential factual issues necessary to decide the case. The trial court judge did not instruct the jury on Tex. Bus. Corp. Act article 2.21. The subject instruction on *419 fraud is not such an instruction; it is fatally flawed. This is patent error.
These assignments of error have merit.
c. Unfair or Deceptive Acts or Practices in Violation of Article 21.21 of the Texas Insurance Code[64]
(Assignment of Error TX-16; Proposed Texas Jury Instructions 68, 69, 70, 71, 72, 73 and 74)
For this jury instruction, the trial court judge essentially tracked the language of Tex. Ins.Code Article 21.21, §§ 4(2), 4(5)(a) and 4(5)(b) that defined what constituted some unfair or deceptive acts or practices.[65]
Health Net asserts that, although the trial court "correctly instructed on acts that constitute unfair practices under the Texas Insurance Code," the trial court "otherwise failed to instruct adequately on the claim." Health Net argues Article 21.21, § 2 defines a "person" for purposes of that Article as "any individual, corporation, association, partnership ... and any other legal entity engaged in the business of insurance, including agents, brokers, adjusters and life insurance counselors." (Emphasis added.)
Health Net contends it was not engaged in the business of insurance either before or after the sale; only AmCare-TX was. "The evidence at trial showed that AmCareco exclusively operated and managed the HMOs following the sale ... The Receivers introduced no contrary testimony." Health Net argues it was not liable based on this cause of action as a matter of law. "[T]he jury was permitted to find Health Net liable for violating a statute without first finding the statute even applied to ita finding it could not have made based on the evidence in the record."
The Texas Receiver responds that "Health Net proposed to instruct the jury *420 that its pre-transaction conduct was irrelevant. "Such assertion is directly contrary to abundant evidence adduced at trial, which proved that it was Health Net's pre-transaction conduct that made the demise of the HMO inevitable."
The basic issue in this assignment of error is whether, as a matter of law, Health Net is a "person" for the purposes of Article 21.21. Whether there is sufficient evidence to support giving the instruction becomes at issue only if Article 21.21 applies; if Article 21.21 does not apply as a matter of law, the sufficiency of the evidence to support giving the instruction is irrelevant.
Article 21.21 is found in Subchapter B Misrepresentation and Discrimination, of Chapter Twenty-oneGeneral Provisions, of the Texas Insurance Code. Section 2(a) of Article 21.21 entitled "Definitions" provides as follows:
Sec. 2. When used in this Article:
(a) "Person" shall mean any individual, corporation, association, partnership, reciprocal exchange, inter-insurer, Lloyds insurer, fraternal benefit society, and any other legal entity engaged in the business of insurance, including agents, brokers, adjusters and life insurance counselors. (Emphasis added.)
Section 3 of Article 21.21 is entitled "Unfair Methods of Competition or Unfair and Deceptive Acts or Practices Prohibited" and provides as follows:
Sec. 3. No person shall engage in this state in any trade practice which is defined in this Act as, or determined pursuant to this Act to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance. (Emphasis added.)
Section 1 of Article 21.21 is entitled "Declaration of Purpose" and provides as follows:
(a) The purpose of this Act is to regulate trade practices in the business of insurance by defining, or providing for the determination of, all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.
(b) This Article shall be liberally construed and applied to promote its underlying purposes as set forth in this section. (Emphasis added.)
As previously indicated, the rules for interpretation of laws in Texas are substantially the same as those in Louisiana.
Article 21.21, § 2(a) is clear and unambiguous in providing that a corporation and its agents, brokers, and adjusters can be "persons" engaged in the business of insurance and subject to liability for engaging in an unfair or deceptive act or practice as defined in Section 4 of the Article. AmCare-TX was such a "person," as well as its agents, brokers, and adjusters.
However, prior to the sale, AmCare-TX was a wholly-owned subsidiary of Health Net. As the sole shareholder in the AmCare-TX corporation, was Health Net engaged in the business of insurance? In Liberty Mutual Insurance Co. v. Garrison Contractors, Inc., 966 S.W.2d 482 (Tex. 1998), the question was whether an insurance company employee was engaged in the business of insurance for purposes of Article 21.21. In Liberty Mutual Insurance Co., 966 S.W.2d at 486, the following appears:
We emphasize, however, that not every employee of an insurance company is a "person" under Article 21.21 and therefore subject to suit under section 16. To come within the statute, an employee must engage in the business of *421 insurance. In this case, Garrett personally carried out the transaction that forms the core of Garrison's complaint. Garrett testified that his job responsibilities included soliciting and obtaining insurance policy sales and explaining policy terms to prospective buyers. He was also responsible for explaining premium calculations to consumers. Garrett was thus required to have a measure of expertise in the field, which was necessary to perform his job. Clearly, Garrett was engaged in the business of insurance. On the other hand, an employee who has no responsibility for the sale or servicing of insurance policies and no special insurance expertise, such as a clerical worker or janitor, does not engage in the insurance business. (Emphasis added.)
By analogy, if a corporate employee who has no responsibility for the sale or servicing of insurance policies is not in the insurance business, then a natural or corporate (juridical) "person" (Health Net) who is only a shareholder in an insurance business corporation (AmCare-TX) and has no responsibility for the sale or servicing of insurance policies is also not in the insurance business.
Further, Section 2 of Article 21.21 is clear and unambiguous in providing that for purposes of "this Article," the "persons" to whom the article applies are any (1) individual, (2) corporation, (3) association, (4) partnership, (5) reciprocal exchange, (6) inter-insurer, (7) Lloyds insurer, (8) fraternal benefit society or (9) other legal entity engaged in the business of insurance including the (10) agents, (11) brokers, (12) adjusters, and (13) life insurance counselors of those legal entities. Although this is an extensive listing of those to whom Article 21.21 applies, the list does not include natural or corporate shareholders of a legal entity. As previously indicated, it is a time-honored rule of statutory construction that the expression of one thing in a statute implies the exclusion of another. This rule dictates that, when the Texas legislature specifically lists a series of things, the omission of other things which easily could have been included is deemed intentional.
Accordingly, because natural or corporate shareholders were not included in this listing, they were intentionally excluded. Therefore, as a matter of law, Article 21.21 does not apply to Health Net as a shareholder in AmCare-TX unless it had responsibility for the sale or servicing of AmCare-TX policies. The trial court judge failed to so advise the jury of this, and, thus, committed patent prejudicial error.
This statutory construction is consistent with the very strong public policy in Texas concerning the liability of shareholders for corporate torts expressed in Tex. Bus. Corp. Act article 2.21 as interpreted by the Texas Supreme Court in Willis v. Donnelly.
The preceding discussion pertains to the factual scenario where the sale was determined to be a sham. As previously indicated, if the sale was not a sham, the legal relations between Health Net, AmCareco, and AmCare-TX are substantially changed. In that factual posture, AmCare-TX is a wholly-owned subsidiary of AmCareco, AmCareco is the sole shareholder in AmCare-TX, and Health Net is a shareholder in AmCareco. Unless Health Net acted jointly with or conspired with AmCareco and/or AmCare-TX to violate Article 21.21 or was engaged in a single business enterprise with them, it could not be liable for violation of Article 21.21, and the jury should have been so instructed. These facts and the law mandated that the trial court give a more precise and/or a disjunctive charge to the jury than that *422 which was given and failure to do so was error. Boncosky Services, Inc., 98-2239 at p. 10, 751 So.2d at 285.
This assignment or error has merit.
d. Conspiracy; Intentional Tort; Specific Intent
(Assignment of Error TX-15; TX Proposed Jury Instructions 57, 58, 59 and 60)
The trial court judge gave the following jury instruction on the issue of conspiracy:
You are instructed that a conspiracy is a meeting of minds or agreement by two or more persons or corporations to accomplish an unlawful act or a lawful act by illegal means. To be part of a conspiracy, at least two parties must have had knowledge of, agreed to, and intended a common objective or course of action that resulted in the damage to plaintiff.
One or more person involved in a conspiracy must have performed some act or acts to further the conspiracy. One of [sic] more persons must commit an unlawful act in connection with the conspiracy.
. . . .
Defendant maintains excuse me. The plaintiff maintains that the defendant participated in a conspiracy with PriceWaterhouseCoopers, Tom Lucksinger, Michael Nadler, Stephen Nazarenus, John Mudd, Michael Jihn [sic], William Galtney, Proskauer Rose, Stuart Rosow to accomplish an unlawful purpose or to use unlawful means to accomplish a lawful purpose.
Conspiracy is a derivative claim meaning it requires a[sic] underlying intentional wrong. To hold Health Net liable for conspiracy, you must find an underlying intentional wrong occurred. (Emphasis added.)
Health Net asserts that "[a]lthough this instruction was based on Texas PJC 109.1, it failed to adequately instruct on specific intent." Health Net argues this was error because the jury "was not required to find specific intent as Texas law requires, namely that Health Net `intended to cause injury or was aware of the harm likely to result from the wrongful conduct'", citing Triplex Communications, Inc. v. Riley, 900 S.W.2d 716, 720 (Tex.1995).
The Texas Receiver responds that the instruction given substantially tracks PJC 109.1 and that "[conspiracy liability does not require a finding that Health Net `intended to cause the injury'." Further, the Texas Receiver asserts that "Health Net waived any complaint as to the trial court's conspiracy instruction by failing to object to those instructions at trial," citing La. C.C.P. art. 1793 C.[66]
In Insurance Co. of North America, 981 S.W.2d at 675, the following appears:
To prevail on their conspiracy theory, the Investors had to establish the following elements: (1) a combination of two or more persons; (2) an object to be accomplished (an unlawful purpose or a lawful purpose by unlawful means)[;] (3) a meeting of minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as the proximate result.
Pattern Jury Charge 109.1 and its pertinent comments provide as follows:
Question and Instruction on Conspiracy QUESTION ___
[Conditioned on findings of a statutory violation or a tort (other than *423 negligence) that proximately caused damages.]
Was Connie Conspirator part of a conspiracy that damaged Paul Payne?
To be part of a conspiracy, Connie Conspirator and another person or persons must have had knowledge of, agreed to, and intended a common objective or course of action that resulted in the damages to Paul Payne. One or more persons involved in the conspiracy must have performed some act or acts to further the conspiracy.
Answer: ______
COMMENT
When to use. PJC 109.1 submits the question of conspiracy to accomplish the unlawful objective of harming another by committing a statutory violation or a tort (other than negligence). See comment below, "Conspiracy to accomplish lawful objective by unlawful means," for the situation involving a conspiracy to employ an unlawful means to accomplish a lawful objective. Civil conspiracy to unlawfully harm another is a derivative tort. Liability is dependent on participation in some underlying statutory violation or a tort (other than negligence). It is a means for imposing joint and several liability on persons in addition to the actual perpetrators(s) of the underlying tort.
. . . .
Knowledge, intent, and agreement. To be liable for conspiracy, a party must be shown to have intended to do more than engage in the conduct that resulted in the injury. It must be shown that from the inception of the combination or agreement the party intended to cause the injury or was aware of the harm likely to result from the wrongful conduct. Triplex Communications, Inc. [v. Riley], 900 S.W.2d at 720; Great National Life Insurance Co. v. Chapa, 377 S.W.2d 632, 635 (Tex. 1964). Thus, a party must be shown to have known the object and purpose of the conspiracy and to have had a meeting of the minds with the other conspirators to accomplish that object and purpose, intending to bring about the resulting injury. [Schlumburger Well Surveying Corp. v.] Nortex Oil & Gas Corp., 435 S.W.2d [854] at 857 [Tex. 1969].
Unlawful act. A defendant's liability for conspiracy is based on participation in the statutory violation or underlying tort (other than negligence) that would have been actionable against at least one of the conspirators individually. Tilton v. Marshall, 925 S.W.2d 672, 681 (Tex. 1996); International Bankers Life Insurance Co. v. Holloway, 368 S.W.2d 567, 581 (Tex.1963). An act or declaration by a conspirator not in pursuance of the common objective is not actionable against coconspirators. Chapa, 377 S.W.2d at 635. Likewise, an improper motive in performing a lawful action will not support liability for conspiracy. Kingsbery v. Phillips Petroleum Co., 315 S.W.2d 561, 576 (Tex.Civ.App.-Austin 1958, writ ref'd n.r.e.). The injury must have been caused by the tort or statutory violation that the conspirator agreed with the perpetrator to bring about while intending the resulting harm. Triplex Communications, Inc., 900 S.W.2d at 720; Nortex Oil & Gas Corp., 435 S.W.2d at 857. Once a civil conspiracy is found, each co-conspirator is responsible for the actions of any coconspirator in furtherance of the conspiracy. Thus each element of the underlying tort or violation is imputed to each participant. Akin v. Dahl, 661 S.W.2d 917, 921 (Tex.1983), cert. denied, 466 U.S. 938, 104 S.Ct. 1911, 80 L.Ed.2d 460 (1984). (Emphasis added.)
*424 A cause of action for civil conspiracy in Texas has vicarious, derivative, and joint liability elements. The tortfeasor in a civil conspiracy action is vicariously liable because he is liable for the acts of others with whom he conspires by operation of law. Maraist & Galligan, supra, § 1.07, p. 1-8.1. This type of liability is sometimes called imputed liability. See definition of "imputed negligence" in BLACK'S, supra at 1057. The liability is derivative because it is dependent upon participation in some underlying statutory violation or a tort (other than negligence). The liability is joint, rather than concurrent, because the tortfeasors act together to cause damage, rather than acting independently to cause damage. 53 Tex. Jur.3d Negligence § 27; Prosser & Keeton, supra, § 46, pp. 322-24; cf. BLACK'S, supra at 1056-57. Finally, because a civil conspiracy requires a specific intent, parties cannot engage in a civil conspiracy to be negligent. K. Nunnally & R. Franklin, 2 Tex. Guide Torts § 8:120.[67]
In proposed Instruction 59, Health Net requested the trial court, in pertinent part, to instruct the jury that "[t]he Texas Receiver must therefore offer proof that Health Net had a specific intent to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means. Because negligence by definition is not an intentional wrong, one cannot agree or conspire to be negligent." This is a correct statement of the law. The trial court judge refused to give this charge.
This issue is part of a broader problem in the jury instructions. The underlying torts asserted by the Texas Receiver are actual fraud, breach of a fiduciary duty, and unfair and deceptive acts and practices in violation of Tex. Ins.Code Article 21.21 §§ 4(2), 4(5)(a) and 4(5)(b). Actual fraud and Article 21.21 §§ 4(5)(a) and (b) involve intentional torts with specific intents. The Texas Receiver also seeks exemplary damages.
Malice is one of the necessary conditions to award of exemplary damages, and it involves an intentional act with a specific intent. A review of the trial court's instructions shows that the jury was advised of the elements of simple negligence and gross negligence but was not advised as to what constituted an intentional tort or a specific intent. See, for example Restatement (Second) of Torts § 8A (1965); Bazley v. Tortorich, 397 So.2d 475, 480-82 (La.1981); Maraist & Galligan, supra, § 2.01(1), pp. 2-3 and 2-4; H. Johnson, 18 La. Civ. Law Treatise, Civil Jury Instructions, § 14.01, p. 306 (2d ed.2001).
The instruction on simple negligence was not relevant because the cause of action for negligent misrepresentation was not given to the jury or reduced to a judgment in the Texas case. The instruction on gross negligence only pertained to the exemplary damages issue. Tex. Civ. Prac. & Rem. § 41.003(a)(3). Without instructions on the elements of an intentional tort and/or a specific intent, the jury only had the negligence and gross negligence instructions to decide the causes of action that required proof of an intentional act and/or a specific intent.
Civil conspiracy is a common law cause of action in Texas. Pursuant to Tex. Bus. Corp. Act article 2.21 A(2), a shareholder, like Health Net, may be liable for damages for actual fraud when it causes the corporation in which it owns shares "to be used for the purpose of perpetrating and did *425 perpetrate an actual fraud on the obligee primarily for the direct personal benefit of..." itself. Pursuant to Tex. Bus. Corp. Act article 2.21 B, this liability is exclusive and preempts any other liability imposed on the shareholder for such an obligation under the common law or otherwise. The exceptions are that the shareholder may be liable for (1) obligations for which it has expressly assumed, guaranteed, or agreed to be personally liable; or (2) obligations for which it is liable under Article 2.21 or another applicable statute.
Thus, civil conspiracy, as a common law tort, has been preempted by the exclusive effect of Article 2.21.
This assignment of error has merit,
e. Allocation of Fault
(Assignments of Error TX-3, 21 and 34; TX Proposed Jury Instruction 86)
Chapter 33 of the Texas Civil Practice and Remedies Code requires the trier of fact to engage in a comparative fault analysis and to determine the percentage of responsibility among various persons who could be held liable for damages sustained by a plaintiff in a tort action.
Texas Civil Practice & Remedies Code § 33.003(a) provides:
Determination of Percentage of Responsibility
The trier of fact, as to each cause of action asserted, shall determine the percentage of responsibility, stated in whole numbers, for the following persons with respect to each person's causing or contributing to cause in any way the harm for which recovery of damages is sought, whether by negligent act or omission, by any defective or unreasonably dangerous product, by other conduct or activity that violates an applicable legal standard, or by any combination of these:
(1) each claimant;
(2) each defendant;
(3) each settling person; and
(4) each responsible third party who has been joined under Section 33.004.[68] (Emphasis added.)
A "settling person" means a person who at the time of submission has paid or promised to pay money or anything of monetary value to a claimant at any time in consideration of potential liability concerning personal injury, property damage, death, or other harm for which recovery of damages is sought V.T.C.A. § 33.011(5).
Rule 277 of the Texas Rules of Civil Procedure provides, in pertinent part, as follows:
In any cause in which the jury is required to apportion the loss among the parties the court shall submit a question or questions inquiring what percentage, if any, of the negligence or causation, as the case may be, that caused the occurrence or injury in question is attributable to each of the persons found to have been culpable. The court shall also instruct the jury to answer the damage question or questions without any reduction because of the percentage of negligence or causation, if any, of the person injured. The court may predicate the damage question or questions upon affirmative findings of liability.
The comments to PJC 110.32 instruct as follows:
For causes of action based on tort accruing on or after September 1, 1995, and in all such suits filed on or after September 1, 1996, the trier of fact must determine the percentage of responsibility of each defendant, claimant, settling *426 person, or responsible third party with respect to each person's causing or contributing to cause the harm for which damages are sought. (Emphasis added.)
The comments add "PJC 110.32 is conditioned on findings that the acts or omissions of more than one person caused the damages or injury, because otherwise no comparison is possible."
Health Net submitted to the trial court requested Charge Number 86, which provided:
APPORTIONMENT
If you find that Health Net is at fault and has caused some damage to AmCare-TX or the creditors of AmCare-TX, there are also other persons or companies whose fault you must consider. As I told you in the beginning, the Texas Receiver has judicially confessed that the following people/companies are responsible for AmCare-TX's damages: Price WaterhouseCoopers, LLP, Thomas S. Lucksinger, Michael D. Nadler, Stephen J[.] Nazarenus, John P Mudd, Michael K. Jhin, William Galtney, and Proskauer Rose, LLP, and Stuart Rosow are responsible for the Texas Receiver's damages.
If you should find that Health Net is liable to the Texas Receiver, you must also consider the fault of every other person or company that contributed to the damages claimed by the Texas Receiver. Thus, in addition to those whom the Texas Receiver has judicially confessed to be at fault, the fault of the following must also be considered by you: Vinson and Elkins, L.L.P., AmCareco, Inc., Susan Conway, Shattuck Hammond, Lee Pearce, AmCare-OK, AmCare-LA, AmCare-TX and AmCare-Management, the Louisiana Department of Insurance, the Texas Department of Insurance, the Oklahoma Department of Insurance, the Oklahoma Department of Health, Mike Benzen, Hershell Goldfield, Lawrence Budish, and Scott Westbrook.
Thus, because the Texas Receiver has judicially confessed the fault of the following parties, you must allocate a percentage of the fault to the following parties for any damages you might award in this case: (1) Price WaterhouseCoopers, LLP, (2) Thomas S. Lucksinger, (3) Michael D. Nadler, (4) Stephen J[.] Nazarenus, (5) John P. Mudd, (6) Michael K. Jhin, (7) William Galtney, (8) Proskauer Rose, LLP and (9) Stuart Rosow.
In addition, you must apply these jury instructions to the following persons, and determine whether or not fault for damages should be allocated to them as well: (1) Vinson and Elkins, L.L.P., (2) AmCareco, Inc., (3) Susan Conway, (4) Shattuck Hammond, (5) Lee Pearce, (6) AmCare-OK, (7) AmCare-LA, (8) AmCare-TX, (9) AmCare-Management, (10) the Louisiana Department of Insurance, (11) the Texas Department of Insurance, (12) the Oklahoma Department of Insurance, (13) the Oklahoma Department of Health, (14) Mike Benzen, (15) Hershell Goldfield, (16)Lawrence Budish, and (17) Scott Westbrook.
Health Net cited Tex. Civ. Prac. & Rem. §§ 33.003-.017 as authority for the requested instruction.
The trial court judge's instructions included the following:
THE COURT: Ladies and gentlemen of the jury, we come to the portion of this case that it becomes my duty to tell you the law that applies to this case and it's your duty, as I mentioned at the beginning of this trial, to follow the law as I shall state it for you.
....
*427 ... The law to be applied, the substantive law, will be Texas substantive law.
. . . .
More than one act may be the proximate cause of the same injury. Therefore, if you find that the acts of more than one person caused the injuries to the plaintiff that the plaintiff complains of, then that person or persons would also be liable for the injury.
. . . .
... The plaintiff maintains that the defendant participated in a conspiracy with PriceWaterhouseCoopers, Tom Lucksinger, Michael Nadler, Stephen Nazarenus, John Mudd, Michael Jihn [sic], William Galtney, Proskauer Rose, Stuart Rosow to accomplish an unlawful purpose or to use unlawful means to accomplish a lawful purpose.
When the trial court judge permitted objections to the jury instructions into the record, counsel for Health Net stated, "We object to the failure to give jury Charge Number 86 on apportionment based on Texas Civil Practice and Remedies Code, section 33.0001[sic] through 017."
The jury interrogatories on allocation of fault that were given to the jury were as follows:
1. Do you find by the preponderance of the evidence that the defendant, Health Net, Inc. was at fault in the transactions at issue with the Texas HMO?
____Yes ____No
2. Do you find by the preponderance of the evidence that any other person or company was at fault in the transactions at issue with the Texas HMO?
____Yes ____No
3. What percentage of fault if any, do you assign?
Defendant Healthnet [sic] _____%
Any other person(s) _____%
Any other Company _____%
Must total 100%
Question numbers two and three, asking if others were at fault and the percentage of their fault, were not in correct form. Question two asked the jury if any other person or company was at fault and Question three asked the jury to find a percentage of fault for "Any other person(s)" and "Any other Company." The trial court judge grouped each claimant, each defendant, each settling person and each responsible party into two categories and failed to ask the jury to identify each person and assign a percentage of responsibility to each as mandated by the Texas law.
In Perez v. Weingarten Realty Investors, 881 S.W.2d 490, 494-95 (Tex.App.-San Antonio 1994), writ denied, June 15, 1995, rehearing of writ of error overruled (Aug. 1, 1995), the court construed the application of § 33.003 as follows:
A substantially correct negligence question would have inquired about the negligence of each specific defendant, as named in the pleadings, for which there was some evidence of negligence. Furthermore, a substantially correct percentage of responsibility question would have asked the jury to place the percentage on each specific defendant found to be responsible. Perez failed to do this in her requested negligence questions.
. . . .
Perez' requested jury questions attempted to lump all of the defendants together: `ownership of Summerplace Apartments acting through its employees, agents or servants.' By phrasing the requested questions in this manner, Perez achieved simplicity at the expense of specificity. There is something to be said for this effort and this Court is not *428 saying it is always incorrect to do so. If there is no dispute as to which of the named defendants are responsible for the negligent act, or if there is no dispute that all are responsible for the negligent act, a single generic submission may be proper with an appropriate contribution percentage question. It would be improper in this case as there was a fact issue raised as to who had the responsibility for providing the security and who should properly get the blame for not doing so. See Alvarez v. Missouri-Kansas-Texas Railroad Co., 683 S.W.2d 375, 377 (Tex.1984).
When there is such a fact issue raised, there is no choice but to submit the question as to each defendant separately. This is more cumbersome, but must be done. (Emphasis added.)
Like the jury questions in Perez, the jury interrogatories in the instant case "lumped" any and all possible responsible persons together when there were fact issues as to the fault of each.
The failure to submit to the jury the name of each possible responsible person and assess his or its individual percentage of fault was prejudicial error.
These assignments of error have merit.
E. Inconsistencies Between the Texas Jury Verdicts and JNOV and the Judgments and Reasons for Judgment in the Louisiana and Oklahoma Cases
1. Negligent Misrepresentation
(Proposed Texas Jury Instruction 43)
Essentially, the tort of negligent misrepresentation is a less culpable version of fraud by intentional misrepresentation. The elements of a cause of action for this tort are: (1) a representation is made by a defendant in the course of his business or in a transaction in which he has a pecuniary interest; (2) the defendant supplies false information for the guidance of others in their business; (3) the defendant did not exercise reasonable care or competence in obtaining or communicating the information; and (4) the plaintiff suffers pecuniary loss by justifiably relying on the representation. Federal Land Bank Association of Tyler v. Sloane, 825 S.W.2d 439, 442 (Texas 1991). The laws of Texas and Louisiana establishing the elements of negligent misrepresentation are substantially the same. Kadlec Medical Center v. Lakeview Anesthesia Associates, 527 F.3d 412, 418 (5th Cir. [La.] 5/8/08), cert. denied, ___ U.S. ___, 129 S.Ct. 631, 172 L.Ed.2d 611, 2008 WL 4343227 (2008); Maraist & Galligan, supra, § 5.07[8], p. 5-31 to 32, n. 73.
The Texas Receiver asserted negligent misrepresentation in her petition. The Texas Receiver submitted a proposed jury interrogatory on negligent misrepresentation. Health Net submitted a proposed jury interrogatory asking, "Did Health Net engage in any negligent conduct that caused damage to AmCare Health Plans of Texas?" The trial court judge instructed the jury on what constituted negligence. The trial court judge did not instruct the Texas jury on negligent misrepresentation or submit a jury interrogatory on it to the jury. There has been no finding of liability for negligent misrepresentation against Health Net in the Texas case.
In the Louisiana and Oklahoma cases, the trial court judge rendered judgments in favor of the plaintiffs and against Health Net finding it "liable for negligent misrepresentations" that caused damage to the Louisiana and Oklahoma HMOs and their creditors. In her reasons for judgment the trial court judge described the negligent representations as follows:
*429 (D) HOW HEALTH NET MADE NEGLIGENT REPRESENTATIONS THAT CAUSED DAMAGE TO THE HMOS.
Health Net directed Shattuck Hammond, investment agent, and Vinson & Elkins, attorneys, to draft schedules, documents and filings that would obfuscate their true intentions and induce regulators to rely upon the falsified contents. Health Net induced Thomas Lucksinger to continue to use blind-eye tactics with the regulatory personnel in Texas.[[69]]
The record on appeal does not reflect why there is a difference between the manners in which this claim was adjudicated in the Texas case and in the Louisiana and Oklahoma cases.
2. Proximate Cause
(Proposed TX Jury Instructions 79 and 80)
The elements of a tort cause of action in Texas are a duty, a breach of that duty, and damages proximately caused by that breach of duty. The components of proximate cause are cause-in-fact and foreseeability. The test for cause-in-fact is whether the tortious act or omission was a substantial factor in bringing about injury, without which the harm would not have occurred. Foreseeability requires that a person of ordinary intelligence should have anticipated the danger created by a tortious act or omission. Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 477-78 (Texas 1995).
A review of the trial court's "FINAL JUDGMENT REGARDING LOUISIANA PLAINTIFF" shows that the court held as a matter of law that the breach of a fiduciary duty, fraud, negligent misrepresentations, unfair, or deceptive acts or practices and conspiracy of Health Net were the proximate cause of damage to the "Louisiana HMO or its creditors." These rulings are consistent with the trial court's erroneous ruling that Texas law rather than Louisiana law applied in the Louisiana case.
With the advent of the use of the duty/risk analysis for tort cases in Louisiana, the legal concept of proximate cause used in the common law is no longer in prevalent use. See the excellent discussions in Maraist & Galligan, supra, §§ 3.01-.04, pp. 3-1 to 3-7 and §§ 5.01.05, pp. 5-1 to 5-10; W. Crawford, 12 La. Civ. Law Treatise, Tort Law, §§ 4.2 and 4.3, pp. 76-81 (2000). In the duty/risk analysis, the foreseeability element of proximate cause is subsumed into the scope of the duty element and becomes part of a question of law of whether the particular risk falls within the scope (ambit of protection) of the duty. Foreseeability is not a question of fact in Louisiana. Roberts v. Benoit, 91-0394, p. 26 (La.5/28/92), (on rehearing), 605 So.2d 1032, 1054; Smith v. Roussel, XXXX-XXXX, p. 8 (La.App. 1 Cir. 6/22/01), 809 So.2d 159, 166.
The trial court judge committed patent legal error by using the concept of proximate cause to decide the Louisiana case.
3. Fraud
In the Texas case, the jury responded "Yes" to Interrogatory 6 that stated "Do you find by the preponderance of evidence that defendant HealthNet, Inc. [sic], committed fraud that proximately caused damage to the Texas HMO?" (Emphasis added.)
*430 In the Louisiana and Oklahoma judgments, the trial court judge stated that "the plaintiff sustained its burden of proving by clear and convincing evidence that Health Net, Inc. committed fraud that proximately caused damage to the Louisiana [and Oklahoma] HMO or its creditors...".[70] (Emphasis added.)
The record on appeal does not reflect why different burdens of persuasion were used for the fraud issue in the Texas case and in the Louisiana and Oklahoma cases or why the phrase "or its creditors" used in the Louisiana and Oklahoma judgments was omitted in Interrogatory 6 in the Texas case.
4. Allocation of Fault
The petition of the Texas Receiver asserted fault by AmCareco's seven officers and directors, its accounting firm, its law firm, and its individual lawyer. FHC and Health Net also were listed as defendants. Health Net answered and admitted that the other defendants were at fault but denied that it and FHC engaged in any wrongful conduct.
The joint petition of the Louisiana and Oklahoma Receivers asserted fault by AmCareco's seven officers and directors, its accounting firm, its law firm, and its lawyer. Scott Westbrook, as an officer and director of AmCare-LA, five insurance companies, AmCareco, FHC, and Health Net also were named as defendants. Health Net filed an answer that essentially was a general denial in this case.
During the trial, the Receivers presented the testimony of Edward W. Buttner, IV, a certified public accountant who was qualified as an expert witness in the field of statutory accounting. Buttner testified, in pertinent part, as follows:
Q. You also stated in your deposition that you think that everyone associated with what happened with these HMOs bears some responsibility for what happened with the failure of the HMOs; isn't that correct?
A. I do.
Q. And when you say everybody associated with these HMOs, you're talking about Tom Lucksinger, the president of the HMOs?
A. I am.
Q. And of AmCareco. Michael Nadler who was, I believe, the secretary of the HMOs?
A. I believe, right, he was one of the executive officers.
Q. One of the executive officers. Stephen Nazarenus who is the CFO of the HMOs.
A. Absolutely.
Q. After the sale now I'm talking about.
A. Absolutely.
Q. Scott Westbrook who was one of the salesmen for the Louisiana HMO after the sale.
A. I don't recall his name.
Q. Okay. Michael Jhin who was a director of the HMOs after the sale by Health Net; is that correct?
A. That's correct.
Q. William Galtney who was a director of the HMOs after the sale; is that correct?
A. Yes, sir.
Q. John Mudd, a director of the HMOs after the sale.
A. Yes, sir.
Q. PriceWaterhouseCoopers [auditor for AmCare entities in 1999, 2000, and 2001]?
*431 A. Absolutely.
Q. And we will talk about them in a second. Michael Benzon who was a partner at PriceWaterhouseCoopers who audited the HMOs after the sale?
A. Yes, sir.
Q. Proskauer Rose, AmCareco's attorney?
A. Yes, sir.
Q. Stuart Rosow who is partner at Proskauer Rose, AmCareco's attorney?
A. Yes, sir.
. . . .
Q. Vinson & Elkins, LLP, [law firm representing AmCareco to state regulators] the law firm that submitted the cash payment calculation, which is your appendix D?
A. Yes, sir.
Q. Susan Conway, who is an attorney at Vinson & Elkins who wrote the letter to the Texas Department of Insurance that submitted this calculation?
A. Yes, sir.
Q. So all those Shattuck Hammond [investment banking firm engaged by Health Net to find a buyer for the HMOs]?
A. Shattuck Hammond, yes, sir.
Q. Shattuck Hammond was an investment banker [sic] who assisted with the sale of the HMOs to AmCareco; is that correct?
A. Yes, sir.
Q. Eric Coburn, who we heard from Friday who worked for Shattuck Hammond; is that correct?
A. Yes, sir.
Q. So it's your testimony that all those folks bore some responsibility for this?
A. As well as others.
Q. And what others are you referring to?
A. I would refer to Health Net as those others.
Q. Now
A. And there may be others there as well. I mean as we sit here now, there are there are there may be others. You know, again I haven't spoken with the regulators. I don't know if there is [sic] other parties that they may have gotten some data from that was less than accurate.
Q. Your expert report addressed in great measure PriceWaterhouseCoopers, correct?
A. Yes, sir.
Q. PriceWaterhouseCoopers was the auditor after the sale to the Health Net I'm sorry, after the sale by Health Net to AmCareco, correct?
A. Yes, sir.
Q. And they audited these AmCare HMOs after the sale, correct?
A. Well, they audited them beginning for 1999 which went back to the beginning of the year, which would have predated the sale as well.
Q. But PriceWaterhouseCoopers was not a Health Net auditor, correct?
A. That's correct, they were not.
Q. And it was not an auditor of the HMOs while Health Net owned them, correct?
A. That's correct.
Q. Now in looking at your report, you decided that PriceWaterhouseCoopers was negligent in their auditing of the HMOs, correct?
A. Yes, sir. (Emphasis added.)
During the charge conference held on June 29, 2005, the parties considered what would be an appropriate jury interrogatory for the allocation of fault issue. The condition precedent for inclusion of the name of a person in this interrogatory is *432 that sufficient evidence must be introduced to submit the issue of the particular person's fault to the jury. Tex. Civ. Prac. & Rem.Code § 33.003(b). The Texas Receiver submitted a proposed interrogatory that provided as follows:
JURY INTERROGATORY No. 16
For each of the following that you find to be at fault in causing any damages to AMCARE-TX (WHICH INCLUDES AMCARE MGT) or its creditors, state the percentage of the total damages caused by that person's or entity's fault.
William F. Galtney _____%
Health Net _____%
Michael K. Jhin _____%
Thomas S. Lucksinger _____%
John P. Mudd _____%
Steven [sic] J. Nazarenus _____%
Michael D. Nadler _____%
M. Lee Pearce _____%
Price WaterhouseCoopers, LLP _____%
Proskauer Rose, LLP _____%
Stuart Rosow _____%
Scott Westbrook _____%
TOTAL 100 %
You should only assign percentages to the persons or entities you find caused the damages. The percentages you find must total 100 percent. The percentages must be expressed in whole numbers.
Health Net submitted the following allocation of fault interrogatory:
Jury Interrogatory No. 12
For each of the following people and entities that you found to be at fault in causing damages to AmCare Health Plans of Texas, please state the percentage of the total damages caused by that person's or entity's fault:
Thomas S. Lucksinger _____%
Stephen J. Nazarenus _____%
Michael D. Nadler _____%
John P. Mudd _____%
Michael K. Jhin _____%
William F. Galtney _____%
Scott Westbrook _____%
Proskauer Rose, LLP _____%
Stuart Rosow _____%
Herschel Goldfield _____%
PricewaterhouseCoopers, LLP [sic] _____%
Mike Benzon _____%
Vinson & Elkins, LLP _____%
Susan Conway _____%
Shattuck Hammond Partners _____%
Lee Pearce _____%
AmCareco _____%
AmCare Health Plans of Texas _____%
Texas Department of Insurance _____%
You should only assign percentages to the persons or entities you find caused the damage to AmCare Health Plans of Texas. The percentages must be expressed in whole numbers. The percentages must total 100%. (Emphasis added.)
Health Net's list contains the names of all of the persons listed by the Texas Receiver.
During the discussion on the interrogatories, the following exchange took place between the counsel for the Texas Receiver and the Court:
THE COURT: Is there any evidence of Lucksinger fault?
Mr. McKERNAN: [Counsel for the Texas Receiver]: Yes, they need to be on it.
THE COURT: All right. Is there any evidence of Nazarenus fault?
Mr. McKERNAN: Yes.
THE COURT: Is there any evidence of Nadler fault?
Mr. McKERNAN: Yes.
THE COURT: Any evidence of John P. Mudd fault?
Mr. McKERNAN: Yes. (Emphasis added.)
Thereafter, there was further discussion and the trial court judge ultimately ruled that the persons to which fault could be allocated (other than Health Net) would be lumped into two categories, namely: (1) "Any other person(s)" and (2) "Any other Company" and would not be itemized.
The jury allocated fault at eighty-five percent (85%) for Health Net, zero percent (0%) for "Any other person(s)," and fifteen *433 percent (15%) for "Any other Company" in Interrogatory 3.[71]
Health Net filed a motion for a JNOV. The trial court granted the JNOV in part and rendered a judgment that states that "[t]he Court apportions fault to `other persons' in the full sum of fifteen percent (15%)." (Emphasis added.) In reasons dictated into the record, the trial court judge stated the following to support her ruling:
The testimony in this case that this jury heard involved conduct by sophisticated businessmen, accountants, lawyers, liquidators, receivers, people who are well positioned, well educated, and focused. The jury found, after extensive deliberation and weeks of testimony and hundreds of exhibits, that the defendants were liable based upon that evidence and that there should be an allocation of fault to others.
There is evidence in the record that other entities were at fault, and there is also evidence in the record that other persons were at fault and, therefore, should be allocated some degree of fault.
This court recalls very vividly the testimony of Mr. Lucksinger, Mr. Nazarenus and their efforts to take these orphan HMOs and adopt them; thereafter, mistreated them. This court is firmly of the opinion that that conduct requires some allocation of fault.
The court heard the testimony of Susan Conway, high-powered counsel, less than honest, less than exemplary, less than candid. Many actors, many actors in this case all with a view towards lining their pockets, receiving some benefit under the pain of some unsuspecting patients and policyholders and state agencies.
The court is of the opinion that there should be apportionment of fault to other persons in the full sum of fifteen per cent. The court hereby imposes that sum and grants the motion for JNOV specifically answering the interrogatory and specifically assessing whether or not reasonable men and women, viewing the evidence in the light most favorable to the non-moving party, could reach a contrary result. (Emphasis added.)
Subsequently, the trial court rendered judgment in the Louisiana and Oklahoma cases and allocated fault at seventy percent (70%) for Health Net, fifteen percent (15%) for "Any other Persons(s)" and fifteen percent (15%) for "Any other Company".
Pursuant to timely filed requests for written findings of fact and reasons for judgment and by order of this Court, the trial court judge provided reasons that addressed the issue of "[allocation of fault with an itemization of each person and company at fault in the `lump sum' categories of `Any other Persons(s)' and `Any other Company'." In written reasons dated August 20, 2007, the trial court judge stated in pertinent part, as follows:
(A) Allocation of fault with an itemization of each person and company at fault in the lump sum categories of "Any other Persons" and "Any other Company." Health Net 70%, *434 AmCareco 15%, Thomas Lucksinger 15%.
. . . .
(D) How Health Net made negligent representations that caused damage to the HMOs.
Health Net directed Shattuck Hammond, investment agent, and Vinson & Elkins, attorneys, to draft schedules, documents and filings that would obfuscate their true intentions and induce regulators to rely upon the falsified contents. Health Net induced Thomas Lucksinger to continue to use blind-eye tactics with the regulatory personnel in Texas, (Emphasis added.)[72]
The ruling of the trial court judge in the Louisiana and Oklahoma cases that AmCareco and Lucksinger were the only parties (other than Health Net) who were at fault is in direct conflict with her reasons for judgment granting the JNOV in the Texas case and her reasons for judgment in the Louisiana and Oklahoma cases. As previously set forth in those reasons, the trial court judge stated "There is evidence in the record that other entities were at fault, and there is also evidence in the record that other persons were at fault" and Shattuck Hammond, Vinson & Elkins, Lucksinger, Nazarenus and Susan Conway were specifically listed. (Emphasis added.)
5. Existence of Pledged Capital for an HMO by Health Net
In paragraph (K) B) of her August 27, 2007 Reasons for Judgment in the Louisiana case, the trial court judge stated that, "Neither AmCareco nor Health Net, however, ever pledged their own capital in place of the statutory capital required that the strained HMOs were forced to deplete." (Emphasis added.)
However, on November 4, 2005 in the Louisiana case, the trial court judge rendered judgment against Health Net for $9,511,624.19 pursuant to a parental guarantee in which Health Net "guarantees that it shall provide sufficient capital to [AmCare-LA] to insure that [AmCare-LA] maintains the minimum amounts of paid capital and surplus required for an HMO under Louisiana law." (Emphasis added.)
6. Conclusion
The trial court judge committed error by not reconciling these differences. De novo appellate review appears to be the proper method for reconciling conflicting decisions when a bifurcated trial is held in a trial court. Fontenot v. Patterson Ins., XXXX-XXXX, pp. 4-7 (La.App. 3 Cir. 12/5/07), 972 So.2d 401, 406-08, judgment rev'd on other grounds, XXXX-XXXX (La.12/12/08), 997 So.2d 529; see Thornton v. Moran, 343 So.2d 1065, 1065 (La.1977); Aubert v. Charity Hosp. of La., 363 So.2d 1223, 1226-27 (La.App. 4 Cir.1978).
F. Recapitulation of Errors Affecting the Texas Jury Verdict
The trial court judge committed the following prejudicial errors pertaining to the verdicts in the Texas case:
1. Erroneously ruled that the proposed jury instructions submitted by the parties were untimely, pursuant to La. C.C.P. art. 1793 A;
2. Refused to inform the parties of the instructions she intended to give the jury within a reasonable time prior to their arguments to *435 the jury, in violation of La. C.C.P. art. 1793 B;
3. Failed to give the jury an interrogatory and instruct them on the issue of sham contract;
4. Failed to give the jury an interrogatory and instruct them on the issue of single business enterprise;
5. Failed to instruct the jury on V.A.T.S. Ins.Code art. 2.21;
6. Erroneously instructed the jury on the fraud issue;
7. Committed legal error by instructing the jury on the fiduciary duty issue;
8. Erroneously instructed the jury on the unfair or deceptive acts or practices under the Texas Insurance Code issue;
9. Erroneously instructed the jury on the conspiracy issue; and
10. Erroneously instructed the jury on the allocation of fault issue.
G. Conclusion
As previously indicated, a trial court judge is mandated to instruct the jury on the correct principles of law applicable to the issues presented by the pleadings and the evidence. Adequate instructions are those 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. As previously indicated, in addition to prejudicial errors of law, on many issues in this case, the facts presented required that more precise and disjunctive charges be given. See Boncosky Services, Inc., 98-2239 at pp. 9-10, 751 So.2d at 285-86, a case analogous to the instant case in that respect.
After reviewing the entirety of the jury charge and the other errors, we conclude that (1) the charges did not adequately provide correct principles of law as applied to the issues framed in the pleadings and the evidence, (2) the jury was not adequately guided in its deliberations, and (3) the jury instructions misled the jury to the extent that it was prevented from properly dispensing justice.
Accordingly, we set aside the jury verdicts and judgments in the Texas case and will decide the Texas case pursuant to a de novo review.
VII. STANDARD OF REVIEW OF FACTS IN THE LOUISIANA AND OKLAHOMA JUDGE TRIAL CASES
(Assignments of Error LA-6 and 18; LA-Supp-1, 12 and 13; OK-6 and 11)
A. Proximate Cause in the Louisiana Case[73]
A review of the final judgment in the Louisiana case shows that the trial court rendered judgment that breach of a fiduciary duty, fraud, negligent misrepresentations, engaging in an unfair or deceptive act or practice, and a conspiracy with other persons by Health Net "proximately caused damage to the Louisiana HMO or its creditors." As explained in Part VI, Section E2 of this opinion, the application of the common law concept of proximate cause in this Louisiana tort case is error.
B. The Tort of Conspiracy in the Louisiana Case[74]
Conspiracy is not a substantive tort in Louisiana. La. C.C. art. 2324 A *436 provides, "He who conspires with another person to commit an intentional or willful act is answerable, in solido, with that person, for the damage caused by such act." This particular provision, along with La. C.C. art. 2324 B, provides for loss distribution and allocation of fault rather than substantive liability which, in Louisiana, is provided for generally in La. C.C. art. 2315. The trial court judgment finding liability for the substantive tort of conspiracy is legally erroneous but harmless in the context of the Louisiana case.
C. Unfair or Deceptive Acts or Practices in Violation of the Texas Insurance Code
(Assignment of error LA/OK-13, TX-Supp-4)
As explained in Section V of this opinion, the insurance law of Texas does not apply in the Louisiana or Oklahoma cases. Application of Texas insurance law to the Louisiana and Oklahoma cases was patent legal and prejudicial error.
D. Allocation of Fault
(Assignment of Error LA/OK-4, LA-Supp-3)
As previously indicated, the trial court in its judgments in the Louisiana and Oklahoma actions failed to name those individual persons or companies that were responsible for a percentage of fault. The court, in both instances, rendered judgment fixing lump sum percentages of fault as follows:
Defendant Health Net 70%
Any other Person(s) 15%
Any other Company 15%
_____
TOTAL 100%
Louisiana Civil Code Article 2323 provides, in pertinent part,
A. In any action for damages where a person suffers injury, death, or loss, the degree or percentage of fault of all persons causing or contributing to the injury, death, or loss shall be determined, regardless of whether the person is a party to the action or a nonparty, and regardless of the person's insolvency, ability to pay, immunity by statute, including but not limited to the provisions of R.S. 23:1032, or that the other person's identity is not known or reasonably ascertainable. If a person suffers injury, death, or loss as the result partly of his own negligence and partly as a result of the fault of another person or persons, the amount of damages recoverable shall be reduced in proportion to the degree or percentage of negligence attributable to the person suffering the injury, death, or loss.
B. The provisions of Paragraph A shall apply to any claim for recovery of damages for injury, death, or loss asserted under any law or legal doctrine or theory of liability, regardless of the basis of liability. (Emphasis added.)
Louisiana Code of Civil Procedure Article 1917 B provides, in pertinent part:
*437 In nonjury cases to recover damages for injury, death or loss, whether or not requested to do so by a party, the court shall make specific findings that shall include those matters to which reference is made in Paragraph C of Article 1812 of this Code. (Emphasis added.)
Louisiana Code of Civil Procedure Article 1812 C provides:
In cases to recover damages for injury, death, or loss, the court at the request of any party shall submit to the jury special written questions inquiring as to:
(1) Whether a party from whom damages are claimed, or the person for whom such party is legally responsible, was at fault, and, if so:
(a) Whether such fault was a legal cause of the damages, and, if so:
(b) The degree of such fault, expressed in percentage.
(2)(a) If appropriate under the facts adduced at trial, whether another party or nonparty, other than the person suffering injury, death, or loss, was at fault, and, if so:
(i) Whether such fault was a legal cause of the damages, and, if so:
(ii) The degree of such fault, expressed in percentage.
(b) For purposes of this Paragraph, nonparty means a person alleged by any party to be at fault, including but not limited to:
(i) A person who has obtained a release from liability from the person suffering injury, death, or loss.
(ii) A person who exists but whose identity is unknown.
(iii) A person who may be immune from suit because of immunity granted by statute.
(3) If appropriate, whether there was negligence attributable to any party claiming damages, and, if so:
(a) Whether such negligence was a legal cause of the damages, and, if so:
(b) The degree of such negligence, expressed in percentage.
(4) The total amount of special damages and the total amount of general damages sustained as a result of the injury, death, or loss, expressed in dollars, and, if appropriate, the total amount of exemplary damages to be awarded. (Emphasis added.)
Under La. C.C.P. arts. 1917 and 1812, the trial judge in a non-jury case dealing with delictual damages has a mandatory duty to make specific findings concerning the apportionment of fault. Boudreaux v. Farmer, 604 So.2d 641, 649 (La. App. 1 Cir.1992), writs denied, 605 So.2d 1373, 1374 (La.1992); Porche v. Point Coupee General Hospital, 554 So.2d 1345, 1347 (La.App. 1 Cir.1989); Martino v. Sumrall, 554 So.2d 1343, 1345 (La.App. 1 Cir.1989); Scott v. State, 525 So.2d 689, 691 (La.App. 1 Cir.1988), writ denied, 558 So.2d 1128 (La.1990). It is legal error for the trial court to fail to assess percentages of fault. Turner v. D'Amico, 96-0624, p. 3 (La.App. 1 Cir. 9/19/97), 701 So.2d 236, 238, writ denied, 97-3034 (La.2/13/98), 709 So.2d 750. It is legal error for the trial court to fail to identify all parties and nonparties at fault for purposes of allocation of fault. See La. C.C.P. art.1917 and 1812; Williams v. Louisiana Power & Light Co., 590 So.2d 786, 789 (La.App. 5 Cir.1991), writ denied, 595 So.2d 656 (La.1992).
In assigning percentages of fault attributable to each tort feasor, a court should consider both the nature of each party's conduct and the extent of the relation between that conduct and the damages suffered. Watson v. State Farm Fire & Casualty Ins. Co., 469 So.2d 967 (La. *438 1985). In Watson, 469 So.2d at 974, the Louisiana Supreme Court indicated the factors that should be considered to apportion fault:
In assessing the nature of the conduct of the parties, various factors may influence the degree of fault assigned, including: (1) whether the conduct resulted from inadvertence or involved an awareness of the danger, (2) how great a risk was created by the conduct, (3) the significance of what was sought by the conduct, (4) the capacities of the actor, whether superior or inferior, and (5) any extenuating circumstances which might require the actor to proceed in haste, without proper thought. And of course, as evidenced by concepts such as last clear chance, the relationship between the fault/negligent conduct and the harm to the plaintiff are considerations in determining the relative fault of the parties.
No matter what the theory of liability being asserted by the plaintiff, a percentage assessment of fault must be allocated to each person (natural or juridical)[75] shown to be at fault in causing injuries to a plaintiff, regardless of whether the person is a party to the lawsuit and regardless of any immunity to which the person may be entitled. Robinson, D.W., Love and Fury: Recent Radical Revisions to the Law of Comparative Fault, 59 La. L.Rev. 175, 175-79 (Fall 1998).[76]
The failure of the trial court judge to (1) identify and name each responsible person or entity in the judgment and (2) assess each with his percentage of fault was error.
E. Refusal to Provide Adequate Written Findings of Fact and Reasons for Judgment
(Assignments of Error LA-18, LA-Supp 1, 12 and 13; OK-11, OK-Supp 1, 11 and 12)
1. Facts
As previously indicated, these consolidated actions were tried in June of 2005. The Texas action was a jury trial and the Louisiana and Oklahoma actions were bench trials. On June 30, 2005, the jury in the Texas action returned verdicts that found Health Net at fault on several different causes of action, determined Health Net to be eighty-five percent (85%) at fault and "Any other Company" fifteen percent (15%) at fault, and awarded compensatory and punitive damages. The Louisiana and Oklahoma actions were taken under advisement.
On July 26, 2005, Health Net filed a motion requesting written findings of fact and reasons for judgment (hereinafter referred to as "reasons") in the Louisiana and Oklahoma actions. La. C.C.P. arts. 1917, 1812 and 1813.
On August 19, 2005, a hearing was held on Health Net's motion for a judgment notwithstanding the verdict (JNOV) in the Texas case. The judgment on the JNOV was rendered on November 3, 2005. In it, the trial court judge (1) assigned fifteen percent (15%) fault to "other persons" (which reduced Health Net's fault to seventy percent (70%)), and (2) reduced the *439 Texas punitive damage award by thirty percent (30%).
On November 4, 2005, the trial court rendered judgments separate in favor of each Receiver in the Louisiana and Oklahoma cases.[77] In each judgment, the trial court found Health Net at fault under several causes of action, fixed the allocation of fault for Health Net at seventy percent (70%), for "Any other Persons(s)" at fifteen percent (15%), and for "Any other Company" at fifteen percent (15%). In that judgment, the trial court also fixed the amount of the compensatory damages and found Health Net liable for reasonable attorney fees, punitive damages, and potentially treble compensatory damages. In the Louisiana case, Health Net also was found liable for contractual damages.
On November 10, 2005, Health Net filed a second request for reasons.
At the commencement of a hearing held on November 21, 2005, appears the following colloquy between the trial court judge and Health Net's attorney:
MR. PERCY [Counsel for Health Net]: One preliminary matter on our list, your Honor. Has the court had an opportunity to prepare written reasons and conclusions of law in connection with the Louisiana and Oklahoma judgment.
THE COURT: The final judgment?
MR. PERCY: The final judgment, yes, your Honor.
THE COURT: Yes, but it's not ready yet. The court has had ample opportunity. As you know the court signed judgment about five days ago. And I have thirty days from the signing to do it. I intend to finish it shortly.
MR. PERCY: I just needed to know because we are rolling into some issues that are obviously governed by the judgment. I just wanted to know
THE COURT: I noticed when I received it there was a second request. It was denominated second request for written reasons. And I recall when I got the first request it was premature because I hadn't even signed a judgment. So as soon [sic] I signed the judgment. I began to work on it. So it will be complete shortly.
MR. PERCY: Thank you, your Honor.[78] (Emphasis added).
The record on appeal shows that in the Louisiana and Oklahoma actions, motions for suspensive appeals were filed by Health Net on December 6, 2005, the suspensive appeal bonds were filed on December 19, 2005, and the appeal orders were signed on February 2, 2006.
Nineteen (19) months later, on June 11, 2007, Health Net filed a motion in this Court for a limited remand pursuant to Rules 2-8.1 and 2-8.2, Uniform Rules Courts of Appeal, asserting the "Trial Court Refused to Provide Reasons for Judgment despite being twice asked to do so and ... the Trial Judge failed to allocate fault among all potential parties" in violation of La. C.C.P. arts. 1812 and 1917. Health Net argued that a remand was necessary to compel the trial judge to follow the law.
On July 10, 2007, we granted the relief prayed for in the request for reasons for judgment with the following observation:
As evidenced by the judgments hereinafter discussed, the trial court rendered *440 multiple "ultimate" fact rulings. Many of these factual findings involve complex factual issues. Accordingly, comprehensive written findings of fact and reasons for judgment are essential herein for a proper review pursuant to the manifest error clearly wrong standard for the appellate review of facts, if that standard applies. Finally, such reasons may preclude the necessity for one or more assignments of error. (Footnote omitted.)
Thereafter, we issued the following order to the trial court judge:
ORDER
It is ordered that:
(1) This matter is remanded to the trial court for the limited purpose of obtaining the trial court's written findings of fact and reasons for judgment (reasons) prepared in accordance with the following instructions and for supplementing the record on appeal with the written findings and reasons;
(2) The trial court judge shall file the reasons with the Clerk of the 19th Judicial District Court and shall transmit copies to the parties herein no later than August 10, 2007, and shall order the Clerk of the district court to supplement the record on appeal with this document not later than four days thereafter;
(3) The reasons shall have a separate section pertaining to each issue listed hereinafter;
(4) Each issue discussed shall state the factual findings of the court on the issue and the pertinent constitutional provision, law and/or jurisprudence that controls;
(5) Each factual finding shall cite the pages in the record that contain the evidence that supports the factual finding;
(6) Each Louisiana case citation shall be in conformity with Section VIII of the Louisiana Supreme Court General Administrative Rules;
(7) Heath Net may file additional assignments of error with appropriate briefing, to be received by this Court no later than September 7, 2007;
(8) The appellees may file briefs in response to any additional assignments of error filed by Health Net, to be received by this Court no later than September 26, 2007;
(9) The trial court shall address the following issues in the reasons:
(a) allocation of fault with an itemization of each person and company at fault in the "lump sum" categories of `Any other Person(s)' and `Any other Company';
(b) how Health Net breached a fiduciary duty that caused damage to the Louisiana and Oklahoma HMOs (HMOs);
(c) how Health Net committed fraud that caused damage to the HMOs;
(d) how Health Net made negligent misrepresentations that caused damage to the HMOs;
(e) how Health Net engaged in unfair or deceptive acts or practices that caused damage to the HMOs;
(f) how Health Net conspired with other persons to cause damage to the HMOs;
(g) how Health Net acted with malice and gross negligence that caused damage to the HMOs;
(h) the legal basis for Health Net's liability for reasonable attorney fees to the HMOs;
(i) the legal basis for Health Net's liability for punitive damages to the HMOs;
*441 (j) the legal basis for Health Net being liable for an award of treble compensatory damages or punitive damages at the option of the Louisiana and Oklahoma HMOs;
(k) the legal basis for holding the HMOs were a single business enterprise;
(l) the legal and factual basis for granting a JNOV and changing the fault allocation to `other persons' from 0% to 15% in the Texas HMO case;
(m) the legal and factual basis for granting a JNOV and finding the punitive damage award in the Texas HMO case excessive and reducing it by 30%;
(n) the legal and factual basis for holding that Health net was liable pursuant to a `parental guarantee' for the whole compensatory damage aware of $9,511,624.19 in the Louisiana HMO case; and
(10) Concurrently with the transmission of this order to the trial court judge, the Clerk of this Court shall transmit all original exhibits filed in this matter to the Clerk of the 19th Judicial District Court for the sole and exclusive use of the trial court for preparing the reasons ordered herein. When the reasons are filed with the Clerk of the district court, he shall return such items to this Court. (Emphasis added.)
On the 9th day of August, 2007, the trial court judge requested a ten-day extension of time to comply with the order, which request was granted on the same day. Subsequently, on August 17, 2007, the trial court judge requested guidance from this Court on the issue of whether the trial court had "to maintain its original reasons for granting the judgment notwithstanding the verdict with respect to the allocation of fault and reduction of the punitive damage award, or may it also consider the reasons adduced having reviewed all exhibits and evidence transmitted by the Court of Appeal?" On August 17, 2007, the trial court's request was denied with the observation that this Court's order was "clear and unambiguous, and speaks for itself."
The trial court judge filed "Written Reasons for Judgment" in the trial court on August 22, 2007, and supplied this Court with a copy on the same day. On August 28, 2007, the trial court judge filed "Reasons for Judgment, Part II" in the trial court and supplied this Court with a copy the same day. The trial court judge's initial reasons complied with the requirements of La. C.C.P. art. 1812 C to identify all parties' and nonparties' percentage of fault. The reasons contain reference to the first ten issues mandated to be included by our Order. However, the reasons state factual conclusions and do not adequately state factual findings and, except for citing the Texas statutory authority for punitive and treble damages, do not contain the law, jurisprudence, or record citations as ordered. The trial court's "Reasons for Judgment, Part II" contains a discussion concerning three additional issues without providing law, jurisprudence, or record citation. The parental guarantee judgment was not addressed in either document.[79]
In its August 20, 2007 reasons, the trial court judge stated the following:[80]
The requests for written reasons apparently were filed with the Clerk of Court on July 26, 2005 and November *442 10, 2005, respectively. However, they were never presented to the court by the moving party, nor was the court favored with notice as evidenced from the certificate of service. Because the pleading contained no order, the Clerk of Court, in accordance with local rules and practice, had no reason to present the pleading to the court until the order of remand was issued.
The July 26, 2005 request was made prematurely because no judgment had been signed. The November 10, 2005 request was made after the trial court had granted the order of appeal on November 7, 2005, thereby divesting itself of jurisdiction prior to the request having been filed.
Despite this consequence, this court has labored arduously for the last few weeks, together with its staff, to reconstruct facts from a ten-day trial which occurred more than two years ago, after two years of motion practice.
Nonetheless, the court has now reviewed hundreds of documents and exhibits, has read transcripts, briefs, and memoranda in a painstakingly, though belated, effort to comply with the order of the court of appeal, and its own obligation to render justice for the litigants, counsel, and the public at large, all while maintaining its ambitious docket, its public, administrative, and quasi-judicial functions. Resultantly, any errors or omissions should be viewed in that context and under those constraints.
2. Supplemental Assignments of Error
On September 12, 2007, Health Net filed supplemental assignments of error pertaining to the validity of the reasons. Health Net asserts that the manifest error-clearly wrong standard for review of facts does not apply to the Louisiana and Oklahoma actions in this appeal and this Court should review the facts in those actions de novo because the trial court judge "Failed to Issue Legally Sufficient Findings and Reasons," citing Bloxom v. Bloxom, 512 So.2d 839, 843 (La.1987). Health Net contends that: (1) the trial court "made no serious effort to comply" with this court's order; (2) the trial court's legal conclusions are unsupported by any citations to governing law; (3) the trial court's factual findings are unsupported by any record citations; (4) the trial court failed to specify the facts that supported the factual conclusions; and (5) the elements of the various causes of action are not set forth and there are no specific facts given to support the ultimate factual conclusions.
The plaintiffs respond that "failure to abide by every nuance [of] this Court's July 10 order ... is not `error'." Further "[t]he evidentiary, statutory and jurisprudential bases for Judge Clark's extensive judgments and her recent Reasons for Judgment are readily implied by the record which fully supports each and every one of her findings." The plaintiffs contend that "[w]hile Judge Clark's findings and reasons are admittedly not in full compliance with that Order, they are nevertheless sufficient under the law and are entitled to full deference", citing Leal v. Dubois, XXXX-XXXX, p. 4 (La.10/13/00), 769 So.2d 1182, 1185. Finally, the plaintiffs observe that "the Receivers and the numerous policyholders, health care providers and creditors whose interests they represent are not responsible for this nineteen month delay and therefore should not be prejudiced by the same."
3. Applicable Law
Louisiana Code of Civil Procedure Article 1918 provides as follows:
*443 A final judgment shall be identified as such by appropriate language. When written reasons for the judgment are assigned, they shall be set out in an opinion separate from the judgment. (Emphasis added.)
A judgment and written reasons for judgment are two separate and distinct documents. Greater New Orleans Expressway Commission v. Olivier, 2002-2795, p. 3 (La.11/18/03), 860 So.2d 22, 24.
Louisiana Code of Civil Procedure Article 1917[81] is entitled "Findings of the court and reasons for judgment" and provides as follows:
In all appealable contested cases, other than those tried by a jury, the court when requested to do so by a party shall give in writing its findings of fact and reasons for judgment, provided the request is made not later than ten days after the signing of the judgment.
In nonjury cases to recover damages for injury, death or loss, whether or not requested to do so by a party, the court shall make specific findings that shall include those matters to which reference is made in Paragraph C of Article 1812 of this code. These findings need not include reasons for judgment. (Emphasis added.)[82]
Louisiana Code of Civil Procedure Article 1812 C provides as follows:
In cases to recover damages for injury, death, or loss, the court at the request of any party shall submit to the jury special written questions inquiring as to:
(1) Whether a party from whom damages are claimed, or the person for whom such party is legally responsible, was at fault, and, if so:
(a) Whether such fault was a legal cause of the damages, and, if so:
(b) The degree of such fault, expressed in percentage.
(2)(a) If appropriate under the facts adduced at trial, whether another party or nonparty, other than the person suffering injury, death, or loss, was at fault, and, if so:
(i) Whether such fault was a legal cause of the damages, and, if so:
(ii) The degree of such fault, expressed in percentage.
(b) For purposes of this Paragraph, nonparty means a person alleged by any party to be at fault, including but not limited to:
(i) A person who has obtained a release from liability from the person suffering injury, death, or loss.
(ii) A person who exists but whose identity is unknown.
(iii) A person who may be immune from suit because of immunity granted by statute.
(3) If appropriate, whether there was negligence attributable to any party claiming damages, and, if so:
(a) Whether such negligence was a legal cause of the damages, and, if so:
(b) The degree of such negligence, expressed in percentage.
(4) The total amount of special damages and the total amount of general *444 damages sustained as a result of the injury, death, or loss, expressed in dollars, and, if appropriate, the total amount of exemplary damages to be awarded. (Emphasis added.)
The duties provided for in La. C.C.P. arts. 1812 C and 1917 are mandatory.
The above cited procedural provisions implement the substantive provisions of La. C.C. arts. 2323 A and 2324 B. La. C.C. art. 2323 A is entitled "Comparative fault" and provides as follows:
In any action for damages where a person suffers injury, death, or loss, the degree or percentage of fault of all persons causing or contributing to the injury, death, or loss shall be determined, regardless of whether the person is a party to the action or a nonparty, and regardless of the person's insolvency, ability to pay, immunity by statute, including but not limited to the provisions of R.S. 23:1032, or that the other person's identity is not known or reasonably ascertainable. If a person suffers injury, death, or loss as the result partly of his own negligence and partly as a result of the fault of another person or persons, the amount of damages recoverable shall be reduced in proportion to the degree or percentage of negligence attributable to the person suffering the injury, death, or loss. (Emphasis added.)
Louisiana Civil Code Article 2324 is entitled "Liability as solidary or joint and divisible obligation" and provides, in pertinent part, as follows:
A. He who conspires with another person to commit an intentional or willful act is answerable, in solido, with that person, for the damage caused by such act.
B. If liability is not solidary pursuant to Paragraph A, then liability for damages caused by two or more persons shall be a joint and divisible obligation. A joint tortfeasor shall not be liable for more than his degree of fault and shall not be solidarity liable with any other person for damages attributable to the fault of such other person, including the person suffering injury, death, or loss, regardless of such other person's insolvency, ability to pay, degree of fault, immunity by statute or otherwise, including but not limited to immunity as provided in R.S. 23:1032, or that the other person's identity is not known or reasonably ascertainable. (Emphasis added.)
Finally, in Maraist & Lemmon, 1 La. Civ. Law Treatise, Civil Procedure, § 11.1, p. 259, appears the following:
The judge in a bench trial must provide reasons for judgment in two situations. In all cases, the judge must provide findings of fact and reasons for judgment if a party makes a timely request. Even if no party requests such findings, the judge in a nonjury suit to recover damages for "injury, death or loss" must make specific findings of (1) whether the particular party was at fault, (2) whether that fault was the legal cause of the damages sought, (3) the degrees of fault, expressed in percentages, and (4) the total amount recoverable as damages. Other than Article 1917, the law does not prescribe the scope of a judge's findings of fact. Presumably, the findings could include (1) the judge's credibility determinations; (2) the judge's choice of conflicting inferences, particularly those which determine critical primary facts; (3) the primary facts the judge has found; (4) the judge's resolution of the mixed questions of law and fact; and (5) the rules of law to which the judge applied the *445 fact-findings. (Emphasis added; footnotes omitted.)
Findings of fact are the recordation of essential and determining facts upon which the trial court rests its conclusions of law. 89 C.J.S. Trial § 1073, p. 686 (2001). Findings of fact should provide a clear understanding of the trial court's decision. 89 C.J.S. Trial § 1074, p. 687. Findings of fact must be clear, concise, definite, and certain. 89 C.J.S. Trial § 1097, p. 720. The trial court has a fundamental duty to make all findings necessary to support its conclusions, resolve the issues before it, and provide an adequate basis for appellate review. 89 C.J.S. Trial § 1096, p. 718. When credibility of the witnesses is at issue, the trial court should specify which witnesses were not credited and why. Id.
In Bloxom, 512 So.2d at 843, the Louisiana Supreme Court stated the following:
The trial court found that the exhaust system in Lonnie Bloxom's car as manufactured, and particularly as it related to the catalytic converter, was unreasonably dangerous to normal use. However, we are unable to give this finding the usual deference attributed to the decisions of triers of fact at the trial level. The trial court's reasons do not articulate the theory or the evidentiary facts upon which its conclusion is based. Nor can we infer from the trial court's reasons and the record the theory under which the trial court found the product to be unreasonably dangerous to normal use. Although we may accord deference to a decision of less than ideal clarity if the trial court's path may reasonably be discerned, such as when its findings, reasons and exercise of discretion are necessarily and clearly implied by the record, we will not supply a finding from the evidence or a reasoned basis for the trial court's decision that it has not found or that is not implied. (Emphasis added.)
In Milstead, 95-2446 p. 8, 676 So.2d at 96, Bloxom was further defined as follows:
The defendant argues that even if the state standard of review is applicable, the appellate court erred in failing to conduct a de novo review of this case under Bloxom v. Bloxom, 512 So.2d 839 (La. 1987). Therein, we declined to accord the usual degree of deference to a trial court's findings because the underlying theory could not be discerned from either its reasons or from the record. Bloxom, 512 So.2d at 843. However, this is an exceptional remedy available only when the trial court's "findings, reasons and exercise of discretion are [not] necessarily and clearly implied by the record." Bloxom, supra. Such is not the case here. After reviewing the record and evidence presented, we agree with the court of appeals conclusion that the "`trial court's path may reasonably be discerned' and that the trial court's factual findings are entitled to be reviewed under the manifest error standard." Milstead, 663 So.2d at 143.
In Palmer v. Schooner Petroleum Services, XXXX-XXXX, p. 6 (La.App. 3 Cir. 12/27/02), 834 So.2d 642, 646-647, writ denied, XXXX-XXXX (La.4/21/03), 841 So.2d 802, appears the following:
However, in the present case the WCJ did not articulate the evidentiary facts she relied upon for her conclusion that an accident did not occur, nor did the WCJ articulate the facts she relied upon to conclude that Palmer did not suffer an injury while in the course and scope of his employment with Schooner. When a trial court's reasons do not articulate the theory or the evidentiary facts upon which its conclusion is based, and the trial court's findings of fact and reasons are not clearly implied by the *446 record, deference is not owed. Bloxom v. Bloxom, 512 So.2d 839 (La.1987). The WCJ articulated reasons for only the La.R.S. 23:1208 violation and the refusal to award supplemental earnings benefits (SEB) to Palmer. Thus, with regard to the issue of whether an accident occurred and the issue of whether Palmer was injured while within the course and scope of his employment, we will accord no deference to the WCJ's judgment and review the record de novo, (Emphasis added; page citation deleted.)
See also Anders v. Boudion, 93-0894, pp. 3-4 (La.App. 5 Cir. 3/29/94), 636 So.2d 1029,1031.
In Leal, XXXX-XXXX at pp. 3-4, 769 So.2d at 1185, the Louisiana Supreme Court defined when Bloxom does not apply. Therein the court observed as follows:
While the court of appeal acknowledged this standard of review, it relied on our opinion in Bloxom v. Bloxom, 512 So.2d 839 (La.1987), for the proposition that appellate courts may afford less deference to the district court's factual findings when the lower court fails to articulate the theory or evidentiary basis for its conclusions. The court of appeal reasoned that because the district court did not explain its reasons for not attributing plaintiffs injuries to the accident, it was not required to give deference to the district court's findings.
We find the court of appeal misinterpreted our decision in Bloxom. In that decision, we carefully explained that deference should be accorded to the trial court's decision, even if that decision is of less than ideal clarity, if the trial court's path may be reasonably discerned, such as when its findings, reasons and exercise of discretion are necessarily and clearly implied by the record. Bloxom, 512 So.2d at 839.
After review, we conclude the district court's reasons for finding plaintiff did not sustain personal injuries as a result of the accident are necessarily and clearly implied by the record. The record demonstrates that the bulk of the evidence connecting the accident with plaintiffs personal injuries came from plaintiff herself. In written reasons for judgment, the district court clearly implied that it did not find plaintiff to be a credible witness, stating that she "did not prove, by a preponderance of the evidence, that she sustained any personal injuries as a result of this accident." The district court's finding of plaintiffs lack of credibility is further supported by the oral reasons given by the court in connection with its denial of plaintiffs motion for new trial:
I sat and heard the case. This was a case-and it was a case of believability and it was a case of credibility. And I found the plaintiff not to be credible .... I did not believe her testimony. And the injuries were not consistent with the testimony. And, as such, I did not find the plaintiffs injuries to be related to the accident. And, as such, I still don't.
Under these circumstances, the court of appeal erred in failing to give deference to the district court's factual findings, which were unequivocally based on a credibility determination. (Emphasis added.)
4. The Trial Court's Reasons for the Nineteen (19) Month Delay
In the reasons dated August 20, 2007, the trial court judge stated that the requests for reasons "were never presented to the court by the moving party, nor was the court favored with notice as evidenced from the certificate of service." Rule 9.8(c) of the Uniform Rules for Civil Proceedings *447 in District Courts provides, in pertinent part, as follows:
Any motion that may be decided ex parte must be accompanied by a proposed order, except a motion for the court to give in writing its findings of fact and reasons for judgment under La.Code Civ. Proc. Art. 1917. (Emphasis added.)
Further, the transcript of the November 21, 2005 hearing in the record on appeal contains the following:
THE COURT: I noticed when I received it there was a second request. It was denominated Second Request for Written Reasons. And I recall when I got the first request it was premature because I hadn't even signed a judgment. (Emphasis added.)
The trial court judge further asserted that the July 2005 request for reasons was premature, and the November 2005 request for reasons was filed after the court was divested of jurisdiction. La. C.C.P. art.1917 provided, at the relevant time, that a request for reasons must be made "not later than ten days after the signing of the judgment." This merely fixes the latest date on which the request may be filed; it does not prohibit filing the request at an earlier date. Even if the request is considered "premature" if made before the judgment is signed, that prematurity is cured when the judgment is signed. It is a common practice to file requests for reasons with initial pleadings. La. C.E. art. 201 B.
The trial court judgments in the Louisiana and Oklahoma cases were rendered on November 4, 2005. The second request for reasons was filed on November 10, 2005, within the ten-day period provided for in Article 1917. The record on appeal shows that motions for suspensive appeals were filed by Health Net in the Louisiana and Oklahoma actions on December 6, 2005, the suspensive appeal bonds were filed on December 19, 2005, and the orders of appeal were signed on February 2, 2006. La. C.C.P. art. 2088 provides, in pertinent part, that "The jurisdiction of the trial court over all matters in the case reviewable under the appeal is divested, and that of the appellate court attaches, on the granting of the order of appeal and the timely filing of the appeal bond, in the case of a suspensive appeal...." (Emphasis added.). At the time the second request for reasons was made, the suspensive appeal bonds had not been filed, the order granting the appeal had not been signed, and the trial court was not divested of jurisdiction as a matter of law. The second request was timely and valid.
Finally, at the November 21, 2005 hearing, the trial court judge stated the following:
THE COURT: Yes, but it's not ready yet. The court has had ample opportunity. As you know the court signed the judgment about five days ago. And I have thirty days from the signing to do it. I intend to finish it shortly ... [s]o as soon [as] I signed the judgment. I began to work on it. So it will be complete shortly. (Emphasis added.)
Health Net reasonably could assume that the trial court judge would comply with her mandatory duty.
5. The Trial Court's Failures to Comply with the Order to Provide Written Findings of Fact and Reasons for Judgment
A review of the trial court's final judgments in the Louisiana and Oklahoma cases reveals that judgments were rendered on the following causes of action: (1) fraud; (2) negligent misrepresentation; (3) violations of a fiduciary duty; (4) unfair *448 or deceptive acts or practices; and (5) malice or gross negligence which resulted in causes of action for (a) reasonable attorney fees; (b) punitive damages; and/or (c) treble compensatory damages. These causes of action were asserted against numerous persons and corporate entities. Potentially, the substantive laws of the States of Louisiana, Oklahoma, and Texas could be applicable herein when Louisiana's conflict-of-law Civil Code articles are properly applied. The pleadings, documentary evidence, and trial transcript in the record on appeal are extraordinarily extensive. As a matter of law, a judgment is not a written finding of fact and reasons for judgment.
For these reasons the trial court judge was ordered to: (1) have a separate section in the reasons for each of the fourteen (14) issues listed in the order (which essentially represented each of the final judgments rendered); (2) state the factual findings of the court on each issue and the pertinent constitutional provision, law and/or jurisprudence that pertained to the issue; and (3) cite the pages in the record that contain the evidence that supports each factual finding. Compliance with this order would articulate the legal theory and evidentiary facts upon which the trial court's judgments were based and provide an adequate basis for appellate review. The trial court's reasons fail to comply with the order since they: (1) do not cite any constitutional provision, law, or jurisprudence (except for issues pertaining to exemplary damages and attorney fees); (2) do not list the elements of the various causes of action; (3) do not cite any place in the extensive record where pertinent evidence may be found; (4) are essentially conclusions of fact with no supporting factual reasons; and (5) do not address the judgment on the Louisiana parental guarantee.
The trial court's mandatory duty to provide reasons when requested to do so is a fundamental duty to make all findings necessary to support its conclusions, resolve the issues before it, and provide an adequate basis for appellate review. Because the trial court refused to properly perform its mandatory duty, the basis for appellate review by the parties and by the court has been impaired. The appellant was required to "shotgun" its assignments of error because it did not know precisely what issues to contest, and, therefore, must contest all possible issues. The appellees did not know exactly what issues to defend and, therefore, must defend against all of the issues contested by the appellant. Finally, the reviewing court does not have the benefit of the trial court's factual determinations of weight, credibility, and/or inferences and must speculate on what law was applied. This result is in derogation of the obvious intent of La. C.C.P. arts. 1812 and 1917.
6. Conclusion
The facts, issues, and circumstances of this case are more analogous to the Bloxom case than they are to the Leal case. The failure of the trial court judge to provide adequate written findings of fact and reasons for judgment has interdicted the factual findings in the Louisiana and Oklahoma actions.
F. Application of Erroneous Texas Law in the Louisiana and Oklahoma Cases
As previously indicated in Part V, Section D of this opinion, the trial court judge erroneously applied Texas law to decide the Louisiana and Oklahoma cases. Further, as previously indicated in Part VI, Section D2 of this opinion, the trial court judge committed various errors of law when she instructed the Texas jury on *449 the issues of fiduciary duties and fraud. As previously indicated in Section E of this Part of this opinion, the trial court judge was ordered by this Court to provide written findings of fact and reasons for judgment that required for "[e]ach issue discussed shall state the factual findings of the court on the issue and the pertinent constitutional provision, law and/or jurisprudence that controls."
Finally, as previously stated in this section, except for issues pertaining to exemplary damages and attorney fees, the trial court judge has refused to cite the constitutional provisions, law, and/or jurisprudence upon which she relied to decide the Louisiana and Oklahoma cases as ordered by this Court. Because of this, it reasonably can be inferred that the trial court judge used the same erroneous Texas law that she used to instruct the Texas jury when she decided the Louisiana and Oklahoma cases. This has interdicted the factual conclusions she reached in the Louisiana and Oklahoma cases on the fiduciary duty and fraud issues.
G. Conclusion
For the foregoing reasons, the trial court's findings of fact in the Louisiana and Oklahoma cases have been interdicted and we will conduct a de novo appellate review in those cases.
VIII. PRESCRIPTION/PEREMPTION: STATUTES OF LIMITATIONS AND REPOSE
(Assignments of Error TX-10 and 11, LA/OK-8; Proposed Jury Instructions 74, 75, 76, 84 and 85)[83]
Health Net has asserted the prescription/peremption issue in objections of prescription raised in peremptory exceptions, in motions for summary judgment and as an affirmative defense in its answers. The exceptions and motions for summary judgment were tried on their pleadings. The trial court overruled the exceptions, denied the motions for summary judgments and refused to submit the issue to the jury in the Texas case. Health Net asserts that the prescription-peremption issue is controlled by La. C.C. art. 3549 for choice-of-law purposes, pursuant to that code article Louisiana law applies and the causes of action alleged by the Receivers are perempted by the three-year period of La. R.S. 12:1502. In particular, Health Net asserts that "[a]ll of the Receivers' claims against Health Net arise out of acts or omissions that occurred in connection with the April 30, 1999 sale of the three HMOs to AmCareco," and "[t]he first petition was not filed until June 30, 2003, which is more than 10 months too late."
The Louisiana Receiver responds that, because the trial court held that Texas substantive law applies in all three actions, pursuant to La. C.C. art. 3549(B)(1) Texas law applies to this issue rather than Louisiana law, maintaining this action is warranted because of "compelling considerations of remedial justice" and, in any event, these actions "should be maintained if either Louisiana or Texas law would maintain it." (Emphasis added.) The Louisiana Receiver further asserts the following: (1) the claims for breach of fiduciary duties are not prescribed under the ten-year prescriptive period provided by Louisiana law; and (2) the Louisiana one-year prescriptive period for the negligence and fraud claims was suspended by the doctrines of contra non valentem, continuing tort, adverse domination, and La. R.S. *450 22:735(B).[84] The Louisiana Receiver asserts that Health Net's reliance on La. R.S. 12:1502 is misplaced for the following reasons: (1) it is facially inapplicable to the claims of the Oklahoma and Texas Receivers because it only applies to claims against directors, officers, and shareholders of business corporations formed under the laws of Louisiana and does not apply to the Texas or Oklahoma HMO or AmCareco, which are not Louisiana corporations; (2) it establishes a prescriptive period rather than a peremptive period; (3) it "is trumped by the more specific provisions of La. R.S. 22:735(B)"; and (4) it "does not apply even to the Louisiana Receiver because, although AmCare-La was nominally incorporated in this state, it was in fact a part of a single business enterprise incorporated in and based in Texas." (Emphasis added.)
Finally, the Louisiana Receiver asserts that "This action is likewise not barred by the two-year prescriptive period for general torts in Tex. Civ. Prac. & Rem.Code § 16.003(a) or the four-year prescriptive periods for fraud and breach of fiduciary duty in Tex. Civ. Prac. & Rem.Code § 16.004(a)(4)-(5), particularly given the applicability of the discovery rule, the adverse domination doctrine, and other tolling doctrines." Because "the Receivers specifically alleged that they did not discover the facts underlying their causes of action until a date well within the applicable prescriptive period," they argue Health Net had the burden of proving the causes of action were prescribed and failed to meet this burden. The Receivers contend the trial court's rulings on the prescription/peremption issue "is not manifestly erroneous and should be upheld."[85]
A. The Proper Procedure to Assert Prescription/Peremption
The petition of the Louisiana Receiver and the Incidental Actions (Interventions) of the Texas and Oklahoma Receivers are ordinary proceedings provided for in Book II of the Code of Civil Procedure. Pursuant to La. C.C.P. art. 851, the code articles in Book II "govern ordinary proceedings, which are to be used in the district courts in all cases, except as otherwise provided by law." Pursuant to La. C.C.P. art. 852, exceptions, written motions, and answers are separate and distinct types of ordinary pleadings allowed in civil actions such as those consolidated herein. Exceptions are provided for in La. C.C.P. art. 921 et seq. which is Chapter 3, of Title I (Pleading) of Book II; written motions (motion for summary judgment) are provided for in La. C.C.P. art. 961 et seq. which is Chapter 4 of Title I; answers are provided for in 1001 et seq. of Chapter 5 of Title I. Peremptory exceptions are provided for in La. C.C.P. art. 927; motions for summary judgment are provided for in La. C.C.P. art. 966; affirmative defenses must be filed in an answer and are provided for in La. C.C.P. art. 1005.
Peremption extinguishes the existence of a right. La. C.C. art. 3458. A review of the jurisprudence pertaining to the issue *451 of how peremption should be procedurally raised reflects that the following procedural vehicles have been used: (1) peremptory exception raising the objection of prescription, La. C.C.P. art. 927 A(1); (2) peremptory exception raising the objection of peremption, La. C.C.P. art. 927 A; (3) peremptory exception raising the objection of no cause of action, La. C.C.P. art. 927 A(4); and (4) motion for summary judgment, La. C.C.P. art. 966. Wong v. Hoffman, XXXX-XXXX, p. 5 (La.App. 4 Cir. 11/7/07), 973 So.2d 4, 7-8, writ denied, 2007-2373 (La.2/1/08), 976 So.2d 724; Bardwell v. Faust, XXXX-XXXX, pp. 6-14 (La.App. 1 Cir. 5/4/07), 962 So.2d 13, 16-21, writ denied, XXXX-XXXX (La.9/21/07), 964 So.2d 334. In these actions, Health Net also has raised the issue as an affirmative defense in its answers. La. C.C.P. art. 1005.
These procedural vehicles are decided by different rules of evidence, are asserted at different times in the proceedings, have different burdens of proof, and are subject to different types of appellate review. Accordingly, it is essential that the proper procedural vehicle be used to adjudicate this issue. When determining this, we will apply the rule that the nature of a pleading must be determined by its substance and not by its caption. La. C.C.P. arts. 852, 853, 854 and 865; State ex rel. Lindsey v. State, 99-2755, p. 1 (La.10/1/99), 748 So.2d 456; Smith v. Cajun Insulation, Inc., 392 So.2d 398, 402, n. 2 (La.1980); St. Romain v. State, Department of Wildlife & Fisheries, XXXX-XXXX, p. 3, n. 4 (La.App. 1 Cir. 11/12/03), 863 So.2d 577, 581, n. 4, writ denied, XXXX-XXXX (La.3/26/04), 871 So.2d 348; Belser v. St. Paul Fire & Marine Ins. Co., 542 So.2d 163, 165-66 (La.App. 1 Cir.1989).
1. Affirmative Defense
The procedural purpose of an answer is: (1) to admit or deny the allegations of the petition; (2) state in short and concise terms the material facts upon which the defenses to the action asserted are based; and (3) set forth all affirmative defenses as required by La. C.C.P. art. 1005. La. C.C.P. art. 1003. La. C.C.P. art. 1005 provides as follows:
The answer shall set forth affirmatively arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy, division, duress, error or mistake, estoppel, extinguishment of the obligation in any manner, failure of consideration, fraud, illegality, injury by fellow servant, transaction or compromise, and any other matter constituting an affirmative defense. If a party has mistakenly designated an affirmative defense as an incidental demand, or an incidental demand as an affirmative defense, and if justice so requires, the court, on such terms as it may prescribe, shall treat the pleading as if there had been a proper designation. (Emphasis added.)
An affirmative defense is a new matter that will defeat the plaintiffs recovery even though the plaintiff proves the allegations of his petition. Generally, the defendant has the burden of proving the affirmative defense. Failure to plead an affirmative defense may result in it not being considered at trial. Webster v. Rushing, 316 So.2d 111, 114-15 (La.1975); Maraist & Lemmon, 1 La. Civ. Law Treatise, Civil Procedure, § 6.9, pp. 150-53. Finally, if the peremption issue is an affirmative defense it may be decided by either the judge or a jury. La. C.C.P. arts. 1731 and 1732; C.J.H. Johnson, 18 La. Civ. Law Treatise, Civil Jury Instructions, § 19.01, pp. 388-89 (2d ed.2001).
However, Official Revision Comments 1960 (b) for Article 1005 provides as follows:
*452 The language of the source provision was changed to employ civilian, rather than common law, terminology. Thus "extinguishment of the obligation in any manner" covers payment and release specified by the federal rule as well as all of the modes of extinguishing obligations provided in Art. 2130, Civil Code, except prescription. Compensation may also be urged through the reconventional demand (see Art. 1062, infra); while prescription is pleaded through the peremptory exception (see Art 927, supra). Similarly res judicata is pleaded through the peremptory exception (see Art. 927, supra). (Emphasis added.)
Article 1005 and its Comment (b) were enacted by 1960 La. Acts, No. 15, which adopted the present Louisiana Code of Civil Procedure. The enacting clause and the beginning of Section 1 of 1960 La. Acts, No. 15, provide as follows:
BE IT ENACTED BY THE LEGISLATURE OF LOUISIANA:
Section 1. The Louisiana Code of Civil Procedure, as set forth hereinafter in this section, is hereby adopted and enacted into law. ... (Emphasis added.)
The enacting clause is mandated by the constitution and separates those portions of the act that are not law from those that are. LA. CONST, of 1921 art. Ill, § 7; LA. CONST, art. Ill, § 14; Smith v. Department of Public Safety, 254 So.2d 515, 520 (La. App. 4 Cir.1971); Lamonica & Jones, 20 La. Civ. Law Treatise, Legislative Law and Procedure, § 3.4, p. 48; La. R.S. 1:13 B and 1:14. La. C.C.P. art. 1005 and Comment (b) are provided for in Section 1 of the Act and, thus, both are law, unless otherwise provided for in the act in which it is contained or by some other law.
Louisiana Code of Civil Procedure article 5057 provides as follows:
The headings of the articles of this Code, and the source notes and cross references thereunder, are used for purposes of convenient arrangement and reference, and do not constitute parts of the procedural law.
The clear and unambiguous language of Article 5057 does not exclude the comments in the Louisiana Code of Civil Procedure from being parts of the procedural law. Lamonica & Jones, 20 La. Civ. Law Treatise, Legislative Law and Procedure, § 7.6, pp. 147-148, and the cases cited therein. Therefore, as a matter of law, prescription is not an affirmative defense and, as will be hereinafter shown, in 1960 peremption was considered a species of prescription.
The trial court judge correctly refused to treat either prescription or peremption as an affirmative defense and correctly refused to instruct the jury on them.
2. Objection of No Cause of Action
As previously indicated, there is jurisprudence that permits the raising of the issue of peremption as an objection of no cause of action in the peremptory exception. The rationale of these decisions apparently is that peremption extinguishes the right (cause of action; right to enforce an obligation) and, therefore, the cause of action is legally nonexistent and the plaintiff has no cause of action.
The objection of no cause of action is raised by the peremptory exception. La. C.C.P. art. 927 A(4). The court's inquiry on this objection is limited to determining whether the law provides a remedy to anyone if the facts alleged are true; if the law does not grant anyone the remedy sought under the facts alleged, the objection should be sustained and the action dismissed. Maraist & Lemmon, 1 La. Civ. Law Treatise, Civil Procedure, § 6.7(2), pp. 122-27. The procedural foundation for *453 the objection of no cause of action is found in La. C.C.P. arts. 421-428. The substantive law for the objection is found generally in La. C.C. arts. 1756-1758. The legal question is whether a cause of action exists; it is not who may assert the cause of action (no right of action), whether the cause of action has accrued (prematurity), or whether the cause of action be asserted in, or extinguished or defeated by, an affirmative defense. For a general discussion of the objection of no cause of action see Wooley, XXXX-XXXX-XXXX at pp. 4-6, 961 So.2d at 1231-32.
There are two conceptual reasons why peremption should not be raised in the objection of no cause of action. First, there are a multitude of ways in which obligations can be extinguished besides prescription and peremption. La. C.C. arts. 621, 631, 751, 1854 et seq., 2013 et seq.; La. R.S. 13:4231; S. Litvinoff, 5 Louisiana Civil Law Treatise, The Law of Obligations, § 13.1, pp. 400-02 (2001).
Second, no evidence may be introduced at any time to support or controvert the objection that the petition fails to state a cause of action. La. C.C.P. art. 931. For purposes of the objection, all facts pleaded are accepted as true. Mayer v. Valentine Sugars, Inc., 444 So.2d 618, 620 (La.1984). In this procedural posture, the objection of no cause of action must be overruled if evidence is required to show the basis for the peremption (extinguishment) of the cause of action. Accordingly, unless the plaintiff pleads himself out of court, the objection of no cause of action will not be available for the introduction of evidence to establish peremption.
3. Summary Judgment
The motion for summary judgment provided for in La. C.C.P. art. 966 is a written motion, La. C.C.P. art. 961, that is adjudicated in a summary proceeding, La. C.C.P. art. 2592(3). It is designed to secure the just, speedy, and inexpensive determination of every action. La. C.C.P. art. 966 A(2). It can be used to dispose of a particular issue, theory of recovery, cause of action, or defense. La. C.C.P. art. 966. It may be utilized by either a plaintiff or a defendant. La. C.C.P. art. 966 A(1). In Bardwell, XXXX-XXXX at p. 17, 962 So.2d at 23, appears the following pertaining to motions for summary judgment:
The mover has the burden of proof that he is entitled to summary judgment. If the mover will not bear the burden of proof at trial on the subject matter of the motion, he need only demonstrate the absence of factual support for one or more essential elements of his opponent's claim, action, or defense. La. C.C.P. art. 966(C)(2). If the moving party points out that there is an absence of factual support for one or more elements essential to the adverse party's claim, action, or defense, then the nonmoving party must produce factual support sufficient to satisfy his evidentiary burden at trial. La. C.C.P. art. 966(C)(2). If the mover has put forth supporting proof through affidavits or otherwise, the adverse party may not rest on the mere allegations or denials of his pleading, but his response, by affidavits or otherwise, must set forth specific facts showing that there is a genuine issue for trial. La. C.C.P. art. 967(B).
Conventional evidence cannot be taken to support or resist a motion for summary judgment and the moving party cannot prevail unless there is no issue of material fact and the mover is entitled to judgment as a matter of law.
As previously indicated, a motion for summary judgment is a written motion as provided for in La. C.C.P. art. 961 et seq. Article 961 provides as follows:
*454 An application to the court for an order, if not presented in some other pleading, shall be by motion which, unless made during trial or hearing or in open court, shall be in writing. (Emphasis added.)
La. R.S. 24:177 B(1) provides, "The text of a law is the best evidence of legislative intent." The text of La. C.C.P. art. 961 is clear and unambiguous. In Maraist & Lemmon, 1 La. Civ. Law Treatise, Civil Procedure, § 6.8, pp. 134-35, appears the following:
It is arguable that the motion may not be used to obtain relief which is specifically provided for by one of the other designated pleadings, such as an exception. Thus a motion to dismiss a claim because it is prescribed may be beyond the scope of Article 961, since such relief is expressly provided for by Article 927. However, Article 961 provides that an application to the court for an order, if not presented in some other pleading, shall be by motion. A permissible construction under Louisiana's liberal rules of procedure is that a request for relief may be sought by motion, even though it may be raised by some other pleading. (Emphasis added.)
The motion, however, may not be used to present an objection which has been waived by failure to file timely some other pleading such as a declinatory exception.
As previously indicated, the nature of a pleading must be determined by its substance and not by its caption. Accordingly, we will consider Health Net's motions for summary judgment as asserting objections of prescription and/or peremption in peremptory exceptions as provided for in La. C.C.P. art. 927.
4. Prescription/Peremption
The objection of prescription is raised by the peremptory exception. La. C.C.P. art. 927(1). An exception is a means of defense to an action, other than denial or avoidance of the demand, used by a defendant to retard, dismiss or defeat the demand. La. C.C.P. art. 921. In particular, the function of the peremptory exception is to have the plaintiffs action declared legally nonexistent or barred by the effect of law. The function of the objection of prescription is to show that because of the passage of a period of time either the plaintiff's cause of action is extinguished (and, thus, legally nonexistent) or the plaintiffs action is procedurally barred. La. C.C. arts. 3446, 3447, 3448 and 3458; Maraist & Lemmon, 1 La. Civ. Law Treatise, Civil Procedure, § 6.7(3), p. 127.
Louisiana Code of Civil Procedure Article 927 A(1) (prescription), Article 927 A(4) (no cause of action), Article 966 (summary judgment) and Article 1005 (affirmative defenses) came into existence simultaneously with the adoption of the Louisiana Code of Civil Procedure in 1960 La. Acts, No. 15. Article 1005 (affirmative defenses) refers to the extinguishment of an obligation in any manner, Article 966 (summary judgment) refers to every action where there is no issue of material fact and a party is entitled to judgment as a matter of law; Article 927 A(4) (no cause of action) refers to all actions where the law does not grant a remedy to anyone. However, Article 927 A(1) (prescription) only applies in the limited situation where, because of the passage of time, the plaintiff's cause of action is extinguished or is procedurally barred.
Pursuant to the general rules of statutory construction, where two or more statutes deal with the same subject matter, they should be harmonized if possible; and, even if they are in conflict, the statute more specifically directed to *455 the matter at issue must prevail as an exception to a statute more general in character. Pumphrey v. City of New Orleans, XXXX-XXXX, pp. 10-12 (La.4/4/06), 925 So.2d 1202, 1209-1210; Smith, 392 So.2d at 402; Richie, Richie & Oberle, L.L.P. v. Louisiana Insurance Guaranty Association, 2004-2522, p. 5 (La.App. 1 Cir. 12/22/05), 928 So.2d 15, 18, writ denied, XXXX-XXXX (La.4/24/06), 926 So.2d 546. Accordingly, Article 927 A(1) (prescription) applies to these proceedings because it is more issue specific than the other procedural devices.
This result is confirmed by the legislative history of the substantive Civil Code articles on prescription. In 1960 when the Code of Civil Procedure articles under consideration herein were adopted, the substantive law pertaining to prescription was located in Book III (Modes of Acquiring Ownership of Things), Title XXIV (Prescription) of the Civil Code. At that time, the Civil Code only provided for three types of prescription: acquisitive, liberative and nonuse. Revision Comments 1982 (b) and (c) for La. C.C. art. 3445. These types of prescription were the basis for the objection of prescription raised by the peremptory exception provided for in La. C.C.P. art. 927 A(1). At that time, although the doctrine of peremption was not codified in the Civil Code, it was well established in Louisiana jurisprudence. Conerly v. State of Louisiana ex rel. the Louisiana State Penitentiary and the Department of Corrections, XXXX-XXXX, pp. 6 and 8, n. 7 (La.App. 1 Cir. 6/27/03), 858 So.2d 636, 643 and 644, n. 7, writ denied, 2003-2121 (La.11/14/03), 858 So.2d 432; Revision Comments 1982(a) for La. C.C. art. 3458. The legislature at various times has enacted hybrid laws that combine elements of prescription and peremption. See, for example, La. R.S. 49:112 discussed in the Conerly case cited above.
By 1982 La. Acts, No. 187, effective January 1, 1983, the doctrine of peremption was made statutory in La. C.C. arts. 3458 et seq. and was located in Section 2 Peremption, of Chapter 1 General Principles, of Title XXIV PRESCRIPTION, of the Civil Code. In Pounds v. Schori, 377 So.2d 1195, 1198-99 (La.1979), the Louisiana Supreme Court discussed how the doctrine of peremption in the jurisprudence was perceived conceptually prior to the time it was made law, as follows:
Our jurisprudence has long recognized a major distinction between a statute of limitations (prescription) and a peremption. It has been repeatedly held that prescription bars the remedy sought to be enforced and terminates the right of access to the courts for enforcement of the existing right. A peremptive statute, however, totally destroys the previously existing right with the result that, upon expiration of the prescribed period, a cause of action or substantive right no longer exists to be enforced.
. . . .
Recently, in Flowers, Inc. v. Rausch, La., 364 So.2d 928 (1978) we held that peremption is but a form or species of prescription possessing the differentiating characteristic that peremption does not admit of interruption or suspension. Flowers, above, involved cancellation of a state tax assessment for failure to reinscribe.
In Flowers, above, we recognized that peremption is a common law term that has infiltrated our jurisprudence. We noted also that peremption is, in reality, the civil law equivalent of "forfeiture". We so held on the basis of 28 G. Baudry-Lacantinerie & A. Tissier, Traite Theorique et Pratique, De droit Civil, Sees. 38-39, Louisiana State Law Institute Translation, First Part A, Chapter II, General Provision IV, Difference Between *456 Prescription and Forfeiture, pages 23-30, 1972. In short, we adopted the Baudry-Lacantinerie & A. Tissier concept that there is little if any doctrinal difference between forfeiture and prescription.
We reiterate the following pronouncement in Flowers, above:
"There is indeed a difference between prescription and peremption as noted by the Court of Appeal and as pointed out in the Succession of Pizzillo[, 223 La. 328, 65 So.2d 783 (La.1953)], supra. Nevertheless we conclude that peremption is but a form of prescription, a species thereof, but with the characteristic that it does not admit of interruption or suspension, and we determine that the constitutional provision barring prescription bars prescription in all its forms, including peremption."
The basic contention in Flowers, above, was that the statute in question was peremptory and that peremption runs against the state despite constitutional provision that prescription does not run beyond the state unless otherwise provided by the Constitution or expressly by law. We applied the principles above mentioned and concluded that peremption, being merely a species of prescription, does not run against the state unless otherwise provided either in the state constitution or expressly by law. La. Const.1974, Article XII, Section 13; La. Const. 1921, Article XIX, Section 16. We then found statutory authority for the running against the state of the tax assessment reinscription limitation provided by La.R.S. 9:5161-5162. (Some case citations omitted; emphasis added.)
Insofar as the doctrine of peremption is concerned, 1982 La. Acts, No. 187, made statutory that which previously had been jurisprudential.[86] The prior jurisprudential peremption is now statutory peremption provided for in La. C.C. arts. 3458-3461. Revision Comments 1982 (a) for Article 3458 provides that "This provision is new. It is based on Louisiana jurisprudence. It does not change the law." (Emphasis added.)
Finally, the name of Title XXIV is "PRESCRIPTION." This title was included in Section 1 of 1982 La. Acts, No. 187, and Section 1 appears immediately after the enacting clause. Thus, the Title number and Title name are law unless excluded as such by another section of the act or another law.
Section 6 of Act 187 provides as follows:
The Expose de motif, the article headnotes, and the comments in this Act are not part of the law and are not enacted into law by virtue of their inclusion in this Act. (Emphasis added).
Compare La. R.S. 1:13; La.C.Cr.P. art. 10; La Ch.C. art. Ill; La. C.C.P. art. 5057. Section 6 is clear and unambiguous. This enumeration of things that are not enacted into law by the adoption of Section 6 of Act 187 does not include the Civil Code Section, Chapter, Title and Book headings. The time-honored rule of statutory construction of Expressio Unius est Exclusio Alterius (expression of one thing implies the exclusion of another) dictates that when the legislature specifically enumerates a series of things, the legislature's *457 omission of other items, which easily could have been included in the statute, is deemed intentional. State, Department of Public Safety & Corrections v. Louisiana Riverboat Gaming Commission, 94-1872, p. 17 (La.5/22/95), 655 So.2d 292, 302; Lamonica & Jones, 20 La. Civ. Law Treatise, Legislative Law and Procedure, § 7.6, pp. 147-48. Although Section 6 of Act 187 specifically refers to Civil Code article headnotes and other things, Civil Code Title, Chapter, Section, and Book headings are not mentioned, and thus, they are enacted into the law. Therefore, denominating the Title XXIV as "PRESCRIPTION" and placing the articles on peremption therein is substantive.[87] Accordingly, for all of the above reasons, peremption is a species of prescription and it is properly asserted in the objection of prescription raised in the peremptory exception pursuant to La. C.C.P. art. 927 A(1).[88] Pursuant to 2008 La. Acts, No. 824, effective January 1, 2009, peremption has been classified as an objection that may be raised in the peremptory exception pursuant to La. C.C.P. art. 927.
We will proceed on this procedural basis.
B. Choice-of-Law
The Louisiana choice-of-law provision for prescription is La. C.C. art. 3549 entitled "Law governing liberative prescription" which provided,[89] in pertinent part, as follows:
When the substantive law of this state would be applicable to the merits of an action brought in this state, the prescription and peremption law of this state applies.
When the substantive law of another state would be applicable to the merits of an action brought in this state, the prescription and peremption law of this state applies, except as specified below:
(1) If the action is barred under the law of this state, the action shall be dismissed unless it would not be barred in the state whose law would be applicable to the merits and maintenance of the action in this state is warranted by compelling considerations of remedial justice.
(2) If the action is not barred under the law of this state, the action shall be maintained unless it would be barred in the state whose law is applicable to the merits and maintenance of the action in this state is not warranted by the policies of this state and its relationship to the parties or the dispute nor by any compelling considerations of remedial justice.
As previously indicated, we have ruled that the trial court committed error by not applying Louisiana and Oklahoma law to the Louisiana and Oklahoma cases.
*458 1. Liberative Prescription or Peremption in the Louisiana Case
As previously indicated, Health Net asserts that these actions are perempted pursuant to the provisions of La. R.S. 12:1502. The Louisiana Receiver responds that the statute creates a prescriptive period rather than a peremptive one. This statute was enacted by 2001 La. Acts, No. 1126, effective June 28, 2001. The title of this Act and Section 1 thereof provide as follows:
AN ACT
To enact Chapter 24 of Title 12 of the Louisiana Revised Statutes of 1950, to be comprised of R.S. 12:1501 and 1502, relative to business organizations; to provide for filing of actions against persons who control business organizations; to provide for prescription; to provide for applicability; and to provide for related matters.
Be it enacted by the Legislature of Louisiana:
Section 1. Chapter 24 of Title 12 of the Louisiana Revised Statutes of 1950, comprised of R.S. 12:1501 and 1502, is here enacted to read as follows:
CHAPTER 24. PRESCRIPTIVE PERIODS APPLICABLE TO BUSINESS ORGANIZATIONS
§ 1501. Applicability
The provisions of this Chapter shall be applicable to all business organizations defined in R.S. 12:1502(B), except as provided in R.S. 12:92(D). 93(D), or 1328(C).
§ 1502. Actions against persons who control business organizations.
A. The provisions of this Section shall apply to all business organizations formed under the laws of this state and shall be applicable to actions against any officer, director, shareholder, member, manager, general partner, limited partner, managing partner, or other person similarly situated.
B. The term "business organization" includes any entity formed under the laws of this state engaged in any trade, occupation, profession, or other commercial activity including but not limited to professions licensed by a state or other governmental agency. This Section shall apply without limitation to corporations, incorporated or unincorporated associations, partnerships, limited liability partnerships, partnerships in commendam, limited liability companies, or cooperative associations or other entities formed under the laws of this state.
C. No action for damages against any person described in Subsection A of this section for an unlawful distribution, return of an unlawful distribution, or for breach of fiduciary duty, including without limitation an action for gross negligence, but excluding any action covered by the provisions of Subsection D of this Section, shall be brought unless it is filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered, but in no event shall an action covered by the provisions of this Subsection be brought more than three years from the date of the alleged act, omission, or neglect.
*459 D. No action for damages against any person listed in Subsection A of this section for intentional tortious misconduct, or for an intentional breach of a duty of loyalty, or for an intentional unlawful distribution, or for acts or omissions in bad faith, or involving fraud, or a knowing and intentional violation of law, shall be brought unless it is filed in a court of competent jurisdiction and proper venue within two years from the date of the alleged act or omission, or within two years from the date the alleged act or omission is discovered or should have been discovered, but in no event shall an action covered by the provisions of this Subsection be brought more than three years from the date of the alleged act or omission.
E. The time limitations provided in this Section shall not be subject to suspension on any grounds or interruption except by timely suit filed in a court of competent jurisdiction and proper venue.
F. This Section shall be applied both retrospectively and prospectively as to claims to which a vested right has not attached; however, as to any alleged act, omission, or neglect for which the time period for bringing an action would otherwise be shortened by Subsection C of this Section, such action shall be filed in a court of competent jurisdiction and proper venue on or before the earlier of the end of the time period for bringing such action prior to the effective date of this Section or September 1, 2002. Any claim or alleged act or omission for which the time period for bringing an action would otherwise be shortened by Subsection D of this section shall be filed in a court of competent jurisdiction and proper venue on or before the earlier of the end of the time period for bringing such action prior to the effective date of this Section or September 1, 2002, in any case without regard to the date of discovery of the alleged act or omission. (Emphasis added.)
In G. Morris & W. Holmes, 7 La. Civ. Law Treatise, Business Organizations, § 22.17, 2007 Pocket Part, appears the following:
§ 22.17 Prescriptive rules applicable to business organizations
In 2001, the Louisiana Legislature enacted a comprehensive set of rules defining the prescriptive period applicable to actions against management and owners of business organizations for wrongful actions. The new rules of action apply to all causes of action except liability for wrongful distributions in the LBCL and limited liability company act.
The new statute begins by defining its scope as applying to "all business organizations" formed under Louisiana law, including all actions against "any officer, director, shareholder, member, general partner, limited partner, managing partner, or other person similarly situated." Business organization is defined to include all entities formed under Louisiana law "engaged in any trade, occupation, profession, or other commercial activity including but not limited to professions licensed by a state or other governmental agency." Illustratively but not exclusively, the statute lists "corporation, incorporated or unincorporated associations, partnerships, limited liability partnerships, partnerships in commendam, limited liability companies, or cooperative associations or other entities" formed under Louisiana law.
*460 The time limitations imposed differentiate between non-intentional and intentional acts. Thus, generally, actions for unlawful distributions, return of unlawful distributions, or breaches of fiduciary duty (including without limitation actions for gross negligence) must be brought within one year from the date of the alleged act, omission or neglect, or within one year of the time it was or should have been discovered, but in all events such actions must be brought within three years of the act, omission, or neglect.
However, if the conduct involves intentional tortious misconduct, intentional breach of a duty of loyalty, an intentional unlawful distribution, acts or omissions in bad faith, fraud or a knowing and intentional violation of law, then any action must be brought within two years of the act or omission, or two years from the time it was or should have been discovered, but in all events within three years of the act or omission.
The foregoing time limitations cannot be suspended or interrupted except by timely suit in a court of competent jurisdiction and proper venue. The statute applies both retrospectively and prospectively. (Emphasis added; footnotes deleted.)
In determining whether La. R.S. 12:1502 has enacted a liberative prescriptive period or a peremptive period, we must consider the applicable rules of statutory construction. In Pumphrey v. City of New Orleans, XXXX-XXXX, pp. 10-11 (La 4/4/06), 925 So.2d 1202, 1209-10, appears the following:
The fundamental question in all cases of statutory interpretation is legislative intent and the ascertainment of the reason or reasons that prompted the Legislature to enact the law. The rules of statutory construction are designed to ascertain and enforce the intent of the Legislature. Legislation is the solemn expression of legislative will, and therefore, interpretation of a law involves primarily a search for the Legislature's intent. La.Rev.Stat. § 1:4 (2004); La. Civ.Code art. 2 (2004).
When a law is clear and unambiguous and its application does not lead to absurd consequences, the law shall be applied as written and no further interpretation may be made in search of the intent of the Legislature. When the language of the law is susceptible of different meanings, it must be interpreted as having the meaning that best conforms to the purpose of the law, and the words of law must be given their generally prevalent meaning. La. Civ.Code arts. 10 and 11 (2004). When the words of a law are ambiguous, their meaning must be sought by examining the context in which they occur and the text of the law as a whole, and laws on the same subject matter must be interpreted in reference to each other. La.Rev. Stat. § 1:3 (2004); La. Civ.Code arts. 12 and 13.
The meaning and intent of a law is determined by considering the law in its entirety and all other laws on the same subject matter and placing a construction on the provision in question that is consistent with the express terms of the law and with the obvious intent of the Legislature in enacting it. The statute must, therefore, be applied and interpreted in a manner, which is consistent with logic and the presumed fair purpose and intention of the Legislature in passing it. (Emphasis added; some citations omitted.)
Further, the lawmaker is presumed to have enacted each law with deliberation and with full knowledge of all existing laws on the same subject. Champagne, *461 pagne, XXXX-XXXX at p. 21, 893 So.2d at 786; Hoag v. State, XXXX-XXXX, p. 9 (La. App. 1 Cir. 11/20/02), 836 So.2d 207, 216, writ denied, XXXX-XXXX (La.3/28/03), 840 So.2d 570; Lamonica & Jones, 20 La. Civ. Law Treatise, Legislative Law and Procedure, § 7.3, p. 136. Finally, prescription statutes are strictly construed against prescription and in favor of the obligation sought to be extinguished or procedurally barred by it. Wimberly v. Gatch, 93-2361, p. 7 (La.4/11/94), 635 So.2d 206, 211; Amoco Production Co. v. Texaco, Inc., XXXX-XXXX, p. 7 (La.App. 3 Cir. 1/29/03), 838 So.2d 821, 829, writs denied, XXXX-XXXX, XXXX-XXXX (La.6/6/03), 845 So.2d 1096.
Prescription generically is provided for in Title XXIV of Book III of the Civil Code. The first Chapter of Title XXIV has two Sections, namely: (1) Prescription; and (2) Peremption. As previously indicated, peremption is a species of prescription generically. In Section 1, three types of prescription are provided for: (1) acquisitive prescription; (2) liberative prescription; and (3) prescription of nonuse. La. C.C. art. 3445. A review of La. R.S. 12:1502 clearly shows that it is not intended to pertain to acquisitive prescription or prescription of nonuse. Therefore, it must provide for either liberative prescription or peremption, or both (hybrid).
Liberative prescription is a mode of barring actions as a result of inaction for a period of time. La. C.C. art. 3447. Peremption is a period of time fixed by law for the existence of a right, and, unless timely exercised, the right is extinguished upon the expiration of the peremptive period. La. C.C. art. 3458. Liberative prescription can be renounced, interrupted, and suspended. La. C.C. arts. 3449-3451, 3462-3472. Peremption may not be renounced, interrupted, or suspended. La. C.C. art. 3461.
Pursuant to LA. CONST. art. Ill, § 15(A), all acts of the legislature "... shall be confined to one object" and "[e]very bill shall contain a brief title indicative of its object." (Emphasis added.) Although the title of the Act that adopted La. R.S. 12:1501-1502 appears before the Act's enacting clause, it may be considered for the purposes of determining legislative intent. Louisiana Associated General Contractors, Inc. v. Calcasieu Parish School Bd., 586 So.2d 1354, 1367 (La.1991); Green v. Louisiana Underwriters Ins. Co., 571 So.2d 610, 614, n. 6 (La.1990); Conerly v. State of Louisiana ex rel. the Louisiana State Penitentiary & the Department of Corrections, XXXX-XXXX, pp. 5-6 (La.App. 1 Cir. 6/27/03), 858 So.2d 636, 642-43. The title of the Act is clear and unambiguous and states that it intends "to provide for prescription." It does not state that the Act intends to provide for peremption.
2001 La. Acts, No. 1126, enacts Chapter 24 of Title 12 of the Revised Statutes comprised of R.S. 12:1501 and 1502. Immediately following the enacting clause is the title to Chapter 24 which is "PRESCRIPTIVE PERIODS APPLICABLE TO BUSINESS ORGANIZATIONS." (Emphasis added.) Because this title is after the enacting clause and in Section 1 of the Act, it is law. Cf. La. R.S. 1:13 and 1:14. Thus, this statute does not provide for a peremptive period as a matter of law.
Paragraphs C and D of La. R.S. 12:1502 provide, in pertinent part, that any action brought must be filed within one or two years "from the date the alleged act of omission is discovered or should have been discovered." This language is known as the discovery rule or doctrine. See Maraist & Galligan, supra, § 10.04(3), pp. 10-10 to 10-14. This language is modified by the phrase that "but in no event shall an action covered by the provisions of this Subsection be brought more than three *462 years from the date of the alleged act, omission, or neglect." This limitation is sometimes referred to as the three-year cap on discovery. In Campo v. Correa, 2001-2707, pp. 7-9 (La.6/21/02), 828 So.2d 502, 508-09, the Court interpreted similar language found in La. R.S. 9:5628 pertaining to medical malpractice and concluded that "La.Rev.Stat. § 9:5628 is in both of its features noted above a prescription statute, with only the single qualification that the discovery rule is expressly made inapplicable after three years from the act, omission, or neglect." (Emphasis in original.)
Pursuant to La. C.C. art. 3461, peremption cannot be renounced, interrupted, or suspended. Paragraph E of La. R.S. 12:1502 only provides that its time limitations are not subject to suspension or interruption; it does not mention renunciation.
La. R.S. 12:1502 E provides that "The time limitations provided in this Section shall not be subject to suspension on any grounds or interruption except by timely suit filed in a court of competent jurisdiction and proper venue." Language similar to this was interpreted by this Court in Conerly, XXXX-XXXX at p. 8, 858 So.2d at 644:
The period of limitation contained in LSA-R.S. 49:112 clearly has some aspects of a peremptive period. Most notably, as the State points out in its brief to this court, the statute provides that there will be no interruption or suspension of the time period. The Louisiana Supreme Court has recognized this as a characteristic of peremption. Flowers v. Rausch, 364 So.2d 928, 931 (La.1978). However, the Legislature is free to enact statutes containing prescriptive periods and to dispense with exceptions to those prescriptive periods. See Hebert [v. Doctors Memorial Hosp.], 486 So.2d [717] at 724 [La. 1986]. Moreover, had the Legislature meant for the time period to be peremptive, it could have expressed its intent in the title or text of the act enacting LSA-R.S. 49:112 or in the language of LSA-R.S. 49:112 itself.
Basically, LSA-R.S. 49:112 creates a hybrid time period as concerns actions against the State. Despite having some characteristics in common with peremptive time periods, we find that the time period set forth in LSA-R.S. 49:112 is, as the legislature described it, a prescriptive period, with the qualifications that the prescriptive period is not subject to interruption or suspension. (Emphasis added; footnote deleted).
Further, if the legislature had intended for this to be a peremptive statute, it simply could have said so. Had that been done, the above quoted sentence would have been unnecessary because La. C.C. art. 3461 already provides that peremption cannot be interrupted or suspended. See La. R.S. 9:5605 B pertaining to legal malpractice as interpreted in Perez v. Trahant, 2000-2372 (La.App. 1 Cir. 12/28/01), 806 So.2d 110, writs denied, XXXX-XXXX, XXXX-XXXX (La.8/30/02), 823 So.2d 953.
For the reasons set forth hereinabove, we conclude that La. R.S. 12:1501-1502 is a hybrid liberative prescriptive statute, and we will apply it accordingly. Borel v. Young, XXXX-XXXX, pp. 28-29 (La.7/1/08), 989 So.2d 42, 69.
a. Burden of Proof
In Louisiana, the law of evidence is provided for in the Louisiana Code of Evidence. La. C.E. art. 101 et seq. Generally, the party seeking relief bears the burden of proof. La. R.S. 15:439; F. Maraist, 19 La. Civ. Law Treatise, Evidence and Proof, § 4.2, p. 48 (1999). Official Comment (1997)(b) for La. C.E. art. 302 provides as follows:
*463 The term "burden of persuasion" as here defined is to be contrasted with the terms "burden of proof" and "burden of producing evidence." The burden of producing evidence is the lesser burden of a party to come forward with evidence sufficient to avoid a directed verdict. The term "burden of proof is generally used as encompassing both the burden of persuasion and the burden of producing evidence. (Emphasis added.)
For choice-of-law purposes, rules of evidence are part of the law of the remedy, are procedural, and are supplied by the law of the forum. 15A, C.J.S., Conflict of Laws, § 105, pp. 306-07 (2002); H. Goodrich & E. Scoles, Handbook of the Conflict of Laws, § 84, pp. 149-52 (4th ed.1964).
Ordinarily, the exceptor bears the burden of proof at the trial of a peremptory exception. However, if prescription is evident on the face of the pleadings, the burden shifts to the plaintiff to show that the action has not prescribed. Campo, 2001-2707 at p. 7, 828 So.2d at 508; SS v. State ex rel. Department of Social Services, XXXX-XXXX, p. 7 (La.12/4/02), 831 So.2d 926, 931; W. Crawford, 12 La. Civ. Law Treatise, Tort Law, §§ 10.10 and 10.11, pp. 170-71(2000).
b. Objection of Prescription
The record reflects the following dates relating to the issue of prescription:
(1) Petition for rehabilitation of AmCare-LA filed September 23, 2002;
(2) Petition for Liquidation of AmCare-LA filed October 7, 2002;
(3) Order of Liquidation entered November 12, 2002;
(4) Action filed by the Louisiana Receiver against AmCareco, AmCare-MGT and their officers and directors June 30, 2003; and
(5) Consolidated, amended, and restated petition of the Louisiana and Oklahoma Receivers naming Health Net as a party defendant filed October 15, 2004.
Pursuant to La. R.S. 22:735(B), the filing of suit "by the commissioner of insurance seeking an order of liquidation shall interrupt the running of prescription as to all such claims from the date of the filing of such proceeding for a period of two years, if an order of liquidation is granted."
The first issue to be decided is whether it is evident on the face of the pleadings that the Louisiana Receiver's claims are prescribed. If not, the burden of proving prescription is on Health Net.
The following are paragraphs in the Louisiana and Oklahoma Receivers' petition that are relevant to this issue:
6.
AmCareCo [sic] and its wholly owned subsidiaries, AmCare-LA, AmCare-OK, AmCare-TX, and AmCare-MGT, had overlapping officers and directors who ran the operations of those entities in a coordinated, co-dependent and intertwined manner. The said entities were all undercapitalized at all relevant times. Funds, bogus receivables and bogus payables were routinely shifted and moved between the said entities without legal right or necessary regulatory approval from the HMO regulators, and with no business justification except to make individual HMO's appear solvent at specific times for the purpose of misleading the regulators. The enterprise was insolvent by May 3.1999, practically from the moment it came into existence, and remained insolvent (indeed, the insolvency deepened) until the HMO's and their management company *464 were all placed in receivership in late 2002 and early 2003.
7.
AmCare-LA, AmCare-OK and AmCare-TX, the three licensed AmCare HMO's, each contractually undertook to provide for the healthcare for many thousands of citizens in their respective states of incorporation. They each failed miserably in their contractual obligations to their members, causing many of their members to go without greatly needed healthcare and leaving others with huge unpaid medical bills. The three HMO's each also failed miserably in their contractual obligations to the health care providers with whom they contracted, causing thousands of costly medical procedures and materials to go unreimbursed. Other creditors of the HMO's went unpaid as well. These failures have led to many millions of dollars in claims against the receivers for the three HMO's.
8.
The liquidators and receivers for AmCare-LA, and AmCare-OK seek damages for the losses caused to AmCare-LA, and AmCare-TX and their members, policyholders, claimants and creditors through the fraudulent, grossly negligent and/or negligent acts and omissions of the defendants named in Paragraph 18 below.
9.
The three AmCare HMO's failed because of their gross undercapitalization, their statutory insolvency within a business day after their sale to AmCareCo, their growth through the acquisition of bad books of business without adequate capitalization to support those books of business, and their abysmal mismanagement of claims, all of which were caused in the first instance by the fraudulent, grossly negligent, or negligent acts and omission of the "D & O Defendants" named in Paragraph 18. Further, millions of dollars of much-needed cash were withdrawn from the three AmCare HMO's and paid improperly to the controlling shareholder of AmCareco (the "Foundation/HealthNet Defendants" named in paragraph 18); these cash payments to an insider and controlling party, implemented or at least allowed by the D & O Defendants, served to cause and then to deepen the insolvency of the three regulated HMO's. Meanwhile, PriceWaterhouseCoopers, LLP ("PWC"), the auditor for AmCareCo and its subsidiaries, allowed the insolvency of the enterprise to continue unreported for several years and indeed, appears to have been fully knowledgeable of and complicit in the D & O Defendants' constant efforts to cover up that insolvency. Alternatively, PWC was negligent in the handling of its audits and breached the applicable standards of care applicable to PWC as auditor. The acts and omissions of the D & O Defendants were also aided, abetted and conspired in by Stuart Rosow and Proskauer Rose, LLP, the attorneys for the AmCare entities, or in the alternative, those attorneys were at least negligent and breached their fiduciary duties by involvement in the said acts and omissions.
10.
As will be discussed in more detail below, the D & O Defendants successfully hid the insolvency of the AmCare enterprise from Louisiana, Oklahoma and Texas HMO regulators for several years. They did so by implementing and allowing misleading, inaccurate *465 and/or fraudulent accounting practices, through the creation of bogus inter-company accounts receivable which had no reasonable chance of ever being paid and were completely without documentation or substance, and through cash-shuffling among the various components of the enterprise designed to make individual HMO's look solvent as needed in what was, in essence, a persistent and ongoing kiting scheme among AmCareCo and its subsidiaries.
11.
The bogus accounts receivable described in the preceding paragraph caused non-admitted assets (those that should not be counted as assets under relevant accounting standards) to be listed on quarterly and annual balance sheets of the HMO's as admitted assets, rendering the appearance to the individual state regulators that the individual HMO's met their minimum capital and surplus requirements, when in truth the said receivables were not admitted assets under applicable accounting standards and the HMO's were in fact statutorily insolvent. The cash shuffles described in the preceding paragraph were timed so as to make it seem that a particular HMO had sufficient cash at specific moments to meet its obligations, thus misleading and misrepresenting facts to the individual state regulators, when the entire enterprise was in fact insolvent at all times and was simply "robbing Peter to pay Paul." These misleading accounting and cash-shuffling maneuvers were known by, aided by and conspired in by PWC, Rosow and Proskauer Rose, or they certainly should have been known by and prevented or advised against by them. PWC nevertheless repeatedly issued audit reports asserting that the financial statements of the HMO's fairly represented their true financial condition, allowing the improper and misleading practices to continue and cause further and further harm.
12.
The insolvent business enterprise was kept alive for a little over three years through what amounted to a Ponzi scheme. Despite the insolvency of the enterprise and its inability to pay the claims of its existing members as they came due from existing premiums, the AmCare HMO's controlled by the D & O Defendants herein and the Foundation/HealthNet Defendants herein continued soliciting and selling memberships to new members and collecting new premiums, as well as buying new books of business without regard to loss history. The new premiums thus collected were used to pay the claims of earlier members, and still more members were recruited and books of business were purchased to pay the claims of those members, and so forth. Ultimately, however, as with all pyramid schemes, the pyramid collapsed.
....
77.
The D & O Defendants, the Foundation/HealthNet Defendants, Rosow, Proskauer Rose and PWC agreed to and conspired in a scheme to operate insolvent HMO's and to disguise the insolvency by showing on the books of those HMO's accounts receivables from an insolvent parent and insolvent affiliates. Each agreed to the scheme for those insolvent insurance companies to sell health insurance, to accept premiums, to contract with healthcare providers while the insurance companies' insolvency was being hidden from regulators and without disclosing the insolvency *466 to the people and entities these HMO's did business with.
78.
Each of the D & O Defendants, Foundation/HealthNet Defendants, Rosow, Proskauer Rose and PWC aided and abetted breaches of applicable statutes and regulations, breaches of fiduciary duty and fraud by the others and willfully conspired with the others in connection with the wrongful conduct outlined in this Petition.
79.
The D & O Defendants, Foundation/HealthNet Defendants, Rosow, Proskauer Rose and PWC used AmCareCo, AmCare-TX, AmCare-LA, AmCare-OK, and AmCare-MGT to perpetuate an actual fraud on the policyholders, members, creditors and claimants of the three HMO's primarily for their own direct personal benefit.
80.
Alternatively, to the extent any particular D & O Defendant, Foundation/HealthNet Defendant, Rosow, Proskauer Rose or PWC did not willfully participate in fraud and/or conspiracy, that defendant was guilty of gross negligence or at least negligence in connection with the acts and omissions outlined in this Petition, and each aided and abetted the acts of the others.
....
87.
Plaintiffs show that AmCareCo and its subsidiaries, including AmCare-LA, AmCare-OK and AmCare-TX, were adversely dominated by the D & O Defendants and Foundation/HealthNet Defendants named herein, who concealed the bases for the causes of action stated herein, with the active and intentional participation or at least the negligent assistance of PWC. As a result, the Plaintiffs did not discover the causes of action stated herein until shortly before the respective receiverships of the HMO's were established. Furthermore, the Plaintiffs had no ability to bring these actions prior to receiving authority as a result of the receivership and liquidation orders entered for the respective HMO's. Further, none of the creditors, claimants, policyholders or members of the HMO's knew or had any reason to know of any cause of action for the acts and omissions described in this Petition until after the respective receiverships were established.
88.
Plaintiffs further show that the activities of the defendants herein constituted continuing torts which began in May 1999 and continued unabated until shortly before the receiverships were established for the respective HMO's. (Emphasis added.)
Pursuant to the continuing tort doctrine, a prescriptive period cannot begin to run as long as the operative tortious behavior continues and this behavior continues to cause damage. There must be a continuous duty owed to the plaintiff and a continuing breach of that duty by the defendant. Prescription does not commence for a continuing tort until the last act occurs or the conduct is abated. Bustamento v. Tucker, 607 So.2d 532, 539 and 542-43 (La.1992); Miller v. Conagra, Inc., XXXX-XXXX, pp. 6-7 (La.App. 3 Cir. 12/5/07), 970 So.2d 1268, 1273; Maraist & Galligan, supra, § 10.04(5), pp. 10-16 to 10-17.
A review of the pertinent portions of the petition shows that it alleges a continuous *467 course of tortious activity that caused increasing insolvency and damage that extended from approximately April of 1999 until "shortly before the receiverships were established" in 2002. This action was filed on June 30, 2003. It is not evident from the face of this pleading that the causes of action are prescribed. Accordingly, the burden of proving otherwise is on Health Net.
As indicated by the facts discussed in greater detail in Part XI, Section Bl of this opinion, in May of 2000 Lucksinger, Nazarenus, Nadler, AmCareco, AmCare-MGT, and the three HMOs commenced booking "cashless" intercompany receivables as capital contributions to show statutory compliance with the capital and surplus requirements with each of the three HMOs. This conduct continued until at least September of 2001 and the damages caused by this conduct accrued until the HMOs were placed in rehabilitation, receivership, or liquidation in 2002 or 2003. Accordingly, we conclude that Health Net has failed to show that these actions have prescribed. La. R.S. 12:1502; La. R.S. 22:735 B.
c. Conclusion
For the foregoing reasons, we hold in the Louisiana case: (1) the proper procedural device for pleading prescription or peremption is the objection of prescription raised in the peremptory exception; (2) the limitation period in La. R.S. 12:1502 is a hybrid liberative prescriptive period; (3) the petition adequately pleads continuing torts and prescription is not evident on the face of this pleading; (4) Health Net has failed to prove that prescription has accrued; and (5) the trial court correctly overruled Health Net's peremptory exceptions raising the objection of prescription in the Louisiana action.
This portion of the assignments of error is without merit.
2. The Texas and Oklahoma Exceptions
Since the Louisiana action is not barred (prescribed) under the law of this state, the Texas and Oklahoma actions should be maintained unless they would be barred in those states and "maintenance of the action in this state is not warranted by the policies of this state and its relationship to the parties or the dispute nor by any compelling consideration of remedial justice." La. C.C. art. 3549. Revision Comments 1991(g) for Article 3549 provides as follows:
Actions not barred under Louisiana law: The rule and its exception. The opening sentence of subparagraph (2) of the second paragraph of this Article reaffirms the basic rule of the lex fori for actions that have been filed timely under Louisiana prescription or peremption law. Here the rationale for following that rule is that entertaining such actions promotes whatever substantive policies this state has in not providing for a shorter prescriptive period and preserves to the plaintiff the opportunity to fully pursue his judicial remedies as long as he does so within the time specified by the law of this state. These substantive and procedural policies underlying Louisiana prescription law are entitled to preference in a Louisiana court, unless it is amply demonstrated that neither set of policies is actually implicated in the particular case and that the opposing substantive policies of another state, that of the lex causae, are implicated more intimately. Only then may Louisiana law be displaced.
These are essentially the three grounds for the exception to the rule of the lex fori which is enunciated in the *468 balance of subparagraph (2). Again, all three grounds must be satisfied before this exception is utilized. Before dismissing an action that has been timely filed under Louisiana law, the court must be satisfied that the action has prescribed in the state of the lex causae, and that neither the substantive nor the procedural or remedial policies of the forum state would be served by maintaining the action. Only then would the policy of providing a forum be outweighed by the policy of discouraging forum shopping. The very fact that all three hurdles must be overcome before this exception is utilized indicates that this exception is not expected to be applied often. (Emphasis added.)
A review of Health Net's Louisiana, Oklahoma, and Texas briefs on the prescription/peremption issue shows that essentially the same argument is asserted for all three states. That argument is: (1) the issue is controlled by La. C.C. art. 3549 pertaining to prescription for choice-of-law purposes; (2) pursuant to that code article, Louisiana law applies in the Texas and Oklahoma cases; and (3) the causes of action alleged by the Texas and Oklahoma Receivers are perempted by the three year period of La. R.S. 12:1502.
We have previously held that, in general, the substantive law of each of these three states applies in that state unless there was compelling consideration of remedial justice that indicated otherwise. Health Net has not asserted that the Texas Receiver's action is barred or not barred under Texas law or that the Oklahoma Receiver's action is barred or not barred under Oklahoma law. Health Net has not asserted or shown that maintaining the Texas and Oklahoma actions in Louisiana is not warranted by compelling considerations of remedial justice. See Revision Comments 1991(i) and (j) for La. C.C. art. 3549.
Accordingly, we hold for the Texas and Oklahoma actions that, pursuant to La. C.C. art. 3549: (1) Louisiana law for liberative prescription applies to the Texas and Oklahoma actions; (2) prescription is not evident on the face of either the Texas or the Oklahoma petition; (3) Health Net has failed to prove that prescription has accrued in either case; and (4) the trial court correctly overruled Health Net's peremptory exceptions raising the objections of prescription in the Texas and Oklahoma actions.
C. Conclusion
For the foregoing reasons, the trial court judgments overruling all of the peremptory exceptions raising the objection of prescription filed by Health Net are affirmed.
IX. SHAM SALE
(Assignment of Errors TX-9 and 20; LA-3 and LA-Supp-2; OK-3 and OK-Supp-footnote 1 by reference)
As previously discussed, whether the sale between Health Net and AmCareco was a bona fide sale is critical to determining the obligations of the parties. The record contains pleadings by the Louisiana and Oklahoma Receivers which assert the transaction was a sale. The Consolidated, Amended, and Restated Petition filed by the Louisiana and Oklahoma Receivers on October 15, 2004, states:
31.
On that same day, April 30, 1999, which was a Friday, the three HMO subsidiaries were sold by the Foundation/Health Net Defendants to AmCareCo [sic].
*469 Health Net's answer to the Receivers' petition states, "[Health Net] admits that the three HMO subsidiaries were sold to AmCareco on April 30, 1999." No pleadings in these consolidated matters assert the sale was either a sham or a sham to perpetrate a fraud. The only pleading remotely suggesting the sale was a sham was contained in the Louisiana and Oklahoma Receivers' Consolidated, Amended, and Restated Petition wherein they allege:
33.
On information and belief, the May 3, 1999 transfers [the cash sweep] described in the preceding paragraph were authorized and carried out electronically upon the instructions of [Health Net], despite the fact that [Health Net] ostensibly was no longer the owner of the HMOs from which the funds were being transferred, hence showing ... Health Net ... continued and remained in control over the financial actions of the HMOs after the sale.
It was in this filing that Health Net was first named as a defendant by the Louisiana and Oklahoma Receivers, more than two years after the Commissioner began rehabilitation of AmCare-LA.
During plaintiffs' case in chief, Phillip W. Preis, a witness accepted as an expert in the field of corporate finance and complex corporate transactions, opined:
Q. In your opinion, was this a sham sale?
A. Yes, sir.
Later, during redirect of this witness, appears the following:
Q. In your opinion, Mr. Preis, was this a sale?
A. No, sir, it wasn't.... It was a sham transaction.
During closing arguments to the jury in the Texas case, counsel for the Texas Receiver asserted several times the sale was a sham, Health Net had not divested itself of the HMOs, and Health Net was still in control of the HMOs after the transaction. Counsel for Health Net, in its closing, countered that Health Net sold the HMOs, money changed hands, and there was no evidence of a sham. The jury was not instructed on this issue and the interrogatories did not provide for a finding of whether the transaction was a bona fide sale. As stated earlier, in her reasons for judgment in the Louisiana and Oklahoma cases, the trial judge found as factual conclusions that AmCareco was a shell corporation, Health Net simulated a transfer, and Health Net wholly owned the HMOs before, during, and after the sale.
Under the common law, a sham transaction or an actual fraudulent conveyance is a transfer made with actual intent to hinder, delay, or defraud another. 37 C.J.S. Fraudulent Conveyances § 8, p. 543 (1997). A common law transfer that is constructively fraudulent is one for which the debtor does not receive reasonably equivalent value and which is made when the debtor is insolvent or which renders the debtor insolvent. See for example Tex. Bus. & Com.Code Ann. § 24.001 et seq.; 6 Del. C. § 1301 et seq.; 24 OKLA. ST. ANN. § 112 et seq. The remedy available to creditors of a fraudulent transfer is the avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim. 6 Del.C. § 1307(a)(1). A sham or a sham to perpetrate a fraud are terms used extensively in Texas jurisprudence and statutes as grounds for disregarding a corporate structure and holding individual officers, directors, or shareholders liable on the obligations of a corporation. Bell Oil & Gas Co. v. Allied Chemical Corp., 431 S.W.2d 336, 340 (Tex.1968); Drye v. Eagle Rock Ranch, Inc., 364 S.W.2d 196, 202 (Tex.1962); Pace Corp. v. Jackson, 155 Tex. 179, 284 S.W.2d 340 *470 (1955); V.T.C.A. § 21.223(a)(2); V.A.T.S. Bus. Corp. Act art. 2.21 A(2); and see V.T.C.A. § 200.161.
Louisiana Civil Code Article 2025 defines a simulation as follows:
A contract is a simulation when, by mutual agreement, it does not express the true intent of the parties.
If the true intent of the parties is expressed in a separate writing, that writing is a counterletter.
A claim of simulation is directed to a feigned, or pretended, sale. Such a sale has no real existence. The true intention of the parties is that no transfer takes place, the property remaining that of the supposed seller and no price being actually paid. Since the property is still owned by the ostensible seller, a simulated sale is an absolute nullity. Successions of Webre, 247 La. 461, 472, 172 So.2d 285, 288-89 (La.1965). In Spiers v. Davidson, 233 La. 239, 246, 96 So.2d 502, 504 (La.1957), the Supreme Court stated, "a simulated contract is one which has no substance at all, or is purely fictitious and a sham, an act of mere pretense without reality. Such a contract, although clothed in concrete form, is entirely without effect and may be declared a sham at any time at the demand of any person in interest." See also Maddox v. Butchee, 203 La. 299, 311, 14 So.2d 4, 8 (La.1943); Houghton v. Houghton, 165 La. 1019, 1022-23, 116 So. 493, 495 (La.1928); Ideal Savings & Homestead Ass'n. v. Gould, 163 La. 442, 448, 112 So. 40, 42 (La.1927); Hibernia Bank & Trust Co. v. Louisiana Ave. Realty Co., 143 La. 962, 969, 79 So. 554, 556 (La.1918).
The Louisiana jurisprudence distinguishes "sham transactions," which have no effect at all, from "disguised donations," which are intended by the parties to be valid, but are not represented as donations on their face. La. C.C. art.2026, Revision Comments 1984 (a) and cases cited therein. In an absolute simulation, the parties pretend to transfer property from one to the other, but they intend that the transferor retain ownership. In a relative simulation, a sale appears to be valid on its face but is intended by the parties to be a gift rather than a sale. Scoggins v. Frederick, 98-1815, pp. 11-12 (La.App. 1 Cir. 9/24/99), 744 So.2d 676, 685, writ denied, 99-3557 (La.3/17/00), 756 So.2d 1141; Ridgedell v. Succession of Kuyrkendall, 98-1224, pp. 7-8 (La.App. 1 Cir.1999), 740 So.2d 173, 178-79. Simulated and fraudulent sales are distinguished in that a simulated sale is a nullity which may be disregarded, but a fraudulent sale is an actual sale which must be set aside by a court. 37 C.J.S. Fraudulent Conveyances § 24, p. 558.
Indicia of fraud are suspicious circumstances which, if unexplained, may warrant an inference of fraud. 37 C.J.S. Fraudulent Conveyances § 54, p. 588. Among the more common indicia of a fraudulent purpose at the time of a transfer are: (1) a close relationship among the parties to the transaction; (2) a secret and hasty transfer not in the usual course of business; (3) inadequacy of consideration; (4) the transferor's knowledge of the creditor's claim and the transferor's inability to pay it; (5) the use of dummies or fictitious parties; (6) retention of control of property by the transferor after the conveyance; (7) actual or threatened litigation against the debtor; (8) a purported transfer of all or substantially all of the debtor's property; (9) insolvency or other unmanageable indebtedness on the part of the debtor; (10) the general chronology of the events and transactions under inquiry; and (11) an attempt by the debtor to keep the transfer a secret. See In re Acequia, Inc., 34 F.3d 800, 806 (9th Cir.1994); In re *471 Watman, 301 F.3d 3, 8 (1st Cir.2002); In re OODC, LLC, 321 B.R. 128, 140 (Bankr. D.Del.2005).
To determine if the transaction was a sham, we look first to the Letter of Intent dated April 17, 1998, between Health Net and AmCareco that set forth the potential terms of the proposed transaction and provided for further negotiations between the parties. According to the Letter of Intent, the negotiations were for the "purchase of all of the outstanding stock" of the HMOs for a purchase price consisting of "a number of shares of Class A Preferred Stock[90] of [AmCareco] ... equal to the adjusted book value ... less ... the [Health Net] Cash Sweep." During the discussion period, Health Net was prohibited from negotiating with anyone other than AmCareco with respect to acquisition of the HMOs.
On November 4, 1998, the stock purchase agreement that had been agreed upon by the parties was signed. According to the express terms of the contract:
1) Health Net would sell to AmCareco and AmCareco would purchase from Health Net all of the outstanding shares of the HMOs.
2) The HMOs would pay to Health Net an amount of cash, the "cash payment." (The formula for determining the exact amount of cash was included and provided for an estimated balance sheet which reflected the aggregate of particular items, such as cash and property of the HMOs, not to exceed a certain amount.)
3) For the balance of the purchase price, AmCareco would issue to Health Net the number of its shares of Class A Preferred Stock equal to a certain amount to be determined by a formula that was included.
4) All intercompany accounts would be settled.[91]
5) Health Net and AmCareco retained redemption rights[92] on the Class A Preferred Stock.
6) As security for Health Net's redemption rights, AmCareco was to procure a letter of credit in the amount of $2,000,000.00.
7) The date of closing was set for January 31, 1999.
8) AmCareco would prepare a final balance sheet at the one-year anniversary of the closing "utilizing the same methodologies and procedures," to allow for any adjustments (the true-up).[93]
*472 9) Other particular guarantees and warranties were made, such as Health Net had paid all federal, state, and local taxes, the HMOs had no undisclosed liabilities, the property of the HMOs was free and clear of all liens, and there were no undisclosed actions, suits, or other proceedings against the HMOs.
10) Each party would file applications for approval that were required by regulatory authorities in Louisiana, Oklahoma, and Texas. (AmCareco prepared and submitted the Form-A applications to the respective state regulators.)
11) If approval of the acquisition from the respective state regulatory agencies was not given, the transaction would not occur.
12) Health Net had the right of first refusal if AmCareco received an offer for the purchase of all AmCareco's outstanding stock.
13) Health Net retained "preemptive rights" or protection against the dilution of its percentage of ownership.[94]
14) The Stock Purchase Agreement would be governed by and construed in accordance with the law of the State of Delaware, without regard to Delaware's conflict of laws provisions.
On the same day the Stock Purchase Agreement was signed, Health Net and AmCareco also agreed to the Side Letter. The Side Letter provided AmCareco would attempt to acquire additional investment funds and AmCareco would not incur additional indebtedness without Health Net's consent. In addition, the Side Letter provided that if the closing was delayed beyond January 15, 1999, and Health Net was required to loan funds for the HMOs' PDRs,[95] the parties would negotiate a mechanism whereby Health Net would receive back all of the cash loaned for the PDRs of the HMOs.
Pursuant to these agreements, the parties completed a sale. The sale was evidenced by the Stock Purchase Agreement, with certain additional terms and conditions provided for in the Side Letter.
Louisiana Civil Code Article 3540, entitled "Party autonomy," generally gives contracting parties the freedom to choose which state's law will govern disputes arising out of the contract. It provides:
All other issues of conventional obligations [besides capacity and form][96] are governed by the law expressly chosen or clearly relied upon by the parties, except to the extent that law contravenes the public policy of the state whose law would otherwise be applicable under Article 3537.
Louisiana Civil Code Article 3537 states the general rule applicable to conventional obligations:
Except as otherwise provided in this Title, an issue of conventional obligations is governed by the law of the state whose policies would be most seriously impaired if its law were not applied to that issue.
*473 That state is determined by evaluating the strength and pertinence of the relevant policies of the involved states in the light of: (1) the pertinent contacts of each state to the parties and the transaction, including the place of negotiation, formation, and performance of the contract, the location of the object of the contract, and the place of domicile, habitual residence, or business of the parties; (2) the nature, type, and purpose of the contract; and (3) the policies referred to in Article 3515, as well as the policies of facilitating the orderly planning of transactions, of promoting multistate commercial intercourse, and of protecting one party from undue imposition by the other.
Louisiana Civil Code Article 3515, in turn, contains the general and residual choice-of-law rule pertinent to all types of cases, not just those involving conventional obligations. It provides that:
Except as otherwise provided in this Book, an issue in a case having contacts with other states is governed by the law of the state whose policies would be most seriously impaired if its law were not applied to that issue.
That state is determined by evaluating the strength and pertinence of the relevant policies of all involved states in the light of: (1) the relationship of each state to the parties and the dispute; and (2) the policies and needs of the interstate and international systems, including the policies of upholding the justified expectations of parties and of minimizing the adverse consequences that might follow from subjecting a party to the law of more than one state.
In considering the factors listed both in Article 3537 and in Article 3515 concerning the corporate stock of each particular HMO, the law of the states of Louisiana, Oklahoma, Texas, or Delaware could arguably be the state's law that "would otherwise be applicable" in the absence of a choice-of-law provision in the contract. Each of these states have some interest in having their law apply to the contract: Delaware because Health Net and AmCareco are Delaware corporations; Texas because AmCareco had its principal place of business in Texas and one of the HMOs is incorporated in Texas; and Louisiana and Oklahoma because one of the HMOs is incorporated in each of those states. In the absence of a choice-of-law provision by the parties, Louisiana, Oklahoma, and Texas each has an interest in protecting its citizens, insured members (enrollees), providers, and other creditors. Each state also has an interest in policing, to some extent, those companies who do business within its borders and who enter into agreements with its citizens.
It is well established that where the parties stipulate the state law governing the contract, Louisiana choice-of-law principles require that the stipulation be given effect, unless there is statutory or jurisprudential law to the contrary or strong public policy considerations justifying the refusal to honor the contract as written. La. C.C. art. 3540 and its Revision Comments. See also Continental Eagle Corp. v. Tanner & Co. Ginning, 95-295, pp. 2-3 (La.App. 3 Cir. 10/4/95), 663 So.2d 204, 206; Francis v. Travelers Ins. Co., 581 So.2d 1036, 1041 (La.App. 1 Cir.), writs denied, 588 So.2d 1114, 1121 (La. 1991). A choice-of-law provision in a contract is presumed valid until it is proved invalid. The party seeking to prove such a provision is invalid bears the burden of proof. Mobil Exploration & Producing U.S. Inc. v. Certain Underwriters Subscribing to Cover Note 95-3317(A), 2001-2219, pp. 38-39 (La.App. 1 Cir. 11/20/02), 837 So.2d 11, 42-43, writs denied, XXXX-XXXX (La.4/21/03), 841 So.2d 805, and XXXX-XXXX, *474 XXXX-XXXX, XXXX-XXXX (La.5/16/03), 843 So.2d 1129-30; Continental Eagle Corp., 95-295 at p. 3, 663 So.2d at 206.
In this case, no party asserted that selecting Delaware law as the governing law is invalid due to an express legislative or constitutional prohibition or a showing that a sale of third-party corporate stock between Health Net and AmCareco contravenes a social, moral, or public interest. If two Delaware corporations chose Delaware law to control their transaction, such a decision is not unreasonable based on the geographic nexus between all of the parties and Delaware's leadership in the field of corporate law. See for example Millan v. Chase Bank USA, N.A., 533 F.Supp.2d 1061, 1067 (C.D.Cal.2008); In the Matter of Prudential Ins. Co. Derivative Litigation, 282 N.J.Super. 256, 272, 659 A.2d 961, 969 (1995). Accordingly, we will apply Delaware law to determine the validity and interpretation of the Stock Purchase Agreement.
6 Delaware Code § 2708 provides, in pertinent part:
(a) The parties to any contract, agreement or other undertaking, contingent or otherwise, may agree in writing that the contract, agreement or other undertaking shall be governed by or construed under the laws of this State, without regard to principles of conflict of laws, or that the laws of this State shall govern, in whole or in part, any or all of their rights, remedies, liabilities, powers and duties if the parties, either as provided by law or in the manner specified in such writing are, (i) subject to the jurisdiction of the courts of, or arbitration in, Delaware and, (ii) may be served with legal process. The foregoing shall conclusively be presumed to be a significant, material and reasonable relationship with this State and shall be enforced whether or not there are other relationships with this State.
Under Delaware law, contract construction is a question of law. Rhone-Poulenc Basic Chemicals Co. v. American Motorists Ins. Co., 616 A.2d 1192, 1195 (Del.1992). When interpreting a contract, the court strives to determine the parties' shared intent, "looking first at the relevant document, read as a whole, in order to divine that intent." Matulich v. Aegis Communications Group, Inc., 2007 WL 1662667 at p. 4 (Del.Ch. May 31, 2007), judgment affirmed, 942 A.2d 596 (Del.2008) (citing Kaiser Aluminum Corp. v. Matheson, 681 A.2d 392, 395 (Del.1996)). If the contractual language is "clear and unambiguous," the ordinary meaning of the language generally will establish the parties' intent. Brandywine River Properties, Inc. v. Maffet, 2007 WL 4327780 at p. 3 (Del.Ch. Dec.5, 2007); Comrie v. Enterasys Networks, Inc., 837 A.2d 1,13 (Del. Ch. Sept.4, 2003). Therefore, where there is an unambiguous integrated written contract, the language of that contract will control. American Legacy Foundation v. Lorillard Tobacco Co., 886 A.2d 1, 19 (Del. Ch. Aug.22, 2005), judgment affirmed, 903 A.2d 728 (Del.2006). Additionally, when interpreting a contractual provision, a court attempts to reconcile all of the agreement's provisions when read as a whole, giving effect to each and every term. See, e.g. West Willow-Bay Court, LLC v. Robino-Bay Court Plaza, LLC, 2007 WL 3317551 at p. 11 (Del.Ch. Nov.2, 2007), cert. denied, 2007 WL 4357667 (Del. Ch. Dec.06, 2007), appeal refused, 941 A.2d 1019 (Del.2007); Council of the Dorset Condominium Apartments v. Gordon, 801 A.2d 1, 7 (Del.2002). In doing so, courts apply the well-settled principle that "contracts must be interpreted in a manner that does not render any provision `illusory or meaningless.'" Delta & Pine *475 Land Co. v. Monsanto Co., 2006 WL 1510417 at p. 4 (Del.Ch. May 24, 2006).
"When interpreting a contract, the court's ultimate goal is to determine the parties' shared intent. Because Delaware adheres to the objective theory of contract interpretation, the court looks to the most objective indicia of that intent: the words found in the written instrument." Sassano v. CIBC World Markets Corp., 948 A.2d 453, 462 (Del.Ch. Jan.17, 2008) (citations omitted).
According to Delaware law, the essential elements to a contract are as follows:
(1) a promise on the part of one party to act or refrain from acting in a given away; (2) offered to another, in a manner in which a reasonable observer would conclude the first party intended to be bound by the acceptance, in exchange for; (3) some consideration flowing to the first party or to another; (4) which is unconditionally accepted by the second party in the terms of the offer, which may include (a) a verbal act of acceptance; and (b) performance of the sought-after act. Hunter v. Diocese of Wilmington, Del. Ch., C.A. No. 961, Allen, C, mem. Op. at 11-12 (Aug. 4, 1987).
Hughes v. Frank, 1995 WL 632018, p. 3 (Del.Ch. Oct.20, 1995) (footnote omitted), reargument denied, 1996 WL 74729 (Del. Ch. Feb.16, 1996).
The essential elements to a contract are all present in this case. No party asserts a lack of capacity to contract. See 6 Del.C. § 2705. There was a promise by Health Net to transfer ownership of all of the shares of stock of the HMOs to AmCareco by written act in exchange for cash and shares of stock in AmCareco, which was unconditionally accepted by AmCareco by a written act of acceptance and, in fact, the actual issuance of the AmCareco stock and payment of the cash.
A "sale" has been defined as "[t]he transfer of property or title for a price." BLACK'S, supra at 1337. It lists four elements necessary to make a sale: "(1) parties competent to contract, (2) mutual assent, (3) a thing capable of being transferred, and (4) a price in money paid or promised." Id.; Willis v. City of Rehoboth Beach, 2005 WL 1953028, p. 5 (Del.Super. June 24, 2005). A sale may be defined to be a transfer of ownership in property from one person to another, for valuable consideration. State v. Delaware Saengerbund, Inc., 28 Del. 162, 177, 91 A. 290, 296 (Del.Gen.Sess.1914), affirmed by, 29 Del. 47, 95 A. 1078 (Del. Supr. June Term 1915). The common law definition of a sale is the passage of title for money or consideration. Franklin Fibre-Lamitex Corp. v. Director of Revenue, 505 A.2d 1296, 1298-99 (Del.Super.1985), judgment affirmed, 511 A.2d 385 (Del.Supr. June 4, 1986). The Uniform Commercial Code perpetuates this definition by defining "sale" as "the passing of title from the seller to the buyer for a price." 6 Del.C. § 2-106(1).
Following the common-law rule, conditional sales contracts have been uniformly held to be valid and enforceable in Delaware, both before the passage of the Uniform Conditional Sales Act (6 Del.C. § 901 et seq. (repealed 1967) and the U.C.C. (6 Del.C. § 2-106(1)), which expressly provides for both a contract for sale (present sale) and a contract to sell (at a future time). See also V.T.C.A. Bus. & Com. Code § 2.106(a); 12A OKL. ST. ANN. § 2-106(1). In Louisiana, according to the express terms of the Stock Purchase Agreement, the document was a contract to sell. Louisiana Civil Code Article 2623 sets forth the requisite elements of a contract to sell, or purchase agreement:
*476 An agreement whereby one party promises to sell and the other promises to buy a thing at a later time, or upon the happening of a condition, or upon performance of some obligation by either party, is a bilateral promise of sale or contract to sell. Such an agreement gives either party the right to demand specific performance.
A contract to sell must set forth the thing and the price, and meet the formal requirements of the sale it contemplates.
If an obligation may not be enforced until an uncertain event occurs, the condition is suspensive. La. C.C. art. 1767. The terms of the Stock Purchase Agreement provided for Health Net to sell and AmCareco to buy all the shares of stock in the HMOs upon the approval of the acquisition by state regulators. Approval by the regulators was a suspensive condition, and upon approval, the obligation was enforceable.
The evidence offered at trial establishes that the parties to the sale were not related nor did they share a close relationship. Before the transfer, Health Net had engaged the services of a broker, Shattuck Hammond, to identify possible buyers for the HMOs. Shattuck Hammond located a group of investors headed by Lucksinger who was interested in purchasing the HMOs. The record does not indicate the parties had any prior dealings with each other. All parties were represented both before and after the sale by experienced legal counsel, and extensive, arms-length negotiations resulted in four carefully-crafted documents: the Letter of Intent, the Stock Purchase Agreement, the Side Letter, and the Closing Agreement. The Stock Purchase Agreement was forty-six pages in length and provided specific terms for all conceivable issues associated with the sale.
The sale included the exchange of consideration. Under the law of Delaware, every contract, to be enforceable, must contain good and valid consideration. Corletto v. Morgan, 27 Del. 530, 89 A. 738, 739 (Super.Ct.1914). Consideration generally consists of a benefit to a promisor, or detriment to a promisee. First Mortgage Co. of Pennsylviania v. Federal Leasing Corp., 456 A.2d 794, 795-96 (Del.1982). Delaware's transactional perspective on consideration permits a court to inquire into, and find, consideration for an agreement anywhere in the transaction, regardless of whether it was labeled or spelled out in the contract. Equitable Trust Co. v. Gallagher, 34 Del.Ch. 76, 99 A.2d 490, 492-93 (1953), adhered to, 34 Del.Ch. 249, 102 A.2d 538 (Del.Supr. Feb.05, 1954), motion denied, 33 Del.Ch. 522, 103 A.2d 151 (Del.Ch. May 12, 1953). The Court, in enforcing contracts, does have an interest in ensuring that consideration exists, see Cabot Corp. v. Thai Tantalum Inc., 1992 WL 172678, p. 3 (Del.Ch. 1992), even though, strictly speaking, the adequacy of the consideration is not generally a question for judicial determination. Affiliated Enterprises, Inc. v. Waller, 40 Del. 28, 5 A.2d 257, 260 (1939).
Delaware's General Corporation Law, 8 Del.C. § 271, entitled "Sale, lease or exchange of assets; consideration; procedure," provides, in pertinent part:
(a) Every corporation may at any meeting of its board of directors or governing body sell, lease or exchange all or substantially all of its property and assets, including its goodwill and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or other property, including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors or governing *477 body deems expedient and for the best interests of the corporation....
Health Net's sale of all of the stock of the HMOs to AmCareco for a cash payment plus certain other considerations, including Health Net's redemption right security and acquisition of preferred stock in AmCareco, is clearly contemplated by the statute as an exchange of assets. The statute provides that the consideration may be money, shares of stock, or other securities. In this instance, all three possible types of consideration were present. This is not contrary to any law.
The testimony by Preis that the transaction was a sham was offered as opinion testimony. The record does not reflect that Preis considered Delaware law in forming his opinion. Preis had no experience in the areas of buying or selling HMOs or in insurance regulatory matters. The weight to be given expert testimony depends, ultimately, on the facts on which it is based, as well as the professional qualifications and experience of the expert. Meany v. Meany, 94-0251 (La.7/5/94), 639 So.2d 229, 236. For an expert opinion to be valid and merit much weight, the facts upon which it is based must be substantiated by the record; if the facts are not substantiated by the record, the opinion may be rejected. Gould v. Gould, 28,996, p. 7 (La.App. 2 Cir. 1/24/97), 687 So.2d 685, 690. In considering expert testimony, the trier of fact may accept or reject, in whole or in part, the opinion expressed by an expert, even to the point of substituting its own common sense and judgment for that of an expert witness, where, in the factfinder's opinion, such substitution appears warranted by the evidence as a whole. Bellard v. American Cent. Ins. Co., XXXX-XXXX, p. 28 (La.4/18/08), 980 So.2d 654, 673; Green v. K-Mart Corporation, 2003-2495, p. 5 (La.5/25/04), 874 So.2d 838, 843.
At trial, an October 22, 1998 memo by auditors with Deloitte & Touche[97] was introduced. The memo was prepared in anticipation of the proposed sale of the HMOs to AmCareco and framed the issue as follows: "Has a sale occurred of [the HMOs] for accounting purposes [?]"[98] According to the memo, factors considered by Deloitte & Touche auditors included whether "risks of ownership has [sic] transferred," whether there is "continuing involvement by the seller," and the "financial investment in the business by the buyer." After its analysis, Deloitte & Touche found it was unable to determine if the transaction was a sale for accounting purposes.[99]
However, there was ample evidence offered at trial and we hold that, as a matter of Delaware contract law, a sale took place on April 30, 1999, upon approval of the transaction by the state regulators. Immediately after the sale, AmCareco took actual possession of the stock of the HMOs and constructive possession of the property of the wholly-owned HMOs. There is no testimony or evidence that Health Net retained possession or control of the HMOs' assets after the sale. For the almost three years after the sale, all major corporate decisions concerning the HMOs were made by AmCareco. During those three years, *478 the state regulators dealt solely with AmCareco and the HMOs individually regarding their operations and at no time did they contact Health Net regarding the operations. Subsequent to the sale of all of the stock of the HMOs from Health Net to AmCareco on April 30, 1999, all of the regulators recognized AmCareco as the owner of the HMOs and never contacted Health Net regarding the activities of the HMOs. The regulators did not call upon Health Net to cure the capital deficiencies that were the subject of negotiations with the HMOs and AmCareco. The fact that AmCareco and the members of its Board of Directors are parties defendant in these actions and that Lucksinger and AmCareco have been found at fault is evidence of the fact that the "risk of ownership has transferred."
At the time of the sale, Health Net and AmCareco entered into a "Transition Services Agreement" wherein Health Net supplied to AmCareco certain administrative services in support of the HMOs' operations during a period of transition. According to the terms of the April 30, 1999 Transition Services Agreement and an amendment agreed to on June 8, 1999, Health Net performed certain administrative services in support of the HMOs such as "basic computer hardware, software and connectivity services," enrollment and billing services, and business services. The Transition Services Agreement was an agreement for Health Net to "handle [AmCareco's] back office functions until AmCareco could get up and running after the closing." The Transition Services Agreement expressly provided that "AmCareco... shall at all times ... retain ultimate authority and responsibility regarding AmCareco's and [the HMOs'] respective powers, duties and responsibilities."
Although Health Net was a stockholder in AmCareco, neither Health Net nor any employee of Health Net was on the Board of Directors of AmCareco or was an officer of AmCareco. The record does not reflect that there was a shareholders' meeting in which Health Net exercised any controlling vote over AmCareco's Board. Members of the AmCareco Board testified that they voted their convictions and were not influenced by Health Net. There is no evidence that Health Net made any important policy decisions for AmCareco. There is no evidence that Health Net directed the purchase or operation of the new claims computer system. There is no evidence that Health Net was responsible for the overpayment and improper payment of claims by AmCareco. There is no evidence that Health Net was involved in any way with the "creative accounting" used by Lucksinger, Nazarenus, and Nadler to appear financially solvent to state regulators.
There is no evidence that Health Net played any role in the hiring, supervising or firing of any employee of AmCareco or the HMOs. There is no evidence that, after the sale, Health Net exercised control over the day-to-day activities of AmCareco or the HMOs. There is evidence that Health Net did not direct the activities AmCareco. In 2000, AmCareco issued to Health Net two non-negotiable promissory notes to be paid in October 2001, one for $673,967.00 and one for $1,750,000.00. These sums were amounts AmCareco owed Health Net after the true-up and for funds Health Net loaned to AmCareco. These notes totaled over $2 million. These notes were never paid. If Health Net had the power to exercise control over AmCareco's activities, it is reasonable to infer that it would have ordered that these notes be paid in preference over other creditors.
The record does not reflect that any of the Receivers instituted administrative or judicial proceedings to have the sale declared *479 a sham and to revoke the certificates of authority of the HMOs to operate on that basis. La. R.S. 22:2013; V.T.C.A. Ins.Code § 86.001; 36 OKLA.ST.ANN. § 6920 A. Instead, the record reflects that the Receivers first attempted to rehabilitate the HMOs before they liquidated them. From this conduct, it reasonably can be inferred that the Receivers did not consider the sale to be a sham.
The record does not reflect that any of the initial investors in AmCareco perceived their investment was in any corporation other than AmCareco. The record is devoid of any attempt by an AmCareco investor to assert a claim that his investment was in Health Net or that he had an ownership interest in Health Net.
Health Net retained preemptive rights and the right to approve future increases of indebtedness by AmCareco. These are reasonably bargained-for rights by a seller/shareholder that do not differ from similar terms contained in a mortgage or other security device. An investor may attempt to guard his investment in a corporation against the possibility of the diminution of his proportional voting strength. See generally In re Tri-Star Pictures, Inc., Litigation, 634 A.2d 319, 330 (Del.1993). These rights, which Health Net negotiated and obtained, provided security and protection against the impairment of its interest as a creditor in a sale that was partially financed by it as a vendor.
Because Health Net obtained: (1) preferred Class A stock in AmCareco; (2) redemption rights; (3) right of first refusal of purchase of the HMOs' stock by a third party; and (4) preemptive rights, it is reasonable to infer that Health Net had positioned itself to profit from any future success of AmCareco and the HMOs and that it did not consider the contract a sham. This is a legitimate business purpose. See for example Fina Oil & Chemical Co. v. Amoco Production Co., 95-1877, p. 9 (La. App. 1 Cir. 5/10/96), 673 So.2d 668, 674, writ denied, 96-1446 (La.9/27/96), 679 So.2d 1353; T.D. Bickham Corp. v. Hebert, 432 So.2d 228, 231 (La.1983).
In Schmeusser v. Schmeusser, 559 A.2d 1294 (Del.1989), a husband alleged his parents maintained a fifty percent (50%) equity in his businesses, which he argued removed that portion from classification as marital property subject to division upon divorce. In Schmeusser, 559 A.2d at 1299-1300, the Delaware Supreme Court stated,
Turning to the business entities, husband owns 100% of the common stock of Active Crane Rentals, Inc., and Custom Management, Inc., both Delaware corporations. Additionally, he owns 100% of the capital of Falco, a Delaware partnership engaging in real estate development. During the course of the trial, the Family Court generally characterized husband's ownership of these entities as marital property. However, husband argued that his parents owned a 50% "equitable interest" in these companies, and that this interest should not be considered as part of the marital estate. The trial court accepted husband's evidence and found that only 50% of these enterprises should be treated as marital property. Wife appeals that ruling.
The record, however, demonstrates that husband's father had already sold his 50% interest in Active Crane and two other businesses to husband in 1980. In return, husband's father and mother were to receive a lifetime income of $25,000 per year, preferred stock in Active Crane, and cash consideration. At trial, husband produced a variety of documents in order to support the legitimacy of the transaction and to bolster his contention that this sale was conducted *480 with the deliberate intent to minimize the estate tax liability of his parents. All of the documents in evidence, supporting the transaction, were prepared by attorneys retained to assist husband's parents in their estate planning-except one.
Husband produced an additional document, allegedly dated December 17, 1980, purporting to be a "side agreement" between husband and his parents. Written in tortured "legalese," it provided that:
[d]uring the lifetime of Fred or Irene Schmeusser, should any of the assets of Falco, Active Crane Rentals, Inc., or Custom Management, Inc., be sold or disposed of, the gain from the disposition of such property shall be split fifty/fifty between Lloyd Schmeusser and Fred or Irene Schmeusser. At any time should Fred or Irene require cash for any reason, the purpose of this agreement is to establish that Fred and Irene Schmeusser are 50% owners in the Falco, Active Crane Rental, Inc. and Custom Management, Inc. companies, and as such are entitled to 50% of the assets of the business, if they so need it. ([E]mphasis added[.])
Admittedly, this document was composed by the husband. It is totally contrary to the estate planning strategies of his parents. Indeed, it is further admitted that there was no consideration for the agreement. As will be seen, no disclosures were made to the Internal Revenue Service nor were the required taxes paid for such a "gift" back to the parents.
It is undisputed that certain of Falco's assets were sold in 1983 and 1984, resulting in capital gains to the partnership of $1,348,199 in 1983 and $187,254 in 1984. As a result of these sales, husband claims to have paid $700,000 and still owes another $167,650 to his father, allegedly in accord with their pre-existing "side agreement." However, the record clearly demonstrates that husband, alone, paid the taxes on all of the capital gains which accrued to the partnership as a result of these sales. His parents did not. Nor were gift taxes paid on the sums so received. It is clear that husband's parents did not report for Federal or state tax purposes the $700,000 already received, or the additional monies due from the sale of the partnership assets. Significantly, husband could not provide a satisfactory answer under cross-examination for these manifest irregularities. Nor could his counsel at oral argument before us.
Given all of the circumstances, the Family Court's conclusion that husband's parents had retained a 50% equity interest in these marital properties by virtue of this "side agreement", cannot be said to meet the tests of Wife (J.F.V.) v. Husband (O.W.V., Jr.), 402 A.2d at 1204, and Levitt v. Bouvier, 287 A.2d at 673. When considered in the total context of his fraudulent conduct, the husband's inability to explain his actions, and those of his parents with respect to the glaring inconsistencies of the transaction, can lead to but one reasonable conclusion-this "agreement", like the other frauds, is nothing more than a sham transaction designed to shield marital property from the wife. If ever a case demonstrated the validity of the old legal maxim, falsus in uno, falsus in omnibus false in one thing, false in everything this is it. Upon remand 100% of the businesses shall be treated as marital property for purposes of dividing the marital estate.
In the instant matter, Preis' opinion that the sale was a sham was not substantiated *481 by evidence in the record or by Delaware law. Preis' reliance on the cash sweep payment as evidence that the sale was a sham is misplaced. The cash sweep was not a unilateral act by Health Net. The cash sweep was, in part, a procedure provided for by the Stock Purchase Agreement for the return of intercompany accounts (loans) provided by Health Net to the HMOs prior to the sale.[100] No party to the contract has alleged that the implementation of the terms of the cash sweep were a breach of the contract; in fact, it was required by the terms of the contract and the failure to do so would have been a breach of the contract. The cash sweep was the performance of a negotiated contractual right provided in the contract and was in compliance with the terms of the contract.
Preis ignored the fact or failed to give any weight to the failure of AmCareco to pay Health Net sums due pursuant to promissory notes held by Health Net, evidencing a lack of control by Health Net to direct the activities of AmCareco. Moreover, Preis gave no testimony concerning information that Health Net did, in fact, control the activities of AmCareco. Preis' opinion testimony and the trial judge's finding that the sale was a sham are clearly wrong as a matter of law and fact.
The parties treated the completed transaction as a valid sale. The regulators in each state treated the transaction as a valid sale. There was no formal action by any party or person of interest to have the transfer declared a simulation or a fraudulent conveyance. Unlike the Schmeusser case, there is no evidence of any verbal understanding, writing, document, or counterletter wherein the parties acknowledged that Health Net, rather than AmCareco, was the true owner of the stock of the HMOs.
As required by Delaware law for the sale of the assets of a corporation, there was the transfer of ownership in property (the stock) from one person to another (Health Net to AmCareco), upon good and valid consideration (the cash payment and the issuance of shares). We find after a careful review of the record on appeal that the contract to sell the stock of the HMOs by Health Net to AmCareco expressed the true intent of the parties to confect a sale and we find no evidence of fraud that would warrant rescission of the contract.[101] Upon approval of the transaction by the state regulators, the suspensive condition of the contract was fulfilled. AmCareco became the owner of the stock of the HMOs, and Health Net became a stockholder in AmCareco. At that point in time, there was a total funding of AmCareco of over $22,381,000. This funding was from the issuance of Class A Preferred Stock to Health Net and through cash contributions totaling over $8 million. These contributions were from 28 investors, including $5 million from Dr. Pearce, $500,000 from St. Luke's Healthcare System and more than $500,000 from various medical professionals. These investors clearly were investing their capital and purchasing stock in AmCareco and were not intending to purchase stock in Health Net. It is reasonable to assume, based on *482 their investments, that these investors perceived the transaction as valid.
These assignments of error have merit.
X. PIERCING THE CORPORATE VEIL SINGLE BUSINESS ENTERPRISE
(Assignments of Error TX-6 and TX-7)
A. The Trial Court's Reasons
In response to the order of this Court, the trial court judge provided the following reasons for judgment on the single business enterprise (SBE) issue in the Louisiana and Oklahoma cases:
This court finds that Health Net, AmCareco operated as a single business enterprise in accordance with Health Net's stipulation on the record and in regards to the following particulars:
A) Fiduciary duty was owed from Health Net to the three HMOs each; that Health Net together with AmCareco and Thomas Lucksinger confected a design and an enterprise predicated upon fraudulent documents, transfers, half-truths in affidavits, which were drafted in Texas to have impact in several other states, and where damage occurred in other states, such as, to the HMOs in Louisiana and Oklahoma.
B) The operation consisted in swirling cash and capital given [sic] the illusion of adequate capitalization. Neither AmCareco nor Health Net, however, ever pledged their own capital in place of the statutory capital required that the strained HMOs were forced to deplete. (Emphasis added.)
As previously indicated in Part V, Section B of this opinion, the trial court relied on the single business enterprise theory in her oral reasons for ruling as a matter of law that the substantive law of Texas applied in the Louisiana, Oklahoma, and Texas actions.
The above cited written reasons for judgment state that the trial court found "that Health Net, AmCareco operated as a single business enterprise in accordance with Health Net's stipulation on the record...." (Emphasis added.) The record on appeal does not reflect such a stipulation by Health Net. Instead, the record reflects the following pertaining to this SBE issue.
The Texas Receiver alleged that Health Net, AmCareco and its affiliates, and six of the AmCareco officers and directors were part of a "control group," a "single business entity" and/or a "single business enterprise." Health Net in its answer denied that the allegations were true insofar as they applied to it and admitted that the allegations were true insofar as they applied to the other parties defendant. The other parties answered and denied the allegations and some of them continued to deny the allegations in their settlement documents. In Health Net's Requested Jury Charges 14, 15, and 16 it asked the trial court judge to instruct the jury that pursuant to La. C.C. art. 1853, the Receiver's allegation about the other parties and Health Net's admission thereof constituted a judicial confession that those parties operated a single business enterprise. The trial court judge denied this request.
In Assignment of Error TX-6, Health Net asserts that the trial court judge committed error in this ruling. This assignment of error is without merit. Health Net's assertion would have merit if this were a simple one plaintiff and one defendant action. However, this assertion is not valid in multiple-party litigation in the procedural posture of the instant case. Health Net's admission of the Receiver's allegations pertaining to the single business enterprise of third parties who denied the allegations is not a declaration *483 against interest affecting the status of these parties. In this posture, La. C.C. art. 1853 does not apply. La. R.S. 15:449-450; Cichirillo v. Avondale Industries, Inc., 2004-2894 and 2918, p. 6 (La.11/29/05), 917 So.2d 424, 428-29; Gordon v. Century 21, XXXX-XXXX, pp. 7-8 (La. App. 3 Cir. 11/17/04), 888 So.2d 385, 390-91; Hibernia National Bank v. Orleans Regional Hospital, L.L.C., 28,982, p. 4 (La. App. 2 Cir. 11/1/96), 682 So.2d 1291, 1294, writ denied, 97-0026 (La.2/21/97), 688 So.2d 513; F. Maraist, 19 La. Civ. Law Treatise, Evidence & Proof, § 4.5, pp. 88-92 (2d ed.2007); Maraist & Lemmon, 1 La. Civ. Law Treatise, Civil Procedure, § 11.7(4), p. 287; Authors' Notes (6) for La. C.E. art. 801.
As previously indicated in Part VI, Section Dl of this opinion, both the Texas Receiver and Health Net submitted proposed jury instructions on the SBE issue but the trial court judge did not submit the issue to the jury. As previously indicated in Part VI, Section A of this opinion, "a trial court judge has a mandatory duty to accurately instruct the jury on all necessary factual issues that the jury is required to decide based upon the facts and evidence in the case." The single business enterprise (piercing the corporate veil) issue is such an issue. Because the trial court judge found as a factual conclusion that Health Net and AmCareco operated as a SBE in the Louisiana and Oklahoma cases, the failure to give the instruction can be justified in the Texas case only on two grounds: (1) as a matter of law (there was no genuine issue of fact) the SBE existed; or (2) as a matter of law (there was no factual dispute) the SBE did not exist. If, as a matter of law, the SBE did not exist in the Texas case, the SBE ruling by the judge in the Louisiana and Oklahoma cases is in conflict with this legal conclusion. If, as a matter of law, the SBE did exist in the Texas case, the trial court judge correctly refused to instruct the jury on it. However, if the SBE issue involved a genuine issue of material fact, the trial court judge committed error by not instructing the jury on it.
Finally, because we have determined that the sale was valid and not a sham, the SBE issue is presented in two pertinent factual postures: (1) did Health Net and AmCareco operate as a SBE prior to the sale; and (2) did Health Net and AmCareco operate as a SBE after the sale.[102]
B. The Law
1. Texas Law
The Texas law pertaining to single business enterprise[103] is set forth in Part VI, Section Dlb of this opinion. See also 2 Tex. Prac. Guide Bus. & Com. Litig. §§ 13.52, 13:53, 13:66 and 13:68; 20 Tex. Prac. Bus. Organizations (2d ed.), §§ 26.22 and 26.23; 15 Tex. Jur.3d Corporations § 173. In Texas, the factors (circumstances) to be considered in determining whether the corporate veil should be pierced and separate corporations be treated as one enterprise[104] include: (1) common employees; (2) common offices; *484 (3) centralized accounting; (4) payment of wages by one corporation to another corporation's employees; (5) common business name; (6) services rendered by employees of one corporation on behalf of another corporation; and (7) unclear allocation of profits and losses between corporations. SSP Partners v. Gladstrong Investments (USA) Corp., 275 S.W.3d 444, 451 (Tex.2008); PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, 174 (Tex.2007), judgment rev'd on other grounds, 235 S.W.3d 163 (Tex.2007).
2. Louisiana Law
Louisiana Civil Code Article 24[105] provides as follows:
There are two kinds of persons: natural persons and juridical persons.
A natural person is a human being. A juridical person is an entity to which the law attributes personality, such as a corporation or a partnership. The personality of a juridical person is distinct from that of its members.
The business corporation law of Louisiana is found in La. R.S. 12:1-178. La. R.S. 12:21 provides that "[o]ne or more natural or artificial persons capable of contracting may form a corporation." Pursuant to La. R.S. 12:22, corporations may be formed for any lawful business purpose or for such limited business purposes set forth in special laws. Pursuant to La. R.S. 12:41, a business corporation may acquire other business corporations. Pursuant to La. R.S. 22:2003 A, only "[tjhree or more artificial or natural persons capable of contracting who are citizens of the United States and a majority of whom are residents of this state, may act as incorporators to form a corporation for the purpose of transacting business as a health maintenance organization." Pursuant to La. R.S. 22:2002(7), a health maintenance organization is "any corporation organized and domiciled in this state which undertakes to provide or arrange for the provisions of basic health care services to enrollees in return for a prepaid charge." Thus, in Louisiana, natural and juridical persons (corporations) have the same "attributes" of personality for forming or acquiring corporations and owning stock therein.
Initially in this case, the Louisiana HMO was a wholly-owned subsidiary of Health Net. As a shareholder in the Louisiana HMO, Health Net's liability (as a person) for the acts or omissions of the Louisiana HMO (as a person) is provided for in La. R.S. 12:93 B entitled "Liability of subscribers and shareholders" and 12:95 entitled "Actions for fraud."[106] La. R.S. 12:93 B is clear and unambiguous in providing that "[a] shareholder of a corporation organized after January 1, 1929, shall not be liable personally for any debt or liability of the corporation."[107] (Emphasis added.) The public policy in Louisiana upon which this legislation is anchored is set forth in Bujol, XXXX-XXXX at p. 13-14, 922 So.2d at 1127-28, as follows:
*485 Liability for compensatory damages
The mere fact that ALSA is the ultimate parent corporation of ALAC, albeit through four corporate levels of ownership, does not result in the imposition of a duty upon ALSA to provide the employees of ALAC with a safe place to work. The law has long been clear that a corporation is a legal entity distinct from its shareholders and the shareholders of a corporation organized after January 1, 1929 shall not be personally liable for any debt or liability of the corporation. Buckeye Cotton Oil Co. v. Amrhein, 168 La. 139, 121 So. 602 (1929); La. R.S. 12:93(B). The same principle applies where one corporation wholly owns another. See Joiner v. Ryder System Inc., 966 F.Supp. 1478, 1483 (C.D.Ill.1996). While generally a parent corporation, by virtue of its ownership interest, has the right, power, and ability to control its subsidiary, a parent corporation generally has no duty to control the actions of its subsidiary and thus no liability for a failure to control the actions of its subsidiary. See Joiner, supra at 1489-90 and cases cited therein.FN15 The fundamental purpose of the corporate form is to promote capital by enabling investors to make capital contributions to corporations while insulating separate corporate and personal asset from the risks inherent in business. Smith v. Cotton's Fleet Serv., Inc., 500 So.2d 759, 762 (La.1987); Glazer v. Commission on Ethics for Public Employees, 431 So.2d 752, 757 (La. 1983). Louisiana courts have declared that the strong policy of Louisiana is to favor the recognition of the corporation's separate existence, so that veil-piercing is an extraordinary remedy, to be granted only rarely. Glenn G. Morris and Wendell H. Holmes, Louisiana Civil Law Treatise, Vol. 8, Business Organizations (1999), § 32.02, p. 55 (cites omitted). "If the plaintiffs do not allege shareholder fraud, they bear a `heavy burden' of proving that the shareholders disregarded corporate formalities to the extent that the corporation had become indistinguishable from them." Id. (Cites omitted).
FN15. As stated in Joiner, no case has imposed upon a parent corporation a duty to control the acts of its subsidiaries. See also Fletcher v. Atex, Inc., 861 F.Supp. 242, 247 (S.D.N.Y.1994), order affd, 68 F.3d 1451 (2d Cir. 1995) (absent a special relationship between the parent and the subsidiary there is no duty to control the subsidiary's conduct to prevent harm to third persons).
See also Riggins v. Dixie Shoring Co., Inc., 590 So.2d 1164, 1167-69 (La.1991); Andry v. Murphy Oil, U.S.A., Inc., XXXX-XXXX, 0127, 0128, 0129, and 0130, pp. 15-17 (La.App. 4 Cir. 6/14/06), 935 So.2d 239, 250-51, writ denied, 2006-2256 (La.12/8/06), 943 So.2d 1093; Johnson v. Kinchen, 160 So.2d 296, 298-300 (La.App. 1 Cir.1964). The provisions of La. R.S. 12:93 B are tempered by La. R.S. 12:95 which provides as follows:
§ 95. Actions for fraud
Nothing in this Chapter shall be construed as in derogation of any rights which any person may by law have against a promoter, subscriber, shareholder, director or officer, or the corporation, because of any fraud practiced upon him by any of such persons or the corporation, or in derogation of any right which the corporation may have because of any fraud practiced upon it by any of these persons.
When La. R.S. 12:93 B and 12:95 are interpreted in reference to each other,[108] it must be concluded that La. R.S. 12:95 is the sole means for "piercing" the corporate *486 veil erected by La. R.S.12:93 B. In Louisiana, when this piercing of the corporate veil occurs, the shareholder, whether a natural or juridical person, becomes vicariously liable for the debts and/or the acts or omissions of the offending corporation. Thibodeaux v. Ferrellgas, Inc., 98-0862, p. 12 (La.App. 3 Cir. 1/6/99), 741 So.2d 34, 43, writ denied, 99-0366 (La.3/26/99), 739 So.2d 797; Maraist & Galligan, supra, § 13.03, pp. 13-21 and 13-22. However, when a corporation acts directly through an authorized officer or agent, it can be individually liable, either jointly or concurrently, just as a natural person for tortious acts or omissions. Andry, XXXX-XXXX at p. 15, 935 So.2d at 249-50; G. Morris & W. Holmes, 8 La. Civ. Law Treatise, Business Organizations, §§ 3.01 and 33.11, pp. 102-03, 139-43 (1999).[109]
The "single business enterprise" doctrine in Louisiana is a theory for imposing liability where two or more business entities act as one. Generally, under the doctrine, when corporations integrate their resources in operations to achieve a common business purpose, each business may be held liable for wrongful acts done in pursuit of that purpose. Brown v. ANA Insurance Group, 2007-2116, p. 1, n. 2 (La.10/14/08), 994 So.2d 1266, n. 2. The jurisprudence interpreting the legislation has resulted in essentially two theories of recovery: (1) alter ego; and (2) single business enterprise. The alter ego theory involves piercing the corporate veil to impose personal liability for fraud on a shareholder who is usually, but not necessarily, a natural person. The SBE theory involves piercing the corporate veils between affiliated corporations whether they are parent-subsidiary or collaterally related. G. Morris & W. Holmes, 8 La. Civ. Law Treatise, Business Organizations, §§ 32.02 and 32.15, pp. 52-62, 98-101 and the cases cited therein; Town of Haynesville v. Entergy Corp., 42,019, pp. 6-7 (La. App. 2 Cir. 5/2/07), 956 So.2d 192, 196-97, writ denied, XXXX-XXXX (La.9/21/07), 964 So.2d 334,; Dishon v. Ponthie, XXXX-XXXX, pp. 3-6 (La.App. 3 Cir. 12/30/05), 918 So.2d 1132, 1134-36, writ denied, XXXX-XXXX (La.5/5/06), 927 So.2d 317; Hamilton v. AAI Ventures, L.L.C., 99-1849, pp. 5-6 (La.App. 1 Cir. 9/22/00), 768 So.2d 298, 302-03; Hollowell v. Orleans Regional Hospital, LLC, 217 F.3d 379, 385-90 (5th Cir. [La.] 2000). See also G. Morris & W. Holmes, 8 La. Civ. Law Treatise, Business Organizations, §§ 32.01, 32.03, 32.04, 32.07, 32.08, 32.09 and 32.14; 18 C.J.S. Corporations § 16. La. R.S. 12:93 B and 12:95 do not refer to either theory.
When a party seeks to pierce the corporate veil, the totality of the circumstances must be considered and is determinative. Riggins, 590 So.2d at 1169. The following is an illustrative list of circumstances (facts) considered by various courts in Louisiana when they determined whether to pierce the corporate veil:
(1) failure to follow statutory formalities for incorporation;
(2) one corporation causing the incorporation of another one;
(3) failure to transact regular corporation business such as holding regular board of directors and shareholder meetings;
(4) commingling of corporate and shareholder funds;
(5) under capitalization;
*487 (6) failure to have separate checking or other financial accounts;
(7) failure to file separate income tax returns;
(8) common corporate names;
(9) diversion of corporate assets;
(10) common use of corporate equipment;
(11) actual control;
(12) common officers and directors (interlocking boards);
(13) one corporation financing the other corporation, especially when no interest is charged and/or return payment is not required;
(14) common payment by one corporation of the other corporation's salaries or financial losses;
(15) one corporation only does business with the other corporation;
(16) common employees;
(17) centralized accounting;
(18) undocumented transfers of funds between corporations;
(19) unclear allocation of profits and losses; and
(20) excessive fragmentation of corporate business.
Town of Haynesville, Inc., 42,019 at pp. 6-7, 956 So.2d at 196-97; Dishon, XXXX-XXXX at pp. 3-6, 918 So.2d at 134-36; F.G. Bruschweiler (Antiques) Ltd. v. GBA Great British Antiques, L.L.C., XXXX-XXXX, p. 7 (La.App. 5 Cir. 11/25/03), 860 So.2d 644, 651, writ denied, XXXX-XXXX (La.3/19/04), 869 So.2d 859; Berg v. Zummo, XXXX-XXXX, p. 2 (La.App. 4 Cir 7/2/03), 851 So.2d 1223, 1224-25, writ denied, 2003-2209 (La.11/21/03), 860 So.2d 546; Green v. Champion Ins. Co., 577 So.2d 249, 257-59 (La.App. 1 Cir.1991), writ denied, 580 So.2d 668 (La.1991). Determining whether to pierce the corporate veil initially is a question of fact to be decided by the trial court. Sarpy v. ESAD, Inc., XXXX-XXXX, pp. 3-4 (La.App. 4 Cir. 9/19/07), 968 So.2d 736, 738, writ denied, 2007-2056 (La.1/11/08), 972 So.2d 1170.
3. Oklahoma Law
In Sautbine v. Keller, 423 P.2d 447, 451-52 (Okl.1966) appears the following:
Plaintiffs acknowledge the general rule, expressed in Garrett v. Downing, 185 Okl. 77, 90 P.2d 636 [(1946)], that even a family corporation is a separate and distinct legal entity from its shareholders. Also see Butterick Co., Inc. v. Molen, 198 Okl. 92, 175 P.2d 311 [(1946)]. However, they assert that this rule is qualified in certain types of cases to the extent that acts of an individual shareholder may become the act of the corporation, and the distinction between the corporation and the principal shareholder will be disregarded. Further, the doctrine of alter ego does not apply solely to instances where the corporate existence is used to do wrong, perpetrate fraud, or commit a crime. Rather this doctrine has been amplified to allow application not only for fraud or wrong, but also in cases where the facts require the court to disregard separate existence of the corporation and shareholders in order to protect rights of third persons and accomplish justice. Mid-Continent Life Ins. Co. v. Goforth, 193 Okl. 314, 143 P.2d 154 [(1943)]; Buckner v. Dillard, 184 Okl. 586, 89 P.2d 326 [(1939)].
In In re Cherry, 2006 WL 3088212, p. 17 (Bkrtcy.S.D.Tex.2006), appears the following:
Oklahoma law allows the court to disregard the corporate shield "when it is essential in the interest of justice to do so, or where the corporate shield is used to defeat an overriding public policy." King v. Modern Music Co., 33 P.3d 947, 952 (Okla.Civ.App.2001) (citing Thomas *488 v. Vertigo, Inc.[,] 900 P.2d 458, 460 (Okla.Civ.App.1995)). The corporate veil may be pierced if the corporate form was "used (1) to defeat public convenience, (2) justify wrong, (3) to perpetrate fraud whether actual or implied, or (4) to defend crime." In re Estate of Rahill, 827 P.2d 896, 897 (Okla.Civ.App. 1991). Further, Oklahoma courts have held to disregard the corporate entity when more than one corporation is involved, the movant must show either of the following:
(1) that the separate corporate existence is a design or scheme to perpetuate fraud, or (2) that one corporation is so organized and controlled and its affairs so conducted that it is merely an instrumentality or adjunct of another corporation. In other words, it must appear that one corporation is merely a dummy or sham. In such cases, the distinct corporate entity will be disregarded and the two corporations will be treated as one[.]
King, 33 P.3d at 853 (citing In re Estate of Rahill, 827 P.2d at 897).
C. Burden of Proof and Persuasion
As discussed in greater detail in Part VIII, Section Bla of this opinion, for choice of law purposes: (1) burdens of proof and persuasion are evidence rules; (2) rules of evidence are part of the law of the remedy and not the law of the substance; (3) laws of the remedy are procedural; and (4) procedural laws are supplied by the law of the forum. As also previously indicated in Part VIII, Section Bla of this opinion, in Louisiana, unless otherwise provided, the party seeking relief bears the initial burden of producing the evidence necessary to obtain the relief sought. In the instant case, the Texas Receiver has asserted the SBE theory as the basis for holding Health Net jointly and vicariously liable for the acts and omissions of AmCareco, its HMOs, and their officers and/or directors, and Health Net has asserted the SBE theory as the basis for arguing the assets of AmCareco, AmCare-MGT, and the three HMOs should be considered together to determine the solvency of the HMOs. Thus, the Texas Receiver and Health Net each had the burden of producing evidence that there was a single business enterprise as each alleged. Lopez v. TDI Services, Inc., 93-0619, p. 9 (La.App. 3 Cir. 2/2/94), 631 So.2d 679, 686, writ denied, 94-0864 (La.6/3/94), 637 So.2d 501.
Louisiana Code of Evidence Article 302(1) provides as follows:
The following definitions apply under this Chapter:
(1) The "burden of persuasion" is the burden of a party to establish a requisite degree of belief in the mind of the trier of fact as to the existence or nonexistence of a fact. Depending on the circumstances, the degree of belief may be by a preponderance of the evidence, by clear and convincing evidence, or as otherwise required by law. (Emphasis added.)
Proof by clear and convincing evidence requires more than "a preponderance of the evidence," the traditional measure of persuasion, but less than "beyond a reasonable doubt," the stringent criminal standard. See Burmaster v. Plaquemines Parish Government, 2007-2432, p. 19 (La.5/21/08), 982 So.2d 795, 809; Chatelain v. State, Department of Transportation & Development, 586 So.2d 1373, 1378 (La. 1991); Succession of Bartie, 472 So.2d 578, 582 (La.1985); Bonvillain v. Preferred Industries & LWCC, XXXX-XXXX, p. 12 (La. App. 1 Cir. 5/27/05), 917 So.2d 1, 8; Hines v. Williams, 567 So.2d 1139, 1141 (La.App. 2 Cir.), writ denied, 571 So.2d 653 (La. 1990). Proof by a preponderance requires *489 that the evidence, taken as a whole, shows that the fact sought to be proved is more probable than not. Hebert v. Rapides Parish Policy Jury, XXXX-XXXX, p. 7 (La 4/11/07), 974 So.2d 635, 642. To prove a matter by clear and convincing evidence means to demonstrate that the existence of a disputed fact is highly probable, that is, much more probable than its nonexistence. Hines, 567 So.2d at 1141. The standard of persuasion by clear and convincing evidence is usually applied where there is thought to be a special danger of deception or where the court considers that the particular type of claim should be disfavored on policy grounds. State in the Interest of J, K & T, 582 So.2d 269, 275 (La.App. 1 Cir.1991), writ denied, 583 So.2d 1145 (La. 1991); Hines, 567 So.2d at 1141; McCormick on Evidence, § 340(b) (2d ed.1972).
As previously indicated, there are very strong policy reasons in Louisiana for the disfavoring of liability of natural or juridical shareholders for the acts and omissions of the business corporations in which they own stock. For that reason, a party seeking to show liability by a shareholder pursuant to the single business enterprise (piercing the corporate veil) theory must prove the existence of the SBE by clear and convincing evidence. Miller v. Entergy Services, Inc., XXXX-XXXX, p. 7 (La. App. 4 Cir. 7/13/05), 913 So.2d 143, 148; Holly & Smith Architects, Inc., XXXX-XXXX at p. 11, 872 So.2d 1147 at 1156; Grayson v. R.B. Ammon & Associates, Inc., 99-2597, p. 13-14 (La.App. 1 Cir. 11/3/00), 778 So.2d 1, 17-18, writs denied, XXXX-XXXX, XXXX-XXXX (La.1/26/01), 782 So.2d 1026, 1027; Cahn Electric Appliance Co., Inc. v. Harper, 430 So.2d 143, 145 (La.App. 2 Cir.1983).
Accordingly, we will apply this burden of persuasion to decide the SBE factual issue in the Louisiana, Oklahoma, and Texas cases. The trial court judge's factual conclusions on this issue do not reflect that she applied this burden of persuasion.
D. Common SBE Circumstances Pre-and Post-Sale
As previously indicated, the transaction by which the ownership of the stock in the three HMOs was transferred from Health Net to AmCareco was a valid sale and not a sham. Accordingly, the SBE issue must be decided in the pre-sale and post-sale factual settings.
1. Pre-Sale Health Net/AmCareco SBE Issue
The record reflects that, in 1997, Health Net was a large Delaware corporation with its principal place of business in California. In the latter part of 1997 or the early part of 1998, the management of Health Net made a business decision to divest itself of the three HMOs because they were financial liabilities. It was decided that the HMOs would be divested by sale or, in the alternative, they would be closed (wind down). In 1998, Health Net hired Shattuck Hammond, a New York investment banking firm, to locate a buyer. Shattuck Hammond located a group of potential investors headed by Lucksinger. The Lucksinger group incorporated AmCareco as a Delaware corporation with its principal place of business in Texas. The parties commenced negotiations for the future sale of the stock in the three HMOs.
On April 17, 1998, the parties executed a Letter of Intent wherein they agreed to negotiate the sale of the stock in the HMOs pursuant to various terms and conditions. Two of the terms were that both parties would negotiate in good faith and Health Net would not negotiate with another party while negotiations were proceeding with AmCareco. On November 4, 1998, the parties executed a Stock Purchase Agreement. At this time the Deloitte *490 & Touche firm was the accountant for Health Net and PWC was the accountant for AmCareco. Proskauer Rose, representing one of the AmCareco investors, and acting through Stuart Rosow, a partner in the firm, assisted in the drafting of the instrument. This agreement provided for various terms and conditions for the final sale, among which was a provision that the sale would not be final and valid unless approved by the three state insurance regulators. AmCareco retained the law firm of Vinson & Elkins, represented by Susan Conway, to prepare the required Form-A applications required to get regulator approval in each of the three states. Conway represented AmCareco throughout the administrative procedures that resulted in approvals by the three regulators on April 30, 1999.
During the period of time before the sale, there is no evidence in the record of the following pertinent circumstances existing between Health Net and AmCareco: (1) failure to follow statutory formalities for incorporation; (2) Health Net incorporated AmCareco or vice versa; (3) failure to transact regular corporation business; (4) commingling of corporate or shareholder funds; (5) under-capitalization; (6) failure to have separate checking or other financial accounts; (7) failure to file separate income tax returns; (8) common corporate names; (9) common use of corporate equipment; (10) actual control; (11) interlocking boards or common officers; (12) common employees and/or common payment of employee salaries; (13) one corporation only doing business with the other; (14) centralized accounting and auditing; (15) undocumented transfers of funds between the corporations; (16) unclear allocation of profits or losses; and (17) excessive fragmentation of corporate business.
Prior to the April 30, 1999 sale, the following circumstances existed between Health Net and the three HMOs. Gellert, Health Net's CEO, was on the Boards of Directors of each of the HMOs and Jansen, Health Net's vice president, assistant general counsel and assistant secretary, was the secretary of each of the HMOs. Health Net made $6.3 million in interest-free loans to the Louisiana and Texas HMOs so that they could maintain their PDRs prior to the sale. The sale contract provided that this money would be recovered by Health Net out of the assets of the HMOs and/or AmCareco after the sale. Donations and loans can be legitimate contracts with a corporation when it is closely held by a natural person or affiliated with another corporation. It is common practice for a parent corporation or a natural stockholder to make interest-free loans to wholly-owned subsidiaries. Riggins, 590 So.2d at 1171; Sea Tang Fisheries, Inc. v. You'll See Sea Foods, Inc., 569 So.2d 992, 996 (La.App. 1 Cir.1990), writ denied, 572 So.2d 89 (La. 1991); Harris v. Best of America, Inc., 466 So.2d 1309, 1315-16 (La.App. 1 Cir. 1985), writ denied, 470 So.2d 121 (La. 1985); Huard v. Shreveport Pirates, Inc., 147 F.3d 406, 413 (C.A.5 [La.] 1998).
Accordingly, the Receivers have failed to prove by clear and convincing evidence that Health Net and AmCareco operated a single business enterprise prior to the April 30, 1999 sale.
2. Post-Sale Health Net/AmCareco SBE Issue
After the sale there is no evidence in the record of the following postsale circumstances (facts) between Health Net and AmCareco: (1) failure to follow statutory formalities for incorporation; (2) Health Net incorporated AmCareco or vice versa; (3) failure to transact regular corporation *491 business such as board of director and shareholder meetings; (4) commingling of corporate or shareholder funds; (5) under-capitalization,[110] (6) failure to have separate checking or other financial accounts; (7) failure to file separate income tax returns; (8) common corporate names; (9) diversion of corporate assets; (10) common officers and directors; (11) common payment by one corporation of the other corporation's salaries or financial losses; (12) one corporation only doing business with the other corporation; (13) centralized accounting; (14) undocumented transfers of funds between corporations; (15) unclear allocation of profits and losses; and (16) excessive fragmentation of corporate business.
The additional circumstances (facts) relevant to this SBE issue are (1) common use of corporate equipment; (2) actual control; (3) one corporation financing the other corporation; and (4) common employees.
As previously indicated in Part IX of this opinion, at the same time that the sale was approved by the regulators, the parties executed a Transition Services Agreement wherein Health Net agreed to perform certain administrative services for the HMOs "until AmCareco could get up and running after the closing." This agreement specifically provided that AmCareco would at all times retain the ultimate authority and responsibility over the HMOs.
In the Stock Purchase Agreement, Health Net was given several rights by which it could control AmCareco's future conduct, namely: (1) ownership of forty-seven percent (47%) of AmCareco's stock; (2) redemption rights for a specific period of time to require AmCareco to buy back Health Net's stock at a certain price; (3) the right of first refusal if a third person offered to buy all of AmCareco's stock; and (4) preemptive rights for protection against the dilution of its percentage ownership of stock rights.
Health Net partially financed the sale (in lieu of only agreeing to a cash sale) by taking redeemable stock instead of cash for part of the purchase price and by taking a promissory note instead of cash for another part of the purchase price. Health Net also reserved the right to approve future increases of indebtedness of AmCareco.
Rick McCutchen, a Health Net employee, worked for AmCareco for a short period of time after the sale to help with the transaction. During his testimony, Lucksinger stated the following:
Q. When you were first talking to Health Net in April of 1998 and you were coming up again with this plan, did you view this transaction more as a joint venture between AmCareco and Health Net?
A. I don't know if joint venture is the right word, but it was some sort of cooperative venture, that's for sure.
As previously indicated in Part X of this opinion, the work that AmCareco contracted with Health Net to perform in the Transition Services Agreement and the work performed by Rick McCutchen was transitional work designed to make the transfer of control of the HMOs from Health Net to AmCareco as seamless as possible. This was not single business enterprise activity.
The control that Health Net acquired over the operations of AmCareco pursuant to the Stock Purchase Agreement is less than that which a parent corporation has *492 over a wholly-owned subsidiary and does not create a single business enterprise. Riggins, 590 So.2d at 1167-68; Town of Haynesville, 42,019 at pp. 6-7, 956 So.2d at 197-98; Andry, XXXX-XXXX at pp. 15-17, 935 So.2d at 249-51; Shoemaker v. Giacalone, 34,809, pp. 3-5 (La.App. 2 Cir. 6/20/01), 793 So.2d 230, 233-34, writ denied, 2001-2614 (La.12/14/01), 804 So.2d 632. The evidence does not show that Health Net and AmCareco ceased to be separate juridical persons after the sale.
Finally, the record reflects that Health Net had legitimate business purposes for selling the stock in the HMOs. The HMOs were not profitable and represented a small part of Health Net's business enterprises. The only options available in this business posture were to divest the stock by either (1) sale or (2) wind down, which was considered the more difficult of the options. AmCareco wanted to buy and Health Net wanted to sell. The parties were particularly sophisticated in these types of business matters and obviously understood what they were doing. As indicated in Part X of this opinion, there were bona fide business reasons for the terms and conditions of the agreement reached by the parties after extensive negotiations. Health Net, as the vendor, engaged in a common business practice when it financed part of the purchase price. The facts that Health Net subsequently loaned additional money to AmCareco and maintained a parental guarantee on the Louisiana HMO are legitimate business activities and do not serve to breach the corporate separateness of the parties.
Accordingly, the Receivers have failed to prove that Health Net and AmCareco operated as a single business enterprise by clear and convincing evidence after the sale and the trial court's holding to the contrary in the Louisiana and Oklahoma cases is wrong.[111]Fina Oil & Chemical Co., 95-1877 at pp. 8-10, 673 So.2d at 674.
These assignments of error have merit.
XI. LIABILITY FOR FRAUD
(Assignments of Error TX 18, 19, 22, 23 and 27; LA-OK 1, 2, 5, 7, 9, 14 and Supp 5)
In her August 20, 2007 reasons for judgment in the Louisiana and Oklahoma cases, the trial court judge stated the following:
(C) HOW HEALTH NET COMMITTED FRAUD THAT CAUSED DAMAGE TO THE HMOs.
Without a fairness or even a legal opinion, simulated a transfer encouched in terms of sale whereby they took back 47% in preferred stock, swept $8.3 million in cash, removed the premium deficiency reserves, exercised the put option allowing themselves an additional $2 million, using artifice and design such as, *493 the contorted stock purchase agreement was misleading, the side letter modifying the agreement was not sent to the regulators and had to be read in pari materia with the 3q, which had not even been drafted.
Using pen stroke accounting, stacked assets and statutory deposits; used daily cash sheets; booked cashless capital contributions, booked receivables from parent to subsidiary to inflate equity, used creative accounting; constantly moved money between the three HMOs, resulting in commingling which is a violation of fiduciary duty, moved money into AmCareco then out to Oklahoma HMO to satisfy statutory requirement, failed to timely pay claims that were due and owing, remained silent in the face of deepening insolvency and exhausted smoke and mirrors subterfuge in GAAP accounting and continued to accept premiums, to pay old claims, grew the company by acquisition of two additional plans resulting in 150,000 members which could not be served.[112]
Health Net asserts that (1) "the Receivers sought to recover for contractual obligations of the HMOs in the form of unpaid claims allegedly owed by the HMOs to their creditors," (2) these claims were based in part, on (a) Health Net's status as an AmCareco shareholder and (b) Health Net's manipulation of AmCareco's separate corporate form for its own benefit, and (3) Health Net used AmCareco for the purpose of perpetrating and did perpetrate actual fraud on AmCareco's creditors for Health Net's direct benefit. Health Net contends the Receivers failed to prove this. The Receivers "contended Health Net defrauded the Regulators by misrepresenting the amount of the cash sweep and/or the amount of statutory capital the HMOs would retain after the 1999 AmCareco sale" and "Health Net committed fraud in 2001 ... by not disclosing the HMOs financial condition to the Regulators or the HMOs' claimants." Health Net asserts the Receivers "failed to prove [the] essential elements of each claim." Health Net argues it made no representations and did not defraud anyone regarding the sale, "AmCareco ... rather than Health Net made all representations to the Regulators regarding AmCareco's applications] for approval of the sale" and "Health Net... made no pre-sale statements or representations to the Regulators, precluding liability on the Receivers' principal fraud theory." Further, Health Net argues "[t]he documents filed by AmCareco with the Regulators were not misleading" and "correctly identified the amount of cash that would be, and was, swept from each of the three HMOs." Health Net maintains it did not defraud anyone after the sale. After the sale, Health Net argues it was simply a shareholder in AmCareco, had no duty to speak on behalf of AmCareco and had no duty "to warn potential claimants of the HMOs financial condition." In particular, Health Net argues "the Regulators learned of the HMOs' true financial condition before Health Net did, but decided as a matter of policy to give AmCareco time to fix its problems" and "the Regulators themselves acknowledged at trial the imprudence of a shareholder contacting the corporation's creditors."
The fraud claim asserted by the Receivers is summarized as follows:
The transfer from Health Net to AmCareco, and the "cash sweep" that accompanied it, constituted a sham transaction that should have never occurred. It immediately caused the HMOs to be statutorily insolvent or at the very least in *494 the zone of insolvency, and the HMOs were left undercapitalized to serve policyholders, health care providers, and the general public. Through false and misleading documents prepared and assisted in by Health Net, the regulators were tricked into approving the transaction, as will be detailed below.
It furthered was asserted by the Receivers that the PDRs were improperly reclassified as Restructuring Reserves. The Receivers contend the April 1998 Letter of Intent was improperly omitted from the Form-A applications for the Regulators' consideration for approval of the sale of the HMOs. The Receivers contend the November 4, 1998 Stock Purchase Agreement and Side Letter did not "state that any additional PDR would be taken out of the HMOs as a part of any cash sweep...." "The Health Net cash sweep schedules forwarded to the regulators prior to the regulatory approval deliberately and clearly did not include the PDR amount for 1999 ($6.3 Million) within the `cash sweep' figure." The Receivers argue after the April 30, 1999 sale, the parties executed a Closing Agreement that was not provided to the Regulators. Paragraph 3(q) of this agreement improperly classified the PDRs as Restructuring Reserves, according to the Receivers. The effect of the cash sweep, argue the Receivers, was to render the HMOs insolvent and undercapitalized. The Receivers assert this deprivation of required capital was the legal cause of all subsequent damages suffered by the HMOs. Finally, the following is asserted by the Receivers concerning Health Net's post-sale conduct:
Judge Clark also found that Health Net's fraud continued after the "sale" transaction and cash sweep, when Health Net oversaw and endorsed AmCareco's "smoke and mirrors subterfuge" and various accounting tricks employed to give an appearance to regulators that the HMOs were solvent when they were not.... The infamous "smoke and mirrors" memorandum... sets forth many of these accounting tricks, and reveals the AmCareco entities' improper and long-standing practice of using inter-company kiting transfers to artificially inflate their net worth to deflect regulatory scrutiny. Health Net had also received a number of earlier communications from the AmCare [sic] entities regarding their practice of booking bogus receivables to maintain the appearance of regulatory compliance.... All of these misrepresentations were made to specifically deceive the regulators in order to prevent them from placing the HMOs into receivership.... As a result of these fraudulent representations, the HMOs continued to operate until the claims far outstripped the ability to pay creditors' claims, causing the Receivers' damages.
The fault attributed to Health Net essentially falls into two categories: (1) fraud in obtaining regulator approval of the sale contract that transferred the ownership of the corporate stock and the control and possession of the HMOs from Health Net to AmCareco; and (2) fraud in reporting the financial condition of the HMOs to the regulators after the sale.
A. Fraud in Obtaining Regulator Approval of the Sale
Because we have found that the Stock Purchase Agreement with Side Letter was not a sham and was a valid contract and that Health Net and AmCareco were not engaged in a single business enterprise at any time, the remaining issues pertaining to Health Net's liability involve whether Health Net is liable to the Receivers pursuant to a particular theory of tort liability.
*495 1. The Stock Purchase Agreement and Side Letter Contract
It is hornbook law that valid contracts have the effect of law for the parties. A review of the contract herein shows that it is a nominate contract of sale for the corporate stock of the three HMOs for which the consideration (cause) was cash, corporate stock in AmCareco, and various reciprocal obligations. The contract is subject to multiple suspensive conditions, including one that the contract will not become effective between the parties until it is approved by the regulators of the states of Louisiana, Oklahoma, and Texas. Thus, after the sale was approved by the three regulators, the contract had the effect of law on the parties. The record does not reflect that the contract was ever rescinded or nullified and, thus, the legal relations and effects created by the contract remained in effect until they were terminated by the rehabilitations and/or liquidations. Accordingly, the parties were obligated to perform as obligated in the contract until the contract was terminated.[113]
The record reflects that AmCareco was unable to acquire the ownership of the stock of the HMOs by way of a cash sale and, accordingly, the parties negotiated a contract in which the vendor (Health Net) agreed to "finance" the sale by taking cash, acquiring stock in AmCareco, and obtaining various security devices to protect its equity in the transaction.[114] In the contract, the parties defined the "Required Amount" of assets and equity to be left in the HMOs by Health Net as the sum of (1) all of the liabilities of the HMOs; (2) the total of all statutory and regulatory capital and other deposit amounts required of the HMOs; (3) any additional local deposit and escrow requirements of the HMOs; and (4) an additional $3,500,000. The amount of "Cash Payment" to be made out of the assets and equity of the HMOs to Health Net was defined as the excess, if any, of all cash, cash equivalents, certificates of deposit, marketable securities, and the value of the property, plant and equipment of the HMOs that are admitted assets, provided that the value of such items shall not exceed $50,000, $250,000, and $200,000 for the Louisiana, Oklahoma, and Texas plans respectively. The Cash Payment was to be made based on a balance sheet that provided, among other things, that (1) "all non-cash restructuring and merger related liabilities and reserves (the `Restructuring Reserves') shall be reversed,"[115] and (2) all intercompany accounts between an HMO and Health Net, AmCareco, or an affiliate of Health Net shall be settled.
As part of the consideration for the sale, Health Net also agreed to receive from AmCareco a to-be-determined number of shares of Class A Preferred stock of AmCareco that had a $10 par value per share, a liquidation value of $1,000 per share, and other preferences. Health Net would be entitled to the number of shares valued at $1,000 per share represented by the excess of (1) the adjusted book value of the HMOs over (2) the amount of the Cash Payment, if any.
The Health Net and AmCareco Stock Purchase Agreement and the Side Letter were executed on November 4, 1998. The *496 Stock Purchase Agreement provided a closing date for a final agreement of January 31, 1999.
The first sentence of paragraph 6 of the Side Letter provides as follows:
6. In the event that it appears Closing will not take place on or before January 15, 1999 (and Seller [Health Net] will thereby likely be required to establish prior to the issuance of its 1998 audited financial statement an additional premium deficiency reserve (the "Additional PDR") for any of the Acquired Corporations [the HMOs] as of December 31, 1998), then Buyer [AmCareco] and [Health Net] shall negotiate in good faith a mechanism (and an appropriate amendment to the Agreement including appropriate adjustments to the Cash Sweep) whereby (i) [Health Net] would be able to receive back any cash contributed to the [the HMOs] in establishing the Additional PDR (whether or not a Cash Sweep is otherwise available) to the extent such Additional PDR relates to periods after the Effective Time; (ii) [Health Net] would receive such cash either through the Cash Sweep procedure or the Sweep Shortfall procedure described at item 5 above; (iii) the resulting liability and any related assets contributed to [the HMOs] with respect to the Additional PDR relating to periods after the Effective Time would not be considered when determining whether the $10 million Adjusted Book Value closing condition has been met; and (iv) [AmCareco] would not have any materially adverse tax or capital consequences because of such mechanism. (Emphasis added.)
This paragraph repeatedly refers to "Additional PDR" to distinguish it from the existing PDRs with which the HMOs were operating. At this time PDRs were not required by law in Louisiana and Oklahoma; apparently the HMOs in those two states operated with PDRs by choice. La. R.S. 22:2010; 36 Okl.St.Ann. § 6913.
Paragraph 5 referred to in paragraph 6 of the Side Letter provides as follows:
5. In the event that one or more regulatory authorities do not allow [Health Netl to effectuate all or a portion of the Cash Sweep, [AmCareco] agrees that it shall pay to [Health Net] at Closing as part of the purchase price for the Shares of [the HMOs] an amount of cash equal to the portion of the Cash Sweep not so allowed (the "Sweep Shortfall"), and [Health Net] agrees that the Adjusted Book Value used to calculate the number of shares of Class A Preferred Stock to be issued to [Health Net] at Closing shall likewise be reduced by the amount of such Sweep Shortfall.
As previously indicated in Part IX of this opinion pertaining to sham, pursuant to the law of Delaware when interpreting a contractual provision, a court attempts to reconcile all of the agreement's provisions when read as a whole, giving effect to each and every term. Council of Dorset Condominium Apartments v. Gordon, 801 A.2d 1, 7 (Del.2002). When the Health Net and AmCareco contract and Side Letter are construed together pursuant to this admonition, the following pertinent contractual facts are evident: (1) a designated amount of assets and equity would remain in the HMOs; (2) Health Net would receive a cash payment out of the balance of the assets and equity left in the HMOs; (3) Health Net would receive less than a majority of the stock issued by AmCareco; (4) all intercompany accounts would be settled (the receivables would be collected and the payables would be paid); and (5) Health Net would receive back from the *497 HMOs any additional PDR loaned[116] to an HMO to maintain a PDR either as part of the Cash Sweep or the Sweep Shortfall procedure.
The closing did not take place on or before January 15, 1999, as provided for in the Side Letter or on or before January 31, 1999, as provided for in the Stock Purchase Agreement. Thereafter, Heath Net loaned $4,000,000 to the Texas HMO for its PDR and loaned $2,300,000 to the Louisiana HMO for its PDR.[117] No additional PDR cash was loaned to the Oklahoma HMO. As previously indicated, donations and loans can be legitimate contracts with a corporation when the corporation is closely held by a natural person or is affiliated with another corporation.[118]
2. The Financial Spreadsheet For The Sale[119]
Health Net provided Shattuck Hammond with the financial information necessary to prepare the Form-A spreadsheet (sometimes referred to as "the balance sheet."). Shattuck Hammond prepared several different formats of a spreadsheet and circulated them to the interested parties for their consideration. The final format utilized is entitled FHS CASH SWEEP AND PREFERRED A SHARE CALCULATION. The letters of transmittal by which the spreadsheet was sent to the three Regulators state that "[t]his schedule contains the most current estimate of what the expected book value of the three HMOs will be at the time of closing," and that "[i]t is based on the balance sheets of each of the HMOs for the period ending March 31, 1999." (Emphasis added.) The spreadsheet does not reflect cash received through the sale of Class B preferred and common stock. It is divided into four sections entitled Louisiana, Oklahoma, Texas, and Combined, and each section has three columns representing the balance sheet money line item number for the reporting date, the pertinent financial change resulting from the contract, and the financial balance sheet money number after the change. The general categories listed vertically for each column are: (1) total assets; (2) total liabilities & equities; (3) AMCARECO CASH REQUIREMENTS; (4) ADJUSTED CASH IN PLANS; and (5) ADJUSTED CASH IN PLANS based on book value. Each of the general categories listed various items. The final format used was prepared by Susan Conway, a lawyer who represented AmCareco, and the same spreadsheet was filed by her with each Form-A filed with the three state Regulators.
When the pertinent provisions of the Stock Purchase Agreement are considered with the format of the spreadsheet, the money numbers that represent those provisions are: (1) the Required Amount of assets and equity to be left in the HMOs by Health Net; (2) the Cash Payment (sometimes referred to as the FHS or Health Net Cash Sweep) to be paid to Health Net; (3) the number of shares of AmCareco Class A Preferred stock that Health Net was to receive; (4) the effect of the intercompany settlement of accounts; and (5) the amount of money Health Net was entitled to receive in payment *498 to settle the loans given to the Louisiana and Texas HMOs for their additional PDRs.
a. The Oklahoma Spreadsheet
The Oklahoma spreadsheet reflects the following: (1) cash result due to settlement of intercompany payables and receivables $1,735,619; (2) payment to Health Net "Cash Contributed [loaned] by FHS to Fund Premium Deficiency" of Oklahoma HMO $0; (3) cash increase in paid-in capital due to reversal of pre-existing PDR $3,309,990; (4) cash "Required Amount" for AmCareco $4,333,021; (5) Health Net "Cash Payment" cash sweep $2,903,761; (6) Health Net (FHS) contribution on the purchase price of AmCareco stock $4,599,761; and (7) book value of adjusted cash in the Oklahoma HMO $7,503,522.
The record reflects that the Oklahoma regulating authority did not object to the format used to present this information at the time it was presented or when the application was approved. Nora House, financial analyst for the Oklahoma Department of Health in 1999 (the department charged, at that time, with oversight of HMOs in Oklahoma) testified by deposition that she reviewed AmCareco's Form-A application and the spreadsheet which accompanied the application. House stated the side letter and the spreadsheet revealed the reversal of the PDR, and the application disclosed the cash sweep from the Oklahoma HMO to Health Net.
b. The Texas Spreadsheet
The Texas Spreadsheet reflects the following: (1) the cash result due to settlement of intercompany payables and receivables $2,436,109; (2) payment to Health Net of PDR loaned to Texas HMO $2,920,123 ($4,000,000 less $1,079,877 that was amortized); (3) cash increase in paid-in capital due to reversal of pre-existing PDR $3,584,364; (4) cash "Required Amount" for AmCareco $5,971,077; (5) Health Net "Cash Payment" (FHS) cash sweep minus $1,079,877 (PDR amortization); (6) Health Net (FHS) contribution on the purchase price of the AmCareco stock $3,807,117; and (7) book value of adjusted cash in the Texas HMO $6,727,240. The net amount of cash lost by the Texas HMO due to the sale was the payment to Health Net of PDR money loaned to the Texas HMO of $2,920,123 less the cash increase due to the settlement of the intercompany payables and receivables of $2,436,109 which results in $484,014, the amount agreed to by the Texas Regulator.
The order approving the acquisition and control of the Texas HMO via the sale of its stock was recommended by Licette Espinosa, a senior financial analyst in the Financial Monitoring Division of TxDOI and Eileen J. Shiller, a Holding Company Specialist in the Financial Division of TxDOI, and approved by Betty Patterson, Senior Associate Commissioner for the Financial Department of TxDOI, on behalf of Jose' Montemayor, Commissioner of Insurance of TxDOI. Health Net introduced the deposition testimony of Espinosa, Jose Daniel Saenz (head of Financial Monitoring for TxDOI), and Patterson[120] at the trial.
Espinosa testified that she reviewed the Form-A submitted by Conway on behalf of AmCareco, understood the "cash sweeps calculation and this spreadsheet," and recommended approval of the application to Patterson. Espinosa also testified that she understood "what the estimated cash payment was going to be out of the Texas HMO to [Health Net] as of the acquisition" *499 and that she was "not going to recommend approval of a Form-A application, unless... all the requirements of the Texas Insurance Code had been satisfied." Espinosa then gave the following pertinent testimony:
Q. Well, let me ask you that question then. Ms. Espinosa, do you have any reason to believe that AmCareco or anyone acting on their behalf mislead [sic] you in any [way] in the Form-A application process?
A. No.
Q. Do you have any reason to believe that AmCareco or anyone acting on their behalf withheld material information from you in connection with the Form-A process?
A. No.
Q. Do you have any reason to believe that AmCareco or anyone acting on their behalf mislead [sic] anybody at [TxDOI] in connection with the Form-A process?
A. No.
Q. Have you ever heard anyone at [TxDOI], any of your colleagues involved in the Form-A application process say that AmCareco or anyone acting on their behalf provided misleading information?
A. No, I have not.
Q. Did any of have you ever heard of any of your colleagues at the Texas Department of Insurance that were involved in this Form-A application process, have any of them ever said to you that they learned that AmCareco or anyone acting on their behalf withheld material information in connection with the Form-A process?
A. No.
...
Q. But if you take a look at the side letter agreement, which is exhibit-288, and in particular paragraph six of that side letter agreement, you can see that you had at the time some information about what was going to happen if there had to be a premium deficiency reserve established and then how that would be handled in a closing agreement between AmCareco and Foundation. Do you see that?
A. I do.
Q. And am I as you sit here today and read that information, is it clear to you that that if the closing didn't take place on January 15th, 1999 and incidentally, we know that closing didn't take place then did it?
A. No, it did not.
Q. So if it didn't take place by January 15th, 1999 and [Health Net] was required to have a premium deficiency reserve, that [Health Net] and AmCareco were going to, in some way, figure out a way to get [Health Net] back the money they had to contribute to establish these premium deficiency reserves?
A. Correct.
Q. Let's take a look at Exhibit-40. Have you got that in front of you?
A. I do.
Q. And Exhibit-40 is a letter to Conway, AmCareco's lawyer, wrote [sic] to you dated April 12th, 1999[. I]s that correct?
A. That's correct.
Q. And if you look on the seventh page of the attachments to that letter, you'll see a chart that says, AmCareco, Inc., Financial Analysis for AmCare Health Plans of Texas, Inc., currently know as Foundation Health, A Texas Health Plan, Inc.[ I]s that right?
A. That's correct.
Q. And if you look at this chart, does it show you what [Health Net] was reporting per their annual statement for *500 the year ending 12-31, 1998 for certain Financial data?
A. It does.
Q. And if you look down to the lower left-hand corner, does it show you what [Health Net] was recording as a premium deficiency reserve as of 12-31, 1998?
A. It does.
Q. And what was that number?
A. Four million four seventy-one six six nine.
Q. Okay. And then if you slide across, does it show you whether AmCare Health Plans of Texas was projecting or what AmCare Health Plans of Texas was projecting for the following year 12-31, 1999 with respect to the premium deficiency reserve?
A. It doesn't have any amounts.
Q. All right. So your assumption would have been, that while Foundation had reported approximately 4.4 million for a premium deficiency reserve as of 12-31-98, AmCare Health Plans of Texas was not projecting reporting any premium deficiency reserve for 12-31-98?
A. Correct.
Q. All right. Let me also have you look at Exhibit 48-A again, and you'll recall this was the schedule that was attached to Ms. Conway's April 30th, 1999 letter to you?
A. Correct.
Q. And if you look at Exhibit 48-A, the blowup, you can read it a little better, if you've got that handy.
A. I think they're probably about the same.
Q. And take a look under the category, Liabilities and Equities. Are you with me?
A. I am.
Q. And yes, under the category, Liabilities and Equities, there is a subcategory that says, and it's hard to read, but it says, either restricting or restructuring, and then there's a slash, and it says, premium, and then def, period. Are you with me?
A. No, I'm not.
Q. I'm going to I'm going to point it out to you.
A. Okay.
Q. Right there.
A. Oh, I was looking down here.
Q. I'm sorry.
A. That's okay. Okay. I'm with you.
Q. You are with me, okay. And premium def, would you interpret that to mean premium deficiency?
A. Yes.
Q. Okay. Let me read that into the record and ask that you follow along with me. As indicated on the schedule, the closing transactions consist of a cash infusion into the Texas HMO by [Health Net] of two million four hundred thirty-six thousand one hundred nine dollars to cover the net intercompany receivable, offset by a calculated cash sweep of, and then we have the number, dollar sign, two million nine twenty one ninety-three struck through, and above it in handwriting two million nine hundred twenty one hundred twenty-three dollars. This results in a net cash withdraw from the Texas HMO by [Health Net] of, and then we have struck through, four hundred eighty-four thousand eighty-four dollars and replaced with four hundred eight-four thousand fourteen dollars, and will result in the Texas HMO having total equity of three million eight hundred seven thousand one hundred and seventeen dollars after the closing. Did I read that correctly?
A. You did. (Emphasis added.)
Saenz testified that "[w]e were aware of the sweeps as was [sic] described by the *501 applicant and we approved the order with those representations." As the head of Financial Monitoring, Saenz would review the analyst's (Espinosa's) work and recommendation and, if he approved, he would bring it to Patterson for her approval. According to Saenz, important considerations in acting on this application was Lucksinger's "very good reputation" and the fact that he "had done a very good job of turning operations around at NYLCARE." The Texas HMO was a "troubled" company because it was losing money and Health Net had apparently placed it in a "run-off" (wind down) position; however, a sale was "much less disruptive for the industry than runoff." Sanez stated that based on Lucksinger's "experience with NYLCARE" that he "would do a better job than [Health Net] had done with the HMO" and that he would "try to work through all the problems that [Health Net] was having by acquiring it and attempting to turn the operations around to make it a profitable operation." Saenz also gave the following pertinent testimony:
Q. So would you agree with me that the letter agreement, Exhibit-288, provides for [Health Net] to recover so much of the additional premium deficiency reserve established for any of the HMOs including the Texas HMO that had not been amortized as of the day before the closing of the change of control?
A. Thebased on the agreed upon date of closing, right?
Q. Yes, sir.
A. Okay. Yes.
Q. So [Health Net], under this side letter and under the purchase agreement with AmCareco, was entitled to get back the unused portion of the premium deficiency reserve.
A. For any of the premium deficiency reserve that is established forsubsequent to January 15, 1999.
Q. Yes, sir.
A. Yes.
. . . .
Q. So at the time that the Department approved the change of control over the Texas HMO from [Health Net] to AmCareco, the Department knew that [Health Net was] going to recover [its] equity, a portion of [its] equity in the Texas HMO plus the unamortized portion of the premium deficiency reserve.
A. That was what was disclosed in the application, yes.
Q. And if the Texas Department of Insurance had a problem with that, it would not have approved the Form-A, would it?
A. Yes.
Q. Yes, it would not have approved it?
A. Yes, we would not haveifbased on what we had at that point in time, we got comfortable with what was filed.
Q. There was nothing that was hidden from the Department in thisin this transaction, was there?
A. Not frombased on the application and what was submitted, no.
. . . .
Q. Now let me hand you what has previously been marked for identification as Exhibit-48. I'm going to ask you to take a couple of minutes or so to familiarize yourself with the exhibit before I ask you any questions about it.
A. Okay.
Q. Now let's look at the next paragraph in this letter. I am going to ask that you follow along as I read it into the record. As indicated on the schedule, the closing transactions consists of a cash infusion into the Texas HMO by [Health Net] of $2,436,109.00 [sic] to *502 cover the net intercompany receivable, offset by a calculated cash sweep of, and then we have a number crossed out and handwritten in with a line, $2,920,123.00. This results in a net cash withdraw from the Texas HMO by [Health Net] of, and we have another number that's crossed out and handwritten below it, $484,014.00, and will result in the Texas HMO having total equity of $3,807,117.00 after the closing. Did I read that correctly?
A. Yes.
Q. You understand that [Health Net] put a little over $2.4 million into the company, into the Texas HMO, and then took out a little over $2.9 million, for a net payment to [Health Net] of almost a half million dollars%?
A. Yes.
Q. Now if we look at the schedule and you see there is up at the top an entry, TX 3/31?
A. Yes.
Q. And then there are three columns under the TX that become one column about two-thirds of way down the schedule. Are you with me?
A. Uh-huh, yes.
Q. Let's look at the very last four rows of the third column of numbers moving from the left. You see there is a negative $4 million there?
A. Yes.
Q. And below that there is the number $1,079,877.00.
A. Yes.
Q. And if I subtract $1,07[9],877 from four million, I get $2,920,123.00 or the same amount that Ms. Conway is disclosing in the paragraph that we read into the record for the gross cash sweep by Foundation.
A. Yes.
. . . .
Q. Now turning our attention to Exhibit-447 [the Closing Agreement] which at paragraph 3(q) I believe referred to treating the premium deficiency reserve as a restructuring reserve?
A. Yes.
Q. Is it inconsistent to characterize the premium deficiency reserve as a restructuring reserve with the treatment of the premium reserve as a runoff reserve or a reserve against losses to be incurred in runoff?
A. Itthat could be part of their assumptions in determining the reserve, yes.
Q. Let's go back over that a moment. I think we established in my questions to you earlier this afternoon that foundation was to receive the portion of the reservepremium deficiency reserve that had not been amortized as of the day before closing.
A. That's correct.
Q. And that turned out to be April 29, 1999.
A. Well, maybe I misinterpreted before when I was answering because I thought that the agreement stipulated that the closing should have occurred prior to January 15.
Q. Right, and the side letter to the agreement, Exhibit-288 that you and I looked at, said that if the agreement, if the sale did not close before January 15, 1999 and if [Health Net], the parent companystrike that. And if Foundation [sic], the Texas HMO had to put in place a premium deficiency reserve, then when the sale closed the parent company [Health Net], [was] to receive the unamortized portion of the premium deficiency reserve that had been put up by the Texas HMO.
A. Well, maybe I am interpreting whatwhat I read in thatin comparison *503 to you're saying, because the way I amI am interpreting it is that if [Health Net] was required to include some additional premium deficiency reserve for that period subsequent to January 15th, that date that was agreed upon, that that was the portion that they would be getting back, the unamortized portion of that. But that anything prior to that was to remain on the books.
Q. We are on the same page.
A. Okay.
Q. We're on the same page.
A. Okay.
Q. In other words, to the extent that any of the premium deficiency reserve that [Health Net] had to put up was amortized, [Health Net] did not get that part back.
A. Okay.
Q. Right?
A. Yes.
Q. It only got the unamortized portion.
A. Okay.
Q. That is, the part that would relate to the company after the change of control to AmCareco.
A. Okay.
Q. Are you with me?
A. To a certain degree, yeah.
Q. Is that inconsistent with what Mr. George [Counsel for the Texas Receiver] had you read into the record at paragraph 3(q) in Exhibit-447?
A. I don't see a difference, no. (Emphasis added.)
Betty Patterson testified that Licette Espinosa worked under her direct supervision, she was a competent employee and she was not aware of any problems with her performance. She then gave the following pertinent testimony:
Q. All right. And you, as you sit here today, you're certainly not testifying, are you, that somebody made a misrepresentation to the Texas Department of Insurance in connection with the Form-A application.
A. No, I'm not testifying to that.
Q. And as you sit here today, you're not aware of anybody making any statements to the Texas Department of Insurance about thisAmCareco's acquisition of Foundation [sic] that was in any [way] false and misleading, correct?
A. That's correct.
The Texas Receiver called Mary Keller who was tendered as "an expert witness on the practices and the policies of the Texas Insurance Department." After voir dire, the trial court judge expressed "the opinion that she has demonstrated and should be qualified as an expert in the field of insurance having served as the Senior Associate Commissioner of Insurance. And she may give an opinion if she has reviewed the requisite evidence, documents, [and] exhibits to place her in the position to give opinions in this case." Subsequently, Keller gave the following opinion testimony:
Q. And I want to know first, during that period of time do you have an opinion whether or not Health Net Foundation actively participated in false, misleading, and fraudulent information being given to the Department of Insurance?
A. On this matter or any matter?
Q. In the matters relating to this HMO in the same time period. Because some are interrelated like filing the falsea financial statement preparatory to this transaction that was false.
A. Okay. Yes, I do have an opinion.
Q. What is it?
A. My opinion is that the department viewed the filings of [Health Net] during the time period about this HMO to be *504 false and inaccurate on a number of occasions. There is an analyst's report, I think it was the March of 1999 filing that was subsequent to the filing, and the analyst says the report is not accurate, we've had to discuss this with [Health Net] on a number of occasions and they've had to refile it and amend it and they considered it actually a fact for a hazardous financial condition to be one of those factions is if you're not reporting accurately and it was a trigger.
. . . .
Q. And it's an exhibit in this case and if I was a better lawyer I would remember the exhibit number but I don't. And so in that context after reviewing this, did you get some opinion as to whether or not they participated in any other way in connection with the Form-A filings itself that was false, deceptive, and dishonest?
A. Yes.
Q. What is your opinion?
A. My opinion is that the Form-A, which was the product of information given by Health Net, was false and misleading because the Form-A basically said that this HMO would bewould have the statutory minimum, would comply with all Texas law once the Form-A was approved. And so it did not comply with Texas law once the Form-A was approved, so it is my opinion that that representation to the department was a false and misleading representation.
. . . .
Q. After the closing have you looked at analysis of the materials to determine whether or not, as you understand the practices of the department, Health Net remained in control?
A. Yes.
Q. Assuming that what they think happened or what they were trying to make happen actually happened, which Judge Clark or the jury may ultimately decide they were wrong, but putting that aside, let's assume that it did happen, something like that, and they only owned forty-seven per cent with the rights we've talked about. What is your conclusion about whether they had control then?
A. It is my opinion that the department of insurance would consider that Health Net was still a controlling party for purposes of regulation.
Q. Why?
A. The essence of a controlling party is an entity that has the ability to directly or indirectly affect how something is managed. And it's my opinion, based on the authority that Health Net retained after the transfer, that they were still a controlling party in the department's viewpoint, that they had forty-seven percent of the stock, they had rights to basically disapprove loans that were made. They had a right to call in $2 million. They had preferential rights in terms of who got paid first. Their stock was preferential stock. And when you just look at thehow, in fact, the HMO was operating and who was told about things, they were always on the list of people who were informed about the financial situation of the HMO. So they werein my opinion, they were an entity that the HMO notified as things, well, progressively got worse, but all those things together, it would be my view that the department would consider Health Net a controlling entity.
Q. Is it about the power to direct, either power derived from contract or directly or indirectly to direct people's activities so that a father can tell the son who owns the insurance company what to do? That's stilleven though the father doesn't own a share, that's still control.
A. That could be, absolutely, yes.
*505 . . . .
Q. Do I have it right, that to render the report that you gave to Mr. George [Counsel for the Texas Receiver], your expert report, you assumed the facts given to you by Mr. George were true?
A. I did.
Q. And you are basing your opinions on what Mr. George has told you. Is that right?
A. To a certain degree, yes.
Q. And, in fact, haven't you said before that you're not going to be a fact witness?
A. Well I amI guess I am not going to be the person that anybody relies on specifically for facts, but I did try and verify the facts given to me so I was comfortable that they were true.
Q. And isn't it also true that you're not giving the opinion whether or not AmCare Health Plans of Texas immediately after its acquisition by AmCareco and the cash sweep met the statutory requirements for minimum capital in Texas?
A. I am assuming that to be true.
Q. You're assuming it. You're not
A. I am not rendering an opinionI am not a financial analyst. I am not rendering an opinion that the Texas HMO did not meet the standard. I assume that is the case and that that will be established for the jury. (Emphasis added.)
Keller did not discuss Tex. Bus. Corp. Act art. 2.21, Tex. Ins.Code § 843.401 or Willis v. Donnelly, 199 S.W.3d 262 (Tex.2006)[121] in her testimony. See discussions in Part VI, Sections Dl and 2 of this opinion.
The official order of the Texas Commissioner of Insurance provides, in pertinent part, as follows:
13. As of December 31, 1998, [The Texas HMO] had assets of $11,000,000, net worth of $700,000, and net loss of $4,900,000. As of March 31, 1999, [The Texas HMO] had pre-tax income of $382,000.
14. No evidence was presented that immediately upon the change of control [the Texas HMO] would not be able to satisfy the requirements for the issuance of a new certificate of authority to operate as a health maintenance organization as it is presently licensed to do.
. . . .
16. No evidence was presented that the financial condition of [AmCareco] is such as might jeopardize the financial stability of [the Texas HMO] or prejudice the interest of its enrollees or the interests of any remaining shareholders who are unaffiliated with such acquiring party.
17. No evidence was presented that the [AmCareco] has any plans or proposals to liquidate [the Texas HMO], sell its assets, consolidate or merge it with any person, or make any material change in its business or corporate structure or management, that are unfair, prejudicial, hazardous or unreasonable to the enrollees or shareholders of [the Texas HMO] and not in the public interest.
18. No evidence was presented that the competence, trustworthiness, experience and integrity of those persons who would control the operations of [the Texas HMO] are such that it would not be in the interest *506 of the enrollees of [the Texas HMO] and of the public to permit the acquisition of control.
c. The Louisiana Spreadsheet
The Louisiana Spreadsheet reflects the following: (1) cash deficit due to settlement of intercompany payables and receivables$980,671; (2) payment to Health Net of PDR loaned to Louisiana HMO (cash contributed by FHS to Fund Premium Deficiency)$2,300,000; (3) cash increase in paid-in capital due to reversal of pre-existing PDR$1,421,764; (4) cash required for AmCareco$6,511,481; (5) Health Net (FHS) "Cash Payment" cash sweep$243,531; (6) Health Net (FHS) contribution to the purchase price of the AmCareco stock$5,216,488; and (7) book value of adjusted cash in Louisiana HMO$7,760,019. The ADJUSTED CASH IN PLANS and the Book Value ADJUSTED CASH IN PLANS vertical categories specifically provided as follows:
ADJUSTED CASH IN PLANS
Cash in Plans $9,055,012
Plus
Less Cash Contributed by FHS
to Fund Premium Deficiency (2.300,000)
___________
6,755,012
___________
FHS Cash Sweep 243,531
===========
ADJUSTED CASH IN PLANS
Book Value $7,760,019
Less Cash Contributed by FHS
to Fund Premium Deficiency (2,300,000)
FHS Cash Sweep (243,531)
___________
Plus FHS Cash Contribution $5,216,488
===========
The parentheses around the numbers 2,300,000 and 243,531 indicate numbers with a negative value in the Louisiana HMO; the sum of these two numbers is a negative $2,543,531, the total amount of cash that was "swept" from the Louisiana HMO.
Health Net called as a witness Gary Smith, Accountant Manager for the Accounting Department for LaDOI, who previously had worked in the Office of Financial Solvency and who, while there, did an Acquisition Review of AmCareco's application for the purchase of the stock of the Louisiana HMO.[122] In his testimony and in the review, Smith made the following pertinent observations: (1) "AmCareco will not pay any money to FHC [Health Net]."; (2) "The cash transferred to FHC will be taken out of FH [the Louisiana HMO] and will be in the amount of FHC's equity in the company...."; (3) "It appears under the Sch. 2.2 financial statement (date appears to be 9/98) that FH will have $670,781 swept out at closing which will remain with FHC"; (4) "Exhibit B, 2, 8 indicates that withdrawal may occur if transaction is not completed. According to Schedules 4.3 and 7.3, FH has plans to `complet[e](ly) withdraw ... from the Louisiana market.'"; and (5) "Exhibit B, 2, 6 indicates that if closing occurs after 1/15/99, an additional premium deficiency reserve (`PDR') must be reported which would require negotiation for an adjustment to the cash sweep." (Emphasis added.)
Also attached to the Louisiana Form-A Application is a memorandum from Denise Brignac, Assistant Chief Examiner, to Mike Boutwell, Company Licensing, dated April 26, 1999, that provides as follows:
A review of the Form-A application submitted by AmCareco, Inc. for the acquisition of Foundation Health, A Louisiana Health Plan, Inc. revealed a significant number of concerns as evidenced by the attached [Smith's acquisition review].
A meeting held April 23, 1999 between this Department and representatives from both Foundation Health and AmCareco *507 alleviated most of these concerns.
However, I am still bothered by AmCareco's ability to provide future funding if Foundation Health continues to report net losses and is in need of a surplus infusion.
Therefore, I recommend approval of this Form-A application only [if] Foundation Health is required to maintain a higher minimum net worth at all times. Recommended net worth requirement is $4 million.
A hearing was held on April 30, 1999, before Joe Wills, Hearing Officer for the Commissioner of Insurance, at which it was found that the "acquisition" was "in the best interest of policyholders and the citizens of this state." The application was approved subject to the condition that "[T]he capitol [sic] of Foundation Health, a Louisiana Health Plan shall at all times remain at a minimum of $4,000,000 (Four Million Dollars)".
Brignac, currently the Deputy Commissioner, Office of Financial Solvency, Louisiana Department of Insurance, was called as a witness by the Louisiana Receiver. She testified that she was the Assistant Chief Examiner for this application. She further testified that "[w]hen the Louisiana HMO filed its 12-31-98 annual statement, which was due March 1st of 1999, it reported surplus of approximately seven hundred thousand dollars, which was below the $3 million requirement at that time." On or about March 12, 1999, Shawn Camper, a Health Net Staff Accountant, sent a wire transfer of $2.3 million to the Louisiana HMO and advised Brignac that it was a "$2.3 million capital infusion" or "capital contribution." The money came from Qualmed, a Health Net subsidiary, and Brignac understood that it "was necessary to get it up to the basement minimum required by Louisiana law at that time."
The April 23, 1999 meeting was scheduled to address the concerns raised by Gary Smith. Attending the meeting representing LaDOI were Brignac, Craig Gardiner, and Smith; Lucksinger attended representing AmCareco; Gil Dupree attended representing the Louisiana HMO. Brignac "stated at that meeting that if the six hundred and seventy thousand dollars [the proposed sweep in the application] was going to come out of the Louisiana HMO, [she was] not going to approve the transaction." She requested that "a new cash sweep calculation be provided to the department" and that a specific amount be indicated.
At approximately 8:50 P.M. on April 29, 1999, LaDOI received the revised proposed cash sweep schedule. Susan Conway of Vinson & Elkins submitted it on behalf of AmCareco to Mike Boutwell who gave it to Brignac. As previously indicated, the revised cash sweep was shown as "FHS Cash Sweep (243,531)." The revised schedule also continued to carry the entry of "Less Cash Contributed by FHS to Fund Premium Deficiency (2,300,000)" in two places. Brignac testified she and LaDOI got the revision and reviewed it "before any approval by the Louisiana Department of Insurance." In response to the question "when you see something in parentheses ... what does it mean?" she responded "[I]t means you're taking it away from the balance." Brignac testified as follows about the $243,531 and $2,300,000 entries:
Q. [By MR. CULLENS, Counsel for the Louisiana Receiver]: Did that satisfy your concerns that you had at the April 23rd, 1999 meeting about the amount of the cash sweep?
A. Yes.
Q. Why is that?
*508 A. It was not the original six seventy that they had filed. It was much less. The Department of Insurance could live with it, and it was my appreciation that the two forty-three, if it was going to be swept out, it was going to be done during the true-up period.
Q. And whenwhat was your understanding of when the true-up or when that two hundred and forty-three thousand was going to be swept out of the HMO?
A. At least, I think twelve months from the date of the approval.
Q. So it was not your understanding that even that two hundred and forty-three thousand was coming out within the next day or so from the HMO?
A. No.
Q. And it certainly was not your understanding that 2.3 or 2.5 million was coming out of the Louisiana HMO almost immediately after the transfer?
A. No.
Q. Had you known, had you understood, Ms. Brignac, that about 2.5 million was going to come out of the Louisiana HMO almost simultaneously with the closing or the approval of the transaction, would you have approved of this transaction?
. . . .
A. I would not have recommended that the Form-A be approved, if I had known $2.3 million was going to be swept out of that plan.
Q. In fact, you had mentioned at the meeting a week before if it was as low as six hundred and seventy thousand, you weren't going to approve it?
A. Right, if I'm concerned with six seventy, I'm definitely concerned with 2.3 million.
Q. Let's look, and it's probably easier to follow along on the exhibit-568, but look at the schedule. It's aboutit's one or two lines. It's right above the highlighted line, [FHS] cash sweep. It reads less, I think it reads, less cash contributed by FHS to fund premium deficiency. Is everybody with me? Are you with me. Ms. Brignac?
A. Yes.
Q. How did you, personally, as the person most involved in the approval of this transfer, how did you interpret that line on this schedule that you got either the night before or the morning of the hearing relating to this transfer?
A. The 2.3 was the amount that [Health Net] had infused into the Louisiana plan back in March of 1999.
Q. And that's that exhibit we looked at, 881?
A. Yes.
Q. That one?
A. And when we received this schedule, and I reviewed it, I reviewed it only for the amount that was going to be swept out, which was the two forty-three. I did not think that the 2.3 above that was going to be swept out.
Q. Isn't that clear as a bell Ms. Brignac, that if you look at that line, that that money is coming out of those HMO's [sic]?
A. It's clear as a bell to me that two forty-three is going to come out. Are you talking about the two forty-three or the 2.3?
Q. No, I'm talking about that less cash deficiency in the parentheses. You can'tthat's not clear as a bell that that money is going to leave the HMO right after the approval?
A. Not to me.
. . . .
[BY MR. PERCY, Counsel for Health Net]:
*509 Q. And there has been what has been referred to in this litigation as the letter agreement. You're familiar that there was a letter agreement also submitted with the form-A application, or do you recall?
A. There was what we refer to or has been referred to as a side letter, yes.
Q. Okay. You do recall there was a side letter.
A. I do know that there was a side letter.
Q. Is it fair to say that you don't recall ever having reviewed the letter agreement, what you have referred to as the side letter?
A. I don't recall reviewing the letter agreement, no, sir.
. . . .
Q. Cash in an HMO, how does it get reduced?
A. Well. Typically they either write a check or wire it out.
Q. So a reduction of cash occurs by sending that cash out of the plan, correct?
A. Hopefully they are sending it to a provider or a patient.
Q. But you understand when you show a negative cash that means cash is leaving the plan, correct?
A. That's right.
. . . .
Q. Let me ask you this. When you got this cash spreadsheet, did you call Mr. Gary Smith in who actually reviewed the Form-A and say, Mr. Smith, you reviewed all these documents. Sit down here with me and let's go through this cash spreadsheet and make sure everything marries up with what the agreements say. Do you remember doing that?
A. I don't recall doing that now.
Q. Did you pull out, when you were reviewing this cash spreadsheet, did you pull out the agreements to read the agreements, the relevant sections of the agreement, to make sure the cash spreadsheet married up to the agreements?
A. I don't recall matching the cash sweep to the stock purchase agreement.
Q. So with that in mind, what did you understand was being reflected over there? Did you understand that those were the requirements of cash to be left in the plans pursuant to that agreement?
A. I am not sure.
Q. Well, then what did you understand that whole section to be?
A. As I testified before, Mr. Percy my interest in this cash sweep statement was the amount of money the Department of Insurance thought would be leaving the Louisiana plan. I don't know how else I can say it. The first cash sweep said six seventy. We had a meeting and no one at the meeting disputed the six seventy. They never said 900,000, never said 2.3. They never said 2.5. They didn't dispute our review of the cash sweep at the six seventy. That is what we thought was leaving the plan.
Q. And you got this fax and reviewed it?
A. Yes.
Q. So you don't know what you understood the AmCareco cash requirements to be reflecting in that section. Would that be fair?
A. Yes.
Q. And you didn't know at that point?
A. Right.
Q. Let's move down to the next. What's the title of the next section?
A. Adjusted cash in plans.
*510 Q. What did you understand this section to be reflecting for you on this spreadsheet?
A. For the purpose of the cash sweep, they were calculatingit was calculating the cash sweep, the amount of payment that was going to be made to [Health Net] at sometime in the future.
Q. The first entry under adjusted cash in plans gives you the total amount of cash in the plans, correct?
A. That's correct.
Q. And did you determine when you reviewed this that it married up with what ultimately was up there after the adjustments?
A. Yes.
Q. And you didyou recall making that calculation?
A. Well, I know you and I made that calculation in my deposition. But yes.
Q. You did that back then, And then
THE COURT: What is your answer?
A. Yes.
BY MR. PERCY [Counsel for Health Net]:
Q. And after it shows the amount of cash in the plans under adjusted cash in plans, the next item is plus. Is there anything shown in the plus column?
A. No.
Q. The next item isread the next line.
A. It says, less cash contributed by FHS to fund premium deficiency.
Q. And then it shows a number at the end of that column in parentheses [(2,300,000) ]. I think we have already gone over this, that when you see an adjustment in parentheses, what does that mean?
A. It means it's being deducted.
Q. So you got cash in plans and then you got something being deducted. How do you deduct something from cash? What happens when you deduct something from cash?
A. Well, on this spreadsheet it's just a book entry. If you are talking about money leaving a bank account, you have to write a check or wire it out. But this is a spreadsheet and it's an entry on a spreadsheet. It doesn't say it's leaving the plan.
Q. Now we are not going to quibble over what it says because the words are very clear to the jury what it says. It says less cash contributed by FHS to fund premium deficiency, correct?
A. That's correct.
Q. Who did you understand FHS to be? Did you understand that to be Foundation?
A. Foundation Health Systems.
Q. And then at the very bottomfirst of all, after you subtract that, it gives you another number.
A. Yes.
Q. All right. And did you actually work out a calculation of how you get from that second number, that six million number to the 243,000?
A. No.
Q. You just saw 243,000, didn't check their figures or anything like that?
A. No.
Q. Do you have any idea as we sit here today how you get to 243,000?
A. No.
Q. You didn't go and do any of that?
A. No.
Q. And is it your testimony that when it says less cash, you didn't understand that to mean that was an adjustment to the amount of cash in plans in the *511 amount contributed by foundation for the premium deficiency?
A. I understand that this spreadsheet was a calculation to get to the cash sweep. The Department of Insurance was under the impression that two forty-three was going to be swept out. I think I have said that numerous times.
Q. All right. But you did understand or you do understand, as we sit here today, that that appears to be a reduction in the amount of cash in the plans of $2.3 million, correct?
A. For the purposes of getting to the cash sweep.
Q. All right. When you got the cash spreadsheet you didn't ask anyone about that entry, did you?
A. No, I did not.
MR. PERCY: In connection with the witness's testimony, your honor, I would like to offer, file, and introduce exhibit-887.
THE COURT: Without objection, let it be filed. (Emphasis added.)
Brignac also stated, "when we received this schedule, and I reviewed it, I reviewed it only for the amount that was going to be swept out, which was the two forty-three. I did not think that the 2.3 above that was going to be swept out."
To her credit, Brignac admitted that she only "reviewed bits and pieces of the Form-A"; she did not remember discussing the spreadsheet with Gary Smith; in a spreadsheet "negative cash ... means cash leaving the plan"; she did not recall "matching the cash sweep to the stock purchase agreement"; the "adjustment in parenthesis" on the spreadsheet "means it's being deducted" and that the reduction was for the "purpose of getting the cash sweep." However, she refused to admit that the entry "Less Cash Contributed by FHS to Fund Premium Deficiency (2,300,-000)" found twice on the Louisiana spreadsheet represented cash transferred out of the Louisiana HMO and sent to Health Net as required by the clear and unambiguous terms of the Stock Purchase Agreement and Side Letter. Instead, she asserted that this entry was "misleading," and she would not have approved the sale had she understood what it did.
This characterization of the entry is not persuasive and is without factual merit. As previously indicated: (1) the Stock Purchase Agreement provided for a "Cash Payment" to be made out of the assets and equity of the HMOs to Health Net (the original cash sweep); (2) reversal of the existing PDRs; and (3) and, pursuant to the Side Letter, if allowed in whole or in part by a regulatory authority, the payment of any cash loaned by Health Net to an HMO for any additionally required PDR which would be an additional cash sweep or a sweep shortfall for additional stock. Because the $2.3 million dollar entry was enclosed in parentheses and deducted from both the Cash in Plan and Book Value line item entries on the spreadsheet, it is obvious that this cash was leaving the Louisiana HMO and going somewhere. It is equally obvious that the cash was not going to AmCareco and the cash was described as being "Contributed by FHS [Health Net]". There were only three juridical persons affected by the Louisiana spreadsheet: Health Net, AmCareco, and the Louisiana HMO. Whether the cash is called a "cash infusion" or a PDR, it is still $2.3 million dollars in cash that all three parties proposed would be taken from the Louisiana HMO and sent to Health Net, and it was listed on the spreadsheet. The fact that Brignac did not understand this entry on the spreadsheet in this factual setting does not make this line item entry misleading or fraudulent.
*512 Brignac testified that "somewhere around September of 1999" she discovered that "about $2.5 million had actually been swept out of the Louisiana HMO". Brignac then testified as follows:
Q. How did you find that out?
A. AmCare had to file its second quarter financial statement, which was due August 15th, and it was during the analytical review of that quarterly filing that it was discovered that 2.5 had left the company.
Q. Were you surprised when you found that out?
A. Yeah.
Q. To say the least? What did you do when you found that out?
A. The Department of Insurance did two things. One, we contacted AmCare, because they no longer met the minimum $4 million surplus requirement.
Q. Let's talk about that.
A. Okay.
Q. What is that $4 million amount that you're talking about?
A. It'sinsurance companies, by law have to maintain a minimum surplus, and what your surplus is, is you have the assets of the company and you have your established liabilities, so your surplus is your assets less your liabilities, and it's kind of a cushion.
Q. And after the cash sweep, based upon your personal involvement, your review of the quarterly filings made by AmCareco and Healthnet [sic], did the Louisiana HMO at any time after the closing meet the $4 million capital and surplus requirement?
A. No, they would not have.
Q. What else did you do, if anything, after finding an HMO did notwas not in compliance with statutory minimums and that some $2.5 million had come out instead of two hundred and forty-three thousand, like three months after the closing? What else did you do?
A. Like I said, we contacted the insurance company by written communication indicating that they no longer met the minimal surplus requirements. We did receive a response back indicating that they were going to reverse off a premium deficiency reserve and add that amount to their surplus, which I believe brought them close to the four million. Also, there was a meeting held at the Department of Insurance with AmCare representatives. I did not attend that meeting, but our chief examiner did, because we had a current examination in process at that time.
Q. And those discussions that you had personally, thosethat was Mr. Nazarenus and Mr. Lucksinger?
A. I communicated mainly with Mr. Nazarenus.
Q. And it was presented to you that any premium deficiency reserve, there was no need for it, we're just going to take it off the books?
A. That's correct.
Q. And the effect of taking that premium deficiency reserve off of the books of the HMO, what effect did that have on the income statement of those HMO's [sic]?
A. It increased their net income, thereby increasing their surplus.
Q. Did Mr. Nazarenus or any one with AmCareco, or anyone with Healthnet [sic] for that matter, ever provide to the Department of Insurance an independent auditor's certificate or actuarial study indicating that a premium deficiency reserve was no longer necessary for the year 1999?
A. No.
Q. And again, when putting aside what we may know about Mr. Nazarenus now, *513 at that time, did you have any reason to disbelieve him?
A. No.
. . . .
Q. Why didn't you put him into receivership, or take away their license, or do something more drastic in the fall of 1999, after you learned that you had been mislead [sic]?
A. You can't regulate with a knee-jerk recollection. What we do is we afford the company opportunity to correct its problem. So we gavewe wrote to the company. We gave them an opportunity to cure these surplus impairment. Like I said, we received a response back that they were trying to do that. (Emphasis added.)
Edward W. Buttner, IV, the principal expert witness for the receivers, gave the following pertinent testimony concerning the AmCareco spreadsheet submitted to the regulators:[123]
Q. Look at section 2.1 of the stock purchase agreement. Again, this is an agreement that was submitted to the regulators four to five months before the sale occurred, correct?
A. Yes, sir. Yes, sir, it was.
Q. Okay. And what exhibit is your stock purchase agreement, please?
A. Mine is exhibit-765 from Coburn's deposition.
Q. Okay, exhibit-765. Now section 2.1 of the stock purchase agreement, which was submitted to and reviewed by the regulators, says that this calculation is going to be done based on generally accepted accounting principles, doesn't it?
A. It does. Absolutely it does.
Q. And, in fact, the calculation was done on generally accepted accounting principles, wasn't it?
A. And again, Mr. Black, I have taken absolutely no exception to the calculation. I think the calculation based on the stock purchase agreement and generally accepted accounting principles that the two parties agreed to, I think the math on that schedule is fine. No exceptions to the math.
. . . .
Q. So, again, it goes back to it's not that schedule that is misleading. It's the schedule that wasn't shown that you say is misleading.
A. No, Mr. Black, I don't agree with that. I think that schedule is misleading for all the reasons I have articulated.
Q. Okay, Mr. Buttner. Let's move on to your other schedule which is appendix E. Well, before we do that, Mr. Buttner, this schedule, appendix D, which was submitted by Susan Conway, AmCareco's attorney, does show a few things, doesn't it? It shows exactly the amount of cash being transferred to [Health Net] as a part of the sale, doesn't it?
A. It does. It shows the cash sweep.
Q. Okay. And it shows exactly how the cash payment was calculated, correct?
A. It does. It shows how the payment's calculated. (Emphasis added.)
In a letter dated November 3, 1999, Ling Cai, a Financial Analyst with LaDOI, wrote to Lucksinger of AmCareco and advised as follows:
AmCare Health Plans of Louisiana, Inc. reported a net worth of $3,785,007 on its amended 1999 second quarter financial statement filed with this department. This amount is less than the $4 million agreed upon as a condition for approval *514 of the purchase of the health plan.
Please make the necessary contribution to bring the net worth up to $4 million and notify the department of the contribution as soon as possible.
In an E-mail dated March 24, 2000, Brignac advised Nazarenus of the following:
AmCare Health Plans of Louisiana is required to maintain minimum net worth of $4 million. At 12/31/99, the company reported $3.9 million which [is] below the minimum required.
The company needs to receive a net worth contribution to cure this deficiency. The contribution needs to be made prior to next Friday, March 31, 2000.
Brignac testified that, after the conduct which is alleged to be "misleading" was discovered, Health Net was not contacted. Health Net was not asked to return the $2.3 million dollars that it got out of the Louisiana HMO. The Louisiana DOI did not institute proceedings to nullify the sale or put the Louisiana HMO in supervision, rehabilitation or liquidation. This is not the type of conduct that normally would be expected from a regulatory agency that was "misled" in the amount of $2.3 million dollars.
Based on all these facts, it reasonably can be inferred that there was in fact no "misrepresentation."
d. The Combined Spreadsheet
The Combined Spreadsheet reflects the following: (1) cash result from settlement of intercompany payables and receivablesa positive $3,191,057; (2) payment to Health Net of PDR loaned to Texas and Louisiana HMOs$6,300,000; (3) cash increase in paid-in capital due to reversal of pre-existing PDRs$8,316,118; (4) cash "Required Amount" for AmCareco $16,815,579; (5) Health Net "Cash Payment" cash sweep$2,067,415; (6) Health Net contribution to purchase price of the AmCareco stock$13,623,366; and (7) Book Value of the adjusted cash value in the HMOs$21,990,781.
e. Misleading Parts of the Spreadsheet
The Receivers presented the testimony of Edward W. Buttner, IV, who was qualified as an expert witness in the field of statutory accounting. In his report dated February 1, 2005, and in his testimony given at the trial in June of 2005, Buttner centered his opinions essentially on (1) premium deficiency reserves (PDRs), (2) intercompany transactions involving affiliated companies, and (3) cashless contributions. Based on his conclusions, Buttner was of the opinion that "AmCareco and [Health Net] misled the insurance and managed care regulators to believe that the AmCare HMOs would have adequate capitol [sic] immediately after the Purchase Agreement was consummated, and the regulators approved the Purchase Transaction relying on those misleading representations."
In particular, Buttner observed as follows in his report:
The intercompany balances were settled and the PDRs were eliminated in determining the adjusted equity for each HMO. In addition, $6.3 million of the capital contributed by [Health Net] to fund the PDRs was deducted from equity of the three HMOs as the $6.3 million was returned to [Health Net] as agreed to in the Side Letter Agreement, and the cash sweep payment to [Health Net] was also deducted from that equity. The combined Adjusted Equity of the three HMOs was represented to be $13.6 million as of March 31, 1999. Thus with a liquidation value of the AmCareCo *515 [sic] Preferred Class A shares of $1,000 per share, the number of Preferred Class A shares to be issued to
[Health Net] was 13,623.
In summary, AmCareCo [sic] and [Health Net] falsely represented to the state insurance and health regulators that the three HMOs would have a combined $13.6 million of capital after the Purchase Transaction closed when, in fact, the combined net worth of the three HMOs after the Purchase Transaction closed was a deficit of ($158,000) see Appendix E. AmCareCo's [sic] and [Health Net's] representations to the insurance and health regulators were incorrect, false, and misleading for the following reasons:
GAAP-basis[124] amounts were used in the calculation of the cash payment as called for by the Purchase Agreement; however, AmCareCo [sic] and [Health Net] should have also presented the effects of the acquisition-related transactions on the statutory-basis financial statements of the AmCare HMOs.
AmCareCo's [sic] and [Health Net's] presentations (see Appendix D) to the regulators included the elimination of certain restructuring reserves in arriving at adjusted equity. AmCareCo [sic] and [Health Net] had agreed that the PDRs would be considered as a "restructuring reserve" for purposes of the calculation of the cash sweep amounts under the Purchase Agreement and then reversed like other restructuring reserves. However, that agreed-upon treatment did not eliminate the necessity for the AmCare HMOs to continue to report PDRs in their statutory-basis (GAAP-basis for AmCare-OK) financial statements subsequent to the "closing" of the Purchase Agreement.
Finally, in his testimony at trial, Buttner observed, in pertinent part, as follows:
Q. Can you tell the jury what is wrong with them?
A. Well again, as I testified when I was here I think last week, this concept of taking down these intercompany payables is just not correct. And we spent a good deal of time looking at the documents as it relates to that. And, you know, I testified to a great extent when I was here before, so I don't want to bore anybody with it again, but not only is it not right but it's not what the company did. And so to that extent I don't see how in the world Mr. Jones can intersperse his belief over what the company did and did consistently through the end of the year when they were audited. So that's the first issue. The second issue is, again we had a lot of testimony about the takedown of PDR's [sic] and that is not appropriate either. But the one thing that I think is just extremely glaring is that even in Mr. Jones's report Texas is broke. You know, it's broke. It's a million four broke and all the testimony that AmCareco coulda, woulda, shoulda, maybe put money in, it didn't happen.
(1) Premium Deficiency Reserves
As previously indicated, a premium deficiency reserve (PDR) is the estimate of the reserve that should be established if anticipated claims and expenses are greater *516 than the anticipated contract premiums that will be received.
In this case there are two types of PDRs: (1) previously existing PDRs, and (2) additional PDRs. Buttner's report indicates that as of December 31, 1998, Health Net "reported PDRs totaling $10.5 million ($2.0 million for AmCare-LA, $4.1 million for AmCare-OK, and $4.4 million for AmCare-TX)." These are the previously existing PDRs which are referred to in the Stock Purchase Agreement as "... all non-cash restructuring and merger related liabilities and reserves (the `Restructuring Reserve')" which will be reversed. These reserves are inaccurately denominated "Restricting/Premium Def." on the AmCareco spreadsheet and are correctly referred to as "Premium Deficiency Reserves" on Buttner's Exhibits D and E. The additional PDRs are those referred to in Paragraph 6 of the side letter. Pursuant to Paragraph 6, Health Net sent $2.3 million to the Louisiana HMO and $4.0 million to the Texas HMO, which sums were to be returned to Health Net as provided for in Paragraphs 5 and 6 of the Side Letter. On the AmCareco spreadsheet, the return of these funds is designated as "Less Cash Contributed by [Health Net] to Fund Premium Deficiency" and on Buttner's Exhibits D and E they are designated as "Return Foundation PDF Contributions." No additional PDR was sent to the Oklahoma HMO.
PDRs are not required by law in either Louisiana or Oklahoma; they were provided for by the then applicable Texas Insurance Code art. 21.39 (now found in V.T.A.C. Insurance Code § 421.001).
(a) Louisiana PDRs
As previously indicated Brignac now is the Deputy Commissioner over the Office of Financial Solvency with the Louisiana DOI. She gave the following pertinent testimony concerning PDRs in Louisiana.
Q. Okay. Thank you. Now let me ask you this. GAAP. What is GAAP? We hear a lot about GAAP in this case. What do you understand GAAP to mean?
A. GAAP is generally accepted accounting principles, and that is the accounting standard for commercial and industrial type businesses.
Q. What does SAP mean?
A. SAP is statutory accounting principles, and that's the accounting guidance for insurance companies.
Q. Now what was your understanding of which of those sets of principleslet's go back up to 568, the one that went to Ms. Brignac, the cash sweep calculation spreadsheet. What was your understanding under what set of principles the cash calculation spreadsheet was computed for purposes of calculating the cash sweep?
A. I didn't have an understanding. I didn't look at it to see if it was calculated under GAAP or SAP.
Q. Is there any requirement that they submit this, anything like this, under statutory accounting principles?
A. Anything like what?
Q. Like a calculation of a cash payment like this. Are you aware of any policy, procedure, regulation by the Department, statute that requires that this be done under statutory accounting principles?
A. To get to the cash sweep?
Q. Correct.
A. No.
Q. Did you ever ask for this calculation, a reflection of the balance sheets before and after these various adjustments under statutory accounting principles?
*517 A. No.
Q. You didn't feel it was necessary. Now you didn't understand whether these were done under generally accepted accounting principles. GAAP, or statutory accounting principles, correct?
A. That's correct.
Q. Did you ever go back to look and see if the agreement required which principles would be applied to put together these balance sheets?
A. No.
. . . .
Q. So even today you are not familiar with a restructuring reserve?
A. No.
Q. But you did understand that in this account was a liability for premium deficiency?
A. For premium deficiency reserve.
Q. That's what you understood at the time you reviewed this?
A. Yes.
Q. Let's talk about what is happening with this adjustment right there. It shows a liability for premium deficiency reserves, and you understood that was a premium deficiency reserve account, correct?
A. Yes.
Q. And understood that back then.
A. Yes.
Q. What is the amount?
A. 1.4 million.
Q. And then what is the adjustment going on in that account on this?
A. There is an adjustment to eliminate the premium deficiency reserve to zero.
Q. And you understood that for purposes of this calculation of the cash payment to Health Net Foundation, you understood that that was the adjustment that was going on in the premium deficiency reserve account for this calculation, correct?
A. For the purposes of getting to the cash sweep, yes.
Q. Let me ask you, when you saw that, did you have any problem with that?
A. At the time, no.
Q. Was a premium deficiency reserve required or mandated in Louisiana at the time?
A. Not by law, no.
Q. Did the reversalwould that be the same as a reversal of the premium deficiency reserve account?
A. Yes.
Q. For purposes of this calculation[?]
A. For the purposes of the calculation.
Q. Did that require commissioner approval?
A. No.
Q. But at the time you got this you could clearly see what was going on there, right?
A. That they were going to reverse the premium deficiency reserve.
. . . .
Q. All right. You have already testified you saw it was being reversed and reduced to zero, the premium deficiency reserve, for purposes of making that cash sweep calculation, correct?
A. That's correct.
Q. Isn't that what this says? It's being reversed pursuant to the agreement in order to calculate the cash payment.
A. That's correct.
Q. And reversal on the spreadsheet with the closing agreement is precisely the same, is it not, Ms. Brignac, as the reversal that's on the sheet, the cash spreadsheet that went to you?
A. For the premium deficiency reserve.
*518 Q. For the premium deficiency reserve. The same reversal as on the spreadsheet with the closing agreement, reduced to zero for purposes of calculating the cash payment
A. That's correct.
Q. Same reversal is being effectuated on the spreadsheet that you got.
A. Yes.
Q. And it was all for purposes or in order to calculate the cash payment, and that is what you understood, correct?
A. Yes.
. . . .
Q. Ms. Brignac, let's go ahead and move down to the capital section. The final transaction or adjustment that is going on here is to common stock and paid in capital, correct?
A. Yes.
Q. There is an adjustment there. What is happening to that account?
A. The common stock and paid in capital is increasing.
Q. And is it increasing in exactly the same amount as the premium deficiency reserve was being reduced?
A. Yes.
. . . .
Q. And Mr. Buttner has concluded that the net equity, statutory net equity was $1,371 million. But Mr. Buttner, for purposes of his calculation, added back in the premium deficiency reserve of 1.421. You've testified, have you not, that there is no or was no requirement for a premium deficiency reserve in Louisiana at that time, correct?
A. That's correct.
. . . .
Q. Let me see if I understand. You found out that Health Net took $2.5 million out of the plan when you only thought they were going to take 243,-000 and you allowed the HMOs to fix that by reversing the premium deficiency reserve on its books?
A. We allowed them to cure their impairment by reversing their premium deficiency reserve.
. . . .
A. Like I said, we contacted the insurance company by written communication indicating that they no longer met the minimal surplus requirements. We did receive a response back indicating that they were going to reverse off a premium deficiency reserve and add that amount to their surplus, which I also believe brought them close to the four million. Also, there was a meeting held at the department of insurance with AmCare representatives. I did not attend that meeting, but our chief examiner did, because we had a current examination in process at that time.
Q. And those discussions that you had personally, thosethat was Mr. Nazarenus and Mr. Lucksinger?
A. I communicated mainly with Mr. Nazarenus.
Q. And it was represented to you that any premium deficiency, reserve, there was no need for it, we're just going to take it off the books?
A. That's correct.
Q. And the effect of taking that premium deficiency reserve off of the books of the HMO, what effect did that have on the income statement of those HMOs?
A. It increased their net income, thereby increasing their surplus. (Emphasis added.)
Based on Brignac's testimony, it is reasonable to infer that Brignac and LaDOI understand the law and rules in Louisiana better than Buttner with reference to the authority of LaDOI to approve the reversal *519 of PDRs and its effect on financial statements in Louisiana.
(b) Texas PDRs
Susan Conway sent the AmCareco spreadsheet to Licette Espinosa at TxDOI by letter dated April 30, 1999. This letter provided, in pertinent part, as follows:
As indicated on the Schedule, the closing transactions consist of a cash infusion into the Texas HMO by Foundation of $2,436,109 to cover the net intercompany receivable, offset by a calculated cash sweep of $2,920,123. This results in a net cash withdraw[al] from the Texas HMO by [Health Net] of $484,014 and will result in the Texas HMO having total equity of $3,807,117 after the closing.
The Texas portion of the AmCareco spreadsheet, like the Louisiana portion of the spreadsheet, had provisions for the Texas pre-existing PDR and the Texas Additional PDR. The pre-existing PDR was reversed. The above quoted portion of Conway's letter shows the disposition of the Additional PDR of $4,000,000. The $4,000,000 was listed under the sections of the spreadsheet entitled "ADJUSTED CASH IN PLANS" as "Less Cash Contributed by [Health Net] to Fund Premium Deficiency" in parentheses and was to be considered as a minus or negative number. From the negative $4,000,000 was subtracted the positive "[Health Net] Cash Sweep" of $1,079,877 (which represented the amortized portion of the Additional PDR); the resulting sum was a negative $2,920,123. The Texas spreadsheet also shows that the "settling" of the intercompany receivables and payables resulting in the sum of a positive $2,436,109, which sum was subtracted from the negative $2,920,123 and produced a negative sum of $484,014.
Lisette Espinosa, a senior financial analyst with TxDOI, reviewed the Texas Form-A and Conway's letter and gave the following testimony:
Q. I show you exhibit number-48 and ask you to look at that, all pages in it, please. It purports to be a letter dated April 30th, 1999 from Susan Conway to you regarding the Form-A application for the acquisition of control of Foundation Health, a Texas Health Plan, by Amcareco; is that correct?
A. Correct.
Q. And did you receive this letter?
A. It appears that way, yes.
Q. And the same stamp, reviewed by Financial Monitoring, dated April 30, 1999, appears on the first page and, in fact, each page of that exhibit?
A. Correct.
Q. When you were examining this Form-A to recommend approval to Betty Patterson, did youdid you understand this cash sweeps calculation and this spreadsheet?
A. Yes, I'm sure at the time, yes, I did.
. . . .
Q. Now, just for the record, exhibit-48 is, in reality, two letters, an April 30, 1999 letter from Ms. Conway enclosing a corrected version of an April 29, 1999 letter to you, an ownership chart and a spreadsheet titled, [Health Net] cash sweep and preferredA share calculation, similar to some of the other spreadsheets we've seen earlier?
A. Correct.
Q. Having had a chance to take a look at the letters, did you understand that Ms. Conway was telling you what the estimated cash payment was going to be out of the Texas HMO to [Health Net] as of the acquisition?
A. Correct.
. . . .
*520 Q. What would you have done if you had had concerns about the representations made in the letter?
A. I would have addressed them to my supervisor.
Q. And in the end, you personally are not going to recommend approval of a Form-A application, unless you believe all the requirements of the Texas Insurance Code have been satisfied?
A. Correct.
. . . .
Q. And what was the name of the lawyer representing Amcareco in connection with this Form-A application?
A. Susan Conway.
Q. What law firm was Ms. Conway with?
A. Vinson and Elkins, LLP.
Q. And in the end, you were provided enough information to make a decision about whether to recommend approval of Amcareco's Form-A application or not?
A. Correct.
Q. And you felt comfortable personally that you could decide to recommend approval of this application?
A. Correct.
. . . .
Q. And I think you also probably recall that you had some questions about the cash payment, which is also known as the cash sweep, and you even wrote a letter to Susan Conway, which is Exhibit-26, asking for some more information about these cash sweep calculations that were being made?
A. Correct
Q. And I assume what you wanted to know is, how much money is going to come out of this Texas HMO, in particular, and the other HMO's [sic], and be paid back to Foundation's [sic] parent company?
A. Correct.
Q. And Ms. Conway ultimately wrote you a letter, a couple of letters which we've looked at, and if you look at Exhibit-48, where she was trying to answer that question for you; is that right?
A. That's correct.
Q. And there's a spreadsheet that's attached to Exhibit-48, and I've got a copy that's been marked Exhibit 48-A, which is a little easier to read spreadsheet.
A. Okay.
Q. And thatthat spreadsheet is designed to show you how much money was going to come out of the HMO's [sic]. It shows a lot of things, but among other things, it's going to show you how much money is going to come out of the HMO's [sic] and go back to Foundation's [sic] parent company?
A. Correct.
Q. And then beneath that, it shows how much money is going to come out of each of these HMO's [sic] and be paid back to [Health Net], Foundation's parent, and the first column under that is, less cash contributed by [Health Net] to fund premium deficiency. Do you see that?
A. I do.
Q. And then it shows how much money is going to come out of each of these HMO's [sic] and go back to Foundation's [sic] parent, and for Louisiana, for example, it's two million three hundred thousand dollars; is that right?
A. That's correct.
Q. I see what my almost error was. It shows that $4 million is going to go out of the Texas HMO to go back to Foundation's [sic] parent, but then right beneath that there's a positive number *521 that's going to offset that four million. Do you see that?
A. Correct.
Q. And so, if you subtractthe number beneath that is the cash sweep number. Youthat's a little over $1 million, and so if you subtract that number out of the four million, you get a number close to $3 million that's going to come out of the Texas HMO and go back to
A. Correct.
Q. All right. And so you were given your question about how much money was going to come out of the HMO's [sic] and go back to Foundation was answered by Ms. Conway's April 30th, 1999 letter, Exhibit-48?
A. Correct.
. . . .
Q. And then it also shows that for each of those positive numbers, and let's look at Louisiana, the first one, for example, there was a premium deficiency reserve of one million four hundred and twenty-one thousand seven hundred and sixty-four dollars, but then right next to it, it has that same number in parentheses?
A. Correct.
Q. And would that tell you that that premium deficiency reserve was being eliminated?
A. That would be my assumption.
Q. And for Texasor for Oklahoma, the next column, it shows a premium deficiency reserve of slightly over $3.3 million, and then again shows that premium deficiency reserve being eliminated?
A. Correct.
Q. And for Texas, it shows a premium deficiency reserve ofI think that's about $3.6 million, and then it shows that premium deficiency reserve being eliminated?
A. Correct.
Q. And this was, again, part of the information Ms. Conway provided to you on April 30th?
A. Correct. (Emphasis added.)
As previously indicated, Espinosa recommended approval of the Texas Form-A to Saenz who recommended approval to Patterson who approved the application on behalf of the Texas Commissioner of Insurance. Paragraph 19 of the "Findings of Fact" section of the Official Order of the Texas Commissioner of Insurance specifically states that "[in]o evidence was presented that the acquisition of control would violate any laws of this State, any other state, or the United States." (Emphasis added.)
Based on Espinosa's testimony and the specific statement of fact of the Texas Commissioner of Insurance that the AmCareco Form-A does not "violate any laws of this State," it is reasonable to infer that, as a matter of fact and law, the Texas DOI understands the law and rules in Texas better than Buttner with reference to the authority of the Texas DOI to approve the reversal of PDRs and its effect on a financial statement in Texas.
(c) Oklahoma PDR
A review of the AmCareco spreadsheet for Oklahoma shows that Oklahoma had a pre-existing PDR but had no Additional PDR. The pre-existing PDR was reversed increasing the "Common Stock and Paid in Cap." by $3,309,990. The cash sweep is listed in the spreadsheet as line item "FHS [Health Net] Cash Sweep". In a letter dated April 29, 1999, to Lajuana Wire, Director, Managed Care Systems, Oklahoma State Department of Health, Susan Conway explained the cash sweep as follows:
*522 As indicated in the Schedule, the closing transactions consist of a cash infusion into the Oklahoma HMO by [Health Net] of $1,735,619 to cover the net intercompany receivable, offset against a calculated cash sweep of $2,903,761. This results in [Health Net] receiving a net of $1,168,142 and will result in the Oklahoma HMO having total equity of $4,599,761 after the closing.
The "settlement" of the intercompany receivables and payables on the Oklahoma spreadsheet resulted in a positive $1,735,619 and, when that is subtracted from the negative cash sweep of $2,903,761, the result is a negative $1,168,142.
House, the Oklahoma analyst, gave the following testimony concerning PDRs in Oklahoma:
Q. Okay. I think I understand what you're saying. So there wasn't a specific regulation under the Oklahoma Department of Health that dealt with premium deficiency reserve; correct?
A. Correct.
Q. But the Oklahoma Department of Health required NAIC blank forms, and to fill those out if there was [a] requirement for a premium deficiency reserve, you would have to include it in the blank forms; correct?
A. Correct.
. . . .
Q. And the line item restructuring/premium deficiency, do you see that?
A. Yes, I do.
Q. Okay. And you see that the balance as of the date of this calculation, which was, if you look at the top, March 31st, 1999?
A. Yes.
Q. Based on the estimated balance sheet, you see that the restructuring/premium deficiency was $3,309,890 [sic], it looks like; correct?
A. Yes, correct.
Q. The you see the next column shows a negative $309,990; correct?
A. Correct.
Q. So whatso you could see in reviewing this schedule that the premium deficiency reserve was being reversed to compute the cash payment calculation; correct?
A. Correct.
Q. Okay. And that was in the letter agreement which you approved; correct?
A. Correct.
MR. HANAWALT [Counsel for the Louisiana and Oklahoma Receiver]: Object to the last question as leading.
Q. (By MR. BLACK) [Counsel for Health Net]: Okay. I'll cure the objection. Did you approve thatdid you approve the reversal of the premium deficiency reserve to compute the cash payment calculation as part of the acquisition, your authorization of the acquisition of the HMO?
A. Yes.
Q. Okay. Now, moving down the page, you can see that what's being calculated here is the totalI'm sorry, let me start over. You see the AmCareco cash requirement section at the bottom of the page; correct?
A. Yes.
Q. And you see liabilities of 2,666,354; correct?
A. Correct.
Q. Which equals the total current liabilities under the AmCare Oklahoma line item?
A. Correct.
Q. And that includes the reversal of premium deficiency reserve; correct?
*523 A. Correct.
Q. And you can see that from reviewing this work sheet; correct?
A. Yes.
Q. Okay. Then you see the statutory reserve requirement of 750,000 under the AmCareco cash requirements; correct?
A. Correct.
Q. And then property, plant, equipment, reserve adjustment of $250,000, and then we can go back and look at it in a second, but that was part of the stock purchase agreement as well?
A. Yes, and I did see it when we were back in there earlier.
Q. Okay. And you see additional cash of 1,188,687 for a total of 4,332 $4,332,021 [sic] is the total AmCareco cash requirements computing the cash payment calculation?
A. Correct.
Q. All right. Next you see the adjusted cash in plans of $7,236$7,236,732?
A. Yes.
Q. Then you see the amount of the cash sweep, of $2,803,761 [sic]; correct?
A. Correct.
Q. And so you can see from this how much money's being paid to Foundation swept out of the Oklahoma HMO; correct?
A. Correct.
. . . .
Q. The next document I want to show youso going back to Exhibit 1097, Page 4, which is the cash payment calculation, the preferred share calculation.
A. Okay. I'm there.
Q. You know that the letter agreement says that for the purpose of the cash payment calculation we're going to reverse the premium deficiency reserve; right?
A. Correct.
Q. So that was disclosed to you as a regulator of the Oklahoma Department of Health; correct?
A. Correct.
Q. And then this cash payment calculation shows that the premium deficiency reserve is reversed from the balance sheet in computing the cash payment; correct?
A. Correct.
. . . .
Q. Sure. And what you're referring to is that thethe bottom of the page, adjusted cash in plans, refers for less cash contributed by [Health Net] to fund premium deficiency reserve; right?
A. Right.
Q. So it's showing that deducted from the cash in the plans is the amount of cash that [Health Net] contributed for the premium deficiency reserve; correct?
A. Correct.
Q. And for Louisiana it shows that $2.3 million is being deducted, which is the amount that's being returned to [Health Net] for the premium deficiency reserve; correct?
A. Correct.
Q. It shows zero for Oklahoma?
A. Correct.
Q. It shows $4 million for Texas; correct?
A. Correct.
. . . .
Q. And again, Paragraph 6 refers to the fact that [Health Net] would receive the amount of the PDR related to the time that AmCareco was operating the company; correct?
A. Correct.
Q. Then Paragraph 6, second to last sentence on Page 3 of the letter agreement, *524 it says, "As agreed, the parties shall negotiate in good faith such a mechanism to return the additional PDR over a period of ten business days after notice [if a] party reasonably believes closing will not take place on or before January 15, 1999, and the additional PDR will likely be required."
Okay. So the parties are going toit's yourbased on this, you would agree that the parties are going to negotiate a mechanism to return the PDR?
A. Correct.
Q. Okay. And that can be done two ways under Paragraph 6; correct? Either under the cash sweep or under the cash sweep shortfall; correct?
A. Correct.
. . . .
Q. Okay. And it says, No. 4, little i, little v, "All non-cash restructuring and merger relating liabilities and reserve shall be reversed." Okay?
A. Yes.
Q. So what effect would that have if you reversed those liabilities for the cash payment calculation? The liabilities would be less: correct?
A. Correct.
Q. So that would increase the amount of cash that was paid; correct?
A. Correct.
Q. Okay. Now, let's go to the closing agreement. And again, the closing agreement, Paragraph 3-Q, says that, "For purposes of receiving the refund of the premium deficiency reserve, the premium deficiency reserve will be considered a restructuring reserve pursuant to Section 2.1 of the stock purchase agreement." Do you see that?
A. Yes, I do.
Q. So with that foundation, what effect would Paragraph 3-Q have on the cash payment calculation?
A. When reading it with 2.1, it lowers the liabilities, so it increases the potential payment.
Q. And it increases the payment by the amount of the premium deficiency reserve; right?
A. Correct.
Q. Right. And it's true that that's exactly what the letter agreement says; correct?
A. Correct.
MR. HANAWALT [Counsel for the Louisiana and Oklahoma Receivers]: Objection; leading.
Q. (By MR. BLACK) [Counsel for Health Net]: Is that exactly what the letter agreement says?
A. Yes, it is.
. . . .
Q. Bottom line is based on Section 2.1 and Sectionand the letter agreement, you would agree that it was not hidden from you as a regulator that Foundation was going to receive a return of unamortized premium deficiency reserve; correct?
A. Correct. (Emphasis added.)
Based on Conway's letter to Wire and House's testimony, it is clear that PDRs are not required by law or regulation in Oklahoma, the Oklahoma Regulators were fully aware that the Oklahoma pre-existing PDR would be reversed as a liability and considered as an increase in capital. Based on these facts, it is reasonable to infer that the Oklahoma regulators understand the law and regulations in Oklahoma better than Buttner with reference to their authority to approve the reversal of the PDR and its effect on the financial statement in Oklahoma.
*525 (d) Conclusion
Buttner was wrong as a matter of fact and law in preparing his spreadsheet on the basis that it was illegal to reverse PDRs in Louisiana, Oklahoma, and Texas. This legal and factual error caused him to make serious and substantial errors in the calculations in his spreadsheet. When a PDR line item is reversed, the amount of the PDR is subtracted from the line item of the spreadsheet that lists it as an asset or liability and it is added to the opposite line time. In this case it goes from a liability to an asset as paid-in capital (surplus). Thus, in Buttner's spreadsheet, the following calculations should have occurred: (1) in Louisiana, a negative liability of $1,421,764 should have become a positive asset; (2) in Oklahoma, a $3,309,990 liability should have become an asset; (3) in Texas, a $3,584,364 liability should have become an asset; and (4) the combined effect should have been to change an $8,316,118 liability into an $8,316,118 asset. Buttner did not do this and left the $8,316,118 as a liability. When a financial number like that is reversed, the effect or "swing" is twice the amount of the number. In this case, that effect or swing is $16,632,236. This seriously interdicts Buttner's calculations.
(2) Intercompany Receivables and Payables
An intercompany receivable is a receivable owed by one company in a group of affiliated (related) companies to another company in the same group; an intercompany payable is a payable owed by one company in a group of affiliated (related) companies to another company in the same group.
In her testimony, Brignac discussed intercompany receivables and payables as follows:
Q. Let's move down and go to the next asset, intercompany receivables right here. It shows a number on the left-hand side and then it shows an adjustment in the middle and then it shows an end result, correct?
A. That's correct.
Q. All right. Now, what is the amount of the intercompany receivable shown for the Louisiana plan in the left-hand column?
A. A little over one million dollars.
Q. And what is the adjustment that's occurring?
A. The same amount.
Q. The same amount. And then what is the final amount, make sure the jury can see, the final amount after that adjustment.
A. It goes to zero.
Q. Tell the jury when you got this and you reviewed it, what did you understand that adjustment was all about?
A. That the intercompany receivables and payables were going to be settled before the acquisition was approved, or at approval.
Q. Okay. How do you settle an account receivable?
A. You know, accounts receivable are typically established in accordance with an agreement and there [are] payment provisions in those agreements and you would settle in accordance with that.
Q. Would it be fair to say in order to settle an account receivable you pay it?
A. Yes.
. . . .
Q. What does that mean? How do you adjust a payable and reduce it to zero? What
A. You pay it.
Q. You pay it.
A. Yes.
*526 Q. That's how you reduce a payable from an amount to zero?
A. That's correct.
Q. You pay it.
A. Yes.
Q. And you understood that that's what that adjustment was at the time that you reviewed this, correct?
A. Yes, that it was going to be adjusted to zero.
Q. Let's look back up again to the top and you understoodlet me ask you this. I know you don't remember what sections of the stock purchase agreement that you actually reviewed, but didn't you understand that one of the requirements of this transaction was all intercompany balances had to be settled? Didn't you understand that?
A. Thatyeah, that's pretty typical with an acquisition.
Q. All right. You understood that, meaning if it's a receivable, it's got to be paid into the plan?
A. Yes.
Q. If it's a payable, it has to be paid out of the plan.
A. That's correct.
Q. And let's see if we can go ahead and do a little calculation here again for all the non-accountants in the group. Let's take as best you canif this amount, the two point whatever is being paid and theup here, one million whatever is being paid into or collected, what is the difference between the two?
A. Somewhere around one million.
Q. About $980,671.00, correct?
A. That's correct.
Q. So the difference between what is being paid out of the plan and what is having to be paid into in order to settle up the accounts is exactly the amount of cash that is going out of the plan up on the top line, isn't it, Ms. Brignac?
A. It's the difference between the intercompany receivable, the premium deficiency reserve andno, the difference between the intercompany receivable and the intercompany payables.
Q. So isn't it fair, Ms. Brignac, that you understood when you went through all these adjustments and all these transactions that 980,671.00 was being paid out of the Louisiana plan to net out the intercompany payables and receivables; isn't that correct?
A. The intercompany receivables and payables would be settled at some point in accordance with the agreement that is on file with the department of insurance.
Q. And you knew that?
A. I would expect it to happen, yes. (Emphasis added.)
In her letters of transmittal of the Form-A spreadsheet to the Regulators, Susan Conway advised them "[t]his schedule contains the most current estimate of what the expected book value of the three HMOs will be at the time of closing." (Emphasis added.) This spreadsheet is referred to as the "Estimated Balance Sheet" in Paragraph 2.1 of the Stock Purchase Agreement. Because the financial information contained in the Estimated Balance Sheet is an estimate, Paragraph 2.3 of the Stock Purchase Agreement provides for a true-up of the financial information one year later when the definitive financial numbers have been determined. Thus, Paragraph 2.3 provides, in pertinent part, that "[w]ithin 45 days after the first anniversary of the date of the closing, Buyer [AmCareco] shall prepare a balance sheet of the [the HMOs] as of the Effective Time (the `Final Balance Sheet') utilizing the same methodologies and procedures set forth in section 2.1 used to calculate the Estimated Balance Sheet, *527 and shall deliver to Seller [Health Net] a statement setting forth in reasonable detail the calculation of the amount of the Cash Payment ... required pursuant to section 2.1 and the number of shares of Class A Preferred Stock required pursuant to section 2.2."
On the Form-A spreadsheet, the intercompany receivables are line item assets entitled "Intercompany Receivables" under the general category of Assets and the "Intercompany Payables" are line items under the category of Current Liabilities. The receivables are (1) Louisiana $1,082,327, (2) Oklahoma$1,331,810 and (3) Texas$1,354,095, for a combined total of $3,768,232. The payables are (1) Louisiana$2,062,998, (2) Oklahomanegative $403,809 (and, thus, a plus for liability purposes) and (3) Texasa negative $1,082,014, for a net (or total) of $577,175 in liabilities. When the receivables are collected and the payables are paid under the Form-A spreadsheet settlement of receivables and payables, the net result for each state is (1) Louisianaa liability of $980,671, (2) Texasan asset of $1,735,619 and (3) Oklahomaan asset of $2,436,109, for a combined total of $3,191,057. The cash and cash equivalent line item for each on the Form-A spreadsheet is (1) Louisiana$4,696,526, (2) Oklahoma $5,001,163 and (3) Texas $5,687,279, for a combined total of $15,384,968. Finally, on the Form-A spreadsheet, the cash and cash equivalent line item is adjusted by the result of the settlement of the receivables and payables to become the following: (1) Louisiana$3,715,855 ($4,696,526 minus $980,671); (2) Oklahoma$6,736,782 ($5,001,163 plus $1,735,619); and (3) Texas $8,123,388 ($5,687,279 plus $2,436,109), for a combined total of $18,576,025. The Regulators of all three states accepted, and thus approved, this method of accounting for the settlement of the intercompany receivables and payables, which settlement is required by the Stock Purchase Agreement.
Pursuant to the Stock Purchase Agreement, a Final Balance Sheet was prepared and the true-up was executed by the parties on October 3, 2000. Neither the Final Balance Sheet nor the true-up is in the record on appeal. However, Buttner refers to them in his report as follows:
As previously discussed, the Purchase Agreement provided for a true up adjustment of certain of the April 30, 1999 financial statement amounts one year after the closing. As a result of that true up adjustment, the Adjusted Equity for the three HMOs increased by $143,000 in comparison to the March 31, 1999 calculation and also resulted in an additional 144 shares of AmCareCo's [sic] Preferred Class A shares being issued to [Health Net], In addition, AmCareCo [sic] issued a 9.5% note for $674,000 payable to [Health Net] to settle various indemnity issues. Those settlement arrangements are memorialized in an October 3, 2000 letter agreement between [Health Net] and AmCareCo [sic].
The true-up was used to confirm the format and calculations of the Form-A spreadsheet except that Health Net received an additional 144 shares of AmCareco stock valued at $1,000 per share.
Buttner prepared a spreadsheet which was filed in evidence and from which he testified at the trial. He used a different accounting method to settle the intercompany receivables and payables (which he described as "Due from Affiliates" and "Due to Affiliates"). He testified that he examined various corporate records, audits, financial filings, and depositions. He reached the conclusion that "the moment after the cash sweep the HMOs did not meet the requirements *528 mandated by the regulators in any of the three states." To reach this conclusion, he "looked at the March 31st, 1999 statutory financial statements that were filed with the regulators" for the first quarter of 1999 by the HMOs "on or before May 15th" 1999. Even though the Form-A spreadsheet contains estimated financial information for March 31, 1999, many of the financial numbers in it are identical with those used in Buttner's spreadsheet: (1) Cash and Equivalents Louisiana ($4,696,526) and Oklahoma ($5,001,163); (2) Intercompany ReceivablesLouisiana ($1,082,327), Oklahoma ($1,331,810), and Texas ($1,354,095); (3) Intercompany PayablesLouisiana ($2,062,998), Oklahoma (plus $403,809), and Texas (plus $1,082,014); and (4) the individual state settlement of the receivables and payablesLouisiana (minus $980,671), Oklahoma ($1,735,619) and Texas ($2,436,109).[125] For Due to Affiliates (Intercompany Payables) Buttner used (1) Louisiana$3,788,781, (2) Oklahoma$331,262, and (3) Texas$591,542, for a combined total of $4,711,584. He also had a line item for Other Liabilities that was not present in the Form-A spreadsheet and that had a combined total of $1,738,366. Using a methodology different than that used for the Form-A, Buttner concluded that the post-sale equity in the three HMOs was Louisiana$1,370,866, Oklahoma$102,185, and Texasa negative $1,631,969, for a combined total of a negative $158,918.
As previously indicated in Part VIII, Section Bla of this opinion, unless otherwise provided, the party seeking relief bears the initial burden of producing evidence to obtain the relief sought. The Regulators have asserted that based on Buttner's testimony and spreadsheet that the manner in which the Intercompany Receivables and Payables were settled in the Form-A spreadsheet was misleading and fraudulent. Accordingly, the Regulators bear the initial burden of proving these facts by a preponderance of the evidence. This is particularly pertinent because all three Regulators originally accepted and approved the format and method of calculation used in the Form-As and approved the sale.
Health Net called as a witness Bryon H. Jones, who was qualified as an expert certified public accountant. Jones testified that he reviewed the contract documents, correspondence, the confidential Private Offering Memo, various corporate ledgers, audited financial statements, and various depositions. He determined that AmCareco raised $8,567,000 from the sale of its Class B Preferred and Common stock, and that after collateralizing the $2 million dollar letter of credit and paying estimated start-up costs of $1.25 million that AmCareco netted $5,317,000. Jones gave the following specific testimony about the sources of the information that he used to evaluate the accuracy of Buttner's spreadsheet:
Q. Let's move to your exhibit-3. Before I ask you questions about this, where did you get the numbers on which you're basing exhibit-3?
A. I was provided with a disk from AmCareco's accounting records or from the accounting records of the three HMOs and that disk contained general ledger or accounting transaction information for 1999, April 30 through December 31st. That is there [sic] I *529 gotI got all the information here except for the premium deficiency reserve.
Q. Now first I need to ask you, was it your understanding under the stock purchase agreement that the initial payment of the cash payment to Health Net, as a result of this transaction, was based upon estimated balance sheets?
A. Yes.
Q. And ultimately was there supposed to be a true up to true it all up according to the April 30, '99 balance sheets?
A. Yes, and there was one. (Emphasis added.)
A review of Buttner's spreadsheet (Exhibit E attached to his report) shows that he "zeroed out" the intercompany receivables but did not "zero out" the intercompany payables for the HMOs. Jones testified as follows about this accounting method:
Q. Let's talk briefly why you don't. What assumptions do you not agree with regard to this particular HMO in Texas and Mr. Buttner's recalculation of the cash spreadsheet?
A. I think the main problem with this spreadsheetI've got a couple of other ones, but the main one I've got that applies to Texas as well as Louisiana and Oklahoma is how Mr. Buttner continued to include this liability, the intercompany liabilities between the HMOs and Health Net. Those were settled in the stock purchase agreement at zero. The HMOs did not owe anymore [sic] money after the transaction to Health Net. However, Mr. Buttner has deducted some very significant liabilities which makes the HMOs look like they are in worse financial position than they really are.
Q. Let's go back to that blowup that we just had on Texas. All right. Are you talking about this number right here for due to affiliates?
A. Yes. It's $1,674,000.00 according to Mr. Buttner's schedule.
Q. And according to your analysis, what should that number be?
A. Zero. The HMOs and Foundation or Health Net settled their intercompany accounts at the time of the transaction.
Q. Was that one of the requirements of the stock purchase agreement?
A. Yes.
Q. And did it, in fact, occur?
A. Yes. I found that the cash was exchanged. I looked at the books or the general ledger of the HMOs after the transaction. The adjustments were recorded, additional corrections were made. I looked at the financial statements of the HMOs for Oklahoma and Texas for 2000 that said the intercompany accounts were settled with no cash changing hands after the transaction. And I also listened to the testimony this morning from Mr. Westen or yesterday where he explained how the true up worked. In the true up, no cash was exchanged. And I looked at the true up itself. It showed no cash being exchanged to settle anymore intercompany liabilities.
. . . .
Q. All Right. What did you do next?
A. The next adjustment I think we've talked about. That is to add back intercompany liabilities. Those were settled by [Health Net], but Mr. Buttner continued to deduct them. Those need to be added back to correct his analysis.
Q. First question I will ask you is, when you add back the intercompany payables as Mr. Buttner was deducting, what is the capital in the Louisiana health plan?
A. $3,097,000.00.
*530 Q. Now on the date prior to the closing, what is your understanding of the statutory capitalminimum capital and surplus requirement in Louisiana on the date before the closing which was April the 30th of 1999?
A. Based on the testimony and the records in this case, that was $3 million.
Q. So does Louisiana exceed the capital requirements in Louisiana as of the date of the closing?
A. Yes, that's what the double checkmark means.
Q. How about in Oklahoma? What was the statutory minimum capital and surplus required in Oklahoma at the time?
A. Based on the testimony and documents that I've seen in this case, that was $750,000.00.
Q. So with the adjustment of intercompany liabilities which were settled at the time of the transaction, both Louisiana and Oklahoma meet minimum statutory capital and surplus requirements on the day before the closing, correct?
A. Yes.
Q. And does the transaction in any way change that?
A. No.
. . . .
Q. Let's keep on going. We have taken care of those first adjustments for adding back the intercompany liabilities. What did you do next?
A. The next thing, I didI was aware of testimony in this case indicating that in Louisiana and Oklahoma at the time of the transaction, the state regulations did not require recording a premium deficiency reserve in order to compute capital. Therefore, I added back the premium deficiency reserve that Mr. Buttner deducted when he made his regulatory capital calculation.
Q. And what does that do in Louisiana and Oklahoma by adding back premium deficiency reserves that are not required in those states?
A. Well, it increases the capital for regulatory capital purposes and puts Louisiana in even more compliance as well as Oklahoma. So they have plenty of regulatory capital.
Q. Now I notice that you didn't add back premium deficiency reserve in Texas, correct?
A. Right.
Q. Why is that?
A. I understand that Texas had, from the testimony I read, Texas had a regulation in place requiring a premium deficiency reserve to be recorded.
. . . .
Q. Have you actually reviewed the cash calculation spreadsheets submitted to each of the states in this case?
A. Yes.
Q. If you bear with me a second, I will try to find that exhibit. There it is. This is the cash calculation spreadsheet and it shows the Louisiana Department of Insurance Bates stamp. Now when you reviewed this, did you review this in connection with a review of the stock purchase agreement and the letter agreement that you had seen?
A. Yes.
Q. Is there anything on this cash calculation spreadsheet that, in your opinion, deviates in any way from the provisions of the stock purchase agreement or the letter agreement?
A. No.
Q. What transactions occur on this, on the face of this cash calculation spreadsheet that was submitted to each of the regulators in this case?
*531 A. Sorry it's so small. Well, if you take each HMO, you can see there is a settlement of the intercompany receivables and payables with cash. That's shown.
Q. Let's make sure we understand what we are talking about. Let's call up exhibit-1248 and we will try and blow it up so everyone knows what we are pointing to and talking about. Let's go to the cash calculation spreadsheet. Let's do Texas. Blow up Texas if you would. Actually, let's do Louisiana because it's next to the account titles and that would be a little easier. And start up at the top. Let's talk about the transactions shown on the face of the sheet. Tell me where to start.
A. Okay. At the top, look at cash. Go over to the right. There is a transaction and that is to settle intercompany accounts. Louisiana paid out $981,000.00. That was disclosed and that is what Louisiana actually did. What that meant was if you go down a few more lines, $1,082,000.00 of intercompany receivables went away. And thenI think we will need to go down a little more.
Q. Let's go down a little bit and catch on the liability section. That's good.
A. Very bottom of the liabilities $2,063,000.00 of intercompany payables go away. So that is step one.
Q. So the difference between the intercompany payables and intercompany receivables is what the cash transaction was at the top?
A. Right.
Q. What are the other transactions that are shown in this schedule?
A. I think right above that you can see that for purposes of calculating the cash payment and the amount of shares received by Health Net, there is a worksheet reversal of restructuring and premium deficiency reserves. And for Louisiana that was $1,422,000.00.
Q. Is there another transaction that occurs in connection with that?
A. Yes, further down the page.
Q. And what is the next adjustment?
A. You can see there is a positive again for purposes of computing capital as defined in the stock purchase agreement that 1,421,000 is added back on that worksheet to capital as defined.
Q. How many hours did you work on this matter?
A. I spent about a hundred and twenty hours on it.
Q. How many hours did it take you to see all of the adjustments that were being made on this cash calculation spreadsheet?
A. I saw it the first day I started looking at this worksheet.
Q. Did you have any difficulty seeing what the adjustments were?
A. No.
Q. And when you saw this in connection with the stock purchase agreement and the letter agreement, did you have any questions or issues with what was being depicted on this?
A. No.
Q. Did you actually complete all the transactions and all the calculations that went on below it?
A. Yes.
Q. Did you see anything in any of those calculations that deviated in any way from the stock purchase agreement and the letter agreement?
A. No.
. . . .
Q. With regard to the issue of reversal of premium deficiency reserves, what is your understanding based upon the evidence *532 and testimony you have reviewed on when the premium deficiency reserves may have been reversed on the actual books of the HMOs in this case?
A. Based on the testimony I have read, it appears that was done after AmCareco became the owner of the three HMOs. Some of the entries were made as late as June or the second quarter of 1999, but it was after the transaction.
Q. And based upon the testimony that you've heard and read and the evidence you have seen in this case, what was the reason for the reversal of premium deficiency reserves on the books of the HMOs by AmCareco after the closing?
A. The estimatethe premium deficiency reserve is an estimate. It's based on current management's estimate of how much premium income they can collect on contracts and is a shortfall. How much is it and how long is it going to last. New management had new plans for the HMOs which meant they could come up with a different estimate for the PDR's[sic] based on how they were going to run the HMOs.
Q. And based upon the evidence that you have seen in this case, is there anything wrong with that?
A. No.
Q. Let me ask this, Mr. Jones. Based on everything you have seen and everything that you have reviewed, did Health Net do anything wrong or improper in connection [sic] this transaction?
A. No.
Q. Based upon what you have seen were the regulatorswas everything in this transaction disclosed to the regulators?
A. Yes.
Q. To your knowledge, did any of the regulatorshave you seen any evidence that any of the regulators asked any questions about what was disclosed to the regulators in this transaction?
A. Yes, they did. They asked questions during the application process. I've seen notes and memoranda about that and there was testimony about that.
Q. And was information provided?
A. Yes, it was provided by AmCareco and AmCareco's lawyers.
Q. Let me talk very briefly about Exhibit-48 because that's the one that was submitted to Texas. And I want to talk very briefly about that and specifically the second pagemove to the next letter. This letter right here, this is the letter dated April the 29th from Ms. Conway to Ms. Licette Espinosa. Let's move to the second page of the letter, the first full paragraph. Let's blow that up. The jury has seen this before. Did you review this in preparation of your testimony?
A. Yes.
Q. Let me ask you this. Does this paragraph outline the cash adjustments and transactions that occurred as a result of this
A. Yes.
Q. Transaction?
A. Yes, it does.
Q. Does this paragraph match up with what is depicted on the cash calculation spreadsheet?
A. Yes.
Q And is there any confusion, in your mind, about what is being said here and how it ties into the cash calculation spreadsheet that was submitted to the Texas regulators?
A. Not at all. I think it's very clear.
*533 Q. Now is it your understanding that this was actually submitted to Texas by Ms. Conway?
A. Yes.
Q. Was there anything wrong in what Ms. Conway submitted, in your opinion, to the Texas regulators in this case?
A. I have not seen anything wrong.
Q. With regard to the cash calculation spreadsheet, what was your understanding on whether it's according toit was prepared according to generally accepted accounting principles or statutory accounting principles?
A. The stock purchase agreement makes it clear that the cash calculation would be done on generally accepted accounting principles as adjusted. In other words, there are some adjustments in the stock purchase agreement that would be beyond generally accepted accounting principles.
Q. Is there any suggestion anywhere in the stock purchase agreement, the letter agreement, the confidential private placement memorandum, or this cash spreadsheet that indicates that this is a representation of the transaction according to statutory account [sic] principles?
A. No.
. . . .
Q. Mr. Jones, you were aware these were estimated balance sheets?
A. Yes.
Q. Have you seen anything anywhere in any of the Department of Insurance documents that you have reviewed, any documents anywhere where anyone has suggested that any of the numbers on the cash spreadsheet were incorrect as of the date they were used and estimated?
A. No.
Q. Mr. George showed you the March statutory filing. Do you have that, Mr. George, that you used?
MR. GEORGE [Counsel for the Texas Receiver]: There's one sitting around.
THE COURT: Testy, testy.
BY MR. PERCY [Counsel for Health Net]:
Q. Did he leave it with you? First question, here's a copy of it, who signed the March 31 statutory filing?
A. Thomas Lucksinger and Steve Nazarenus.
Q. And do you have any idea what the basis was of their filing that March statutory filing?
A. Well, they would have had to put this together after the transaction was over, after they took over the accounting function.
Q. And final questionwell, final series of questions. Mr. George went into great detail about Ms. Conway's letter. Who wrote that letter?
A. Susan Conway.
Q. Who was copied on that letter?
A. Tom Lucksinger.
Q. And he went through the paragraph where it described what the transactions were, the cash transactions, correct?
A. Yes.
Q. And there was a cash infusion of $2.4 million into the State of Texas, correct?
A. Right.
Q. And did you verify that that wire transfer actually occurred?
A. Yes.
Q. And then there was a cash outflow from the State of Texas in [sic] how much?
A. $2,920,123.00.
Q. Did you verify that took place?
A. Yes.
*534 Q. What is the net effect between those two numbers?
A. That was net cash withdrawal from the Texas HMO by [Health Net] of $484,014.00.
Q. Did you verify that calculation according to the cash spreadsheet?
A. That was on the cash spreadsheet.
Q. Mr. Jones, if Mr. Lucksinger had done what his attorney said was intended to be done after this transaction and after he and Mr. Nazarenus reversed the premium deficiency reserves on the books, is the Texas HMO solvent and statutorily solvent?
A. Yes.
Q. Thank you, Mr. Jones. (Emphasis added.)
The following are portions of Buttner's testimony concerning what he perceived to be misleading about the Form-A spreadsheet and his response to Jones' testimony about his spreadsheet:
Q. And what are you referring to? What was misleading?
A. Well, I think that this schedule that was transmitted to the regulators to purport equity in the companies post closing without specifying much more clearly what that equity was is misleading. I was misled by it.
Q. But again, you don't know if the regulators were actually misled, correct?
A. No. You will have to ask them what their view of this schedule was, but clearly when I looked at this schedule the first time, my impression of that schedule was, okay, here's what the companies are going to look like post closing. And in the reality, it is not what the companies were going to look like post closing. So once I reached that conclusion, then that led me to a lot of other calculations and documents to try to better understand what this was actually doing versus what I was looking for which was a statutory schedule.
Q. So you believe this is misleading because it's based on general [sic] accepted accounting principles instead of statutory accounting principles? Is that what you're saying?
A. Not entirely, Mr. Black. We went through a lot ofI mean two hours of deposition testimony back several months ago on what my view of this is, and, as I said then and I'm going to try to be clear now, two parties can agree to do whatever they want to do. And they can agree to put whatever mechanism in place that they want to put in place to do that. And that is what the stock purchase agreement, that's what the side letter, that's what the closing agreement, and that's what this schedule did.
. . . .
Q. So just so that I understand, and I apologize to the court if I have asked this already, so that I understand it, your problem with this schedule is simply that it's not based on statutory accounting principles. Is that correct?
A. No, sir, that's not correct.
Q. Okay. Now what other problems do you have?
A. Well again, I think that I have articulated all of my problems. This schedule is a scheduleis a calculation of a contractual purchase price based on the terms and conditions that two parties entered into. Now, this schedule, not only does it calculate the shares that are going to be issued and does it demonstrate the cash that's going to be transferred, but then it goes beyond that and it shows equity that is going to be left. And that equity that is going to be left is not statutory and it really isn't GAAP once the calculations are all done because there are some reversal of items *535 there, but it's just a calculation of values for two parties. And for that to be used to show the regulators in any way, shape, or form that that's what's going to remain in the companies on a statutory basis I think is misleading.
. . . .
A. I think my testimony, Mr. Black, was that if AmCareco would have paid from their proceeds, directly paid from their proceeds, your client, we would in all likelihood not be here today. But they didn't. And to try to articulate that you could use their money retrospectively for solvency does not meet any of the statutory requirements.
Q. Let's look at exactly what you did say, Mr. Buttner. It's page 543 of your deposition.
A. Yes, sir.
Q. And it is line 15 through 21.
A. Yes, sir.
Q. And there you state, and here, to count the eight million that AmCareco raised, I mean the very easiest thing in the world that somebody could have done, and AmCare could have done it, is they could have written a check or wired in, made that money, that $8 million, whatever portion they deemed appropriate, made it a part of the insurance company. So, in fact, you are saying that they could have put that money into the insurance company, correct?
A. I am saying that they could. But the question that you asked me was, when you and I were going back and forth over my deposition whether they would be here today had they done something, I think there is another Q and A on that but
Q. I think you're right. That's
A. But again, just to be clear and I don't want any misunderstanding of what my testimony is here, okay. This transaction between the two parties, they could agree to pay whatever they wanted to. My exception is where the money came from. And if AmCareco would have done one of two things, paid it outside of the insurance companies or put the money into the insurance companies before the cash sweep, not even after the cash sweep but before the cash sweep, then different calculations would have been made. But they didn't. And as I sit here today, I know two things for sure and certain. AmCareco didn't put in the money then. AmCareco didn't put in the money later. So all of the what ifs and what fors is Fantasy Land. It didn't occur. So I didn't count it then and I can't count it now.
Q. You also stated in our deposition that you think that everyone associated with what happened with these HMOs bears some responsibility for what happened with the failure of the HMOs[. I]sn't that correct?
A. I do.
. . . .
Q. My question is, after this transaction, was there any big slug of money that paid these intercompany accounts payable?
A. Mr. Percy, here's what I know for sure. Okay. I looked at the June 30 statutory statements of Texas, and the payable to affiliate is zero. The due from affiliate is zero. And there is only, by their own reported numbers, I believe $900,000.00 of equity in Texas. Now, I'll let you tell me whether a big slug of money came in because Mr. Jones says a million six should have come in. Mr. Jones says that the Texas number should've increased a million six. If you'll look at just the June 30 statement, those balancesor as Mr. Jones says should be zero, but no big slug of money came in. I didn't do it. I am *536 just telling you what the statements show.
Q. Well, here's the problem, Mr. Buttner. I just asked you how you got that number and you said that's what the company reported, correct?
A. No. what I said was that is the math from what the company reported and did. Again, those weren't statements that were filed because that is a March statement. We already went through the fact that the company, for whatever reason, didn't prepare a pro forma statutory statement. That's what I'm trying to do there, is to see, okay, if you prepare a pro forma statutory statement, do they meet the minimum. The answer is no. Now someone has taken exception to what I have done and they've said, okay, you know, we agree with what you did but, hey, there's a million six over here, a big slug of money that ought to be coming in. So you asked me, did I look, did a big slug of money come in. I looked. It didn't.
Q. You say a million six is the amount payable from the Texas HMO, correct?
A. That's the math on that schedule which isagain, Mr. Percy, it's a March schedule with May numbers in it. So it's not purported to be anything other than a pro forma of what the company looked like after the transaction, after the cash sweep transaction.
Q. And I want to understand what your testimony was. You said you verified that that still was a payable by looking at the statutory filings in June and after, correct?
A. I didn't say I verified that that was still a payable. I said that those numbers, that that numberthere was no money that came in. The way the company recorded the entry they didn't roll it into equity as Mr. Jones implied. I said I couldn't tell from all of the records I looked at specifically what happened to it because I don't have all the documents. So all I could do was to do the analysis I did, which is to say, okay, if I'm wrong, and God knows I have been wrong many times, if I'm wrong. I'm going to see, as Mr. Jones said, equity increasing. So I looked. Did equity increase in June? No. I went, okay, well, maybe they just weren't smart enough to recognize it. Let me go to September. Did equity increase in September? No. Then I said, okay, well, maybe they just didn't get it, the auditors caught it. So I go to December. Did equity change? If I just hold the PDR's [sic] constant, I'm only going to use their numbers and hold the PDR'S [sic] constant, no, the number doesn't change. So I don't know what specifically happened. I wasn't there. But what I do know, the companies were still broke and there was no big slug of money that came in, which is the suggestion that Mr. Jones makes.
Q. Mr. Buttner, didn't you represent to this jury in your original testimony in this case that you went to the June financial statements, the June statutory financial statements and specifically looked at the accounts payable due to affiliates to make sure that there was [sic] still payables due?
A. Mr. Percy, at June 30
Q. Please answer my question.
A. Yes, I did.
Q. Is that what you represented to the jury?
A. Yes, sir, and I did. At June 30, if you will take all three of the statutory financial statements for the three HMOs as of the pro forma date here, I think the total of that intercompany payable that Mr. Jones takes exception to is $4.1 million. Is that correct? I mean, that's *537 the math. He takes exception to 4.1 million?
Q. Mr. Buttner, I asked you a question and I'm looking for a response to my question.
A. I am trying to answer it. As of June 30, if I add up the intercompany payable due to, due from all three companies, I think it's 3.6 or $3.8 million. So that number only changed by a half million dollars or so from the number I have on here for the pro forma. So, yes, the testimony I gave to the jury was that I looked. I did. The number is similar, and I don't see any magic infusion of capital.
Q. Didn't you suggest to this jury that when you looked at the June statutory filings there were numbers on the due to affiliates lines in each of those states?
A. No, I said that there were due to affiliates, and if I said they were in each of the states, then I am sorry, I misspoke without the statements here in front of me, but Texas had no due to or due from. The other two did and the totality of it was either three six or three eight.
. . . .
Q. Page 79 it says question up at the top it says, question, all right. In connection with this intercompany due and from affiliates, do you remember that, and what was your answer?
A. Yes, sir.
Q. Question by Mr. George, did that appear on the statutorily filed statements from March, and what was your answer?
A. It did.
Q. And he asked you, the one on 3036, which was the exhibit, correct?
A. Yes, sir.
Q. And did it appear again in June, and what was your answer?
A. I said there were numbers that appeared on those lines in June, yes, sir, and I think the numbers were zero.
Q. So your answer is that there were numbers on that line and that zero is a number that you were referring to?
A. Well again, Mr. Percy, I don't know if there is a zero or a slash there and this is part of the problem with trying to testify from memory because I had a memory of what the total was. But when I went back and looked the other day at the three separate states, Texas was zero on both counts. So again if I misspoke. I certainly don't want to, and I apologize for misspeaking.
. . . .
Q. Mr. Buttner, you would agree with me that if, in fact, the intercompany payables are zero after this transaction that you would have to make an adjustment to your analysis and add back $1.6 million on the books of the Texas HMO, would you not?
A. No, sir, that's not accurate at all. I mean the fact that that number would have changed could have changed for any number of reasons. I mean that's not correct at all.
Q. But you also testified, did you not, that whatever they agreed to that they did on their books, correct?
A. What I believe I said, Mr. Percy, is that I tried to account for what they did using what they did on their books and what they did, they did on their books. You know, again I am trying to be clear. I didn't use Ed's judgment here. I tried to use what the company did.
Q. What the company did, and that was what your testimony was correct?
A. That's what I'm trying to do. That's absolutely right.
*538 Q. Please refer the jury to the page refer the jury to what page on there deals with the numbers for due to affiliates, which is what we are talking about, intercompany payables, correct?
A. Well, we are talking about two things, Mr. Percy. We're talking about intercompany payables and how they affect equity. That is what we were talking about because at the end of the day you're trying to get credit for a million six to increase equity. Okay. And so we are going to walk through that. So if you look at line number three
Q. What page? Please refer the jury to what page.
A. I am going to do that. It's line five on TDI0570. And it says amount due from affiliates and in the current period there's not a number there. And then if you'll flip the page, and I think this is front and back, so if you go to 0572, which is the liabilities, you will see on line eleven amounts due to affiliates.
Q. How about on line six?
A. It's zero.
Q. And what is the amount due to affiliates?
A. The amount on line six is zero.
Q. And what is the amount on line eleven?
A. The amount on line eleven is zero.
Q. There are two locations for amounts due affiliates on thelet me see if I can get Mr. George's gesture, on the sworn quarterly financial statements that were filed with the state of Texas, correct?
A. That is absolutely right, Mr. Percy. There are zeros.
Q. And the amounts shown sworn to by the company for amounts due affiliates is what?
A. Zero.
Q. Zero.
A. But the equity, Mr. Percy, is $936,000.00. So if the equity at Marchand let's go back to my schedule. Let's go back to March, Mr. Percy.
Q. Your Exhibit-E?
A. Yeah, let's go back to Exhibit-E.
Q. Let's do that because I want to follow up with you on Exhibit-E.
A. Absolutely. Let's go to the as-reported column for March for Texas. And what is the equity number for as-reported in Texas? It'sis that a million two eighty-eight one fifty-four? I mean my eyes are pretty bad, but is that the number for Texas in the column statutory reported, a million two eighty-eight? The very last number on the bottom just before the total. Go over to the left. First column. So it's a million two eighty-eight one fifty-four. So now between March and June this magic bean number, this million six that Mr. Jones want to count as equity, disappears. So under Mr. Jones's analysis, I'm expecting that million two is going to be 3.8 million. But on the statement it's 936,000. Now that is not my statement. I didn't do it. So where is the magic bean, where's the gold? And the answer is that there isn't, Mr. Percy, and that's what I am getting at.
Q. Mr. Buttner, you would have been a great football player because of how you shift around
A. I'm not shifting.
Q. But what we're talking about is the intercompany payables due to affiliates number.
A. And that's the number I'm talking about too, Mr. Percy.
Q. All right. Let me ask you this, Mr. Buttner. Where did all these numbers come from?
*539 A. They came from a Junefrom a March 31 statutory statement filed by the HMOs.
Q. By Mr. Nazarenus and Mr. Lucksinger.
A. I believe that is right. There were some amended statements, but that is where they came from. They came from an as-filed statement.
Q. And you relied on these numbers from your recalculation, correct?
A. I relied on those numbers to prepare a pro forma statutory analysis. Yes, sir, I did.
Q. Those same two individuals filed sworn statutory filings in June with the State of Texas, correct?
A. They did.
Q. And what was this number on the sworn statutory statement in Texas filed by the same two individuals?
A. Zero, Mr. Percy.
Q. You relied on those two individuals for these numbers
A. I did.
Q. But you won't rely on those same two individuals for that number?
A. Mr. Percy, there is [sic] a lot of numbers that changed. Cash changed. The reserve balances changed. You want to focus on one number. You want to connect two dots and find the rabbit. The rabbit is not there. I don't know whether they paid them, whether they settled them, whether they wrote them off. All I know is I looked at the records and couldn't determine it. But here's what I know for sure. The equity, which is what we are all interested in, was there enough and did it change. And the answer is, no, it went from one two to $900,000.00 So maybe you have some magic that I don't have and maybe Mr. Jones has some magic I don't have, but when I add them up I don't get the same picture you do and I guess I'm just sorry I don't. (Emphasis added.)
After reviewing the pertinent parts of the record and the argument of counsel on this issue, we conclude as matters of fact that (1) Buttner improperly accounts for the settlement of the intercompany receivables and payables in his spreadsheet and, (2) as a matter of law, Buttner failed to properly reverse the PDRs on his spreadsheet in reaching his conclusions.
The evidence shows that all of the Regulator personnel who reviewed the Form-A spreadsheet properly understood it: Smith (Louisiana), Espinosa (Texas), Saenz (Texas), and House (Oklahoma). Only Brignac (Louisiana) failed to understand it, and she should have. Accordingly, the Receivers have failed to prove by a preponderance of the evidence that the Form-A spreadsheet was misleading.
3. Failure to file Side Letter
In her reasons for judgment in the Louisiana and Oklahoma cases, the trial judge found as a fact that Health Net committed fraud, in part, because "the side letter modifying the agreement was not sent to the regulators." The evidence in the record shows that this factual finding is false. The testimony of Espinosa, Saenz, House, Brignac and Smith clearly shows that the Louisiana, Oklahoma, and Texas regulators were provided with the Side Letter. Moreover, Form-A documents and copies of the Form-A applications sent to the states' regulators are contained in the record on appeal and contain copies of and references to the side letter.[126] The trial court's factual conclusion *540 on this fact is wrong as a matter of fact and law.
4. Failure to file Letter of Intent
In brief the Receivers assert that, in part, fraud was committed because the Letter of Intent executed by AmCareco and Health Net was not filed with them. The record reflects that the Letter of Intent was not included in any of the Louisiana, Oklahoma, or Texas Form-A applications. Brignac testified "[w]hen a Louisiana Domestic insurance company, when the change of ownership is going to occur and the parent company has entered into a letter of intent to sell the company, we require that the letter of intent be filed with our department." Curtis Westen of Health Net testified that he was not "aware of any rule, regulation in any state that a nonbinding letter of intent must be filed with the Department of Insurance." (Emphasis added.)
A review of the Letter of Intent shows that it specifically states that "[T]his letter of intent and the term sheet are for the purpose of setting forth the substance of the discussions between Acquiring Co. (AmCareco) and FHS and to serve as the basis for continuing discussions and preparations of definitive agreements for the Proposed Acquisition" and that "[T]his letter of intent and the term sheet do not constitute an agreement to consummate the Proposed Acquisition or create any binding obligation in connection therewith, and no such binding obligation shall arise unless and until such definitive agreements are executed by Acquiring Co. and FHS." (Emphasis added.)
Instructions for Form-A applications in Louisiana are found in Title 37, Part XIII, §§ 131 and 133 of the Louisiana Administrative Register. Section 3EXHIBITS of the Louisiana Form-A application provides at "2) Exhibit BCOPY OF ACQUISITION/MERGER AGREEMENT relative to the proposed transaction. This should include copies of any agreements described in Section 8 of the Form-A statement."
Item 8 of the Form-A statement provides as follows:
ITEM 8 CONTRACTS, ARRANGEMENTS, OR UNDERSTANDINGS WITH RESPECT TO VOTING SECURITIES OF THE INSURER
Give a full description of any arrangements, or understandings with respect to any voting security of the insurer in which the applicant, its affiliates or any person listed in Item 8 is involved including, but not limited to, transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss, or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. Such description shall identify the persons with whom such contracts, arrangements or understandings have been entered.
In Item 1 of the Louisiana Form-A entitled INSURER AND METHOD OF ACQUISITION, AmCareco advised that the purchase transaction is contained in a Stock Purchase Agreement and related Letter Agreement [Side Letter] which are attached as Exhibits Bl and B2. Then in Item 8 entitled CONTRACTS, ARRANGEMENTS, OR UNDERSTANDINGS WITH RESPECT TO VOTING SECURITIES OF THE INSURER appears the following:
The Applicant, as Buyer, and Foundation Health Corporation, Inc., as Seller, have entered into the Purchase Documents (attached to the Application as Exhibits Bl and B2, respectively) in which the Applicant agrees to acquire 100% of the outstanding and issued shares of the HMO. There are no other *541 contracts, arrangements, or understandings with respect to any voting security of the HMO. With respect to the HMO's voting securities, the above-referenced agreements do not contain any joint ventures, loan or option arrangements, puts or calls (on the HMO's voting securities), guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. (Emphasis added.)
This statement accurately describes and attaches the two documents that contain and define the substantive obligations and legal relations between the parties. The Letter of Intent provided for agreements pertaining to the discussion of potential obligations and legal relations; it did not contain any substantive provision pertaining to "any contracts, arrangements, or understandings with respect to any voting security of the insurer." This claim is without merit insofar as it pertains to the Louisiana Receiver.[127]
There is no evidence in the record to support the claims of the Texas and Oklahoma Receivers that the Letter of Intent should have been filed with the Texas and Oklahoma Form-As. The only evidence on this particular part of this claim is that of Westen who testified that he knew of no state that required such. The Texas and Oklahoma Receivers have not presented evidence of rules and/or regulations of any board, commission or agency of their respective states concerning this issue. La. C.E. art. 202 B(e).
Accordingly, this part of this claim is without merit.
5. Failure to file Closing Agreement
In brief, the Receivers assert that, in part, fraud was committed because the Closing Agreement was not provided to the Regulators and, in particular, paragraph 3(q) of the agreement improperly classified the PDRs as Restructuring Reserves, and this resulted in a different number for the Cash Sweep. The record does not reflect that the Closing Agreement was sent to the Regulators.[128]
Paragraph 3(q) of the Closing Agreement provides as follows:
(q) The Parties hereby acknowledge and agree that the premium deficiency reserves of the Acquired Corporations should be considered a "Restructuring Reserve" and therefore reversed pursuant to Section 2.1 of the Stock Purchase Agreement in order to calculate the Cash Payment, which reversal has been reflected in the FHS Cash Sweep and Preferred A Share Calculation prepared for Closing and attached as Exhibit E to this Agreement.
The Louisiana Spreadsheet in the Closing Agreement reflects the following: (1) a cash deficit to settle the intercompany payables and receivables $980,671; (2) Less Cash Contributed by FHS [Health Net] to Fund Premium Deficiency no entry; (3) cash increase in paid-in capital due to reversal of pre-existing PDR $1,421,764; (4) cash required for AmCareco $6,511,482; (5) FHS [Health Net] cash sweep $2,543,530; (6) FHS [Health Net] contribution to the purchase price of the AmCareco stock $5,216,488: and (7) Book Value of the adjusted cash in the Louisiana HMO $7,760,019. Items 1, 3, 4, 6 and 7 are identical to the same items in the Louisiana Form-A spreadsheet. The only material difference between *542 the two spreadsheets is that the Form-A spreadsheet contains the items "Less Cash Contributed by FHS to Fund Premium Deficiency (2,300,000)" and "FHS Cash Sweep (243,531)"[129] that the Closing Agreement spreadsheet does not have, and the Closing Agreement spreadsheet has the item "FHS Cash Sweep (2,543,530)" which the Form-A spreadsheet does not have. However, if $2,300,000 and $243,531 in the Form-A spreadsheet are added together the result is $2,543,531, a result that is only $1.00 different from $2,543,530 line item in the Closing Agreement spreadsheet.
Brignac gave the following pertinent testimony concerning this issue:
Q. I'd like to show you, this is a blowup of exhibit-447, the closing agreement, and specifically, the blowup is relating to section 3-q of that closing agreement, and we've read it before. We might we may all have it memorized before the trial is over, for better or worse. I'll read it for you, just to kind of speed things along. It says, post closing covenants, "q," the parties hereby acknowledge and agree that the premium deficiency reserves of the acquired corporations should be considered a, quote, restructuring reserve, close quote, and therefore reversed pursuant to section 2.1 of the stock purchase agreement in order to calculate the cash payment, which reversal has been reflected in the FHS Cash Sweep and Preferred A Share calculation prepared for Closing and attached as Exhibit-E to this Agreement. You never saw that 3-q, correct?
A. That's correct.
Q. In your opinion, in your thirteen years of experience as an insurance regulator, is that a provision which affected the terms of the stock purchase agreement and should have been provided to the department of insurance?
A. If the premium deficiency reserve was going to be reversed off of the financial statements and actually paid to the selling party, then yes, it would be deemed a material transaction and an amendment required to be filed.
Q. I show you another blowup from the closing agreement, exhibit-447, this is the last page, referred to as in exhibit-e in paragraph 3-q. It refers to it, exhibit-E. You never received this exhibit or the closing agreement at all, right?
A. Not that I recall.
Q. Had you received this exhibit that's attached to the closing agreement, how would you have personally interpreted this schedule that's attached to the closing agreement?
A. It appears that the proposed cash sweep to FHH was FHS, excuse me, was $2.5 million.
. . . .
Q. And how much total?
A. Over six million
Q. Is it over six or over eight?
A. Sorry, looks to be about 8.3 million
Q. And that, in fact, that figure on the total is the actual amount of the cash sweep that we now know was taken out almost immediately after approval, correct?
A. Well, I can speak to Louisiana, which is the 2.5.
Q. Which schedule, from your perspective, is clearer, is more direct, this exhibit-e attached to the closing agreement *543 you never got, or the schedule that you got the night before the morning of the hearing, in terms of how much cash sweep was going to happen?
A. Well, both of them show a cash sweep. The one provided to the Department of Insurance showed two hundred and forty-three thousand was going to be swept out. This particular schedule shows $2.5 million.
Q. Let me ask you the direct question, Ms. Brignac. Do you believe you were fully informed by the parties to this stock purchase agreement, the predecessors to Healthnet [sic] and AmCareco, about the terms of this stock purchase agreement?
A. It was not my understanding that $2.5 million was going to be swept out.
Q. Do you feel you were misled?
A. Yes, I do believe.
Subsequently, under cross-examination by counsel for Health Net, Brignac gave the following testimony:
Q. Now what I want to ask you is this number shows two point five four three five thirty it looks like.
A. That's correct.
Q. Which appears to be the 243,000 that you say you believe was coming out plus the $2.3 million that was two lines above on the form that you saw, correct?
A. That's correct.
Q. And those two, those two numbers add up to this.
A. Yes.
Q. My question is if you had seen this one, are you telling the jury and the court that you wouldn't have been confused, you would have understood that was the amount coming out?
A. On the very same line in this calculation this particular exhibit says $2.5 million is going to be swept out. That is how I reviewed this exhibit, and, yes, I would have been concerned about that.
Q. You would have been concerned, but you would have understood that that's what was being represented.
A. I would have understood from this document that $2.5 million was the proposed sweep.
Q. And that's what I'm getting at. You would not have been confused because it has the same transactions up here, correct?
A. That's correct.
Q. The cash coming out.
A. That's right.
In her deposition testimony, House stated:
Q. Okay. Now, let's go to the closing agreement. And again, the closing agreement, Paragraph 3-Q, says that, "For purposes of receiving the refund of the premium deficiency reserve, the premium deficiency reserve will be considered a restructuring reserve pursuant to Section 2.1 of the stock purchase agreement." Do you see that?
A. Yes, I do.
Q. So with that foundation, what effect would Paragraph 3-Q have on the cash payment calculation?
A. When reading it with 2.1, it lowers the liabilities, so it increases the potential payment.
Q. And it increases the payment by the amount of the premium deficiency reserve; right?
A. Correct.
Q. Right. And it's true that that's exactly what the letter agreement says; correct?
A. Correct. (Emphasis added.)
Paragraph 6 of the Side Letter is clear and unambiguous in stating that "Seller [Health Net] would be able to receive back *544 any cash contributed to the Acquired Corporations [HMOs] in establishing the Additional PDR" and that "Seller would receive such cash either through the Cash Sweep procedure or the Sweep Shortfall procedure described at item 5 above." The Louisiana Form-A spreadsheet is clear and unambiguous in referring to the $2,300,000 cash deduction as cash contributed to "fund premium deficiency" that was subject to be swept pursuant to Paragraph 6 of the Side Letter. Brignac agreed to the other cash sweep of $243,531, which obviously represented the "Cash Payment" referred to in the Stock Purchase Agreement. The sum of these two items is substantially the same as that listed for the cash sweep in the Closing Agreement. Westen, Lawrence Burdish, Byron Jones and Brian Crary all testified that Paragraph 3(q) and the spreadsheet attached to the Closing Agreement made no substantive change in the Louisiana Form-A spreadsheet. Because the total cash sweep of $2,543,530 in the Closing Agreement is essentially the same as the sum of the $2,300,000 and $243,530 shown in the Form-A spreadsheet, no material change was made by the Closing Agreement and the Closing Agreement was not required to be filed with the Louisiana DOI.
This claim is without merit.
6. Conclusion
For all of the foregoing reasons, we conclude as a matter of law and fact that there was no fraud committed by Health Net in obtaining Regulator approval of the Stock Purchase Agreement in Louisiana, Oklahoma, and Texas because: (1) the uncontested evidence of record shows that the Side Letter of the parties was properly filed with the Regulators in each state and the trial court judge erred as a matter of fact and law by finding otherwise; (2) as a matter of law it was unnecessary to file the Letter of Intent with the Regulators because it did not affect any substantive rights of the parties; (3) as a matter of fact (a) the Closing Agreement confirmed the financial provisions of the Form-A spreadsheet, and (b) did not make a material change in the spreadsheet and, therefore, as a matter of law and fact it was unnecessary to file it with the Regulators; (4) as a matter of fact and law Buttner failed to properly reverse the pre-existing PDRs of the Louisiana, Oklahoma, and Texas HMOs on his spreadsheet; (5) as a matter of fact Buttner failed to properly settle the intercompany receivables and payables for the Louisiana, Oklahoma, and Texas HMOs on his spreadsheet; and (6) as a matter of fact the Form-A spreadsheet did not mislead the Regulators in Louisiana, Oklahoma, and Texas.
B. Fraud in Financial Reporting to Regulators After the Sale
As previously discussed, the sale of the stock in the HMOs effected substantial changes in the duties, obligations, and legal relations of and between Health Net, AmCareco, the HMOs, and the three state regulators. The control of the HMOs along with whatever obligations Health Net owed as a parent corporation to its wholly-owned subsidiaries were transferred from Health to AmCareco. Health Net became 1 of 28 shareholders in AmCareco. The officers and directors of Health Net owed a fiduciary duty to Health Net and its shareholders and were required to discharge the duties of their respective positions in good faith and with that diligence, care and judgment, and skill that ordinary prudent men would exercise under similar circumstances in like positions. It is well established that officers and directors owe their fiduciary obligations to the corporation and its shareholders. North American Catholic Educational *545 Programming Foundation, Inc. v. Gheewalla, 930 A.2d 92, 99 (Del.Supr.2007); Guth v. Loft, 5 A.2d 503, 510 (Del.1939); cf. La. R.S. 12:91; Pepper v. Litton, 308 U.S. 295, 306, 60 S.Ct. 238, 245, 84 L.Ed. 281 (1939); General Dynamics v. Torres, 915 S.W.2d 45, 49 (Tex.App.-El Paso, 1995); International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 576 (Tex. 1963); Wilson v. Harlow, 860 P.2d 793, 798 (Okla.1993), cert. denied, 510 U.S. 1117, 114 S.Ct. 1067, 127 L.Ed.2d 386 (1994); McKee v. Interstate Oil & Gas Co., 77 Okl. 260, 188 P. 109, 112 (1920). The HMOs remained regulated insurance corporations that were obligated to file accurate quarterly and annual financial reports with the Regulators. Because the HMOs were juridical persons, they could only act through their officers, directors, and agents. Lucksinger, Nazarenus, and Nadler were the President, CFO, and COO, respectively, of the HMOs and served in those same positions for AmCareco. Health Net, AmCareco, and AmCare-MGT were not regulated corporations. The Regulators were obligated to monitor the financial filings and conditions of the HMOs and regulate them for the best interest of the HMOs' enrollees (members), providers, and creditors and for the general public good. Health Net's liability for fraud in financial reporting to the Regulators after the sale must be analyzed and determined on that basis.
1. Facts
On September 24, 1999, Nazarenus advised Brignac of LaDOI by facsimile transmission that the June 30, 1999 quarterly filing of the Louisiana HMO was being amended to show a "restated net worth of $3,785,000 as of June 30, 1999". Nazarenus further advised specifically as follows:
The first adjustment of $535,000 relates to an updated reconciliation of the Intercompany account balances with Foundation Health Systems as of the acquisition date of the Plan (April 30, 1999). As the intercompany balances were higher than originally recorded, a portion of cash paid at closing was reclassified from a return of capital to a payment of intercompany liabilities.
Finally, he advised, "[T]he second adjustment of $1,313,000 relates to a reversal of the premium deficiency reserve that was recorded in June 1999" because "management has concluded that a premium deficiency reserve was not warranted as of June 30, 1999 and the reserve has been reversed." On that same date, Nazarenus advised Brian Crary of Health Net, "[T]he revised trial balances recognize adjustments to the intercompany accounts and other related accounts due to unreconciled accounts". He further advised, "The revised cash sweep statement indicates that approximately $370,000 was overpaid to Foundation at closing and the preferred stock issued should be reduced to 12,289 shares." He finally advised as follows:
The amounts included in the schedules are supported by documentation that is attached. To some extent, these amounts will continue to change as additional items are identified. Also, we don't have a complete analysis of all the liability accounts for the health plans so we weren't always able to determine if some of the adjustments had been previously recognized.
The first exhibit attached to this letter is entitled "Analysis of Cash Transfers Adjusted April 30, 1999 versus Closing (3/31/99)".
As previously indicated in Part X, Section D2 of this opinion, Health Net and AmCareco entered into a Transition Services Agreement wherein Health Net agreed to perform certain administrative services for the HMOs for a period of *546 transition; this agreement specifically provided that AmCareco would at all times retain the ultimate authority and responsibility for the HMOs.
On November 23, 1999, the TxDOI conducted a Management Conference with the Texas HMO. Representing the Texas HMO at the conference were Lucksinger as President, Nadler as Vice President and COO, and Nazarenus as CFO. No one from Health Net attended this meeting. Among other things discussed at the meeting, Nazarenus advised that "the PDR reserve set up initially by Foundation included a wind down reserve, as of 12/31/98. AmCare didn't think this reserve was necessary so they amortized the full amount in the second quarter of 1999."
In 2000, AmCareco had AmCare Management, Inc., incorporated for the purpose of providing executive management, marketing, accounting and financial support, claims processing, claims analysis, statistical reporting, peer review programs, and provider and member relations services for the HMOs. The HMOs agreed to pay a per-member per-month fee for these services. The record on appeal contains no evidence to show that Health Net was involved in these activities.
During the trial, the plaintiff called Mark D. Tharp who was qualified as an expert witness in "claims processing or adjusting specifically in an insurance receivership context." Tharp testified that in late 1999 AmCareco began a "search and selection" process for a new computer system because the system in place was not capable of performing all of the functions required by AmCareco. It was ultimately determined at an AmCareco Board of Directors meeting on April 17, 2000, that the GBAS system that had been acquired needed to be replaced. Tharp then testified as follows:
A. Okay. No sooner had AmCareco acquired the GBAS system than it was abandoned. Rather than stepping back and taking a reasoned and measured approach to correct the perceived problems and deficiencies with the newly acquired GBAS system. AmCareco put into motion a chain of events resulting in a piecemeal claim adjudication and payment process, which was destined for failure, thereby contributing to the demise of the AmCare Health Maintenance Organizations. This is not to mention the ill-conceived and premature acquisition of the GBAS system to begin with, a system that would not adjudicate lines of business resident with AmCare. What follows is a pattern of reactionary behavior by former management, resulting in shoddy and piecemeal adjudication and payment processes and millions of dollars in overpayments and mispayments to providers and members, while concurrently pursuing acquisitions, blocks of business and new business. In short, the claims adjudication and payment processes were negligent to reckless to inconceivable.
Q. Now in that description of AmCare's computer system, you're referred to the management of AmCareco and AmCare HMO's [sic], correct?
A. Yes.
Q. And you're referring to the actions taken by Tom Lucksinger, Steve Nazarenus, Michael Nadler, and other officers, directors of AmCareco, correct?
A. Whoever was involved in the claims payment processes.
Q. You're not at all referring to Health Net; is that correct?
A. No, I'm not. (Emphasis added.)
On May 10, 2000, Lucksinger sent an E-Mail to Nazarenus that provided as follows:
*547 Steve-I signed the various quarterly state filing signature pages this evening but we need to discuss the Oklahoma filing if it is going to show us out of statutory compliance. If we are[,] then I believe we should think about making some sort of intercompany receivable/capital contribution in order to not submit showing non-compliance. If we show non-compliance they will immediately request a meeting and then demand that we infuse not just the short-fall but the estimated amount of our shortfall going forward for the rest of the year. The whole deal will get extremely sticky. If we show compliance, regardless of how we get there, they should not push us on this issue at this time-or if they do, in no way as hard as if we show up out of compliance. We will also need to immediately fund the amount that we show as the intercompany payable.
On May 11, 2000, Nazarenus sent a reply to Lucksinger that provided as follows;
Let's discuss. We can reflect an I/C receivable and a capital contribution to get us into compliance at 3/31/00; the funding of this contribution is a problem. We don't have sufficient funds at this time nor we will [sic] for the remainder of this quarter.
Nadler was copied with both E-Mails; neither Health Net nor any of its officers or directors were sent copies of these E-Mails. It appears from the record that this policy was continued until, apparently, it was discontinued in the fall of 2001.
It appears from the record that, during the latter part of 1999 and the early part of 2000, the Louisiana HMO "was consistently reporting at or just below its minimum net worth requirements." The La-DOI contacted AmCareco and told it to make a cash infusion into the HMO to make up the shortage. By letter dated April 27, 2000, AmCareco requested an extension to file the Louisiana Form-B with LaDOI. Subsequently, on May 30, 2000, Nazarenus wrote to Brignac, filed with the LaDOI an amended 1999 Annual statement and an amended March 2000 quarterly statement for the Louisiana HMO, and proposed filing monthly financial statements for April, May, and June 2000 instead of making an immediate cash infusion into the Louisiana HMO. Brignac discussed this situation with Deputy Commissioner Craig Gardner and they agreed to "afford the company an opportunity to make up those net worth deficiencies with operating results conditioned on them providing us monthly financial estimates." There is no evidence in the record to show that Health Net was involved in any way in this transaction. Brignac testified that she had no further contact with Health Net after the closing of the sale.
Effective September 1, 2000, AmCareco acquired ownership of all of the stock of AmeriHealth of Texas, Inc. (AmeriHealth) from Independence Blue Cross, Philadelphia with TxDOI approval. The funding for this acquisition came, in part, from cash given by the following named investors in exchange for Subordinated Convertible Notes given by AmCareco: (1) Health Net-$1,750,000; (2) Dr. M. Lee Pearce $1,500,000; (3) William Galtney $500,000; and (4) other smaller investors $140,000, for a total of $3,890,000.
On October 3, 2000, the true-up for the Stock Purchase Agreement between Health Net and AmCareco was executed. The final and definitive financial information for March 31, 1999, showed that Health Net was entitled to an additional 144 shares of AmCareco's Preferred Class A stock and was entitled to $673,967 to settle various indemnity provisions of the *548 sale contract. AmCareco gave Health Net a promissory note for the $673,967.
Effective December 1, 2000, AmCareco acquired ownership of all of the stock of Texas Health Choice, Inc., from Sierra Health Services, Inc., with TxDOI approval.
During the period from closing (April 30, 1999) until the true-up (October 3, 2000) AmCareco sent monthly financial statements to Health Net. Thereafter, quarterly and annual financial statements required by the Regulators were sent to Health Net.
During the period from closing until the end of 2000, except for investing in the AmeriHealth acquisition and participating in the true-up, Nazarenus, Health Net's CFO, testified that Health Net did not "participate in any of the management of any of the HMOs." Health Net did not have any officer or director in AmCareco or in any HMO. Health Net was not involved in any: (1) marketing, (2) sales, (3) claims functions, (4) provider contracts, or (5) member services of any of the HMOs. Health Net was not involved when AmCareco hired PWC as its auditor. During this time, all claims that were filed with the HMOs while they were under the control of Health Net were paid by AmCareco except for a small number that either were contested or had administrative problems. No Health Net provider who stayed on with AmCareco after the sale called on Health Net to pay a claim. By the end of 2000, Health Net had the sum of $16,191,333 invested in AmCareco as follows:
1. $13,623,366 Class A Preferred Stock at Closing
2. 673,967 True-up note
3. 144,000 Class A Preferred Stock at true-up
4. 1,750,000 AmeriHealth Note
____________
$16,191,333
This investment by Health Net was described by some witnesses as a "passive investment." Because of the manner in which the HMOs were managed by AmCareco after the sale, Health Net has potentially lost all of this investment less the $2 million redeemed in the letter of credit.
During the middle of 2000, AmCareco's financial condition was such that it was unable to meet the minimum cash and surplus (net worth and surplus) requirements of Louisiana, Oklahoma, and Texas. To solve this problem, AmCareco "booked" intercompany receivables as assets even though they were in fact "cashless contributions". AmCareco continued to pay claims as due into 2001, at which time it sometimes utilized "cash swirls" to give the impression that the HMOs met the minimum cash and surplus requirements of the three states. On December 4, 2002, Nazarenus was interviewed about these, and the questions asked and answers given in the interview were transcribed. This document was filed in evidence and shows that in response to the question "Were contributed capital and intercompany receivables recorded for the sole purpose of misleading regulators and hiding your insolvency?" Nazarenus responded "Yes." This admission and other evidence in the record proves that AmCareco, AmCare-MGT, the three HMOs, Lucksinger, Nazarenus, and Nadler committed fraud in reporting the financial status of the HMOs to the Regulators after the sale. The question remaining on this issue is whether Health Net is jointly liable for this fraud.
AmCareco's problems with the manner in which it reported intercompany receivables emerged when PWC commenced auditing the 2000 annual and quarterly financial statements of the three HMOs. At that time AmCare-OK recorded intercompany receivables of $2,800,000; AmCare-LA recorded $4,400,000; AmCare-TX recorded *549 $9,800,000.[130]
On April 30, 2001, Lucksinger wrote a letter to "AmCareco, Inc. Shareholders" and referred to it as "Financial and Operations Update". Lucksinger first advised that "we are still in business and growing daily." He then advised the 28 shareholders as follows:
As to financial results, I have included herewith the January and February monthly operating statements for the Company. While these statements were somewhat disappointing to me in that we had originally forecast a profit for the first quarter of 2001 and the enclosed statements reflect consolidated losses of approximately $75,000 and $195,000 for the two months, respectively, we are pleased that in these first two months of 2001 we did in fact operate at a cash flow, i.e., the net loss for the two months reflected in the statements was less than the non-cash expenses (depreciation, amortization, etc.) included in the net profit computation.
He then advised, "[o]verall, the fact that we are showing profits in our regulated entities with normal administrative charges is quite encouraging, particularly in view of the increasing membership in these entities over which to spread the overhead." Lucksinger discussed the AmeriHealth acquisition and observed:
Consequently, we believe that the $6-8 million purchase price payment which we had originally estimated would be due as of December 1 of this year has now already effectively been paid. That is the good news. The bad news is that the substantial negative cash flows on the AmeriHealth business and the likely negative balance sheet have created significant receivables from AmCareco to its regulated insurance subsidiaries. This has also substantially depleted AmCareco's book capital. However, since AmCareco is at or effectively at positively cash flowing, this accounting result would not be a problem but for the various state's [sic] insurance regulators and AmCareco's auditors who are questioning classifying the AmCareco intercompany receivables on the regulated entity's books as admitted assets (due to AmCareco's weakened capital position). This issue is very significant and could be extremely detrimental to the Company if not favorably resolved. If the receivables from AmCareco to the regulated entities are not classified as admitted assets, then the capital and reserves of the regulated entities would fall below statutorily required levels and AmCareco would be obligated to pay off the receivables in full to bring the regulated entities into compliance. Unfortunately. AmCareco does not have the resources to pay off these intercompany payables at this time. Obviously, we are working with our auditors and the state insurance departments in regard to the matter. We will keep you informed of developments, but it is possible that we may have to obtain either some form of intercompany payment guarantees or new capital to finally resolve the matter. We must be able to demonstrate that AmCareco has the capacity to continue forward and honor its intercompany payables in order to satisfy both the auditors and the three state insurance departments. (Emphasis added.)
Finally, Lucksinger concluded as follows:
*550 In summary, I believe that subject to our resolving the intercompany payables issue with our auditors and insurance departments AmCareco has reached the point of successful continuing operations. I believe we can operate going forward with little or no actual additional capital, save and except resolving the current auditor/regulatory intercompany payable issue or if additional capital became necessary to finance a substantial acquisition or merger. It is also possible that at some point during this year we could reach that point where we may be able to access the debt markets to cover cash flow requirements should any arise. However, until we resolve the intercompany payable issue we must advise you that the Company is at substantial regulatory risk. We, of course, continue to take all possible actions to address and favorably resolve this matter. I will keep you advised concerning developments on this point. (Emphasis added.)
On May 11, 2001, Lucksinger sent the following to Westen (Health Net) with copies to Stuart Rosow (Pearce's attorney), Nazarenus, Nadler and Todd Lucksinger (Thomas Lucksinger's son and an employee of AmCareco):
Curt Attached is some information which should be useful in connection with our scheduled telephone conference on next Monday morning regarding AmCareco's current issue with its auditors and state regulators on its intercompany payables. As I previously indicated to you, we have a serious issue which has arisen due to the auditors' concerns with certifying the books of our state regulated entities because of the high level of intercompany receivables from AmCareco on these subsidiaries' books. This is an issue with which we have been concerned internally for some time due to AmCareco's current capitalization-or lack thereof.
The attached information reflects the current status of intercompany payables, our current estimate of our outstanding settlement with IBC, and a summary of AmCareco's operating statistics for the last year. You should also probably have available for your conversation the information which I recently sent to you and all the other shareholders concerning the current outlook for AmCareco, together with the 2001 budget included therewith. (I have also included a 2001 budget as an attachment hereto, but it is not as detailed as the information previously transmitted to you.) (Emphasis added.)
On June 5, 2001, Lucksinger wrote to the AmCareco Board of Directors concerning "Auditors/Insurance Regulators' Capital Issues" and copied Pearce, Rosow, and Westen. He referred to a May 14, 2001 AmCareco Board of Directors meeting and discussed the AmeriHealth acquisition. He then advised as follows:
But since these intercompany accounts are in the majority payable by AmCareco to its regulated subsidiary companies, PriceWaterhouse [sic] and the state insurance regulators have raised concerns regarding AmCareco's ability to meet these intercompany obligations to the regulated entities in view of AmCareco's current depleted capital position. If these intercompany payables are not accepted by PriceWaterhouse [sic] and the state regulators as valid receivables such would then not be classified as admitted assets for minimum state capital purposes and AmCareco's regulated entities would not be in compliance with the various states' minimum capital requirements. The regulated entities would thereby become subject to a broad range of state regulatory/administrative *551 actions, including from administrative supervision to license revocation. This is thus a very serious issue. We have had meetings with the auditors and a preliminary meeting with the Texas Department of Insurance ("TDI") to discuss these issues.
Lucksinger further advised that "[w]e continue to work on resolving the intercompany payment and capitalization issue on a daily basis. We are in contact with a variety of parties, including the auditors, regulators, shareholders and potential outside interested parties in addressing these issues." (Emphasis added.) Lucksinger then concluded with the following:
I hope the foregoing has been of further informational value to you as regards the present status of AmCareco's intercompany payable/capital issue, as well as its positive current financial operating results and future potential. Based on the current operating results as well as the positive impact which AmCareco will receive from sales and other activities which are already underway for the third quarter (presuming we can satisfactorily resolve the currently outstanding intercompany payable issue), the company's future financial prospects seem [sic] solid. We are presently cash flowing (although the State of Texas account with its 45 day payment delay will challenge us) and feel very positive regarding AmCareco's future success.
On July 25, 2001, representatives of AmCare-LA met with representatives of La-DOI and requested authority to report the $4.4 million intercompany receivable balance as an asset. The record does not reflect that Health Net was present at this meeting. The request was denied by La-DOI.
PWC refused to favorably report the AmCare-OK 2000 Annual Report until AmCare-OK's $2.8 million intercompany receivable was collected. The "cash swirl" by AmCare-MGT previously discussed occurred on July 17, 2001. Nazarenus testified that the document that evidenced the swirl "shows funds going into Oklahoma to satisfy the auditor's request." After the receivable was "collected," PWC approved the audited report. There is no evidence in the record to show that Health Net participated in this particular conduct.
The AmCare-TX 2000 Annual Report was filed on February 28, 2001, and reported $9.8 million as being due from affiliates. In July of 2001, AmCare-TX applied to the TxDOI for authority to treat this receivable as an asset. The TxDOI agreed to consider the $8 million part of the receivable acquired from AmeriHealth as an asset on the basis that the receivable was collectible and not in dispute but reserved the right to consider its collectability.
On August 17, 2001, Lucksinger sent a letter to Westen, Pearce, and Galtney (who were holders of large blocks of stock) that was referenced "AmCareco Capital and Cash Flow Funding Requirements." A note on the letter stated that it was "highly confidential" and should not be shared "with any party who is not directly related to the operations of AmCareco and its subsidiaries, and then only on a `need to know' basis." Lucksinger first observed, "[a]s indicated in the June 30 financials recently transmitted to you and earlier financial information provided to you, AmCareco was profitable on a company wide basis for the second quarter of this year." He then pointed out that "[h]owever, despite this positive result as regards the profitability of current and ongoing operations, we continue to be stressed by ever increasing demands from both the insurance department regulators and ongoing operations for both capital and more operating cash. It is our present *552 estimate that AmCareco will run out of operating cash between the upcoming September 1 and September 15. In addition, AmCareco is already either actually or effectively undercapitalized for state regulatory purposes in each of its jurisdictions." Lucksinger then discussed the capital and cash requirements and summarized with the following:
In summation, from both the regulatory capital requirement perspective and from our cash flow operating requirements, AmCareco requires $8 million or more in additional cash and capital at this time. Without this infusion the Company will not be able to continue, which event would be disastrous from the investors' perspective since the Company has now reached profitability with tremendous upside potential.
Lucksinger then concluded with the following observations:
While the last thing that I wish to do is to present each of you with the hard facts contained in this memorandum, there is basically nothing I can operationally do at the present time to circumvent the situation. I have run out of smoke and mirrors.
. . . .
We have successfully grown AmCare to a representative size organization and have attained a level of profitability based on the limited capital with which we have had to work, but we do not have enough remaining capital to maintain regulatory compliance and grow the Company. If we can raise the capital necessary to attain my originally estimated required level, I believe that my current estimate of forward-looking results will again be determined to be reasonably accurate. In addition, we are also presently being provided some exceedingly attractive acquisition opportunities which can likely be effected for relatively small amounts of cash as compared to the resulting operation and its valuation potential. The upside potential for AmCareco is significant. I am thus asking each of you to work with me to raise the capital and operating funds required in order to continue the success of AmCare that we have enjoyed to date and to realize all of the profit potential which presently exists for the Company and its shareholders. Without the additional capital infusion the result will be a loss of all of our respective investments and the almost three years of tremendous effort put in by AmCareco's management and staff to bring the Company to its current status. Your immediate assistance would be greatly appreciated. (Emphasis added.)
On September 7, 2001, AmCareco issued an Operational and Funding Analysis which provided for, among other things, "Potential Investment Outcomes" and "Current Potential Investment Alternatives."
On October 10, 2001, Scott H. Westbrook, the Vice President of AmCare-LA, sent an E-Mail to Lucksinger and Nadler stating that "[o]ur lagging claims payment situation has reached a critical point with providers." He concluded with the observation, "At this point, our claims payment situation has impacted most all departments and our ability to maintain group renewals, obtain new groups and negotiate favorably with providers."
In the fall of 2001, Jeffrey C. Villwok, the Managing Partner of Harpeth Capital Atlanta, a subsidiary of Caymus Partners, was contacted by Pearce who advised that he had an equity investment in AmCareco, that AmCareco was not doing very well, and asked Villwok to "see what could be done." Caymus Partners is a middle market investment bank that does advisory work pertaining to private placement of *553 debt and equity securities. Pearce was concerned about his investment and wanted to know "what the company needed . . . in order to be successful." Villwok "analyzed by quarters the results of the operation since they had acquired the business from Health Net," got historical information from Pearce, and contacted and got information from Lucksinger. Villwok formed "the initial view . . . that this company hit bottom, was starting to do better." Possible solutions considered were merger or another round of private equity investors. Villwok met with the AmCareco Board of Directors on March 18, 2002. Westen attended this meeting but did not participate in it. Villwok opined that AmCareco needed a $30 million infusion of capital. He later gave the following reasons for this opinion:
Q. Now turn to page 44, line 13. Question, one thing we haven't talked about is the reason when Mr. Lucksinger when you first got in touch with him, what the reasons were for the need for thirty million investment. Do you remember those?
A. Yeah, we talked about that at some length. When they bought the portfolio from Health Net, I think they had made some unrealistically optimistic assumptions about the profitability of the portfolio, about the ability to have a certain medical loss ratio and the medical costs had run higher. They found out that the portfolio had a fair amount of adverse selection in it as it came to profitability of certain lines of business or certain contracts. And so they needed to terminate certain contracts. But in the process of doing that and getting their systems up and running, the financial table that we reviewed earlier indicated that and they had lost a fair amount of money. And so they had not, I don't believe, originally budgeted for that size loss. And, therefore, they needed the capital to not only recoup their loss and, you know, they were behind in reserves with, I believe, all three states. And so the idea was to put your reserves back in full compliance and at the same time provide growth capital so that as this company went from 100,000 lives to a hundred and fifty or two hundred or 300,000 lives that the working capital was already there to support that growth.[131]
By message dated March 4, 2002, Nazarenus advised Lucksinger and Nadler that the 2001 Annual statements were completed and mailed on March 1, 2001. It was stated that Oklahoma had a net worth of $814,000, $11,664,000 in net intercompany receivables, cash available for operations of a negative $324,000, and a claims payable balance of $13,719,000; Louisiana had a net worth of $2,832,000, $8,172,000 in net intercompany receivables, cash available for operations of a negative $476,000, and a claims payable balance of $4,802,000; and Texas had a net worth of $2,924,000, $21,797,000 in net intercompany receivables, cash available for operations of $3,343,000, and a claims payable balance of $32,070,000.
On April 30, 2002, AmCare-Ok's license to operate in Oklahoma expired, the HMO was placed on "operations limited to conclusion of business," and renewal of the license was denied on October 1, 2002.
On May 1, 2002, the LaDOI placed the Louisiana HMO under administrative supervision.
*554 On June 4, 2002, Health Net sent a letter to AmCareco advising of proposed terms and conditions for it to make any future investment in AmCareco. Paragraph 4a of this letter provided as follows:
4. Conditions to Investment. Shareholder shall not be obligated to make the Additional Investment, or any part thereof, unless the following conditions have been satisfied:
a. All regulatory approvals or filings reasonably necessary in order to consummate the Restructuring, including without limitation the acceptance and approval of a plan of rehabilitation for the AmCareco regulated subsidiaries by the state insurance departments in which each subsidiaries operate (collectively, the "Insurance Departments"), approvals of the Insurance Departments as required for the consummation of the transactions contemplated in the Restructuring, and expiration of the applicable waiting period after submission of a Hart-Scott-Rodino filing, shall be received or made, as applicable.
On or about July 26, 2002, Health Net exercised its contractual right to require AmCareco to redeem its Class A Preferred Stock with the $2 million secured by the letter of credit with the Chase Bank of Texas.
AmCare-LA was placed in rehabilitation on September 23, 2002.
AmCare-TX was placed in receivership on December 16, 2002.
2. The Law of Fraud
a. Texas
The Texas tort of fraud was previously discussed in Part VI, Section D2b of this opinion. The elements of fraud by misrepresentation in Texas are as follows:
1. a party makes a material misrepresentation;
2. the misrepresentation is made with knowledge of its falsity or made recklessly without any knowledge of the truth and as a positive assertion;
3. the misrepresentation is made with the intention that it should be acted on by the other party; and
4. the other party relies on the misrepresentation and thereby suffers injury.
The elements of fraud by omission (failure to disclose when there is a duty to disclose) are as follows:
1. a party fails to disclose a material fact within the knowledge of that party;
2. the party knows that the other party is ignorant of the fact and does not have an equal opportunity to discover the truth;
3. the party intends to induce the other party to take some action by failing to disclose the fact; and
4. the other party suffers injury as a result of the action without knowledge of the undisclosed fact.
However, as previously indicated in Part VI, Section D2a, the language of Article 2.21 of the Tex. Bus. Corp. Act is clear and unambiguous in providing that a shareholder (Health Net) "shall be under no obligation to the corporation" in which it holds shares (AmCareco) with respect to "any contractual obligation . . . or any matter relating to or arising from the obligation" of the corporation (AmCareco) on the basis that the shareholder (Health Net) "was the alter ego of the corporation, or on the basis of actual fraud or constructive fraud, a sham to perpetuate fraud, or other similar theory." This limitation is applicable unless the obligee (the Texas *555 HMO and/or its creditors as represented by the Texas Receiver) proves the following elements: (1) the shareholder (Health Net) caused the corporation (AmCareco and/or the Texas HMO) to be used to perpetuate actual fraud on the obligee (Texas HMO and/or its creditors); and (2) this conduct was primarily "for the direct personal benefit" of the shareholder (Health Net).[132] Article 2.21 preempts all other tort causes of action except those specifically created by another statute.
b. Oklahoma
In Oklahoma the common law version of the tort of fraud prevails and it is essentially the same as the Texas standard instruction version. In Ramsey v. Fowler, 308 P.2d 654, 656 (Ok.1957), the following elements are set forth:
1. defendant made a material misrepresentation;
2. it was false;
3. he made it when he knew it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion;
4. he made it with the intention it should be acted upon by the plaintiff;
5. the plaintiff acted in reliance upon it; and
6. he thereby suffered injury.
See also Rogers v. Meiser, 68 P.3d 967, 977 (Okla.2003).[133]
c. Louisiana
In Louisiana, contractual fraud is a vice of consent that can be the basis for rescission of a contract; it is specifically provided for in La. C.C. art. 1953 et seq. Fraud also is a tort that is generally provided for in La. C.C. art. 2315 et seq. Griffin v. BSFI Western E & P, Inc., 2000-2122, pp. 8-9 (La.App. 1 Cir. 2/15/02), 812 So.2d 726, 734. The jurisprudence in Louisiana construing the Civil Code tort Article on fraud is not as well developed as that construing the Civil Code contract articles on fraud.[134] However, a review of the Civil Code Articles on contractual fraud are instructive in determining how the tort article should be interpreted. Thus, the Civil Code provides as follows:
Art.1953. Fraud may result from misrepresentation or from silence
Fraud is a misrepresentation or a suppression of the truth made with the intention either to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other. Fraud may also result from silence or inaction.
Art.1954. Confidence between the parties
Fraud does not vitiate consent when the party against whom the fraud was directed could have ascertained the truth without difficulty, inconvenience, or special skill.
*556 This exception does not apply when a relation of confidence has reasonably induced a party to rely on the other's assertions or representations.
Art.1955. Error induced by fraud
Error induced by fraud need not concern the cause of the obligation to vitiate consent, but it must concern a circumstance that has substantially influenced that consent.
Art.1957. Proof
Fraud need only be proved by a preponderance of the evidence and may be established by circumstantial evidence.
Louisiana jurisprudence indicates that the following are the elements of the tort of fraud:
1. a misrepresentation of material fact;
2. made with the intent to deceive;
3. reasonable or justifiable reliance by the plaintiff; and
4. resulting injury.
The intent to deceive is a specific intent. Systems Engineering v. Science & Engineering, XXXX-XXXX, p. 3 (La.App. 4 Cir. 6/20/07), 962 So.2d 1089, 1091; Guidry v. United States Tobacco Co., Inc., 188 F.3d 619, 627 (C.A.5 [La.] 1999); F. Maraist & T. Galligan, supra, § 2.06(10), pp. 2-39 & 40 and the cases cited therein. To find fraud from silence or suppression of the truth, there must exist a duty to speak or disclose information. Boncosky Services, Inc., 1998-2339 at p. 12, 751 So.2d at p. 287.
In her judgment in the Louisiana case, the trial court judge ruled that "the plaintiff sustained its burden of proving by a preponderance of the evidence that Health Net, Inc., is liable for negligent misrepresentations which proximately caused damage to the Louisiana HMO or its creditors." Negligent misrepresentation is encompassed within the broad language of La. C.C. art. 2315. Louisiana Retailers Mut. Ins. Co. v. DeRamus, XXXX-XXXX, pp. 4-5 (La.App. 1 Cir. 5/4/07), 960 So.2d 1048, 1050-1051, writ denied, XXXX-XXXX (La.9/21/07), 964 So.2d 336; Ethyl Corp. v. Gulf States Utilities, Inc., 2001-2230, p. 8 (La.App. 1 Cir. 10/2/02), 836 So.2d 172, 178, writ denied, 2002-2709 (La.12/19/02), 833 So.2d 340; Abbott v. The Equity Group, Inc., 2 F.3d 613, 624-625 (C.A.5 [La.] 1993), cert. denied, 510 U.S. 1177, 114 S.Ct. 1219, 127 L.Ed.2d 565 (1994); F. Maraist & T. Galligan, supra, § 5.07(8), pp. 5-32 to 5-34.1; W. Crawford, supra, § 2.11, p. 3 Pocket Part. Negligent misrepresentation is essentially a less culpable version of fraud because fraud requires specific intent.
However, as previously indicated in Part X, Section B2 of this opinion, La. R.S. 12:93 B is clear and unambiguous in providing "[a] shareholder of a corporation. . . shall not be liable personally for any debt or liability of the corporation." (Emphasis added.) The provisions of La. R.S. 12:93 B are tempered by La. R.S. 12:95 which provides that "[n]othing in this Chapter shall be construed as in derogation of any rights which any person may by law have against a . . . shareholder . . . because of any fraud practiced upon him by any of such persons or the corporation, or in derogation of any right which the corporation may have because of any fraud practiced upon it by any of these persons." (Emphasis added).
When La. R.S. 12:93 B and 12:95 are interpreted in reference to each other, it must be concluded that fraud as provided for in La. R.S. 12:95 is the sole tort cause of action that the Louisiana Receiver has against Health Net as a stockholder in AmCareco. The cause of action for negligent misrepresentation is not the same as that for fraud which requires specific intent. Accordingly, the trial court judge committed legal error by ruling that *557 "Health Net, Inc. is liable for negligent misrepresentation which proximately caused damage to the Louisiana HMO or its creditors."
3. Conclusion
A review of the jurisprudence pertaining to fraud in Louisiana, Oklahoma, and Texas shows that they have three common elements: (1) a misrepresentation (falsity); (2) of a material fact; and (3) a specific intent to deceive. Pursuant to Article 2.21, Texas requires two additional elements to prove fraud by a shareholder: (1) the shareholder used the corporation (AmCareco) to perpetuate actual fraud on the obligee (AmCare-TX and/or its creditors) and (2) the fraud was for the direct personal benefit of Health Net.
The preponderance of the evidence shows the following. In May of 2000 AmCareco began to have financial problems concerning the availability of enough cash to pay claims and maintain the minimum cash and surplus necessary to meet state and regulator requirements. Lucksinger, AmCareco's president, Nazarenus, Amcareco's CFO, and Nadler, AmCareco's COO, concocted a scheme to book intercompany receivables (capital contributions) that did not reflect the actual available cash in the five-corporation system. Neither the regulators nor the other shareholders were advised about this policy. This practice continued into 2001, when the 2000 Annual Reports for the regulators were being audited by PWC and the regulators became aware of the practice. During April of 2001, Lucksinger advised the 28 AmCareco stockholders of the practice and the problem. At this point in time, the AmCareco shareholders (other than Lucksinger, Nazarenus, and Nadler) were not parties to the proscribed practice, and therefore, had no liability for it.
In the April 2001 letter, Lucksinger specifically advised all 28 shareholders that "the various state's insurance regulators and AmCareco's auditors . . . are questioning classifying the AmCareco intercompany receivables on the regulated entity's books as admitted assets (due to AmCareco's weakened capital position)." At this point in time, the parties who had the primary and overriding interest in this practice (the regulators and auditors) already knew of and were questioning the practice. For Health Net to advise them of what they already knew would be a vain and useless act. Accordingly, Health Net, as a shareholder, had no duty to do so. Instead, at this point in time, Health Net's primary duty was to its shareholders.
There is no evidence in the record that shows that, during the period from April 2001 until the HMOs were put in receivership, Health Net or any other shareholder (other than Lucksinger, Nazarenus, and Nadler) made a misrepresentation of material fact with an intent to deceive to a Regulator or auditor. Instead, the record shows that Health Net tried to work with Pearce and Galtney to fashion a plan to salvage the AmCareco operations. This is evidenced by the June 4, 2002 letter sent by Health Net to AmCareco proposing terms and conditions for future investments in AmCareco.
The plaintiffs have failed to prove by a preponderance of the evidence that Health Net committed fraud in reporting to regulators after the sale.
C. Conclusion
These assignments of error have merit.
XII. LIABILITY FOR BREACH OF FIDUCIARY DUTY
A. The Texas Case
(Assignment of Error TX-17, TX-26)
In its First Supplemental and Amending Petition in Intervention, the Texas Receiver asserted as follows:
*558 23. At least by the time AmCareco or the single business enterprise that consisted of all the AmCare enterprises became insolvent, the Control Group[[135]] also owed a fiduciary duty and a duty of good faith and fair dealing to the creditors, which as to AmCareco included AmCare-TX, AmCare-LA, AmCare-OK and AmCare Management [sic]. [Health Net] also owed a fiduciary duty to all of the creditors of all entities of the single business entities, including all of the people and entities that have assigned claims to the [Texas Receiver]. [Health Net] breached theses duties. This breach was a proximate cause of damages to the groups to which duty was owed.
In the Texas case, the jury found Health Net "breached a fiduciary duty that caused damage to the Texas HMO or its creditors."
Health Net argues that it did not owe any fiduciary duties to the HMOs before or after the sale of the HMOs to AmCareco.
The Texas Receiver responds Gellert, Health Net's CEO, was a director of the Texas HMO; Gellert owed fiduciary duties to the HMO; and Gellert breached his fiduciary duties to the HMO when he approved the cash sweep. Further, Health Net owed a fiduciary duty to the Texas HMO pursuant to Tex. Ins.Code Article 20A.08, now § 843.401 of the Tex. Ins.Code. Health Net breached its fiduciary duty by benefiting from the cash sweep, knowing it would render the HMOs unable to meet their statutory and other legal obligations. Health Net injected money into the HMOs "to make the HMOs temporarily `solvent' for regulatory purposes." Thus, "[B]ecause the three HMOs were already insolvent prior to the sale to AmCareco, Health Net owed pre-sale fiduciary duties to the creditors of the HMOs." Pursuant to Tex. Ins.Code Article 21.49-1, § 2(d), Health Net was a controlling shareholder after the sale and continued to owe fiduciary duties to the creditors of the HMOs.[136] Finally, "[t]hese fiduciary duties required Health Net to assure that the HMOs were operated in a manner that did not defraud the creditors or cause them an unreasonable risk of harm, and especially to refrain from engaging in or allowing activities that benefited Health Net at the expense of these creditors."
1. Pre-sale fiduciary duties
The elements of a claim for breach of fiduciary duty are: (1) the existence of the duty; (2) breach; (3) causation; and (4) resulting damages. Jones v. Blume, 196 S.W.3d at 447. The weight of authority in the common law holds that a parent corporation owes no fiduciary duties to its wholly-owned subsidiary. See Westlake Vinyls, Inc. v. Goodrich Corp., 518 F.Supp.2d 902, 917 (W.D.Ky.9/27/07); Anadarko Petroleum Corp. v. Panhandle Eastern Corp., 545 A.2d 1171, 1174 (Del. 1988); Abex, Inc. v. Koll Real Estate *559 Group, Inc., 1994 WL 728827, p. 16 (Del. Ch. Dec.22, 1994); Richardson v. Reliance Nat'l Indem. Co., 2000 WL 284211, p. 12 (N.D.Cal. Mar.9, 2000); Household Reinsurance Co., Ltd. v. Travelers Ins. Co., 1992 WL 22220, pp. 3-4 (N.D.Ill. Jan.31, 1992); Resolution Trust Corp. v. Bonner, 1993 WL 414679, pp. 2-3 (S.D. Tex. June 3, 1993).
According to the order approving the sale of the Texas health plan, there was "no evidence upon which the [Texas] Commissioner could predicate a denial of the acquisition of control, under TEX. INS. CODE ANN. Art. 20A.05 § (d) and 28 TEX. ADMIN. CODE § 11.1205(a)."[137] As evidenced by the Texas regulators' approval of the sale, AmCare-TX could be expected to meet its obligations and had the required capital. The preponderance of the evidence shows that, at the time of the sale, the Texas HMO was not insolvent.
Texas Business Corporation Act art. 2.21 is the statute that specifically provides for shareholder liability for fraud, is exclusive and preempts any other type of liability under the common law or otherwise, except liability provided for by another statute. The Texas Insurance Code, § 843.401, is such a statute, and it specifically applies to the Texas HMO and provides as follows:
A director, officer, member, employee, or partner of a health maintenance organization who receives, collects, disburses, or invests funds in connection with the activities of the health maintenance organization is responsible for the funds in a fiduciary relationship to the enrollees. (Emphasis added.)[[138]]
Section 843.401 is clear and unambiguous in imposing fiduciary responsibilities on the directors and officers of a Texas HMO if they receive, collect, disburse, or invest funds in connection with the activities of the health maintenance organization. Prior to the sale, Gellert was on the Board of Directors of the Texas HMO and Jansen, Health Net's vice president, assistant general counsel and assistant secretary, was the secretary of the Texas HMO. Section 843.401 also is clear and unambiguous in providing that only specified persons owe a fiduciary duty to HMO enrollees and, then, only if such persons collect, disburse, or invest funds in connection with the activities of the Texas HMO. The evidence in the record on appeal does not establish that Gellert, acting as a director of the Texas HMO, or Jansen, acting as the secretary of the Texas HMO, engaged in any receiving, collection, disbursement, or investment activities of funds of the HMO prior to the sale. Therefore, neither Gellert nor Jansen owed a fiduciary duty to the HMO enrollees prior to the sale. Accordingly, in the Texas case, Health Net could not be vicariously liable through Gellert and/or Jansen for a fiduciary duty owed to an enrollee prior to the sale as a matter of law.
Section 843.401 is also clear and unambiguous in not imposing a fiduciary relationship on a shareholder of a Texas HMO *560 to enrollees. Prior to the sale, Health Net was not a director, officer, member, employee, or partner of the Texas health maintenance organization. Because Health Net was not one of the types of persons listed in § 843.401, it did not owe a fiduciary duty to the Texas HMO enrollees. Further, because the Texas legislature provided for the fiduciary duty to flow from specified persons to HMO enrollees only, and Texas like Louisiana applies an "actual language used" standard of statutory construction, see Osterberg v. Peca, 12 S.W.3d 31, 38 (Tex.2/3/00), cert. denied, 530 U.S. 1244, 120 S.Ct. 2690, 147 L.Ed.2d 962 (2000), it is arguable that no fiduciary duty flows to HMO employees, providers, and other creditors (who were not provided for). Cf. Ransome v. Ransome, 2001-2361, p. 6-7 (La.App. 1 Cir. 6/21/02), 822 So.2d 746, 753 and the authorities cited therein.
The sale of the Texas HMO stock by Health Net to AmCareco was a valid sale and was not fraudulent. The Texas Regulator specifically found that "[N]o evidence was presented that the acquisition of control [of the HMO] would violate any laws of this State . . .". The Texas plaintiff has failed to prove by a preponderance of the evidence that there was a breach of a fiduciary duty (if one existed) by Health Net connected with the sale of the stock in the Texas HMO.
2. Post-sale fiduciary duties
Because we held in Part IX of this opinion that the sale was valid, the legal relations between the parties were modified after the sale. In this factual posture, after the sale, Health Net was a shareholder in AmCareco and not in the Texas HMO. Health Net was not a director, officer, member, employee, or partner of the Texas HMO. Health Net as a shareholder of AmCareco did not owe a fiduciary duty to the Texas HMO and did not owe a fiduciary duty to the enrollees of the Texas HMO pursuant to Section 843.401 as a matter of law. Further, because Health Net was not in a single business enterprise with AmCareco, it could not be vicariously liable with it on that basis.
B. The Louisiana Case
(Assignment of Error LA-13, Supp-4)
In their Consolidated, Amended and Restated Petition, the Louisiana and Oklahoma Receivers asserted as follows:
78.
Each of the D & O Defendants[[139]], [Health Net], Rosow, Proskauer Rose and PWC aided and abetted breaches of applicable statutes and regulations, breaches of fiduciary duty and fraud by the others and willfully conspired with the others in connection with the wrongful conduct outlined in this Petition.
* * *
81.
* * *
i. From the time the single business enterprise comprised of AmCareCo [sic], AmCare-MGT, AmCare-LA, AmCare-TX and AmCare-OK became insolvent, the D & O Defendants owed a fiduciary duty and a duty of good faith an[d] fair dealing under relevant law to creditors of the HMOs. The D & O Defendants breached these duties in all of the particulars discussed in this Paragraph and otherwise in this Petition.
*561 In the Louisiana and Oklahoma cases the trial court judge, in her August 20, 2007 written reasons for judgment, found Health Net breached a fiduciary duty and stated the following:
(B) How Health Net breached a fiduciary duty that caused damage to the Louisiana and Oklahoma HMOs.
Recognizing that all three plans had been losing money for several years, Health Net refused to wind down operations without delay upon instructions of Dr. Malik Hasan, MD, and CEO, as was being done with the Utah plan; submitted misleading financial statements and other documents to confound the regulators; infused $6 million to meet statutory capitalization and withdrew it thirty days later; swept $8.3 million cash and deposited it in their own coffers causing insolvency immediately thereafter; removed the premium deficiency reserve; and impaired the capital. Became controlling shareholders (47%), in a shell corporation created for the sole purpose of divestiture of the three orphans [sic] HMOs.[[140]]
Health Net argues that it did not owe any fiduciary duties to the HMOs before or after the sale of the HMOs to AmCareco.
The Louisiana Receiver responds Health Net, as a controlling shareholder, owed a fiduciary duty to the corporation, asserting "Health Net breached its fiduciary duty [to the HMOs] by taking an action benefiting the parent corporation (the cash sweep) knowing it would render the HMOs (the subsidiaries) unable to meet their statutory and other legal obligations." "[The fiduciary duties that Health Net owed] required Health Net to assure that the HMOs were being run properly in a manner that did not defraud the creditors or cause them an unreasonable risk of harm, and especially to refrain from engaging in or allowing activities that benefited Health Net at the expense of those creditors."
1. Pre-Sale fiduciary duties
Under the Louisiana Business Corporation Law, a fiduciary is any natural or juridical person "who or which occupies a position of peculiar confidence toward any other natural or juridical person." La. R.S. 12:1 J. The fiduciary's duty includes the ordinary duties owed under tort principles, as well as a legally imposed duty which requires the fiduciary to handle the matter "as though it were his own affair." Federal Deposit Insurance Corp. v. Caplan, 874 F.Supp. 741, 744 (W.D.La. 1995), quoting, Noe v. Roussel, 310 So.2d 806, 819 (La.1975). "The dominant characteristic of a fiduciary relationship is the confidence reposed by one in the other and [a person] occupying such a relationship cannot further his own interests and enjoy the fruits of an advantage taken of such relationship. He must make a full disclosure of all material facts surrounding the transaction that might affect the decision of his principals." Plaquemines Parish Commission Council v. Delta Dev. Co., Inc., 502 So.2d 1034, 1040 (La.1987) (quoting Anderson v. Thacher, 76 Cal.App.2d 50, 172 P.2d 533, 543 (1946)).
Louisiana Revised Statutes 12:91 provides, in pertinent part:
A. Officers and directors shall be deemed to stand in a fiduciary relation to the corporation and its shareholders, and shall discharge the duties of their respective positions in good faith, and with that diligence, care, judgment, and skill which ordinary prudent men would *562 exercise under similar circumstances in like positions; however, a director or officer shall not be held personally liable to the corporation or the shareholders thereof for monetary damages unless the director or officer acted in a grossly negligent manner as defined in Subsection B of this Section, or engaged in conduct which demonstrates a greater disregard of the duty of care than gross negligence, including but not limited to intentional tortious conduct or intentional breach of his duty of loyalty. . . .
B. As used in this Section, "gross negligence" shall be defined as a reckless disregard of or a carelessness amounting to indifference to the best interests of the corporation or the shareholders thereof. (Emphasis added.)[141]
Louisiana Revised Statutes 22:2007 A pertains specifically to Louisiana HMOs and provides:
Any director, officer, or employee of a health maintenance organization who receives, collects, disburses, or invests funds in connection with the activities of such health maintenance organization shall be responsible for such funds in a fiduciary relationship to the health maintenance organization. (Emphasis added.)
Health Net was the sole shareholder of the Louisiana HMO. La. R.S. 22:2007 A is clear and unambiguous in imposing fiduciary responsibilities on the directors, officers, and employees of the Louisiana HMO; it is also clear and unambiguous in not imposing fiduciary duties on a shareholder of the Louisiana HMO. Thus, prior to the sale, Health Net individually did not owe a fiduciary duty to the Louisiana HMO because it was not one of the types of persons listed in La. R.S 22:2007 A.
Moreover, as previously indicated in Part X, Section B2 of this opinion, pursuant to La. R.S. 12:93 B and La. R.S. 12:95, in Louisiana the shareholder of a corporation can be liable only for the tort of fraud. Therefore, Health Net, in its capacity as shareholder, cannot be liable for the tort of breach of a fiduciary duty as a matter of law.
The evidence in the record on appeal indicates that prior to the sale, Gellert, Health Net's CEO, was on the Board of Directors of the Louisiana HMO and Jansen, Health Net's vice president, assistant general counsel and assistant secretary, was secretary of the Louisiana HMO. La. R.S. 22:2007 A is clear and unambiguous in providing that only specified persons owe a fiduciary duty to the HMO and then only if they receive, collect, disburse, or invest funds in connection with the activities of the Louisiana HMO. The record on appeal does not indicate that either Gellert or Jansen engaged in any of these activities prior to the sale. Therefore, neither Gellert nor Jansen owed a fiduciary duty to the Louisiana HMO prior to the sale. Accordingly, in *563 the Louisiana case, Health Net cannot be vicariously liable through Gellert and/or Jansen as a matter of law prior to the sale.
Finally, the sale of the Louisiana HMO stock by Health Net to AmCareco was valid and was not fraudulent. The Louisiana Regulator approved the sale stating that the acquisition was "in the best interest of the policyholders and the citizens" of this state. The Louisiana Regulator has failed to prove by a preponderance of the evidence that there was a breach of a fiduciary duty (if one existed) by Health Net connected with the sale of the Louisiana HMO.
2. Post-Sale fiduciary duties
Considering we held in Part IX of this opinion that the sale was valid, the legal relations between the parties were modified when the sale occurred. In this factual posture, Health Net is a shareholder in AmCareco and not in AmCare-LA. Health Net is not a director, officer, or employee of AmCare-LA. As provided for in La. R.S. 22:2007 A, Health Net as a shareholder of AmCareco did not owe a fiduciary duty to AmCare-LA as a matter of law.
C. The Oklahoma Case
(Assignment of Error OK-13)
1. Pre-Sale fiduciary duties
"Under Oklahoma law, a fiduciary relationship exists whenever trust is placed by one person in the `integrity and fidelity' of another." FDIC v. UMIC, Inc., 136 F.3d 1375 (C.A.10 [Okla.] 1998), cert. denied, 525 U.S. 962, 119 S.Ct. 404, 142 L.Ed.2d 328 (1998), quoting In re Estate of Beal, 1989 OK 23, ¶ 15, 769 P.2d 150, 154. A fiduciary relationship "is not confined to any specific association of parties" and "[n]o precise language can define the limits of the relation." Beal at ¶ 15, 769 P.2d at 155, quoting In re Null's Estate, 302 Pa. 64, 153 A. 137 (1930). In some cases, the relationship "is a conclusion of law; in others . . . it is a question of fact to be established by the evidence." Id.
It is well settled that directors of a corporation owe a fiduciary duty to the corporation and its stockholders under the common law in Oklahoma. Wilson v. Harlow, 860 P.2d at 798. Oklahoma cases refer to a triad of fiduciary duties owed by directors: due care, loyalty, and good faith. Beard v. Love, 173 P.3d 796, 804 (Okla.Civ.App.Div.2, 8/28/07) (citing Emerald Partners v. Berlin, 787 A.2d 85, 90 (Del.Supr.11/28/01)). These duties, however, do not extend to creditors of the corporation. Resolution Trust Corp. v. Greer, 911 P.2d 257, 264-65 (Okla. 1995).
36 OKLA.ST.ANN. § 6906 provides, in pertinent part:
A director, officer, employee or partner of a health maintenance organization who receives, collects, disburses or invests funds in connection with the activities of the organization shall be responsible for the funds in a fiduciary relationship to the organization. (Emphasis added.)
This language essentially is the same as La. R.S. 22:2007 A. Because this language is essentially the same, it must be construed in the same way and the legal result of that construction must be the same. Section 6906 is clear and unambiguous in imposing fiduciary responsibilities on the directors, officers, employees, and partners of an Oklahoma HMO if they receive, collect, disburse, or invest funds in connection with the activities of the health maintenance organization. The record on appeal does not establish that Gellert or Jansen engaged in any receipt, collection, *564 disbursement, or investment activities of the funds of the HMO prior to the sale.
Section 6906 is also clear and unambiguous in not imposing a fiduciary relationship on a shareholder of an Oklahoma HMO. Prior to the sale, Health Net was not a director, officer, employee, or partner of the Oklahoma health maintenance organization. Because Health Net was not one of the types of persons listed in § 6906, it did not owe a fiduciary duty to the Oklahoma HMO.
Finally, review of the evidence in the record shows that as a matter of fact, as well as law, the existence or breach of a fiduciary duty between the Oklahoma HMO and Health Net has not been proven by a preponderance of the evidence.
2. Post-Sale fiduciary duties
After the sale, Health Net was a shareholder in AmCareco, Health Net was not a shareholder in the Oklahoma HMO, and Health Net was not a director, officer, employee, or partner of the Oklahoma HMO. Health Net as a shareholder of AmCareco did not owe a fiduciary duty to the Oklahoma HMO as a matter of law or fact.
D. Conclusion
These assignments of error have merit.
XIII. LIABILITY FOR VIOLATION OF THE TEXAS INSURANCE CODE
A. The Texas Case
(Assignments of Error TX-16, TX-25)
In her First Supplemental and Amending Petition in Intervention, the Texas Receiver asserted as follows:
42. During the period in question, . . . Health Net [was a] person . . . engaged in the insurance business. [Health Net] violated Tex. Ins.Code Art. 21.21 § 4(1), § 4(2), § 4(5)(a) and (b), and § 4(11). They further violated Article 21.21 through their violation of § 17.46(b)(24) of the Texas Business & Commerce Code. . . . Each of the . . . defendants are "persons" within the meaning of Art. 21.21 § 16(a) who engaged in the prohibited practices and each such Defendant controlled the insurance companies within the meaning of Art. 21.49-1(c) and § 823.005 of the Texas Insurance Code.
The jury in the Texas case found Health Net had knowingly engaged in an "unfair or deceptive act or practice that was the proximate cause of damage to the Texas HMO, or its creditors."
On appeal, Health Net argues:
[T]he Receivers did not even attempt to establish that Health Net committed any such acts when it operated the HMOs before the 1999 AmCareco sale. They never showed that the HMOs prepared or filed any false statements or engaged in any false advertising during Health Net's period of pre-sale control . . . [,] made no serious attempt to establish that Health Net committed any such acts in connection with AmCareco's efforts to obtain regulatory approval for the proposed sales . . . [and] failed to show any violation based on post-sale activity . . . because AmCareco, not Health Net, owned and operated the HMOs after the sale.
The Texas Insurance Code Article 21.21 provides, in pertinent part:
Unfair Methods of Competition and Unfair or Deceptive Acts or Practices Defined
Sec. 4. The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance:
*565 (1) Misrepresentations and False Advertising of Policy Contracts. Making, issuing, circulating, or causing to be made, issued or circulated, any estimate, illustration, circular or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the dividends or share of the surplus to be received thereon, or making any false or misleading statements as to the dividends or share of surplus previously paid on similar policies, or making any misleading representation or any misrepresentation as to the financial condition of any insurer, or as to the legal reserve system upon which any life insurer operates, or using any name or title of any policy or class of policies misrepresenting the true nature thereof, or making any misrepresentation to any policyholder insured in any company for the purpose of inducing or tending to induce such policyholder to lapse, forfeit, or surrender his insurance;
(2) False Information and Advertising Generally. Making, publishing, disseminating, circulating or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, an advertisement, announcement or statement containing any assertion, representation or statement with respect to the business of insurance or with respect to any person in the conduct of his insurance business, which is untrue, deceptive or misleading;
. . . .
(5) False Financial Statements, (a) Filing with any supervisory or other public official, or making, publishing, disseminating, circulating or delivering to any person, or placing before the public, or causing directly or indirectly, to be made, published, disseminated, circulated, delivered to any person, or placed before the public, any false statement of financial condition of an insurer with intent to deceive;
(b) Making any false entry in any book, report or statement of any insurer with intent to deceive any agent or examiner lawfully appointed to examine into its condition or into any of its affairs, or any public official to whom such insurer is required by law to report, or who has authority by law to examine into its condition or into any of its affairs, or, with like intent, wilfully omitting to make a true entry of any material fact pertaining to the business of such insurer in any book, report or statement of such insurer;
. . . .
(11) Misrepresentation of Insurance Policy. Misrepresenting an insurance policy by:
(a) making an untrue statement of material fact;
(b) failing to state a material fact that is necessary to make other statements made not misleading, considering the circumstances under which the statements were made;
(c) making a statement in such manner as to mislead a reasonably prudent person to a false conclusion of a material fact;
(d) making a material misstatement of law; or
(e) failing to disclose any matter required by law to be disclosed, including a failure to make disclosure in accordance with another provision of this code.
*566 The purpose of Article 21.21 "is to regulate trade practices in the business of insurance by defining, or providing for the determination of, all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined." (Emphasis added.) Tex. Ins.Code art. 21.21 § 1(a); Dagley v. Haag Engineering Co., 18 S.W.3d 787, 792 (Tex.App.-Houston 3/23/00). Article 21.21 of the Texas Insurance Code creates a cause of action for injuries caused by practices declared to be "unfair or deceptive" in section 4 of Article 21.21. The action may be maintained against "the person or persons engaging in such acts or practices." Tex. Ins.Code art. 21.21 § 16. For purposes of Article 21.21, the term "person" is defined as "any individual, corporation, association, partnership, reciprocal exchange, inter-insurer, Lloyds insurer, fraternal benefit society, and any other legal entity engaged in the business of insurance, including agents, brokers, adjusters and life insurance counselors." (Emphasis added.) Tex. Ins. Code art. 21.21, § 2(a).
The Texas Supreme Court considered who is a "person" under Article 21.21 in Liberty Mutual Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 485 (Tex. 1998). The term "person" was held broad enough to include individual employees who "engage in the business of insurance" but not "an employee who has no responsibility for the sale or servicing of insurance policies and no special insurance expertise, such as a clerical worker or janitor." Liberty Mutual Ins. Co., 966 S.W.2d at 486.
As previously indicated, the rules for interpretation of Texas laws are substantially the same as those in Louisiana. Article 21.21, § 2(a) is clear and unambiguous in providing that a corporation and its agents, brokers, and adjusters can be persons subject to liability for engaging in an unfair or deceptive act or practice as defined in § 4 of the Article. Before the sale of the stock of the HMOs to AmCareco, Health Net was the parent corporation of a wholly-owned subsidiary, the Texas HMO. The Texas HMO was the "entity engaged in the business of insurance." Health Net was not a person engaged in the business of insurance. As discussed in Part VI, Section D2c of this opinion, as a matter of law, Article 21.21 does not apply to Health Net as a shareholder of the Texas HMO.
After the sale of the stock of the HMOs to AmCareco, Health Net was a shareholder of AmCareco which was the new parent corporation of a wholly-owned subsidiary that "engaged in the business of insurance." As such, Article 21.21 does not apply to Health Net.
B. The Louisiana and Oklahoma Cases
(Assignments of Error LA-11, LA-12, OK-11, OK-12, LA-Supp-5e and OK-Supp-5e)
Health Net argues that Article 21.21 "has no conceivable application to . . . the Louisiana or Oklahoma HMOs, which did no business in Texas."
As we held in Part V of this opinion, Louisiana law applies in the action brought by the Louisiana Receiver and/or the Louisiana Commissioner in a Louisiana court, unless for a particular issue, the totality of the circumstances in an exceptional instance indicates that the policies of another state would be more seriously impaired than those of this state if the law of that state was not applied to that particular issue. We also held that Oklahoma's law should be applied to the action brought by the Oklahoma Receiver.
The Texas Insurance Code clearly and unambiguously states its purpose is to *567 "regulate trade practices in the business of insurance . . . in [Texas]." Tex. Ins.Code art. 21.21 § 1(a). There is no serious impairment of this Texas law by not applying it in the Louisiana and Oklahoma actions. Accordingly, we find no basis for the application of Article 21.21 to these Louisiana and Oklahoma actions.
C. Conclusion
These assignments of error have merit.
XIV. LIABILITY FOR CONSPIRACY
A. The Texas Case
(Assignments of Error TX-15, TX-18, TX-24)
In her First Supplemental and Amending Petition in Intervention, the Texas Receiver asserted as follows:
20. The Control Group the Officers and Director Defendants, and HealthNet [sic], Proskauer Rose, Stewart Rosow[,] and PricewaterhouseCoopers [sic] each agreed to continue to operate AmCare-TX, AmCare-OK[,] and AmCare-LA even thought each of those entities were insolvent hoping to improve the cash flow of the HMOs with the goal to sell them at a profit, which would benefit each of the conspirators or their principals. Thus conspiracy was carried forward by, among other illegal acts, filing false quarterly financial statements with the regulators in the applicable states, and by defrauding the employees, employers[,] and healthcare providers who dealt with AmCare-TX, AmCare-OK[,] and AmCare-LA. Specifically, they failed to disclose to these people and entitles material facts within their knowledge, when they knew that the employers, employees[,] and healthcare providers were ignorant of those facts and did not have an equal opportunity to discover the truth. The control Group and the other conspirators intended to induce these people and entities to pay premiums by failing to disclose to them that the HMOs were insolvent and that the conspirators and others were hiding their insolvency by recording worthless accounts receivable as assets on the HMOs' books.
. . . .
37. Each of the defendants agreed to the scheme to operate insolvent HMO's [sic] and to disguise their insolvency by showing on the books of those HMO's accounts receivables from an insolvent parent and insolvent affiliate. Each agreed to the scheme for those insolvent insurance companies to sell health insurance, to accept premiums, to contract with healthcare providers while the insurance companies' insolvency was being hidden from regulators and without disclosing the insolvency to the people and entities these HMO's [sic] did business with.
38. All of the defendants willingly conspired with the others in connection with the wrongful conduct outlined above to commit breaches of fiduciary duty and fraud. (Emphasis added.)
The jury in the Texas case found Health Net conspired with another person, and this proximately caused damage to the Texas HMO or its creditors.
Health Net argues the Receiver did not prove what "`wrong against, or injury on, another' Health Net and Lucksinger specifically intended to `inflict.'" The Texas Receiver responds:
[W]hat parties in a conspiracy do is the proof of what they intended and decided to do. A conspiracy may be established by proof which shows a concert of action or other facts from which the natural inference arises that the wrongful, overt *568 acts were committed in furtherance of a common design, intention, or purpose of the conspirators. The circumstantial evidence of conspiracy here was abundant. (Emphasis in original; citations omitted.)
Conspiracy is a derivative tort in Texas. RTLC AG Products, Inc., v. Treatment Equip. Co., 195 S.W.3d 824, 833 (Tex.App.-Dallas 6/27/06, no pet.). To prevail on her conspiracy claim, the Texas Receiver was required to produce evidence of the following elements: (1) two or more persons, (2) an object to be accomplished, (3) a meeting of the minds on the object or course of action, (4) one or more unlawful, overt acts, and (5) damages as a proximate result. Denson v. Dallas County Credit Union, 262 S.W.3d 846, 850 (Tex.App.-Dallas 8/15/08), reh'g overruled, (9/30/08). For a civil conspiracy to arise, the parties must be aware of the harm or wrongful conduct at the inception of the combination or agreement. Firestone Steel Products Company v. Barajas, 927 S.W.2d 608, 614 (Tex.1996).
Civil conspiracy is a specific intent tort. Triplex Communications, Inc. v. Riley, 900 S.W.2d 716, 719 (Tex. 1995, reh'g overruled, (7/21/95)). The elements of conspiracy require some participation in an underlying tort; if no intentional tort was committed, there is no claim for conspiracy. Firestone Steel Products, 927 S.W.2d at 617; Tilton v. Marshall, 925 S.W.2d 672, 681 (Tex.1996); Trammell Crow Company No. 60 v. Harkinson, 944 S.W.2d 631, 635 (Tex.1997). Proof of a civil conspiracy may be, and usually must be, made by circumstantial evidence, but vital facts may not be proved by unreasonable inferences from other facts and circumstances. Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 858 (Tex.1969).
As a matter of law, a parent corporation cannot conspire with its wholly-owned subsidiary. Copperweld Corp. v. Independence Tube Co., 467 U.S. 752, 777, 104 S.Ct. 2731, 2744-45, 81 L.Ed.2d 628 (1984); Atlantic Richfield Co. v. Misty Products, Inc., 820 S.W.2d 414, 420 (Tex. App.-Hous. [14 Dist.] 1991). Accordingly, as a matter of law, Health Net, as the parent corporation, could not have conspired with its wholly-owned subsidiary, the Texas HMO, before the sale of stock to AmCareco.
As previously discussed, we do not find Health Net liable for any intentional tort either before the sale of the stock of the HMOs to AmCareco or after. If there is no underlying wrong, there can be no conspiracy. Tilton, 925 S.W.2d at 681.
B. The Louisiana Case
(Assignments of Error LA-10, LA-Supp-8)
In their Consolidated, Amended, and Restated Petition, the Louisiana and Oklahoma Receivers asserted as follows:
28.
[Health Net] and the D & O Defendants therefore conspired in and agreed upon a plan or scheme to make the subsidiaries look better capitalized than they actually were, in order to mislead the respective regulators. Specifically, [Health Net] loaned $2.3 Million in cash to the Louisiana HMO, $2.9 Million in cash to the Oklahoma HMO, and $3.3 Million in cash to the Texas HMO in March of 1999 on a very short-term basis, but the transfers were not booked as loans. Rather, these cash infusions were booked as capital contributions and were deliberately made to appear as paid in capital on the quarterly financial statements ending March 31, 1999. These quarterly financial statements, *569 which materially misrepresented the true nature of the capitalization of the HMOs as of that time, were then submitted to the respective regulators for their consideration in deciding whether to approve the proposed sale to AmCareCo [sic]. [Health Net] and the D & O Defendants, however, had planned and schemed in advance that the amounts detailed in this paragraph would be transferred back to [Health Net] immediately after the sale of the HMO subsidiaries.
. . . .
77.
The D & O Defendants, [Health Net], Rosow, Proskauer Rose and PWC agreed to and conspired in a scheme to operate insolvent HMOs and to disguise the insolvency by showing on the books of those HMOs accounts receivables from an insolvent parent and insolvent affiliates. Each agreed to the scheme for those insolvent insurance companies to sell health insurance, to accept premiums, to contract with healthcare providers while the insurance companies' insolvency was being hidden from regulators and without disclosing the insolvency to the people and entities these HMOs did business with.
78.
Each of the D & O Defendants, [Health Net], Rosow, Proskauer Rose and PWC aided and abetted breaches of applicable statutes and regulations, breaches of fiduciary duty and fraud by the others and willfully conspired with the others in connection with the wrongful conduct outlined in this Petition.
. . . .
83.
. . . .
f. [Health Net] controlled AmCareCo [sic] and consequently its three HMOs at all relevant times along with the D & O Defendants, and were co-conspirators in or at least jointly negligent in all acts and omissions of the D & O Defendants. (Emphasis added.)
In her judgment, the trial court judge stated that the plaintiff proved that "Health Net, Inc. conspired with other persons which proximately caused damage to the Louisiana HMO or its creditors." In the Louisiana and Oklahoma cases, the trial court judge in her August 20, 2007 written reasons for judgment found Health Net conspired with others to cause damage to the HMOs. The trial judge stated:
Health Net conspired with AmCareco to prolong the impending disaster until it could extract its $2 million put, using the carrot-and-stick approach. Specifically it continued to suggest to skeptics that they might infuse capital. . . .
Health Net conspired with Thomas Lucksinger by installing him as president and CEO of AmCareco and allowing him an exorbitant rate of pay . . . for a period in excess of three years, thereby allowing him to recoup his $1 million investment while enjoying corporate perks that were emoluments of his salary.
Health Net argues:
The Oklahoma and Louisiana Receivers argued in post-trial briefing that Health Net conspired with Lucksinger and AmCareco through the negotiations and execution of the Purchase Agreement to accomplish an unlawful act: creating and operating statutorily insolvent and grossly undercapitalized HMOs. In other words, they contended the parties intended to obtain regulatory approval of what appeared to be a legal transaction, *570 but then immediately employed the cash sweep to render the HMOs statutorily insolvent.
. . . [T]he Receivers introduced no evidence whatsoever that Health Net specifically intended (let alone even understood) the cash sweep would have that effect. The Receivers introduced no direct. . . [or] circumstantial evidence that Health Net intended the cash sweep to render the HMOs statutorily insolvent.
The Louisiana Receiver responds, "Health Net conspired with Tom Lucksinger of AmCareco, at least, to bring about the misleading documentation provided to the regulators and the secret cash sweep."
Conspiracy is not a substantive tort in Louisiana. Louisiana Civil Code Article 2324 A provides that "[h]e who conspires with another person to commit an intentional or willful act is answerable, in solido, with that person for the damage caused by such act." (Emphasis added.) Our Supreme Court has said that this article does not by itself impose liability for a civil conspiracy. Ross v. Conoco, Inc., XXXX-XXXX (La.10/15/02), 828 So.2d 546, 552. Citing Butz v. Lynch, 97-2166, p. 6 (La.App. 1 Cir. 4/8/98), 710 So.2d 1171, 1174, the Louisiana Supreme Court noted that the conspiracy by itself was not the actionable tort under La. C.C. art. 2324. The actionable element of a claim of conspiracy pursuant to Article 2324 pertains to loss distribution and not substantive liability. Accordingly, because Health Net is not liable for a substantive tort, conspiracy has not become an issue in the Louisiana case. In Louisiana the concept of civil conspiracy is only relevant to the distribution of quantum after liability is determined.
C. The Oklahoma Case
(Assignment of Error OK-10)
To Health Net's assignment of error that the trial court judge erred in holding Health Net conspired with AmCareco and Lucksinger, the Oklahoma Receiver responds, "Health Net conspired with Tom Lucksinger of AmCareco, at least, to bring about the misleading documentation provided to the regulators and the secret cash sweep."
Conspiracy is a derivative tort in Oklahoma. In Brock v. Thompson, 1997 OK 127, ¶ 39, 948 P.2d 279, 294, the Oklahoma Supreme Court stated "A civil conspiracy consists of a combination of two or more persons to do an unlawful act, or to do a lawful act by unlawful means. Unlike its criminal counterpart, civil conspiracy itself does not create liability. To be liable[,] the conspirators must pursue an independently unlawful purpose or use an independently unlawful means. There can be no civil conspiracy where the act complained of and the means employed are lawful." Id. (Footnotes omitted; emphasis in original.)
"A conspiracy between two or more persons to injure another is not enough; an underlying unlawful act is necessary to prevail on a civil conspiracy claim." Roberson v. PaineWebber, Inc., 2000 OK CIV APP 17, ¶ 21, 998 P.2d 193, 201 (Citation omitted; emphasis added). For Health Net to be liable for a civil conspiracy, it is necessary that Health Net be liable on an underlying unlawful act alleged by the Receivers. As previously discussed, Health Net is not liable on any of the underlying unlawful acts alleged by the Receivers. With no underlying unlawful act, a conspiracy claim cannot prevail.
D. Conclusion
These assignments of error have merit.
*571 XV. COSTS
A. Facts
In each of the three consolidated district court cases, the trial court rendered judgments which cast Health Net with all costs and provided that the amount of the costs due would be determined at a subsequent rule to tax costs. The record on appeal does not reflect that such a rule has been held. However, the record on appeal contains two other trial court judgments that provide for the allocation and taxing of costs. The first dated October 11, 2005, is certified as a final judgment pursuant to La. C.C.P. art. 1915 by the trial court and dismisses all claims of the Louisiana, Oklahoma, and Texas Receivers in the three actions against M. Lee Pearce, M.D. "with prejudice, and with the parties bearing their own costs." The second is dated October 13, 2005, "is designated a final judgment" and dismisses all claims of the Louisiana, Oklahoma, and Texas Receivers against PWC in the three actions with prejudice and provides that "each party shall pay its own Court costs and attorneys' fees." Each of these judgments was rendered pursuant to a compromise agreement that previously was approved by a court order and judgment. Compromises are nominate contracts provided for in La. C.C. art. 3071 et seq. and are binding on the parties. Further, the record on appeal does not reflect that these judgments dismissing Pearce and PWC have been appealed, and, thus, they are definitive, res judicata, and executory.[142]
B. Conflict of Laws on Costs
As previously discussed in Section V of this opinion, matters of procedure are determined by the law of the forum, i.e., the place where the action is filed. Section 127 of the Restatement (Second) of Conflict of Laws states at Comment a, "The local law of the forum governs, among other things, . . . costs and security for costs." This comment was cited as authority in Standard Reserve Holdings, Ltd. v. Downey, 2004 WL 3316264, p. 7 (Md.Cir.Ct.2004). The Restatement (Second) of Conflict of Laws § 122 notes:
Enormous burdens are avoided when a court applies its own rules, rather than the rules of another state, to issues relating to judicial administration, such as the proper form of action, service of *572 process, pleading, rules of discovery, mode of trial and execution and costs.
But see U.S. v. French Sardine Co., 80 F.2d 325, 326 (C.A.9 1935).
Accordingly, costs herein will be allocated pursuant to the law of Louisiana.
C. Louisiana Law on Costs
Louisiana Code of Civil Procedure Article 1920 provides:
Unless the judgment provides otherwise, costs shall be paid by the party cast, and may be taxed by a rule to show cause.
Except as otherwise provided by law, the court may render judgment for costs, or any part thereof, against any party, as it may consider equitable.
Louisiana Code of Civil Procedure Article 2164 provides:
The appellate court shall render any judgment which is just, legal, and proper upon the record on appeal. The court may award damages for frivolous appeal; and may tax the costs of the lower or appellate court, or any part thereof, against any party to the suit, as in its judgment may be considered equitable.
Louisiana Revised Statutes 13:4521, provides in pertinent part:
A. (1) Except as provided in R.S. 13:5112, R.S. 19:15 and 116, and R.S. 48:451.3, and as hereinafter provided, neither the state, nor any . . . other political subdivision . . . nor any officer or employee of any such governmental entity when acting within the scope and authority of such employment or when discharging his official duties shall be required to pay court costs in any judicial proceeding instituted or prosecuted by or against the state, or any such parish, municipality, or other political subdivision, board, or commission, in any court of this state or any municipality of this state. (Emphasis added.)
Louisiana Revised Statutes 13:5112, provides an exception:
A. In any suit against the state or any department, board, commission, agency, or political subdivision thereof, the trial or appellate court, after taking into account any equitable considerations as it would under Article 1920 or Article 2164 of the Code of Civil Procedure, as applicable, may grant in favor of the successful party and against the state, department, board, commission, agency, or political subdivision against which judgment is rendered, an award of such successful party's court costs under R.S. 13:4533 and other applicable law as the court deems proper but, if awarded, shall express such costs in a dollar amount in a judgment of the trial court or decree of the appellate court. (Emphasis added.)[[143]]
Louisiana Revised Statutes 22:744 provides:
The commissioner of insurance shall not be required to pay any fee to any public officer for filing, recording or in any manner authenticating any paper or instrument relating to any proceeding under this Part [Part XVI, Rehabilitation, Liquidation, Conservation, Dissolution, and Administrative Supervision], nor for services rendered by any public officer for serving any process; but such fees and costs may be taxed as costs against the defendant in the suit by order of the court and paid to such public officer.
As indicated in these statutes, certain governmental entities may be cast with costs only when the action is against them *573 as defendants. In this case, the Louisiana Commissioner and Receiver is a plaintiff and not a defendant and the action is not against him. Further, La. R.S. 13:5112 only applies to the state, or any department, board, commission, or political subdivision; the Commissioner in his capacity as Receiver is not one of these named entities in section 5112. Instead, he is an officer of the State of Louisiana and covered by La. R.S. 13:4521. Jarrell v. Town of New Llano, XXXX-XXXX, pp. 8-9 (La.App. 3 Cir. 12/28/07), 973 So.2d 952, 958-959, writ denied, XXXX-XXXX (La.3/24/08), 977 So.2d 959. The language of La. R.S. 13:5112 is clear and unambiguous and does not apply to the Commissioner in his capacity as a receiver; La. R.S. 13:4521 prevails and costs may not be assessed against him.[144]
The Texas and Oklahoma Receivers have limited sovereign immunity in their respective states. Texas Tort Claim Act, Tex. Civ. Prac. & Rem.Code Ann. §§ 101.001-109; 42 Tex. Jur. 3rd, Government Tort Liability, § 13; 51 OKLA. STAT. ANN. §§ 152.1, 153, and 155; Medina v. State, 871 P.2d 1379 (Okla.1993); BLACK'S, pp. 752-53. But when a state voluntarily enters the courts of another sovereign state as a party plaintiff, it waives its sovereign immunity and subjects itself to liability for costs in the same manner as any other litigant. State ex rel. Reynolds v. Smith, 19 Wis.2d 577, 583-84, 120 N.W.2d 664, 668 (1963); State of North Dakota v. State of Minnesota, 263 U.S. 583, 585, 44 S.Ct. 208, 209, 68 L.Ed. 461 (1924); 81A C.J.S. States § 299, p. 952.
A review of the record on appeal in these matters reveals no definitive determination of the particular costs attributable to each separate action.
It is well settled in Louisiana that a court has great discretion in awarding costs, including expert witness fees, deposition costs, exhibit costs, and related expenses. Gauthier v. Wilson, 2004-2527, pp. 6-7 (La.App. 1 Cir. 11/4/05), 927 So.2d 383, 387, writ denied, 2005-2401 (La.3/31/06), 925 So.2d 1258. The only costs taxable against a litigant are those provided for by positive law. Degruise v. Houma Courier Newspaper Corp., XXXX-XXXX, p. 9 (La.App. 1 Cir. 3/28/02), 815 So.2d 1074, 1081, writs denied, XXXX-XXXX, XXXX-XXXX (La.6/21/02), 819 So.2d 342, 345. La. R.S. 13:4533 provides as follows: "The costs of the clerk, sheriff, witness' fees, costs of taking depositions and copies of acts used on the trial, and all other costs allowed by the court, shall be taxed as costs." (Emphasis added.)
*574 Louisiana Revised Statutes 13:3666 provides:
A. Witnesses called to testify in court only to an opinion founded on special study or experience in any branch of science, or to make scientific or professional examinations, and to state the results thereof, shall receive additional compensation, to be fixed by the court, with reference to the value of time employed and the degree of learning or skill required.
B. The court shall determine the amount of the fees of said expert witnesses which are to be taxed as costs to be paid by the party cast in judgment either:
(1) From the testimony of the expert relative to his time rendered and the cost of his services adduced upon the trial of the cause, outside the presence of the jury, the court shall determine the amount thereof and include same.
(2) By rule to show cause brought by the party in whose favor a judgment is rendered against the party cast in judgment for the purpose of determining the amount of the expert fees to be paid by the party cast in judgment, which rule upon being made absolute by the trial court shall form a part of the final judgment in the cause. (Emphasis added.)
D. Allocation of Costs
The instant matter is one of three actions which were consolidated for purposes of trial on the merits by a ruling by the trial court judge on November 8, 2004. Consolidation of actions pursuant to La. C.C.P. art. 1561 is a procedural convenience designed to avoid multiplicity of actions and does not cause a case to lose its status as a procedural entity. Reed v. Pittman, 257 La. 389, 242 So.2d 554 (1970); Burke v. State Farm Mutual Automobile Insurance Company, 234 So.2d 432 (La. App. 1 Cir.1970); Voth v. American Home Assurance Company, 219 So.2d 236 (La. App. 1 Cir.1969); Darouse v. Mamon, 201 So.2d 362 (La.App. 1 Cir.1967). Consolidation of actions for trial does not procedurally merge the actions for all purposes. Dendy v. City Nat. Bank, 2006-2436, p. 6 (La.App. 1 Cir. 10/17/07), 977 So.2d 8, 11. Procedural rights peculiar to one case are not rendered applicable to a companion case by the mere fact of consolidation; each case must stand on its own merits. Howard v. Hercules-Gallion Co. 417 So.2d 508, 511 (La.App. 1 Cir.1982). For the same reason, within consolidated actions procedural responsibilities peculiar to each action remain distinct and the costs must be allocated accordingly.
Therefore, it is ordered, adjudged, and decreed that the costs that are attributable to Pearce, PWC, and the Louisiana, Oklahoma, and Texas Receivers that have been allocated by the compromises and judgments pertaining to those persons must be determined, allocated, and taxed first in the trial court. Thereafter, the remaining trial court costs shall be determined, allocated, and taxed as follows:
(1) in Nineteenth Judicial District Court Docket Number 499,737, Court of Appeal Docket Numbers XXXX-XXXX-XXXX, XXXX-XXXX-XXXX, and XXXX-XXXX-XXXX, the Texas Receiver and the Oklahoma Receiver each shall be cast for one-half (1/2) of the costs attributable to that action;
(2) in Nineteenth Judicial District Court Docket Number 509,297, Court of Appeal Docket Numbers XXXX-XXXX-XXXX, Health Net shall be cast with one-half (1/2) of the cost attributable to that action and the Texas Receiver and the Oklahoma Receiver each shall be cast with one-fourth (1/4) of *575 the costs attributable to that action; and
(3) in Nineteenth Judicial District Court Docket Number 512, 366, Court of Appeal Docket Numbers XXXX-XXXX-XXXX, XXXX-XXXX-XXXX, and XXXX-XXXX-XXXX, the Texas Receiver and the Oklahoma Receiver each shall be cast with one-half (1/2) of the costs attributable to that action.
In these consolidated actions on appeal in Court of Appeal Docket Numbers XXXX-XXXX-XXXX, XXXX-XXXX-XXXX, and XXXX-XXXX-XXXX, all appellate costs are allocated and taxed as follows: (1) the cost of the transcript shall be allocated twenty percent (20%) to Health Net, forty percent (40%) to the Texas Receiver, and forty percent (40%) to the Oklahoma Receiver, and these amounts shall be determined and taxed in the trial court; and (2) the court costs attributable to this Court are allocated and taxed at the same rates.
After this judgment becomes final and definitive, pursuant to La. C.C.P. arts. 2166 and/or 2167, the trial court judge shall expeditiously proceed to fix and hear a rule to determine, allocate, and tax all costs of these proceedings as provided for herein.
DECREE
For the foregoing reasons, the judgments of the trial court in favor of the Louisiana, Oklahoma, and Texas plaintiffs on all of the tort causes of action herein are reversed and judgment is rendered in favor of Health Net, Inc., and against J. Robert Wooley, Commissioner of Louisiana, Kim Holland, Insurance Commissioner for the State of Oklahoma, and Jean Johnson, Texas Special Deputy Receiver, dismissing all of their petitions asserting tort causes of action with prejudice.[145]
All costs in this action shall be determined, allocated, and taxed as provided for in Part XV of this opinion.
REVERSED AND RENDERED.
*576 APPENDIX 1
*577
*578
*579 APPENDIX 2
*580
*581
*582 APPENDIX 3
*583
*584 APPENDIX 4
*585
*586
*587
*588
*589 APPENDIX 5
*590
*591 ON REHEARING
Before CIACCIO, LANIER and CLAIBORNE, JJ.[1]
PER CURIAM.
The Louisiana, Texas and Oklahoma plaintiffs-appellees, hereinafter referred to as the Receivers, have applied for a rehearing en banc and, in the alternative, a rehearing pursuant to Uniform Rules Courts of Appeal Rules 1-5 and 2-18, respectively.
Rehearing En Banc
The Receivers assert that "[n]umerous important public policy matters that directly affect the regulation of insurance companies and their management are implicated by this decision" and that they are entitled to a rehearing en banc because it is "necessary to promote justice" as provided for in Rule 1-5.
Rule 1-5 specifies that "[w]hen authorized by law, or when the court deems it necessary to promote justice or expedite the business of court, the court may sit ... en banc."[2]
The Receivers have failed to specify in their applications which issues raised involve "public policy matters that directly affect the regulation of insurance companies and their management" or delineate those issues from issues that only pertain to legal and factual issues pertinent to ordinary rehearings. Accordingly, we must try to determine from the "four corners" of their applications what are the "[n]umerous important public policy matters that directly affect the regulation of insurance companies and their management" whose rehearing en banc is "necessary to promote justice."
In Gregor v. Argenot Great Central Ins. Co., XXXX-XXXX, p. 8 (La.5/20/03), 851 So.2d 959, 965, the Louisiana Supreme Court discussed what constitutes "public policy" as follows,
BLACK'S [LAW DICTIONARY (5th ed.1979)] at 1041 defines "public policy" as follows:
That principle of the law which holds that no subject can lawfully do that which has a tendency to be injurious to the public or against the public good. The principles under which the freedom of contract or private dealings is restricted by law for the good of the community. The term "policy," as applied to a statute, regulation, rule of law, course of action, or the like, refers to its probable effect, tendency, or object, considered with reference to the social or political well-being of the state.
In MIRRIAM-WEBSTER'S [COLLEGIATE DICTIONARY (10th ed.1999)] at 901 the word "policy" is defined as "a definite course or method of action selected from among alternatives and in light of given conditions to guide and determine present and future decisions." MIRRIAM-WEBSTER'S at 703 defines "making" as "the act or process of forming, causing, doing, or coming into being." Thus, "policymaking" in the public sector means the planning of a course of action for the social or political well-being of the state. (Emphasis added.)
We have cited the pertinent constitutional provisions, statutory law, common law[3]*592 cases and administrative regulations that provided the public policies pursuant to which we decided the legal relations of the parties, the insurance issues, and the other issues raised herein. In their applications, the Receivers have cited no constitutional provision, statutory law, common law case or administrative regulation that modifies, or otherwise affects, the public policy rules we have cited and applied herein.
Most of the errors asserted by the Receivers involve questions of fact.[4] Fact issues involve evidence questions of credibility, weight and inference. Arceneaux v. Domingue, 365 So.2d 1330, 1333 (La.1978); Canter v. Koehring Co., 283 So.2d 716, 724 (La.1973); Jones v. Harris, XXXX-XXXX, p. 15 (La.App. 4 Cir. 2/2/05), 896 So.2d 237, 246; State in the Interest of Cox, 461 So.2d 658, 660-61 (La.App. 1 Cir.1984), writ denied, 464 So.2d 1375 (La. 1985). Questions of fact are not public policy issues of law. All actions contain questions of fact; however, all actions do not contain questions of law.
The Receivers have failed to show that numerous important public policy matters that directly affect the regulation of insurance companies and their management are implicated by this decision.
Accordingly, these applications for a rehearing en banc are denied.
Rehearing
In their applications for a rehearing, the Receivers refer to several exhibits and various isolated portions of witness testimony contained in the transcript. When considered in the context of the entire record, this evidence is not persuasive.
Accordingly, the applications for rehearing are denied.
COURT OF APPEAL, FIRST CIRCUIT STATE OF LOUISIANA
Re: 2006 CA 1140 C/W
2006 CA 1141 C/W
2006 CA 1142
and
2006 CA 1143 C/W
2006 CA 1144 C/W
2006 CA 1145
and
2006 CA 1158 C/W
2006 CA 1159 C/W
2006 CA 1160
and
2006 CA 1161 C/W
2006 CA 1162 C/W
2006 CA 1163
Wooley v. Lucksinger, et al.
19th Judicial District Court
Suit Number 499,737 c/w
509,297 c/w 512,366
On Application for Rehearing En banc
Rehearing En banc Denied
On Application for Rehearing
Rehearing Denied
/s/ Philip C. Ciaccio
Judge Philip C. Ciaccio[1]
/s/ Walter I. Lanier, Jr.
Judge Walter I. Lanier, Jr.[1]
/s/ Ian W. Claiborne
Judge Ian W. Claiborne[1]NOTES
[1] The Hon. Philip C. Ciaccio, Judge (Retired), the Hon. Walter I. Lanier, Jr., Judge (Retired), and the Hon. Ian W. Claiborne, Judge (Retired), are serving as judges ad hoc by special appointment of the Louisiana Supreme Court.
[2] Even the interrogatories submitted to the Texas jury were under all three District Court Docket Numbers.
[3] The trial court did not render judgments adjudicating the issues in each numbered trial court action individually; instead, the trial court rendered the following four individual judgments: (1) for the Louisiana Receiver on both the contract and tort causes of action under all three District Court Docket Numbers: (2) for the Oklahoma Receiver on the tort causes of action under all three District Court Docket Numbers: (3) for the Texas Receiver on the tort causes of action memorializing the jury verdict on the tort causes of action under all three District Court Docket Numbers; and (4) against the Texas Receiver granting a judgment notwithstanding the verdict (JNOV) in favor of Health Net under all three District Court Docket Numbers. Thus, instead of having four judgments pertaining to three district court docket numbers on appeal, there are four judgments pertaining to twelve District Court Docket Numbers on appeal.
[4] Some testimony and evidence referred to in this opinion pre-date Health Net's name change and identify Health Net as Foundation, Foundation Health System or FHC. For clarity, we will refer to the corporation as Health Net.
[5] The term used to describe the process of gradually lessening the business activity with the intent of bringing the business to an end.
[6] Louisiana, Oklahoma, and Texas each regulate and require licensing to conduct insurance business within their respective states. See La. R.S. 22:4 (By 2008 La. Acts, No. 415, effective January 1, 2009, the Louisiana Insurance Code will be renumbered. The renumbering will not change the substance of the provisions. For the sake of clarity, we will refer to the Louisiana Insurance Code sections as they were numbered prior to the 2009 renumbering.); 36 Okla. Stat. Ann. § 606; V.T.C.A. Ins.Code § 801.051.
[7] In the record, Mr. Nazarenus' name is sometimes spelled Nazarenas.
[8] In the record, Mr. Jhin's name is sometimes spelled Jihn.
[9] Hasan testified that if Lucksinger "gets better contracts" and "controls the business" the HMOs "may in the future, have some value" and this was a reason to take the stock in AmCareco.
[10] This target date was not met.
[11] This target date was not met.
[12] These redemption rights gave Health Net the right to require AmCareco to redeem and purchase the AmCareco preferred stock issued to Health Net at a designated price at a certain point in the future and gave AmCareco the right to redeem and purchase the stock from Health Net at a designated price at a certain point in the future.
[13] In business, a true-up usually means an accounting exercise to balance or compare actual figures against earlier, estimated figures.
[14] A premium deficiency reserve (PDR), or a loss reserve, is an amount set aside for future losses if the premiums received are not sufficient to meet all claims and expenses. Only the State of Texas has a statutory requirement for a loss reserve. V.T.C.A. Ins.Code § 421.001, previously V.A.T.S. Ins.Code, art. 21.39, effective until March 31, 2007.
[15] Because the parties agreed that the money given by Health Net to each of the HMOs was to be returned, these transactions were nominate contracts of non-interest bearing loans and were not donations. La. C.C. arts. 1914 and 2904 et seq.; see also La. C.C. arts. 2891 et seq.; V.T.C.A., Finance Code § 301.002.
[16] It appears from the record that the funds Health Net loaned to the Louisiana HMO in early 1999 were also described as funds necessary to meet minimum statutory capital requirements. See La. R.S. 22:2010. The record is not clear concerning whether the funds Health Net contributed to the Texas HMO in late 1998 and early 1999 were for minimum statutory capital requirements, 1998 V.A.T.S. Ins.Code, art. 20A.13(j), effective April 30, 1999 and renumbered as Tex. Ins. § 843.405 by Tex. Acts 2001, 77th Leg., ch. 1419, § 1, effective June 1, 2003, or statutory loss reserve requirements, V.T.C.A. Ins.Code, § 421.001, previously codified at V.A.T.S. Ins. Code, art. 21.39.
[17] In Oklahoma, HMOs obtain a "regular HMO license;" a Form-A is not used. For purposes of this opinion the license application in Oklahoma will be refereed to as a Form-A.
[18] Galtney testified that he invested $750,000 in AmCareco.
[19] The balance sheets attached to the April 29, 1999 electronic facsimiles by Ms. Conway to the state regulators included under "Current Liabilities" a line item identified as "Restricting/Premium Def." This line item in other versions of the balance sheets was identified as "Restructuring/Premium Def." The evidence shows this was intended to refer to "pre-existing" PDRs.
[20] Betty Patterson, Senior Associate Commissioner for the Financial Department of the Texas Department of Insurance, testified she reviewed the Closing Agreement.
[21] Pursuant to the April 30, 1999 ruling by the Louisiana Commissioner of Insurance approving the acquisition, AmCare-LA was to maintain at all times a minimum "capitol [sic] ... of $4,000,000.00 (Four Million dollars)." But see La. R.S. 22:2010 C.
[22] Pursuant to 36 Okl. St. Ann. § 6913, "Every health maintenance organization licensed before the effective date of this act [November 1, 2003] shall maintain a minimum net worth of the greater of Seven Hundred Fifty Thousand Dollars ($750,000.00)...."
[23] Pursuant to the 1998 V.A.T.S. Ins.Code, effective April 30, 1999, article 20A.13(j) provided, "Notwithstanding any other provision of this section, the minimum surplus for a health maintenance organization authorized to provide basic health care services and having a surplus of less than $1,500,000 shall be as follows:
(1) $700,000 by December 31, 1998...."
[24] An amended quarterly statement was forwarded to LaDOI on September 24, 1999.
[25] Amendments to the original filing were prepared on October 8 and October 19, 1999.
[26] See La. R.S. 22:768.
[27] Hereinafter, for ease of identification, the Commissioner may sometimes be referred to as the Louisiana Commissioner and/or the Louisiana Receiver.
[28] The named defendants in action number 499,737 were Thomas S. Lucksinger, Michael D. Nadler, Stephen J. Nazarenus, Scott Westbrook, Michael K. Jhin, William F. Galtney, Jr., John P. Mudd, Executive Risk Indemnity, Inc., Executive Risk Management Associates, Executive Risk Specialty Insurance Co., Executive Liability Underwriters, Greenwich Insurance Co., AmCareco, Inc., and AmCare Management, Inc. This suit was later amended to add XL Specialty Insurance Co. as a defendant.
[29] Shattuck Hammond is a division of PWC.
[30] Initially, Carroll Fisher, Commissioner of Insurance for the State of Oklahoma, in his capacity as Receiver, was the named plaintiff in the Oklahoma intervention. During the course of the litigation, Daryl English and then Kim Holland were substituted for Carroll Fisher.
[31] The record contains an unsigned order, apparently prepared by counsel for the Louisiana Receiver, which would grant the petitions to intervene by the Oklahoma and Texas Receivers and would grant the Receivers' motion to consolidate the three actions. The record does not contain a signed judgment granting these motions.
[32] We note Health Net's amended answer was filed by electronic facsimile transmission within the ten day delay allowed by La. C.C.P. art. 1151. The record contains an original signed document filed on February 15, 2005, as required by La. R.S. 13:850 B(1).
[33] Settlement documents between the Louisiana Receiver, the Oklahoma Receiver, AmCareCo [sic], Inc., Thomas S. Lucksinger, Stephen J. Nazarenus, Michael D. Nadler, William F. Galtney, Jr., Michael K. Jhin, John P. Mudd, Scott Westbrook, Executive Risk Specialty Insurance Company, Executive Risk Indemnity, Inc., Executive Risk Management Associates, XL Specialty Insurance Company and Greenwich Insurance Company are contained in the record.
Settlement documents between the Louisiana Receiver and PWC are contained in the record.
Settlement documents between the plaintiffs and M. Lee Pearce, M.D. are contained in the record.
The transcript contains a statement by counsel for Proskauer Rose and Rosow that a settlement agreement between his clients and counsel for the Louisiana Receiver had been reached, and signed documents would be submitted to the court. However, the record on appeal contains only unsigned settlement documents between the three Receivers, Proskauer Rose and Stuart Rosow.
Although the Louisiana Receiver's petition contains instructions for service upon defendant Executive Liabilities Underwriters, the record does not contain a return of service or an answer by this defendant.
[34] Our opinion in Wooley v. Foundation Health Corp., et al., District Court Docket Numbers 499,737 c/w 509,297 c/w 512,366, Court of Appeal Docket Numbers XXXX-XXXX-XXXX, attached hereto and handed down this day, considers the issues raised by Health Net in their appeal of the award pursuant to the parental guarantee.
[35] Although the Louisiana and Oklahoma Receivers answered Health Net's appeals, their briefs abandon their answers and ask that the judgments be affirmed.
[36] This judgment is erroneously dated December 6, 2000.
[37] This judgment is erroneously dated December 12, 2000.
[38] The rules for the interpretation of laws in Texas and Oklahoma are substantially the same as those in Louisiana, and, thus, there is no conflict of laws problem to be decided on this issue.
When interpreting statutory language, the Texas Supreme Court looks first and foremost to the plain meaning of the words. American Home Products Corp. v. Clark, 38 S.W.3d 92, 95-96 (Tex.2000); State v. Shumake, 199 S.W.3d 279, 284 (Tex.2006). If the statute is clear and unambiguous, words are applied according to their common meaning. Id. Interpretation should give effect to every word, clause, and sentence. City of Marshall v. City of Uncertain, 206 S.W.3d 97, 105 (Tex.2006). When divining legislative intent, "the truest manifestation" of what lawmakers intended is what they enacted, "the literal text they voted on." Alex Sheshunoff Management Services, L.P. v. Johnson, 209 S.W.3d 644, 651 (Tex. 2006). See also V.T.C.A. Government Code Construction Act § 311.001 et seq.
The Oklahoma Supreme Court recently stated that the cardinal rule of statutory construction is to ascertain the intent of the legislature and if possible give effect to all its provisions. Bed Bath & Beyond, Inc. v. Bonat, 2008 OK 47 ¶ 11, 186 P.3d 952, 955. "A statute must be read to render every part operative and to avoid rendering parts thereof superfluous or useless." Moran v. City of Del City, 2003 OK 57, ¶ 8, 77 P.3d 588, 591. Absent an ambiguity, the intent is settled by the language of the provision itself, and the courts are not at liberty to search beyond the instrument for meaning. In re Protest Against the Tax Levy of Ardmore Independent School No. 19 for Fiscal Year 1997-1998, 1998 OK 43, ¶ 7, 959 P.2d 580. The primary goal of statutory construction is to ascertain and follow the intent of the legislature. Cooper v. State ex rel. Dep't of Public Safety, 1996 OK 49, ¶ 10, 917 P.2d 466. The words of a statute will be given their plain and ordinary meaning unless it is contrary to the purpose and intent of the statute when considered as a whole. Samman v. Multiple Injury Trust Fund, 2001 OK 71, ¶ 11, 33 P.3d 302
[39] Compare La. C.C.P. art. 1636 and La. C.E. art. 103.
[40] The Louisiana Insurance Code is comprised of La. R.S. 22:1-3312. La. R.S. 22:611 et seq. is Part XIV of the Code entitled "THE INSURANCE CONTRACT" and currently comprises La. R.S. 22:611-682. (Pursuant to 2008 La. Acts 415, effective January 1, 2009, the Insurance Code will be renumbered without changing the substance of the provisions. We will identify the statutes by the number utilized before the 2009 renumbering.) Pursuant to La. R.S. 22:2002(7), "[a] health maintenance organization is deemed to be an insurer for the purposes of R.S. 22:213.6 and 213.7, Part XVI, comprised of R.S. 22:731 through 774, Part XXI-A, comprised of R.S. 22:1001 through 1015, and Part XXVI-B, comprised of R.S. 22:1241 through 1247.1, of Chapter 1 of this Title. A health maintenance organization shall not be considered an insurer for any other purpose." (Emphasis added.) Except for La. R.S. 22:657, La. R.S. 22:611 et seq. does not apply to HMOs. Part XVI of the Louisiana Insurance Code pertains to the rehabilitation, liquidation, conservation, dissolution and administrative supervision of "all insurers or persons purporting to be doing an insurance business in this state." La. R.S. 22:732. Part XXI-A pertains to insurance holding companies and Part XXVI-B pertains to insurance fraud.
[41] The record on appeal does not contain a judgment memorializing this trial court interlocutory judgment. See La. C.C.P. art.1914. However, the court minutes for May 9, 2005, reflect the following:
Initially argued was Motion on Issue of Choice of Law filed on behalf of La-Ok Receivers, thereafter submitted to the Court. Whereupon, for Oral Reasons assigned, the Court will apply Texas Law to substantive matters and apply Louisiana Law as to procedural matters.
[42] La. C.C. art. 3515 et seq. was enacted by 1991 La. Acts, No. 923. Section 3 of that Act provides that the "comments in this Act are not part of the law and are not enacted into law by virtue of their inclusion in this Act."
[43] A complete discussion of the effect of the trial court's failure to timely provide written findings of fact and reasons for judgment is contained in Part VII of this opinion.
[44] If the law of Texas is substantially identical to the law of Louisiana, it would not be prejudicial error to apply Texas law rather than the law of Louisiana. The same would be true in the case of a false conflict. Prejudicial error can result only from the application of the wrong law only if there is a true conflict.
[45] In brief and oral argument, the parties agreed that the Louisiana parental guarantee claim was contractual and controlled by Louisiana conventional obligation law. La. C.C. art. 3537, et seq.
[46] La. C.C. arts. 38-46 relative to domicile were amended by 2008 La. Acts, No. 801, effective January 1, 2009.
[47] This is known as the balance billing law. Texas and Oklahoma also have versions of this restriction. V.T.C.A. Ins.Code § 843.361; 36 OKL. ST. § 6913.
[48] Pursuant to Section 11 of 1988 La. Acts No. 515, the comments in the Evidence Code are not part of the law.
[49] The Supreme Court of Oklahoma followed the Cambre case in Benham v. Keller, 673 P.2d 152, 153 (Okla.1983), and held that when the law of another state is not invoked, it will be presumed that the law of the foreign state is the same as that of the forum state, and the law of the forum state will be followed.
[50] All subsequent designations of assignments of error will contain the following abbreviations: LA for assignments made by Health Net in the Louisiana case, LA-Supp. for assignments made by Health Net in supplemental briefs in the Louisiana case, OK for assignments made by Health Net in the Oklahoma case, OK-Supp. for assignments made by Health Net in supplemental briefs in the Oklahoma case, TX for assignments made by Health Net in the original Texas case and TX-Supp. for assignments made by Health Net in supplemental briefs in the Texas case.
[51] Health Net filed 102 requests for jury instructions. They were numbered 1 to 103; numbers 21, 33 and 48 were left blank and two were designated 27.1 and 87.1.
[52] Health Net was first named as a party defendant wherein tort claims were asserted against Health Net in the Louisiana and Oklahoma actions in a Consolidated, Amending, and Restated Petition filed by the Louisiana and Oklahoma Receivers on October 15, 2004.
[53] Comment-1983 (a) for Article 1813 is identical to that for Article 1812.
[54] See, for example, Landeche v. McSwain, 96-0959, p. 5 (La.App. 4 Cir. 2/5/97), 688 So.2d 1303, 1306, writ denied, 97-0557 (La.5/1/97), 693 So.2d 741, for the proper procedure.
[55] A copy of the interrogatories answered by the jury is attached hereto as APPENDIX 1.
[56] Query: If the sale was a sham, what effect did this have on the contracts that AmCareco and/or AmCare-TX had with third persons after April 30, 1999?
[57] The parties did not contest the validity of AmCareco's corporate status.
[58] Although the trial court judge defined gross negligence, malice, and clear and convincing evidence when she instructed the jury about what constituted a fiduciary duty, the interrogatory submitted to the jury on fiduciary duty did not refer to these issues and provided as follows: "5. Do you find that defendant HealthNet, Inc. breached a fiduciary duty that caused damage to the Texas HMO or its creditors?"
[59] Whether Health Net owed any fiduciary duties to AmCareco and its creditors is not at issue in this case because the Texas Receiver did not bring this action on behalf of AmCareco and its creditors.
[60] In Louisiana pursuant to La. R.S. 12:1 L, "`Insolvency' means the inability of a corporation to pay its debts as they become due in the usual course of business."
[61] This statute is similar to La. R.S. 22:2007 A except that the Louisiana law does not apply to a partner, and its duty runs in favor of the HMO instead of the enrollees. In Oklahoma, 36 OKLA. STAT. § 6906 establishes a fiduciary duty running in favor of the HMO by any director, officer, employee, or partner of the HMO who receives, collects, disburses, or invests funds in connection with the activities of the HMO.
[62] Part VI, section B3, of this opinion disposed of the Texas Receiver's claim adversely to her position.
[63] Huggins v. Gerry Lane Enterprises, Inc., 2005-2665, pp. 9-10 (La.App. 1 Cir. 11/3/06), 950 So.2d 750, 757, affirmed on other grounds, 2006-2816 (La.5/22/07), 957 So.2d 127; Watts v. Aetna Cas. & Sur. Co., 574 So.2d 364, 370 (La.App. 1 Cir. 1990), writ denied, 568 So.2d 1089 (La. 1990); cf. La. R.S. 1:9; La. C.C.P. art. 5056; La.C.Cr.P. art. 6; La. Ch.C. art. 108; Gregor v. Argenot Great Cent Ins. Co., XXXX-XXXX, pp. 7-8 (La.5/20/03), 851 So.2d 959, 964-65.
[64] Effective April 1, 2005, Article 21.21 was re-codified in § 541 of the Texas Insurance Code. See Act of June 21, 2003, 78th Leg., R.S., ch. 1274, § 1, 2003 Tex. Gen. Laws 3611. For clarity, in this opinion all references will be to Article 21.21.
[65] V.A.T.S. Ins.Code, Article 21.21 §§ 4(2), 4(5)(a) and 4(5)(b) provide, in pertinent part:
The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance:
....
(2) False Information and Advertising Generally. Making, publishing, disseminating, circulating or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, an advertisement, announcement or statement containing any assertion, representation or statement with respect to the business of insurance or with respect to any person in the conduct of his insurance business, which is untrue, deceptive or misleading;
* * *
(5) False Financial Statements, (a) Filing with any supervisory or other public official, or making, publishing, disseminating, circulating or delivering to any person, or placing before the public, or causing directly or indirectly, to be made, published, disseminated, circulated, delivered to any person, or placed before the public, any false statement of financial condition of an insurer with intent to deceive;
(b) Making any false entry in any book, report or statement of any insurer with intent to deceive any agent or examiner lawfully appointed to examine into its condition or into any of its affairs, or any public official to whom such insurer is required by law to report, or who has authority by law to examine into its condition or into any of its affairs, or, with like intent, willfully omitting to make a true entry of any material fact pertaining to the business of such insurer in any book, report or statement of such insurer....
[66] In Part VI, section B3, of this opinion, this Court disposes of the Texas Receiver's claim adversely to her position.
[67] It apparently is unsettled whether Texas law recognizes a cause of action for "aiding and abetting" separate from a conspiracy claim. Ernst & Young, L.L.P. v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 583, n. 7 (Tex. 2001).
[68] Texas Acts 2003, 78th Leg., ch. 204, substituted "designated" for "joined".
[69] It is arguable that these factual conclusions show intentional rather than negligent misrepresentations.
[70] See Tex. Civ. Prac. & Rem.Code § 41.003(a)(1)(2) and (3) and (b).
[71] The jury answered "Yes" to the question in Interrogatory 2 about whether "any other person or company was at fault." The ambiguity of this question asked with the disjunctive conjunction "or" was clarified by the 0% fault response for "Any other person(s)" in Interrogatory 3. However, there is no jury interrogatory that answers the question of whether the other company's or any other person's fault was a "proximate cause" of the damages. See, for example, Interrogatory 4. Proximate cause is an essential element for finding liability in the Texas case.
[72] Although the trial judge's reasons for judgment were typed in all upper case type, for ease of reading we have replaced the type with lower case.
[73] Proximate cause applies in Oklahoma. Jackson v. Jones, 1995 OK 131, ¶ 8, 907 P.2d 1067, 1072-73.
[74] Conspiracy is a derivative tort in Texas and Oklahoma. In Texas, to succeed on a civil conspiracy claim, a party must offer proof of the following elements: (1) two or more persons, (2) an object to be accomplished, (3) a meeting of the minds on the object or course of action, (4) one or more unlawful, overt acts, and (5) damages as a proximate result. See Tri v. J.T.T, 162 S.W.3d 552, 556 (Tex.2005). It is a derivative tort and, thus, a defendant's liability for conspiracy is dependent upon his participation in an underlying tort for which the plaintiff seeks to hold at least one of the named defendants liable. Preston Gate, LP v. Bukaty, 248 S.W.3d 892, 898 (Tex.App.-Dallas 2008).
In Oklahoma, it is well settled that "[c]ivil conspiracy itself does not create liability." Roberson v. PaineWebber, Inc., 1999 OK CIV APP 17, ¶ 21, 998 P.2d 193, 201. "A conspiracy between two or more persons to injure another is not enough; an underlying unlawful act is necessary to prevail on a civil conspiracy claim." (Emphasis in original.) Id.
[75] La. C.C. art. 24.
[76] In Wooley v. Lucksinger, XXXX-XXXX-XX (La.App. 1 Cir. 5/4/07), 961 So.2d 1228, we referred Health Net's assignments of error pertaining to regulator fault to the merits. However, in Louisiana regulator fault can be a viable issue for purposes of allocation of fault in this appeal. LA. CONST, ART. XII, § 10 and La. R.S. 9:2798.1. Because we find no fault on the part of Health Net, it is unnecessary to address this issue in this opinion.
[77] The judgment in the Louisiana case is attached hereto as APPENDIX 2. The judgment in the Oklahoma case is attached hereto as APPENDIX 3.
[78] It appears that the thirty-day period referred to by the trial court judge is that provided for in Rule 4-3, Uniform RulesCourts of Appeal.
[79] A copy of the reasons are appended to this opinion as APPENDIX 4, and a copy of the trial court's "Reasons for Judgment, Part II" are appended as APPENDIX 5.
[80] Although the trial judge's reasons for judgment were typed in all upper case type, for ease of reading we have replaced the type with lower case.
[81] LA. CONST, of 1921, art. 7, § 43 provided, in pertinent part, "All district judges, in contested civil, other than jury cases, wherein there is a right of appeal, when requested by either party, shall give in writing a finding of facts and reasons for judgment." (Emphasis added.)
[82] 2005 La. Acts, No. 205, § 1 designated the existing paragraphs as paragraphs A and B. In newly designated par. A, "the mailing of the notice of" was inserted preceding "the signing of the judgment".
[83] The common law of Texas and Oklahoma refers to Louisiana's prescription and peremption doctrines as statutes of limitations and repose. See generally Marchesani v. Pellerin-Milnor Corp., 269 F.3d 481 (C.A. 5th Cir. [La.] 2001).
[84] La. R.S. 22:735 B provides as follows,
Notwithstanding any law to the contrary, the filing of a suit by the commissioner of insurance seeking an order of conservation or rehabilitation shall suspend the running of prescription as to all claims in favor of the subject insurer during the pendency of such proceeding. The filing of a suit by the commissioner of insurance seeking an order of liquidation shall interrupt the running of prescription as to such claims from the date of the filing of such proceeding for a period of two years, if an order of liquidation is granted.
[85] The brief of the Oklahoma Receiver on this issue essentially tracks that of the Louisiana Receiver. The Texas Receiver adopted the Louisiana and Oklahoma briefs by reference.
[86] LA. CONST, art. XII, § 13 provides,
Prescription shall not run against the state in any civil matter, unless otherwise provided in this constitution or expressly by law. If peremption is not a species of prescription, and, thus, not provided for in LA. CONST, art. XII, § 13, the result could be catastrophic for the State of Louisiana.
[87] La. C.C. art. 3549 is the Louisiana choice-of-law provision governing liberative prescription. Revision comments 1991 (a) therefore provides, in pertinent part, that "For the purpose of this article, peremption (See La. Civ.Code. Arts 3458-61) (Rev. 1982) is treated as a species of liberative prescription."
[88] The doctrine of jurisprudence constante does not require that the jurisprudence holding that peremption is properly raised in the objection of no cause of action or in a motion for summary judgment be followed. In the civilian system, legislation trumps jurisprudence. La. C.C. arts. 1, 2, 3 and 4; Willis-Knighton Medical Center v. Caddo-Shreveport Sales & Use Tax Comm., XXXX-XXXX, pp. 21, 25-26, 32 (La.4/1/05), 903 So.2d 1071, 1084-1085, 1087-1088, 1091.
[89] A 2005 amendment designated the existing text as paragraphs A and B, and added a third paragraph.
[90] According to the record, AmCareco was authorized to issue Class A Preferred Stock, entitled to cumulative dividends at an annual rate of 6%, Class B Preferred Stock, and Common Stock. The Preferred Stock had a $10.00 par value per share and the Common Stock had a $.01 par value per share. The Class A Preferred Stock was of a higher ranking than the Class B Preferred Stock and the Common Stock and enjoyed a preference in the payment of dividends and entitlement to assets upon liquidation of the company.
[91] Intercompany accounts are reciprocal accounts set up between two related companies. In this instance, all reciprocal credit and debit accounts between Health Net and each of the HMOs would be "settled" or zeroed out.
[92] Redemption rights, referred to as "put" and "call" rights, provide protection against stock value declines and provide potential for profit if the value of the stock increases above a stated amount.
[93] The true-up was a final balance sheet prepared one year after the sale, utilizing the same methodologies used to calculate the estimated balance sheet. The delayed final balance sheet reflected the difference between the estimated figures that were used in calculations at the time of the sale and the actual figures that would only be known at the later date.
[94] "Preemptive rights" protect a shareholder's interest against dilution of either its financial or voting interest. G. Morris & W. Holmes, 7 La. Civ. Law Treatise, Business Organizations, § 28.03, p. 672 (1999). Various methods include prohibiting the issuance of below par stock or providing that a shareholder may purchase additional shares on a pro-rata basis either before others or before the issue of new shares. Id.
[95] See infra note 14.
[96] See La. C.C. art. 3540 Revision Comments-1991 comment (a).
[97] Deloitte & Touche also performed an audit of the Texas health plan for Health Net for the year ending 1998.
[98] There is no assertion by anyone that, as of the date of the memo, a sale had occurred. Rather, it appears that Deloitte & Touche auditors utilized this past-tense perspective, assuming the transaction had occurred as designed in the Stock Purchase Agreement, for ease of examining the proposed transaction.
[99] Even if the transaction technically was not a nominate conventional obligation of sale, it still was a valid innominate contract.
[100] "A loan ... is the furnishing or delivery of anything, usually money ... on the condition or agreement, express or implied, that the thing loaned or its equivalent in kind shall be returned or repaid." 9 C.J.S. Banks and Banking, § 460. Cf. La. C.C. art. 2904 et seq. (La. C.C. art. 2907-Loan for consumption.)
[101] The issue of whether fraud was committed to obtain regulatory approval of the sale will be addressed in Part XI of this opinion.
[102] The trial court reasons do not address the issues of: (1) did Health Net and the HMOs operate as a SBE; and (2) did AmCareco and the HMOs operate as a SBE.
[103] The distinction between the single business enterprise theory and the alter ego theory in Texas is described in Bridgestone Corp. v. Lopez, 131 S.W.3d 670, 682 (Tex.App.-Corpus Christi 2004).
[104] As previously discussed in Part VI, Section Dlb of this opinion, in Article 2.21 piercing the corporate veil is referred to as the alter ego theory and it is doubtful that piercing the corporate veil still will be referred to as the single business enterprise theory in Texas.
[105] See discussion in Fina Oil & Chemical Co. v. AMOCO Production Co., 95-1877 (La.App. 1 Cir. 5/10/96), 673 So.2d 668, writ denied, 96-1446 (La.9/27/96), 679 So.2d 1353.
[106] La. R.S. 12:93 and 12:95 are contained in Part IX "Liability of Directors, Officers, Shareholders and Subscribers" of Chapter 1 "Business Corporation Law" of Title 12 "Corporations and Associations." Pursuant to La. R.S. 1:13 and the rule of statutory construction of Expressio Unius est Exclusio Alterius, headings of Titles, Chapters and Parts of statutes are considered a part of the law. See State, Department of Public Safety & Corrections, 94-1872 at p. 17, 655 So.2d at 302, and the discussion of these authorities in Part VIII, Section A4 of this opinion.
[107] The record reflects that the Louisiana HMO was organized after January 1, 1929.
[108] La.C.C. art. 13.
[109] A corporation can also be vicariously liable for the torts of its employees. La. C.C. art. 2320; and see Baptist Memorial Hosp. System v. Sampson, 969 S.W.2d 945, 947 (Tex. 1998); DeWitt v. Harris County, 904 S.W.2d 650, 654 (Tex. 1995); Baker v. Saint Francis Hosp. 126 P.3d 602, 605 (Okla.2005); Restatement (Third) of Agency § 2.04 (2006).
[110] The asserted under-capitalization of the three HMOs at the time of the sale issues will be discussed in detail in Part XI of this opinion.
[111] The record indicates that at some point in time after the sale AmCareco, AmCare-MGT, and the three HMOs appeared to disregard corporate formalities. As previously indicated in Part II of this opinion, "[D]ocuments reveal that during the business day of July 17, 2001:(1) $1,941,875.65 was transferred from AmCare-LA to AmCareco; (2) $2,829,360.13 was transferred from AmCareco to AmCare-OK; (3) $1,021,075.75 was transferred from AmCare-OK to AmCare-LA; (4) $89,450.76 was transferred from AmCare-TX to AmCare-OK; (5) $462,838.38 was transferred from AmCare-TX to AmCare-LA; (6) $200,000.00 was transferred from AmCare-LA to AmCare-MGT; and (7) $900,000.00 was transferred from AmCare-MGT to AmCareco." This massive commingling or "kiting" of funds between the five corporations indicates that corporate separateness had ceased to exist. LeBlanc v. Opt, Inc., 421 So.2d 984, 989 (La. App. 3 Cir.1982), writs denied, 427 So.2d 438 and 429 So.2d 132 (La.1983); National Bank of Commerce v. Hughes-Walsh Co., 246 So.2d 872, 874 (La.App. 4 Cir.1971).
[112] Although the trial judge's reasons for judgment were typed in all upper case type, for ease of reading we have replaced the type with lower case.
[113] Thus, in 2002, Health Net had a legal contractual right to require AmCareco to redeem Health Net's AmCareco stock and take in lieu thereof the two million dollars secured by the letter of credit.
[114] Vendor financed sales are common in the business community.
[115] When an item on a balance sheet is reversed, it is either changed from an asset to a liability or from a liability to an asset.
[116] See footnote 15 and the authorities cited therein.
[117] The record reflects that a Health Net Staff Accountant referred to the $2.3 million dollar wire transfer as a "capital contribution" and as a "capital infusion."
[118] See the discussion and the authorities cited in Part X, Section Dl of this opinion.
[119] This spreadsheet is the balance sheet referred to in the contract and may be discussed referring to it as the Form-A spreadsheet.
[120] The Texas Receiver also introduced deposition testimony from Patterson.
[121] Willis v. Donnelly was decided after Keller gave her testimony.
[122] This Review was filed in evidence as part of AmCareco's Form-A Application and is marked as Plaintiff's Exhibit 700. See also Exhibit 1200.
[123] The fault that Buttner found with the spreadsheet will be discussed in the next section of this opinion on "The Combined Spreadsheet."
[124] GAAP stands for "Generally Accepted Accounting Principles." These principles are the most commonly accepted accounting principles used by companies to compile their financial statements.
[125] Buttner also used the same financial numbers as the Form-A for all three HMOs for (1) Premiums Receivable, (2) statutory deposits, and (3) Unearned Premiums. For other assets, he used the same numbers for Louisiana and Oklahoma, He used $5,999,151 instead of $5,687,279 for Cash and Equivalents for Texas.
[126] The Side Letter was referred to as the "Letter Agreement" in the Form-A applications.
[127] Even if Item 8 applied to the Letter of Intent, such an error would be harmless because the Stock Purchase Agreement and Side letter control substantively.
[128] Betty Patterson testified she saw the Closing Agreement.
[129] The number 5,755,012 is also on the Form-A spreadsheet, has no item description, appears to be the result of subtracting 2,300,000 from 9,055,012, and is wrong by 1,000,000.
[130] The sum of $8,000,000 was attributed to receivables acquired by AmCare-TX in the AmeriHealth sale.
[131] Villwok stated that he did not see the "smoke and mirrors" memorandum and that if Lucksinger had told him about it he and his company would not have gone forward to help AmCareco.
[132] The trial court judge did not submit an interrogatory to the jury pertaining to negligent misrepresentation, and that is not at issue in the Texas case.
[133] In Rogers v. Meiser, the Oklahoma Supreme Court held that common law fraud must be proved by clear and convincing evidence. As previously indicated in Part X, Section C proof by clear and convincing evidence is a rule of evidence that is controlled by the law of the forum (Louisiana). In Louisiana, fraud may be proved by a preponderance of the evidence.
[134] Greene v. Gulf Coast Bank, 593 So.2d 630 (La. 1992); Bunge Corp. v. GATX Corp., 557 So.2d 1376 (La. 1990); Chiarella v. Sprint Spectrum LP, XXXX-XXXX (La.App. 4 Cir. 11/17/05), 921 So.2d 106, writ denied, 2005-2539 (La.3/31/06), 925 So.2d 1263; Cortes v. Lynch, XXXX-XXXX (La.App. 1 Cir. 5/9/03), 846 So.2d 945.
[135] In its petition, the Texas Receiver identified Lucksinger, Mudd, Pearce, Jhin, Galtney, Rosow, and Health Net as the "Control Group."
[136] The Texas Receiver asserts pursuant to Article 21.49-1, § 2(d), Health Net was a controlling holding company, and the Texas HMO was a controlled insurer. Therefore, Health Net owed a fiduciary duty to the Texas HMO. Article 21.49-1 is entitled "Insurance Holding Company System Regulatory Act" and applies to holding companies in general; § 843.401 specifically applies to Texas HMOs. Assuming that there is any conflict between Article 21.49-1 and § 843.401, and there does not appear to be, pursuant to the general rules of statutory construction, § 843.401 would apply in this case as a specific exception to the general rule of Article 21.49-1. V.T.C.A. Government Code § 311.026(b).
[137] Texas Insurance Code Article 20A.05 § (d), now V.T.C.A. Insurance Code §§ 843.082 and 843.083, provided for the issuance of a certificate to an HMO to engage in business if the Commissioner was satisfied that the HMO was responsible and could be expected to meet its obligations after considering its financial soundness, capital, and deposits of cash or securities. 28 Tex. Admin. Code § 11.1205(a). 28 Tex. Admin. Code § 11.1205(a) provides that the commissioner may disapprove an applicant upon a finding that the financial condition of the applicant might jeopardize the financial stability of the HMO or prejudice the interest of its enrollees.
[138] See Part VI, Section D2a(6),(7) and (8) of this opinion.
[139] In their petition, the Louisiana and Oklahoma Receivers identified Lucksinger, Nadler, Nazarenus, Mudd, Jhin, Galtney, and Pearce as the "D & O Defendants."
[140] Although the trial judge's reasons for judgment were typed in all upper case type, for ease of reading we have replaced the type with lower case.
[141] La. R.S. 12:91 was amended by 1999 La. Acts, No. 1253, § 1, eff. July 12, 1999. Section 3 of the Act provides,
"This Act is curative in nature and is intended to be interpretative of existing law and shall apply to any claim or action pending on its effective date and to any claim arising or action filed on and after its effective date. It is intended to legislatively overrule Theriot v. Bourg, 96-0466, (La. App. 1 Cir. 2/14/97, 691 So.2d 213), insofar as that decision applied a simple negligence standard of care under R.S. 12:91 and failed to apply the business judgment rule, and to apply the same clarified standards to all business organizations, whether incorporated or unincorporated, formed under Louisiana law."
[142] By order signed June 23, 2005, the trial court dismissed with prejudice "all claims in the recovery actions as to AmCareCo [sic], Inc., Thomas S. Lucksinger, Stephen J. Nazarenus, Michael D. Nadler, William F. Galtney, Jr., Michael K. Jhin, John P. Mudd, Scott Westbrook, Executive Risk Specialty Insurance Company, Executive Risk Indemnity, Inc., Executive Risk Management Associates, XL Specialty Insurance Company[,] and Greenwich Insurance Company."
By order signed July 15, 2005, the trial court dismissed with prejudice "all claims in the recovery actions as to Pricewaterhouse-Coopers [sic]."
By order signed October 11, 2005, the trial court dismissed with prejudice "all [claims brought by the plaintiffs in the consolidated actions] against defendant M. Lee Pearce, M.D."
The transcript contains a statement by counsel for Proskauer Rose and Rosow that a settlement agreement between his clients and counsel for the Louisiana Receiver had been reached and signed documents would be submitted to the court. However, the record on appeal contains only unsigned settlement documents between the three Receivers, Proskauer Rose, and Stuart Rosow. The record on appeal does not contain a signed order dismissing any claims against Proskauer Rose or Rosow.
Although the Louisiana Receiver's petition contains instructions for service upon defendant Executive Liabilities Underwriters, the record does not contain a return of service or an answer by this defendant.
[143] LA. CONST. art. XII, § 10.
[144] In Dixon v. Fidelity Fire & Cas. Ins. Co., 93-0014 (La.App. 1 Cir. 3/11/94), 633 So.2d 888, proceedings were brought by the Commissioner of Insurance, concerning a dispute the right to funds placed in escrow pursuant to the terms of a contract of lease. The lease of office space was to an insurance company which was subsequently placed in liquidation. The trial court found the lessor entitled to claim the funds held in escrow, and the trial court cast the Commissioner of Insurance for costs. The Commissioner appealed. This Court noted La. R.S. 22:744 provides that the Commissioner shall not be cast for costs in litigation against an insurance company and that a defendant insurance company can be cast for costs. However, in Dixon, casting the Commissioner with costs in the dispute with the lessor was upheld. Dixon, 93-0014 at p. 3-4, 633 So.2d at 890. The Court did not consider La. R.S. 13:4521 or La. R.S. 13:5112.
In State v. Kitterlin Creek, LLC, XXXX-XXXX, p. 12 (La.App. 3 Cir. 2/5/03), 838 So.2d 926, 933, writ denied, XXXX-XXXX (La.6/6/03), 845 So.2d 1097, and Caddo-Bossier Parishes Port Commission v. Arch Chemicals, Inc., 36,505, p. 9 (La.App. 2 Cir. 10/23/02), 830 So.2d 498, 505, the state and a political subdivision were taxed with costs. These cases are from other Courts of Appeal, are clearly wrong, and we are not obligated to follow them.
[145] Because of our decision herein, it is unnecessary to address the assignments of error pertaining to: (1) regulator fault in the Louisiana case, (2) allocation of fault, (3) mitigation of damages, (4) offset of damages, (5) liability due to gross negligence or malice, (6) liability and excessiveness of exemplary damages, (7) liability and quantum for attorney fees, and (8) liability for treble damages.
[1] The Hon. Philip C. Ciaccio, Judge (Retired), the Hon. Walter I. Lanier, Jr., Judge (Retired), and the Hon. Ian W. Claiborne, Judge (Retired), are serving as judges ad hoc by special appointment of the Louisiana Supreme Court.
[2] The Receivers do not assert that they are entitled to a rehearing en banc as "authorized by law" or to "expedite the business of court."
[3] In some jurisdictions, common law jurisprudence is "authoritative" and is equivalent to statutory law. La. C.E. art. 202 A, Comment (c). In Louisiana, jurisprudence is not law. La. C.C. arts. 1, 2, 3, and 4.
[4] We are unable to determine whether the claim of the Receivers that the "FIDUCIARY DUTY ANALYSIS IS FLAWED" involves a question of law (public policy) or a question of fact. The Louisiana and Texas applications state, "Please refer to Oklahoma's Application regarding [this] issue," and the Oklahoma application states, "Please refer to Louisiana's Application regarding this issue."
[1] The Hon. Philip C. Ciaccio, Judge (Retired), the Hon. Walter I. Lanier, Jr., Judge (Retired), and the Hon. Ian W. Claiborne, Judge (Retired), are serving as judges ad hoc by special appointment of the Louisiana Supreme Court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1593246/ | 45 F.Supp. 984 (1942)
HECKLEMAN
v.
YELLOW CAB TRANSIT CO. et al.
No. 292-D.
District Court, E. D. Illinois.
August 11, 1942.
D. C. Dobbins, of Champaign, Ill., for plaintiff.
Samuel Levin, of Chicago, Ill., for defendants.
LINDLEY, District Judge.
Plaintiff brought this action in the Circuit Court of Champaign County, Illinois, against two non-resident corporations, to recover the value of gloves destroyed while in transit from Champaign, Illinois, to New York. Under the bill of lading, the merchandise was to be carried by "Yellow" to Chicago and thence to New York by the Universal Carloading and Distributing Company. "Yellow," however, delivered the gloves to the Liberty Lines in Chicago to carry to their destination. The loss occurred on the second carrier's line, and plaintiff sues under both the Carmack Amendment, 49 U.S.C.A. § 20(11), and the common law liability of carriers.
The cause was removed upon "Yellow's" petition wherein it was averred that the amount involved exceeds $3,000; that it is a citizen of Oklahoma, and plaintiff of Illinois; that the suit is of civil nature and that the time to plead had not expired. The second defendant, "Liberty," failed to join in the petition and plaintiff, in his motion to remand, contends that the omission is fatal for the reason that all defendants must join.
Where several defendants are jointly sued in the state court, in the absence of a separable controversy, the suit *985 may not be removed unless all defendants join in the petition. Chicago, R. I. & P. R. Co. v. Martin, 178 U.S. 245, 20 S.Ct. 854, 44 L.Ed. 1055; Miller v. Clifford, 1 Cir., 133 F. 880, 886, 5 L.R.A.,N.S., 49; Wright v. Missouri Pac. R. Co., 8 Cir., 98 F.2d 34, 35. An exception exists, however, when the defendant not joining has not been served with process. In such case, a defendant over whom the court has not acquired jurisdiction may be disregarded, and a defendant who has been summoned may remove. Community Bldg. Co. v. Maryland Casualty Co., 9 Cir., 8 F.2d 678; Hane v. Mid-Continent Petroleum Co., D.C., 47 F.2d 244; Wright v. Missouri Pac. R. Co., 8 Cir., 98 F.2d 34; Keenan v. Gladys Belle Oil Co., D.C.Okl., 11 F.2d 418, 421. Obviously the purpose is to permit the defendant served to enjoy a right to which he is entitled under the Acts of Congress and of which he may otherwise be deprived, since it is possible that other defendants may never be served, or at least before the time for filing a petition to remove has expired.
"Yellow" insists, therefore, that it was not necessary for the other defendant to join, as it had not been properly served with process. The record discloses, however, that "Liberty" was served on June 10, 1942, two days before "Yellow" filed its petition, and that the return of the officer showing service was filed in court on June 22, the day the order of removal was entered. On July 10, after removal, "Liberty" moved here to quash the service of process.
"Yellow" failed to disclose in its petition any reason why the other defendant had not joined. In Wright v. Missouri Pac. R. Co., 8 Cir., 98 F.2d 34, 36, of three defendants only two joined in the petition. They omitted all excuses for not joining the third defendant. Because of this defect, the court held the record insufficient to sustain federal jurisdiction. So, here, there was no showing in either record or petition of any reason for not including "Liberty." As the court said in the Wright case: "The petition gave no intimation to plaintiff that the other defendants were claiming to have the right on that ground (that the third defendant was not properly served) to invoke federal jurisdiction without joining their joint co-defendant."
In the language of Judge Van Devanter in Chesapeake & O. R. Co. v. Cockrell, 232 U.S. 146, 151, 34 S.Ct. 278, 279, 58 L.Ed. 544: "The right of removal from a state to a Federal court, as is well understood, exists only in certain enumerated classes of cases. To the exercise of the right, therefore, it is essential that the case be shown to be within one of those classes; and this must be done by a verified petition setting forth, agreeably to the ordinary rules of pleading, the particular facts, not already appearing, out of which the right arises. It is not enough to allege in terms that the case is removable or belongs to one of the enumerated classes, or otherwise to rest the right upon mere legal conclusions. As in other pleadings, there must be a statement of the facts relied upon, and not otherwise appearing, in order that the court may draw the proper conclusion from all the facts, and that, in the event of a removal, the opposing party may take issue, by a motion to remand, with what is alleged in the petition."
The petition to remove is fatally defective in that it failed to include any reason for not including "Liberty" and the record discloses no such reason.
Nor may "Yellow" now amend its petition to correct the defect. The petition and record are amendable to make clear essential averments or jurisdictional facts already shown. Southern Pacific Co. v. Stewart, 245 U.S. 359, 38 S.Ct. 130, 62 L.Ed. 345; Frazier v. Hines, D.C., 260 F. 874; Saldibar v. Heiland Research Corp., D.C. 32 F.Supp. 248; Hall v. Payne, D.C., 274 F. 237; Encyclopedia of Federal Procedure, Sec. 342. An amendment, however, can not be made after removal to the Federal Court, to supply necessary averments, where neither petition nor record shows sufficient grounds for removal (Town of Fairfax v. Ashbrook, D.C., 3 F.Supp. 345, 346; Santa Clara County v. Goldy Machine Co., C.C.N.D.Cal.1908, 159 F. 750; Dinet v. City of Delavan, C.C., 117 F. 978; Dalton v. Milwaukee Mechanics' Ins. Co., C. C., 118 F. 876; Encyclopedia of Federal Procedure, Sec. 342), or set up new grounds for removal. Town of Fairfax v. Ashbrook, supra; Southern R. Co. v. Lloyd, 239 U.S. 496, 36 S.Ct. 210, 60 L.Ed. 402. To allow the amendment would be to change the record. Dalton v. Milwaukee Mechanics' Ins. Co., supra; Crehore v. Ohio & M. Ry. Co., 131 U.S. 240, 9 S.Ct. 692, 33 L.Ed. 144; Santa Clara County v. Goldy Machine Co., supra.
True, defendant does not now rely solely upon diversity of citizenship but claims *986 also that this court has jurisdiction because a federal question is involved. The petition contains no averment that a question as to federal law is presented, but Counts I and IV of the complaint rely upon a cause of action arising under the Carmack Amendment. Inasmuch, says defendant, as I must, in determining whether there are grounds for removal, give weight, not only to the averments of the petition for removal but also to all parts of the record, Missouri, K. & T. R. Co. v. Chappell, D.C.S.D.Okl.1913, 206 F. 688, 694; Wells v. Russellville Anthracite Coal Mining Co., D.C.E.D.Ark.1913, 206 F. 528, 529; Gruetter v. Cumberland Telephone & Telegraph Co., C.C.W.D.Tenn.1909, 181 F. 248, 255; Gillespie v. Pocahontas Coal & Coke Co., C.C.S.D.W.Va.1907, 162 F. 742, 743, I should now deny the motion to remand because the record discloses that plaintiff relies upon a federal law.
Despite this showing of a federal question sufficient to justify removal to the federal court, however, the rule that all joint defendants must join in the petition to remove, or that a single defendant petitioning for removal must disclose valid excuse for the non-joinder of his fellow defendants, necessitates allowance of the motion to remand. Chicago, R. I. & P. R. Co. v. Martin, 178 U.S. 245, 20 S.Ct. 854, 44 L.Ed. 1055; Consolidated Independent School District v. Cross, D.C.N.D.Iowa 1925, 7 F.2d 491, at page 494.
Defendant's motion to amend the petition for removal is denied; the motion to remand is granted. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919167/ | 106 B.R. 470 (1989)
In re E. Reynolds WICKLIFFE, Debtor.
Bankruptcy No. 4-88-00800.
United States Bankruptcy Court, W.D. Kentucky.
April 3, 1989.
Steven S. Crone and Ronald J. Bamburger, Owensboro, Ky., for debtor.
John W. Ames, Louisville, Ky., trustee.
John S. Osborn, Jr. and Joan Lloyd Cooper, Louisville, Ky., for Aetna Life Ins. Co.
Joseph J. Golden, Louisville, Ky., Asst. U.S. Trustee.
*471 MEMORANDUM OPINION
J. WENDELL ROBERTS, Chief Judge.
This case is before the court upon motion of the secured creditor, Aetna Life Insurance Company (hereinafter, "Aetna") to dismiss the debtor's chapter 12 petition for lack of good faith. Exhaustive memoranda in support of and in opposition to the motion have been filed by Aetna and the debtor, respectively. We have reviewed these memoranda, the evidence of record and the authorities cited relative to the parties' positions and conclude that Aetna's motion must presently be overruled.
The salient facts which gave rise to the instant motion developed over a number of years and document a stormy relationship between the debtor and Aetna. Those facts can fairly be summarized as follows. On February 11, 1983 Aetna loaned the debtor the sum of $1,200,000.00, evidenced by a promissory note in that amount which bears only the signature of the debtor. As security for this debt, a mortgage encumbering eight farms located in Muhlenberg County, Kentucky, was granted to and recorded by Aetna by all owners thereof. The debtor was the sole owner of four of the encumbered farms. Of the remaining four, three were owned in their entirety by the debtor's mother, Christine O. Wickliffe. The last farm was property of the estate of J.E. Wickliffe, deceased, an estate which consisted of the debtor, his brother, W.A. Wickliffe, and their mother, Christine. Christine Wickliffe died intestate in June 1985, leaving the debtor and W.A. Wickliffe as the owners of undivided one half interests in the latter four farms. Thus from June 1985 until the time the instant case was commenced, the debtor owned all of four of the farms and an undivided one-half interest in the remaining four farms, each of which was subject to Aetna's mortgage. On November 25, 1988, fifteen days following the debtor's petition for chapter 12 relief, W.A. Wickliffe and his wife, Joetta Wickliffe, conveyed their interests in the latter four farms to the debtor by quit claim deed.
The debtor defaulted on the Aetna loan in July, 1985. Pursuant to the terms of its mortgage, Aetna accelerated the balance due on its note and on November 21, 1985, it filed suit in Muhlenberg Circuit Court, seeking to enforce its lien. After his attempts to negotiate a settlement of Aetna's claim proved unsuccessful, the debtor filed for relief under chapter 11 of the Bankruptcy Code on June 10, 1986, thereby invoking the automatic stay provisions of 11 U.S.C. § 362. On April 25, 1988, the court dismissed the case because the debtor's proposed plan of reorganization failed to satisfy the "cramdown" requirements of 11 U.S.C. § 1129(b)(1). One week later, Aetna renewed its earlier motion for summary judgment in the Muhlenberg Circuit Court action and received a hearing date of May 16, 1988. However on May 11, 1988, the debtor filed a petition for relief under chapter 7, again staying Aetna's foreclosure proceedings.
Aetna thereafter made a motion for relief from the automatic stay and by order entered July 17, 1988, this court sustained the motion. Summary judgment was subsequently granted by the Muhlenberg Circuit Court on August 9, 1988, with the debt then adjudged to have totalled $1,795,131.00 plus accruing interest. On August 24, 1988, we entered an order allowing the debtor to proceed under 11 U.S.C. §§ 506(a) and (d) to avoid Aetna's lien to the extent it exceeded the value of its collateral. By order entered September 14, 1988, following notice and hearing, the value of the eight farms was found to total $813,100.00, with the debtor's interest therein adjudged to be $609,225.00. A discharge of all the debtor's unsecured debt, including the unsecured portion of the debt owed Aetna, was entered by this court on November 1, 1988.
Having previously obtained relief from the automatic stay in the chapter 7 case, Aetna had continued to pursue its state court foreclosure action to the point that the Muhlenberg Circuit Court had scheduled the property to be sold at the courthouse door on November 14, 1988. However the sale did not take place because the debtor filed a third bankruptcy petition, *472 this time under chapter 12, on November 10, 1988, only four days before the scheduled sale. On November 18, 1988, the Muhlenberg Circuit Court ordered Aetna to pay the expenses of the aborted sale, which amounted to $4702.50.
Aetna now asserts that the debtor's course of conduct in filing successive bankruptcy petitions, which closely mirror its state court foreclosure efforts, amounts to bad faith per se, warranting dismissal of the case under the provisions of 11 U.S.C. § 1208(c). That section of the bankruptcy code allows dismissal,
". . . for cause, including
(1) unreasonable delay, or gross mismanagement, by the debtor that is prejudicial to creditors . . . [or]
(9) continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation."
In support of its motion, Aetna cites several theories which we will address, seriatim. Aetna's first argument relates to the $1,500,000.00 debt ceiling on chapter 12 filings, found at 11 U.S.C. §§ 101(17) and 109(f). Because the debtor would not have otherwise fallen within the debt limit for chapter 12 had he not first discharged all unsecured debt in chapter 7, Aetna avers, he has "bootstrapped" his way into chapter 12, a result which appears to contravene Congressional intent in its enactment of the current chapter 12 debt ceiling provisions. This result, Aetna urges, disqualifies the debtor from seeking chapter 12 relief since he could not, but for his earlier chapter 7 discharge, be a chapter 12 debtor. We agree that the current scenario represents a somewhat anomalous outcome of the chapter 7 filing. However, the debtor appears to have met the letter, if not the spirit, of the law as regards his initial eligibility to be a chapter 12 debtor. In our view, use of the bankruptcy code in such a fashion is a practice that impacts most heavily on the issue of whether the debtor's subsequent chapter 12 petition was filed in good faith. Accordingly, while we decline to dismiss the instant case on the ground that the debtor does not qualify to be a chapter 12 debtor, we believe that the debtor's use of chapter 7 to achieve the result found here is a factor we must consider in assessing his good faith as required by 11 U.S.C. § 1225(a)(3).
Good faith is a rather amorphous concept which is nonetheless tightly woven in the fabric of cases filed under chapters 11, 12 and 13. No plan of reorganization may be confirmed under any of those chapters unless the court finds it to be, ". . . proposed in good faith and not by any means forbidden by law." 11 U.S.C. §§ 1129(a)(3), 1225(a)(3) and 1325(a)(3). A bankruptcy court's determination of the bona fides of a plan of reorganization is a finding of fact. Accordingly the court's findings in that regard may not be disturbed on appeal unless they are clearly erroneous. In re Caldwell, 851 F.2d 852 (6th Cir.1988).
It is Aetna's position that the filing of three successive bankruptcy petitions, each within a few days of its prosecution of state court foreclosure proceedings constitutes bad faith per se, placing the case in a stance for immediate dismissal. We cannot agree.
After reviewing the authority cited by the parties, and after further conducting our own research into the matter, we are convinced that the case of In re Caldwell, 851 F.2d 852 (6th Cir.1988) is dispositive of the motion now before us. Although Caldwell was decided under the provisions of chapter 13 and not under chapter 12, the wording of section 1325(a)(3) is identical to that of section 1225(a)(3). As a result, the opinion is persuasive precedent for cases filed under chapter 12. Caldwell is a factually bizarre case from Tennessee which involved certain judgment debts for false arrest, false imprisonment and malicious prosecution which had their genesis in the theft of a plastic "porch Santa." The debtor against whom the judgment had been rendered attempted to discharge the judgment debt in chapter 7. The bankruptcy court, however, determined the debt to be nondischargeable, presumably under 11 U.S.C. § 523(a)(6). Shortly thereafter the debtor moved to reopen his chapter 7 case, convert it to a case under chapter 13 and to *473 pay the judgment creditor approximately one half of the total debt owed. The bankruptcy court allowed reopening and conversion, and subsequently confirmed the debtor's proposed chapter 13 plan. The judgment creditor appealed.
In analyzing the concept of good faith, Judge Boggs stressed that ". . . no one factor should be viewed as being a dispositive indication of the debtors' good faith." Caldwell, at 860. Instead, the court must review the totality of the circumstances in order to decide whether the debtor's plan was proposed in good faith. Judge Boggs enumerated thirteen factors which may be considered, noting however that the list is not all inclusive. Relevant factors to be considered are,
"(1) the amount of the proposed payments and the amount of the debtor's surplus;
(2) the debtor's employment history, ability to earn and likelihood of future increases in income;
(3) the probable or expected duration of the plan;
(4) the accuracy of the plan's statements of the debts, expenses and percentage repayment of unsecured debt and whether any inaccuracies are an attempt to mislead the court;
(5) the extent of preferential treatment between classes of creditors;
(6) the extent to which secured claims are modified;
(7) the type of debt sought to be discharged and whether any such debt is nondischargeable in Chapter 7;
(8) the existence of special circumstances such as inordinate medical expenses;
(9) the frequency with which the debtor has sought relief under the Bankruptcy Reform Act;
(10) the motivation and sincerity of the debtor in Chapter 13 relief;
(11) the burden which the plan's administration would place upon the trustee; . . .
(12) whether the debtor is attempting to abuse the spirit of the Bankruptcy Code and
(13) [the fact that] good faith does not necessarily require substantial repayment of the unsecured claims."
Aetna has cited the case of In re Edwards, 87 B.R. 671, 17 B.C.D. 1029 (Bankr.W.D.Okla.1988) which is factually similar to the case at bar. The bankruptcy court in Edwards considered the issue of good faith in so called "chapter 19" cases, where, as here, a chapter 7 case is closely followed by a chapter 12 filing. In rejecting the argument that "chapter 19" cases constitute bad faith per se, Judge Lindsey held that such successive filings constitute prima facie evidence of bad faith. As such, it then becomes incumbent upon the debtor to come forward with evidence which will affirmatively establish the existence of his good faith. We believe this to be a logical and well-grounded approach to the phenomenon of successive filings. Accordingly we adopt Edwards' reasoning.
We note further that the court in Edwards expressed considerable concern over the effect of "chapter 19" filings in two respects. First the discharge of unsecured debt in chapter 7 tends to undermine the provisions of section 1225(b)(1)(B), which requires submission of all of the debtor's projected disposable income to the plan over a three year period upon objection of an unsecured creditor. Second, the Edwards court also pointed out that "chapter 19" schemes would allow qualification of individuals as chapter 12 debtors whose operations bear little or no resemblance to the family farmer that Congress sought to assist when it enacted the current chapter 12 legislation. We hold similar reservations about "chapter 19" cases and will consider the effect of such filings when the proposed reorganization plan is considered for confirmation.
Aetna has also cited the case of In re Binford, 53 B.R. 307 (Bankr.W.D.Ky.1985) as dispositive of its motion to dismiss. However Binford deals with a debtor's proposed cure of a previously discharged arrearage in a chapter 13 plan, something that the debtor does not seek to accomplish in this case. In addition, while Binford is extremely instructive on the effect of a *474 discharge, it was decided in the context of confirmation, not on an earlier motion to dismiss. We believe that the issues raised by Aetna would be more properly considered at the confirmation hearing.
The final issue we now reach is Aetna's assertion that the quit claim conveyance by W.A. and Joetta Wickliffe of their interest in the encumbered property somehow revives the original debt, rendering the debtor ineligible for chapter 12 relief because his total debt would then exceed the debt ceiling. This argument is without merit as it was the debtor and the debtor alone upon whom personal liability for the note was positioned. Assuming, without deciding, the validity of this conveyance, its only effect would be to increase Aetna's claim against the land to an amount equal to its full value. Under this view of the effect of the conveyance, total debt remains under the chapter 12 debt limit.
This matter will be scheduled for a confirmation hearing at the earliest possible date on the court's calendar. Aetna's motion to recover the cost imposed upon it as a result of the aborted state court sale will also be considered at that time. An order consistent with the views expressed herein will be entered this day. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919170/ | 106 B.R. 198 (1989)
In re A-1 HYDRO MECHANICS CORP., Debtor.
Bankruptcy No. 87-00881.
United States Bankruptcy Court, D. Hawaii.
September 5, 1989.
Richard Kennedy, Honolulu, Hawaii, trustee, pro se.
Gayle J. Lau, Honolulu, Hawaii, for Office of the U.S. Trustee.
Emma S. Matsunaga, Honolulu, Hawaii, for Stanley Yamamoto, President of A-1 Hydro Mechanics Corp. ("Debtor").
Cathy Sekiguchi, for First Hawaiian Bank.
Carol Muranaka, Honolulu, Hawaii, for the U.S.
*199 MEMORANDUM DECISION AND ORDER RE: REIMBURSEMENT OF TRUSTEE'S EXPENSES
JON J. CHINEN, Bankruptcy Judge.
On May 16, 1989, Richard M. Kennedy ("Trustee") filed Trustee's Application for Approval and Confirmation of Interim Reimbursement of Expenses for the period June 1988 through February 1989. An objection to Trustee's Application for Approval and Confirmation of Interim Reimbursement of Expenses was filed by the Office of the United States Trustee on June 1, 1989. An Amended Application was filed by the Trustee on June 2, 1989, a Second Amended Application was filed on July 12, 1989, and a Third Amended Application ("Application") was filed on July 19, 1989.
A hearing was held on the Application on July 28, 1989, at which hearing the Trustee represented himself, Gayle J. Lau, Esq. represented the Office of the U.S. Trustee, Emma S. Matsunaga, Esq. represented Stanley Yamamoto, President of A-1 Hydro Mechanics Corp. ("Debtor"); Cathy Sekiguchi, Esq. represented First Hawaiian Bank and Carol Muranaka, Esq. represented the United States of America.
Following the hearing, the Court took the matter under advisement. Based upon the records in the file, the memoranda submitted and arguments presented, the Court renders this Memorandum Decision.
The Chapter 11 Petition in this case was filed on November 9, 1987. On or about June 12, 1988, at the request of Debtor, the Court converted the case to Chapter 7. Mr. Kennedy was appointed Trustee on or about June 14, 1988.
The Schedules of Assets and Liabilities filed on December 15, 1987 showed total liabilities of $6,953,865.78 and total assets of $5,468,251.72. It is clear that the estate had no equity in the assets. Among the liabilities were $1,210,692.75 owing in taxes and $4,511,528.54 in secured debt owing to First Hawaiian Bank ("Bank"). The Internal Revenue Service ("IRS") and the Bank had liens on all of the assets of Debtor.
The Trustee states that he has two bank accounts with a balance of $90,198.33. He further states that the funds are designated for the two secured creditors, the Bank and the IRS and that the secured creditors have no objection to his request for reimbursement.
In his application, the Trustee requests "the reimbursement by the secured creditors in the amount of $7,619.68 for reasonable, necessary and actual expenses incurred and paid by Applicant (Trustee) in connection with the administration of the estate." In support of his application, the Trustee submitted time sheets showing services rendered by his clerical staff from June 16, 1988 through February 28, 1989. He contends that he is entitled to reimbursement for the amount paid to his clerical staff.
The Trustee bears the burden of proof in all fee matters and reimbursement of costs and expenses. In re Werth, 32 B.R. 442 (Bankr.D.Colo.1983). The Application must contain adequate information to show that the request for reimbursement is reasonable and that the expenses and costs incurred were for the benefit of the estate.
Although the Trustee is entitled to engage a paraprofessional to assist him and have the paraprofessional paid out of the estate, secretarial, stenographic, clerical and routine messenger services are overhead expenses and are not compensable under Section 330(a)(1) or reimbursable under Section 330(a)(2). In re Orthopaedic Technology, Inc., 97 B.R. 596 (Bkrtcy.D. Colo.1989), In re Kreidle, 85 B.R. 573 (Bankr.D.Colo.1988), In re Thacker, 48 B.R. 161 (Bankr.N.D.Ill.1985).
In the instant case, by reviewing the time sheets, it cannot be determined by the Court which were secretarial or clerical services and which were paraprofessional services actually rendered and of value to the estate. The entries as shown by the samples listed below contain inadequate information:
DKS File Max Statement
LKA Phones; Disc. w/various parties; memos
*200 CSY Disc w/RMK; MLW Re General Inf.
LRH Cash Receipts; Call Bank
MLW Cont. Inspection; Review Job Orders; Search for Comp.
LKA To Bank; Phones; Filing
LKA Phones; Phone Calls
LKA Phones; Filing
In fact, the entries appear to be clerical, secretarial or stenographic services. As such, they are part of the Trustee's overhead expenses and are not entitled to reimbursement from the estate.
As the Court stated in In re Orthopaedic Technology, Inc., supra,
Activities such as reviewing mail, making deposits and disbursements and reconciling bank statements appear to be clerical in nature and, absent a more specific showing, should not be separately compensable as professional-type services provided by a paraprofessional.
It is not for the Court to struggle through the time sheets and strive to look for paraprofessional services rendered to justify reimbursements to the Trustee. The time sheets submitted are inadequate and the Court finds that the Trustee has not carried his burden to prove that he is entitled to reimbursement.
The Trustee acknowledges that all of the accounts receivable were secured in favor of the Bank and the IRS and that there was no equity for the estate. Yet, the Trustee states that he did not abandon the accounts receivable to the Bank and the IRS. Instead, the Trustee, without prior approval of the Court, entered into an agreement with the Bank and the IRS that he would collect the accounts receivable for the Bank and the IRS for a total sum of $5,000.00. In effect, the Trustee is requesting the Court to approve the arrangement that he had entered with the IRS and the Bank. The Court declines to do this.
The Trustee states that he is trustee for over 400 cases and that he is extremely busy. Yet, in this case, he made a separate agreement with two secured creditors to work for their benefit, and not for the benefit of the estate. Where the trustee has an agreement that he will be paid for work performed on behalf of the secured creditors, there is a conflict of interest.
The Court does not approve of the Trustee working solely for secured creditors. On June 29, 1988, the Trustee filed a Motion for Authority to Sell Real Property Free and Clear of All Liens and a Motion to Sell Personal Property by auction. However, at the hearing held on July 18, 1988, the Court discovered that there was no equity for the estate and denied the motions, unless the secured creditors contributed funds for the benefit of the unsecured creditors. As a result, on July 21, 1988, both motions were withdrawn and subsequently the real and personal property were abandoned.
The Trustee's duties and responsibilities are to the estate, not to any one particular creditor of the estate. The estate is his "master". When the Trustee agreed to collect the accounts receivable for the IRS and the Bank for $5,000.00, he in effect had two more "masters", the IRS and the Bank. No matter how brilliant and capable a person is, he cannot adequately serve more than one master. In such a situation, there is a conflict on the part of the Debtor.
A trustee is an officer of the Court. He is in a fiduciary capacity to the estate and he must at all times be above reproach. Even the appearance of impropriety should be avoided. And, the Trustee is reminded that all officers of the Court and of the estate, of which the Trustee is one, should strive to keep to a minimum the costs to the estate. In re Orthopaedic Technology, Inc., supra, p. 599.
Because of the conflict on the part of the Trustee and because the time sheets submitted appear to show that the services rendered were part of overhead expenses, the Court denies the Trustee's request for reimbursement.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919177/ | 106 B.R. 21 (1989)
In the Matter Of Rolfe ISAKSON, Margaret Annelise Isakson, Debtors.
Bankruptcy No. 2-88-00242.
United States Bankruptcy Court, D. Connecticut.
October 11, 1989.
*22 Neal Ossen, Hartford, Conn., for Trustee.
Susan King Shaw, Farren and King, New Haven, Conn., for debtors.
MEMORANDUM OF DECISION AND ORDER RE: ENTITLEMENT TO PROCEEDS OF PERSONAL BODILY INJURY CLAIM
ROBERT L. KRECHEVSKY, Chief Judge.
I.
ISSUE
This proceeding concerns the debtors' exemption rights in a postpetition settlement of their prepetition personal injury action amounting to approximately $90,000.00. The issue is raised by way of a pleading filed by the trustee entitled: "Application To Determine Non-Exempt Portion of Personal Injury Claim and Application For Order Of Turnover Of Non-Exempt Portion." The debtors claim that the trustee's application is time-barred. The matter has been submitted on a stipulation of facts and briefs, supplemented by the court's examination of case-file documents.
II.
BACKGROUND
Rolfe Isakson (Rolfe) and Margaret Isakson (Margaret), the debtors, filed a joint chapter 7 petition on March 14, 1988. The debtors' assets listed in their schedules, primarily a mobile home, furnishings and automobiles, were all claimed as exempt. At the meeting of creditors held on April 11, 1988, the debtors first disclosed to the trustee, Neal Ossen, Esq., the existence of a personal injury action filed by them in the Connecticut Superior Court on or about November 18, 1986. Margaret had sustained a broken wrist as a result of a fall on allegedly defective premises. She incurred medical bills totaling $10,259.05 and was left with a 32% permanent disability of her right hand. The debtors, on June 7, 1988, filed amendments to their B-2 schedule (Personal Property) to include as "a contingent and unliquidated claim" a "Pending pers[onal] injury claim (contested liability, value unknown)." They also amended the B-4 schedule (Property claimed as exempt) as follows:
Location, description
and,
so far as relevant
to the
claim of exemption, Specific
statute
Type of present use creating Value claimed
Property of property exemption exempt
Husband Wife
Debtor's right to receive 11 U.S.C. Full Value Full Value
payment on account Sec.
of personal injury 522(d)(11)(D)
and/or compensation
for actual pecuniary
loss.
Debtor's right to receive 11 U.S.C. Full Value Full Value
payment in Sec.
compensation of loss 522(d)(11)(E)
of future earnings of
debtor.
*23 The estate remained open following entry of the debtors' discharges on June 13, 1988. The trustee filed a trustee's account on August 2, 1988, describing the "Status of undisposed assets" as "Trustee is investigating the disposition of a negligence claim." The trustee's subsequent account filed on October 25, 1988 included a similar comment. On December 12, 1988, the trustee wrote to the clerk of the bankruptcy court that he had "been advised that the personal injury claim has been settled and there will be money for the estate." The clerk's office sent to the estate creditors a "Notice of Need to File Proof of Claim Due to Recovery of Assets", which notice also set March 20, 1989 as the last day to file claims. Creditors filed claims totaling $17,511.80 by the bar date.
During January, 1989, the debtors, evidently without any trustee participation, unilaterally settled the negligence action for about $90,000.00. Court approval was not sought for either the settlement amount, the payment of any attorney's fee, or for any other disbursements. For reasons not disclosed by the parties, $23,500.00 of the settlement proceeds was placed in an escrow account at the Bank of New Haven in the name of Sklarz & Early, Trustees for Rolfe and Margaret Isakson. The debtors apparently retained the balance of the monies. The parties, in the memoranda, brief only the question of to whom the money in the escrow account belongs. The stipulation of facts states that "[t]he debtors do not claim that they are entitled to an exemption for actual pecuniary loss."
III.
DISCUSSION
The debtors' memorandum claims the trustee is not entitled to any of the escrowed monies because he "failed to file an objection to the exemption filed by the debtors." Bankruptcy Code § 522(l) states that "[t]he debtor shall file a list of property that the debtor claims as exempt under subsection (b) of this section. . . . Unless a party in interest objects, the property claimed as exempt on such list is exempt."
Bankruptcy Rule 4003, which deals with procedures involving exemption claims, provides in subsection (b):
(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 to the list unless, within such period, further time is granted by the court. Copies of the objections shall be delivered or mailed to the trustee and to the person filing the list and the attorney for such person.
The debtors served their June 7, 1988 amendment to the exemption schedule on the trustee, and, concededly, he never filed an objection to the amended schedule.
Bankruptcy Code § 522(d)(11)(D) allows a debtor to exempt "[t]he debtor's right to receive, or property that is traceable to (D) a payment, not to exceed $7,500 on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent." Section 522(d)(11)(E) exempts "a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor."
It had been held that "there must be a good-faith statutory basis for exemption" in order for a debtor to take advantage of a trustee's failure to object to a claimed exemption. In re Dembs, 757 F.2d 777, 780 (6th Cir.1985). Accordingly, Margaret's *24 claim of "full value" of her § 522(d)(11)(D) exemption on her B-4 schedule must be construed to apply to the statutory limit of $7,500.00.[1] The trustee concedes Margaret's right to her full statutory exemption of $7,500.00, and by failure to object, he did not waive the estate's right to any sum in excess of that limit. As for the debtor's intention to utilize § 522(d)(11)(E), an amendment to the B-4 schedule to make specific the property involved and amount claimed as exempt was required in order to assert a claim of waiver.
The non-specific claim of exemption gives the debtor no rights, legally or practically. . . . [T]he practicalities of bankruptcy administration require that the trustee be advised of the precise items of property in the estate, 11 U.S.C. § 541(a), that the debtor elects to withdraw from the estate. The trustee needs this information in order to judge the validity of the exemption claim and to know what property remains in the estate for purpose of liquidation.
Andermahr v. Barrus (In re Andermahr), 30 B.R. 532, 533 (BAP 9th Cir.1983). Cf. In re Hansen, 101 B.R. 33, 35 (Bankr.N.D. Ind.1988) (there is a strong policy against granting a party relief to which it is not, as a matter of law, entitled); In re Hill, 95 B.R. 293 (Bankr.N.D.N.Y.1988); In re Rollins, 63 B.R. 780, 783 (Bankr.E.D.Tenn. 1986); In re Edmonds, 27 B.R. 468, 469 (Bankr.M.D.Tenn.1983) ("[e]xempting property is not a game of `hide and seek'. . . ."). On the record presented and at this stage of the proceeding, the debtors have already received at least what they were entitled to exempt from the settlement proceeds. The absence of a filed objection to the debtors' amended claim of exemptions does not bar the trustee's application.
IV.
CONCLUSION
The funds contained in the escrow account are determined to be non-exempt property of the estate and payable to the trustee for distribution to creditors. It is
SO ORDERED.
NOTES
[1] "As the personal injury payment exemption does not cover pain and suffering or compensation for actual pecuniary loss, the exemption is designed to cover only payments compensating actual bodily injury, e.g., the loss of a limb. Thus, medical payments are not exempt." 3 King, Collier on Bankruptcy par. 522.20 at p. 522-74. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1646403/ | 9 So.3d 869 (2009)
STATE of Louisiana
v.
Burnell LAWSON.
No. 2008-K-2805.
Supreme Court of Louisiana.
June 5, 2009.
Denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1736812/ | 802 So. 2d 458 (2001)
Timothy SNEED, Appellant,
v.
The STATE of Florida, Appellee.
No. 3D00-3618.
District Court of Appeal of Florida, Third District.
December 19, 2001.
Bennett H. Brummer, Public Defender, and Robert Godfrey, Assistant Public Defender, for appellant.
Robert A. Butterworth, Attorney General, and Roberta G. Mandel, Assistant Attorney General, for appellee.
Before GODERICH, GREEN and SORONDO, JJ.
PER CURIAM.
We affirm Appellant's conviction and sentence for second degree murder on the authority of this Court's decision in State v. Fahner, 794 So. 2d 712 (Fla. 3d DCA 2001). As we did in Fahner, we certify direct conflict with State v. Rutherford, 707 So. 2d 1129 (Fla. 4th DCA 1997), Klossett v. State, 763 So. 2d 1159 (Fla. 4th DCA 2000), and State v. Johnson, 751 So. 2d 183 (Fla. 2d DCA), review granted, 767 So. 2d 461 (Fla.2000).
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1548135/ | 156 F.2d 500 (1946)
THE CITY OF AVALON.
No. 11271.
Circuit Court of Appeals, Ninth Circuit.
June 25, 1946.
As Amended on Denial of Rehearing August 6, 1946.
David A. Fall, of San Pedro, Cal., for appellant.
Lasher B. Gallagher, of Los Angeles, Cal., for appellees.
Before DENMAN, BONE and ORR, Circuit Judges.
DENMAN, Circuit Judge.
This is an appeal from a decree in admiralty denying to Reskusich recovery for food necessary for maintenance during the period of his disability from an injury while on a fishing voyage on the above libeled vessel and holding that libelee owner could deduct from the share of the catch of a fishing season on the vessel of Reskusich's employment the social security and withholding tax. The district court allowed for maintenance only appellant's cost for lodging.
Appellee claims that because while on the vessel appellant paid for his own food, he should not be allowed anything for his meals during his disability, relying on the statement in Calmar Steamship Co. v. Taylor, 303 U.S. 525, 526, 58 S. Ct. 651, 653, 82 L. Ed. 993, that "the maintenance exacted is comparable to that to which the seaman is entitled while at sea." We do not agree. This statement means no more that that an injured man during his disability is to be maintained in no better or worse condition than at sea. The purpose *501 of the historic implied contract[1] to maintain an injured seaman arises from his helplessness during his injury, a right "every court should watch with jealousy" to maintain. Story, J., in Harden v. Gordon, 11 Fed.Cas. 480, No. 6047.
In this trial de novo, appellee offered in evidence the decree in a libel proceeding by appellant against appellee in which appellant was awarded damages for the injury sustained by him, asserting that the libel's claims for recovery were broad enough to cover the maintenance claim urged in this case and hence that appellant could not recover here. Appellee cited Runyan v. Great Lakes Dredge & Dock Co., 6 Cir., 141 F.2d 396. That case holds that if maintenance and cure are actually awarded in a prior proceeding for personal injuries, they will not be awarded a second time in a suit for maintenance and cure. In the instant appeal the district court considered the issue on maintenance and cure and decreed it before deciding the libel for personal injuries. The transcript of the testimony in the personal injury libel shows that maintenance was not there considered or included in the award. There is no merit in this contention of appellee that the maintenance claim now here is res judicata.
We hold that appellant is entitled to a decree for $3.50 per day for his maintenance from December 27, 1943, to June 12, 1944.
Appellant was employed on the vessel on a lay of a percentage of the catch. The agreement also provided that if he were disabled his compensation should not be confined to the catch up to the time of the injury, but should include a share of the catch for the remainder of the season. This was decreed him, less the withholding tax.
Appellant claims that because he ceased employment before the amount of the additional compensation could be determined, it was not earned while he was an employee of the vessel owner and hence it was not wages. There is no merit in this contention. The added amount was earned by his employment up to the day of disability. It was then a fixed obligation of the employer, though undetermined in amount. We affirm the holding of the district court that the compensation was wages within Subdivision (a) of Section 1426 of 26 U.S.C.A., Int.Rev.Code, with reference to the social security tax defining "wages" as follows: "The term `wages' means all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash; * * *."
We order the entry of a decree for increased maintenance, as indicated, and affirm the withholding of the social security and withholding taxes.
NOTES
[1] Cortes v. Baltimore Insular Line, 287 U.S. 367, 53 S. Ct. 173, 77 L. Ed. 368. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1548168/ | 9 B.R. 359 (1981)
In re Andre SPARKMAN, Debtor.
ADMINISTRATOR OF VETERANS' AFFAIRS, Veterans' Administration, and The Lomas & Nettleton Company, Plaintiffs,
v.
Andre SPARKMAN, Defendant.
Bankruptcy No. 80-00033G, Adv. No. 80-0578G.
United States Bankruptcy Court, E.D. Pennsylvania.
March 2, 1981.
*360 Richard J. Stout, Asst. U.S. Atty., Philadelphia, Pa., for plaintiff, Administrator of Veterans' Affairs, Veterans' Administration.
David B. Comroe, Robinson, Greenberg & Lipman, Philadelphia, Pa., for plaintiff, The Lomas & Nettleton Co.
Terris J. Green, Philadelphia, Pa., for defendant/debtor, Andre Sparkman.
Margaret Graham, Philadelphia, Pa., Trustee.
OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The question before us is whether a mortgagee and the Veterans' Administration ("the VA"), to whom the mortgagee assigned its bid at sheriff's sale, are entitled to relief from the automatic stay provisions *361 of § 362(a) of the Bankruptcy Code ("the Code") to permit them to complete foreclosure on premises owned by the debtor. We conclude that the mortgagee and the VA are entitled to the relief sought because the debtor lacks any interest in the foreclosed property since it was sold at sheriff's sale and all acts necessary under Pennsylvania law to divest the debtor of his interest in the property were taken prior to the filing of the debtor's petition under chapter 13 of the Code. We will, therefore, permit the mortgagee and the VA to complete the foreclosure action the only remaining part of which is the ministerial act of having the sheriff record the deed.
The facts of the instant case are as follows:[1] On September 16, 1976, one Willie B. Sparkman executed and delivered a note and mortgage to The Lomas and Nettleton Company ("the mortgagee") on premises at 1819 South 57th Street, Philadelphia, Pennsylvania. That mortgage was duly recorded. Sometime thereafter Willie Sparkman executed and delivered a deed to those premises to his son, Andre C. Sparkman ("the debtor") which deed was recorded on May 7, 1979. There was no formal assumption of the mortgage by the debtor although he testified that he told his father that he would make the payments due thereunder.
From January 1, 1979, no mortgage payments having been made by either Willie Sparkman or the debtor, under the terms of the mortgage the entire principal, interest and costs became due. Accordingly, notice of intention to foreclose was sent by the mortgagee in accordance with Pennsylvania law and the mortgagee instituted a complaint in foreclosure in the Court of Common Pleas of Philadelphia County, against Willie Sparkman, as mortgagor, and against the debtor, as owner of the premises. A default judgment was entered therein in favor of the mortgagee against Willie Sparkman and the debtor on September 5, 1979, in the amount of $11,509.00 and, on that same day, a writ of execution was filed with the prothonotary of Philadelphia County and delivered to the sheriff of that county for service. All other documents required by Pennsylvania law to be filed were also filed at that time. After the appropriate advertisement, and in accordance with law, the sheriff scheduled the premises for sheriff's sale on Monday, November 5, 1979. At the request of Willie Sparkman and the debtor, the sale was postponed until Monday, December 3, 1979. At the sheriff's sale held on that date, the premises were sold to the mortgagee's attorney as attorney on the writ for the sheriff's upset price. On December 12, 1979, the mortgagee made settlement with the sheriff and delivered to him a form of deed, an assignment[2] and a transfer tax affidavit. The sheriff signed the deed on December 17, 1979, and delivered it to the prothonotary who acknowledged it that day and returned it to the sheriff to be recorded.
On January 5, 1980, the debtor filed a petition for an adjustment of his debts under chapter 13 of the Code. The sheriff has since that time refused to record the deed, fearing that such action would be in violation of the automatic stay provisions of § 362(a) of the Code. 11 U.S.C. § 362(a). On October 1, 1980, the mortgagee filed the instant complaint[3] seeking relief from the automatic stay and other relief.[4] After *362 several motions and hearings which included the joinder of the VA as a party plaintiff[5] the merits of that complaint were finally presented at trial on January 27, 1981.
The mortgagee asserts that under Pennsylvania law title had passed from the debtor to the mortgagee once the sheriff's sale was completed and the various documents were signed and filed. It contends that the remaining act that of recording the deed was merely a ministerial act that did not detract from the title which it held (and had assigned to the VA). Therefore, the mortgagee contends that the debtor lacks any interest or equity in the property, thereby entitling the mortgagee to relief from the stay pursuant to § 362(d)(2).[6] Furthermore, the mortgagee contends that the debtor had no equity in the property, even before the sheriff's sale. In support of this contention the mortgagee offered evidence that the debt owed to it was over $11,000 while the value of the property was $9,000, as evidenced by a transfer tax affidavit executed by the attorney for the debtor and Willie Sparkman at the time the property was transferred to the debtor.
In response to the mortgagee's assertions, the debtor contends that the mortgagee is no longer a party in interest since it has assigned its rights in the property to the VA. The debtor also maintains that there was equity in the property (the fair market value being allegedly greater than the mortgage debt) and that the property is necessary for the debtor's effective reorganization.
With respect to the debtor's first contention that the mortgagee is not a party in interest we conclude that it is without merit. Under the statutes and regulations governing VA-guaranteed loans, the mortgagee is required to cooperate with the VA in pursuing their remedies on default of any VA-guaranteed mortgage.[7] We conclude, therefore, that the mortgagee has sufficient interest to entitle it to be a party to the instant complaint. However, even if we were to conclude that the mortgagee did not have such an interest, the VA clearly is a party in interest, as the assignee of the bid at sheriff's sale. The VA is a plaintiff in this complaint and has joined the mortgagee in the request for relief from the stay. Consequently, even if we were to conclude that the mortgagee did not have standing, the remaining plaintiff, the VA, does have standing and the complaint may not be dismissed on that ground.
Although the debtor's other contentions have the sound of validity, his probata fell far short of his allegata. For instance, no evidence whatsoever was offered to establish that the foreclosed realty is necessary for the debtor's effective reorganization. Since the debtor has the burden of proving that element, its absence prevents us from deciding that element in the debtor's favor. Furthermore, on the issue of the debtor's equity in the property, the debtor merely offered the testimony of an employee of the debtor's attorney who had prepared the debtor's chapter 13 petition, schedules and plan. That witness testified that the property had a fair market value of $15,000. However, the witness admitted that she was not a real estate appraiser or even in the real estate business and that her valuation of the property was not based on her personal observation of the property. Instead, she readily admitted that she had *363 based her valuation of the property on purely hearsay evidence. Such evidence is certainly not enough to refute even the miniscule evidence offered by the mortgagee as to the fair market value of the property (the value of $9,000 given on the transfer tax affidavit).
However, even though the mortgagee's evidence on the issue of the fair market value of the property was less than completely overwhelming, we conclude that the mortgagee has nonetheless established by the debtor's own affidavit that the debtor believed the property had no equity.[8] Under Pennsylvania law, the debtor lost all title and interest in the property in question when the mortgagee's attorney bid it in at the sheriff's sale, executed the required documents, and the acknowledged deed was delivered by the prothonotary to the sheriff. See Pa.Stat.Ann. tit. 12, § 2537 (Purdon). Consequently, the debtor had no interest whatsoever in that property when he subsequently filed his petition under chapter 13 of the Code. Therefore, the debtor can have no equity in that property within the meaning of that term in § 362(d)(2), and the mortgagee is entitled thereunder to relief from the stay.
Moreover, in light of the evidence presented and our conclusion that under Pennsylvania law the debtor did not have any interest in the property at the time he filed his petition under chapter 13, we conclude that the automatic stay never applied to acts against that property. Section 362(a) of the Code provides for an automatic stay of all proceedings or acts against the debtor, the debtor's property or property of the estate. It does not stay acts against property which is neither the debtor's nor the estate's. Therefore, the stay did not operate to prohibit the act of the sheriff in recording the deed. This conclusion is supported by the conclusions of the bankruptcy courts in In re Smith, 7 B.R. 106 (Bkrtcy.W. D.N.Y.1980); In re Loubier, 6 B.R. 298 (Bkrtcy.D.Conn.1980); In re Moore, 5 B.R. 449 (Bkrtcy.D.Md.1980); In re Butchman, 4 B.R. 379 (Bkrtcy.S.D.N.Y.1980); In re Bradley, 3 B.R. 313 (E.D.Va.1980).
NOTES
[1] This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
[2] The bid at sheriff's sale was assigned by the mortgagee to the Administration of Veterans' Affairs. The VA had guaranteed the mortgage.
[3] This complaint was filed prior to our opinion in In re DiBona et al., 7 B.R. 798 (Bkrtcy.E.D. Pa.1980), in which we held that the trustee must be joined as a party defendant in complaints for relief from the stay. However, since we conclude below that the debtor did not have an interest in the property at the time he filed his petition under chapter 13, no interest therein passed to the estate and, consequently, the trustee is not a necessary party to the instant complaint.
[4] The mortgagee also requested that the premises be abandoned and, in the alternative, that the debtor's chapter 13 case be dismissed because of the debtor's alleged fraud on the mortgagee in having the property transferred to him.
[5] For a discussion of those motions and hearings, see our discussion in the opinion in the instant case dated December 22, 1980.
[6] (d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (2) of this section, such as by terminating, annulling, modifying, or conditioning such stay
(2) with respect to a stay of an act against property, if
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
11 U.S.C. § 362(d)(2).
[7] See 38 U.S.C. § 1801 et seq. and 38 C.F.R. § 36.4201 et seq.
[8] See note 6 supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/897319/ | 670 N.W.2d 826 (2003)
2003 ND 168
STATE of North Dakota, Plaintiff and Appellee
v.
$17,515.00 IN CASH MONEY, $50.00 in Cash Money, Daniel Olivarez, Defendants and
Alice Olivarez, Defendant and Appellant.
No. 20030008.
Supreme Court of North Dakota.
November 13, 2003.
Sharon Wilson Martens, State's Attorney, Grafton, for plaintiff and appellee.
Henry H. Howe, Howe & Seaworth, Grand Forks, for defendant and appellant.
MARING, Justice.
[¶ 1] Alice Olivarez has appealed from a judgment ordering forfeiture of cash found during execution of a search warrant. We affirm, concluding Olivarez was not entitled to a jury trial on the forfeiture and the trial court did not apply an erroneous standard of proof.
I
[¶ 2] On January 2, 2002, police officers executed a search warrant at the home of Daniel Olivarez, Jr., and Alice Olivarez. Officers found 191 bags of cocaine in an open safe on the dresser in the Olivarezes' bedroom. On the dresser next to the safe was a $50 bill. Officers found $17,515.00 in a backpack located on the bed near the dresser. Subsequent lab tests also found residue of marijuana in the backpack.
[¶ 3] The State instituted forfeiture proceedings, alleging the money was derived from illegal drug transactions. At trial, one of the officers who executed the *827 search warrant testified to the circumstances surrounding the search and the discovery of the money in close proximity to the cocaine. Alice Olivarez testified that the money was not derived from drug transactions, but that $15,000.00 of the money had been a gift from Daniel's father. She further testified she kept the money in the backpack rather than a bank because she was afraid that her creditors could get it if it was in the bank.
[¶ 4] The trial court found that the money was derived from illegal drug transactions and ordered it forfeited to the State. A judgment of forfeiture was entered, and Alice Olivarez appealed.
II
[¶ 5] Olivarez contends the court erred in denying her demand for a jury trial. The State instituted this forfeiture proceeding under N.D.C.C. ch. 19-03.1, which clearly envisions that the matter is to be heard by the court without a jury:
Hearing on contested forfeitureOrder releasing or forfeiting property. If an answer is filed within the time limits in this chapter, the forfeiture proceedings must be set for hearing before the court.... If the court finds that the property is not subject to forfeiture under this chapter, the court shall order the property released to the owner or other person with a legal interest in the property as that person's right, title, or interest appears. The court shall order the property forfeited if it determines that such property or an interest therein is subject to forfeiture.
N.D.C.C. § 19-03.1-36.6.
[¶ 6] Olivarez contends this procedure is unconstitutional, arguing a jury trial is required under N.D. Const. art. I, § 13, which provides: "The right of trial by jury shall be secured to all, and remain inviolate." This provision neither enlarges nor restricts the right to a jury trial, but merely preserves the right as it existed at the time of the adoption of our constitution. Peters-Riemers v. Riemers, 2002 ND 72, ¶ 5, 644 N.W.2d 197; Daley v. American Family Mut. Ins. Co., 355 N.W.2d 812, 814-15 (N.D.1984); City of Bismarck v. Altevogt, 353 N.W.2d 760, 764 (N.D.1984); Union State Bank v. Miller, 335 N.W.2d 807, 808 (N.D.1983); In re R.Y., 189 N.W.2d 644, 651 (N.D.1971). This provision preserves the right to a jury trial in all cases in which it could have been demanded as a matter of right at common law at the time of the adoption of our constitution. Peters-Riemers, at ¶ 5; General Elec. Credit Corp. v. Richman, 338 N.W.2d 814, 817 (N.D.1983); In re R.Y., at 651. The right to a trial by jury as it existed under law at the time of adoption of the constitution is governed in this case by the Compiled Laws of Dakota Territory (1887). See Altevogt, at 764; Peters-Riemers, at ¶ 6.
[¶ 7] At the time of the adoption of our constitution in 1889, no cause of action existed for forfeiture of the proceeds of illegal drug transactions. The 1887 Code provided that a criminal conviction worked no forfeiture of property except in cases of treason or when specifically provided by statute:
No conviction of any person for crime works any forfeiture of any property, except in the cases of any outlawry for treason, and other cases in which a forfeiture is expressly imposed by law.
1887 Compiled Laws of Dakota Territory § 6958. This statutory provision excluding forfeitures unless expressly provided by law remained in effect, with slight variation, until the new criminal code became effective in 1975. See N.D.C.C. § 12-06-28, repealed by 1973 N.D. Sess. Laws ch. 116, § 41.
*828 [¶ 8] The 1887 Compiled Laws also included a provision specifying: "In this territory there is no common law in any case where the law is declared by the codes." 1887 Compiled Laws of Dakota Territory § 2605; see also N.D.C.C. § 1-01-06. Because § 6958 "declared" the law regarding forfeitures for criminal acts, specifically providing forfeiture only in cases of outlawry for treason or when "expressly imposed by law," there was no separate common law of forfeiture for criminal acts.
[¶ 9] Olivarez has not cited, nor have we located, any provision in the 1887 Code imposing a forfeiture for proceeds of illegal drug transactions. The legislature enacted the current provision authorizing forfeiture of money used in illegal drug transactions in 1983. See 1983 N.D. Sess. Laws ch. 256, § 1; N.D.C.C. § 19-03.1-36(1)(h).
[¶ 10] It is axiomatic that, because there was no available action in this state for forfeiture of proceeds from illegal drug transactions at the time the constitution was adopted, there was no right to a jury trial in such an action. The legislature created a new statutory proceeding when, nearly a century after adoption of the constitution, it authorized forfeiture of property, including money, used in illegal drug transactions. We agree with courts in other jurisdictions which have held that, under similar circumstances, there is no constitutional right to a jury trial in a forfeiture proceeding. See Swails v. State, 263 Ga. 276, 431 S.E.2d 101, 103 (1993); State Conservation Dep't v. Brown, 335 Mich. 343, 55 N.W.2d 859, 861-62 (1952); In re Forfeiture of 301 Cass Street, 194 Mich.App. 381, 487 N.W.2d 795, 798 (1992); State v. One 1921 Cadillac Touring Car, 157 Minn. 138, 195 N.W. 778, 780 (1923); State v. Morris, 103 N.C.App. 246, 405 S.E.2d 351, 352-53 (1991); Helms v. Tennessee Dep't of Safety, 987 S.W.2d 545, 547 (Tenn.1999). We agree with the rationale of the Supreme Court of Georgia in Swails, at 103 (citations omitted):
The provision of our State Constitution regarding the right to jury trial "means that it shall not be taken away, as it existed in 1798, when the [first] instrument was adopted, and not that there must be a jury in all cases. New forums may be erected, and new remedies provided, accommodated to the ever shifting state of society." Flint River Steamboat Co. v. Foster, 5 Ga. 194, 207-208 (1848). Obviously, the right to jury trial in drug forfeiture proceedings did not exist in 1798. This is true because the statute authorizing drug forfeiture is a "new remedy" which did not exist at common law, but which was enacted subsequent to 1798 so as to accommodate the "shifting state of society." "[T]here is no state constitutional right to a jury trial with respect to proceedings of statutory origin unknown at the time the Georgia Constitution was adopted." Benton v. Ga. Marble Co., 258 Ga. 58, 66(4), 365 S.E.2d 413 (1988). Since the provisions of OCGA § 16-13-49 create a statutory proceeding which was unknown in 1798, it follows that the General Assembly was authorized to provide for a bench trial in that proceeding and that the trial court in the instant case correctly overruled appellant's challenge to the constitutionality of OCGA § 16-13-49(o)(5) and (p)(6).
[¶ 11] The forfeiture provisions of N.D.C.C. ch. 19-03.1 create a statutory proceeding and new remedies which were unknown at the time our constitution was adopted in 1889. Accordingly, there is no right under N.D. Const. art. I, § 13, to a jury trial in proceedings under the statute.
III
[¶ 12] Olivarez contends the trial court applied an erroneous standard of *829 proof and improperly placed the burden upon her to show that the money was not derived from illegal drug transactions. Olivarez argues the State has the burden to prove by a preponderance of the evidence that the money was derived from illegal drug transactions.
[¶ 13] The legislature has spelled out the applicable standards and burdens of proof in a forfeiture proceeding under N.D.C.C. ch. 19-03.1. Section 19-03.1-36.2, N.D.C.C., provides:
Forfeiture proceeding as civil action Standard of proof. Forfeiture proceedings are civil actions against the property to be forfeited and the standard of proof is a preponderance of the evidence.
The applicable burdens of proof in a contested forfeiture proceeding are enunciated in N.D.C.C. § 19-03.1-36.6:
If an answer is filed within the time limits in this chapter, the forfeiture proceedings must be set for hearing before the court. At the hearing, the state shall establish probable cause for instituting the forfeiture action following which any owner or person with a legal interest in the property to be forfeited who has filed an answer to the complaint has the burden of proving that the property to be forfeited is not subject to forfeiture under this chapter. If the court finds that the property is not subject to forfeiture under this chapter, the court shall order the property released to the owner or other person with a legal interest in the property as that person's right, title, or interest appears. The court shall order the property forfeited if it determines that such property or an interest therein is subject to forfeiture.
[¶ 14] We have previously interpreted the statute as setting forth a two-step process. In State v. One 1990 Chevrolet Pickup, 523 N.W.2d 389, 394 n. 3 (N.D. 1994), we noted that "the government first must show probable cause to institute forfeiture proceedings and then the burden shifts to the claimant." See also Rick Maixner & Sidney Hertz Fiergola, Constitutional Issues in North Dakota Asset Foreclosure Law After Austin v. United States, Alexander v. United States, and United States v. Good Real Property, 70 N.D.L.Rev. 851, 852 (1994) ("Once the government has established probable cause that the asset is forfeitable, the burden shifts to the claimant to prove by a preponderance of the evidence that the property should not be forfeited."). We explained the burden-shifting procedure:
Probable cause is only a minimal, threshold burden. This burden requires the State to establish only that reasonable grounds exist to believe that the property was "probably connected with criminal activity." State v. Rydberg, 519 N.W.2d 306, 308 (N.D.1994), quoting State v. Ringquist, 433 N.W.2d 207, 212 (N.D.1988).... If the State has not proved that there was probable cause to seize [the claimant's] pickup for use in a felony, the case is over, and the pickup must be returned. But this is only the first stage of proof that the trial court must decide in a forfeiture case.
If probable cause for seizure is proven, the trial court still must go to the second stage and weigh the evidence under a preponderance standard to determine whether to forfeit the pickup. Thus, if [the claimant] proved that it was more probable that his pickup was only used in a misdemeanor, and not in a felony, then the trial court should deny forfeiture and return the pickup to him.
One 1990 Chevrolet Pickup, at 394-95 (citations omitted).
[¶ 15] The statute does not provide that, if the claimant comes forward with evidence tending to show that the property *830 was not involved in illegal drug activity, the burden shifts back to the State to prove the property is forfeitable. Rather, the statute clearly provides that, once the State establishes probable cause to believe the property is forfeitable, the ultimate burden of proof shifts to the claimant to prove by a preponderance of the evidence that the property is not forfeitable. That is precisely the standard applied by the trial court in this case. The court first found there was probable cause to believe the money was derived from illegal drug sales, and then concluded Olivarez had failed to show that the money had not come from illegal drug sales.
[¶ 16] We conclude the court did not apply an incorrect standard of proof.
IV
[¶ 17] We have considered the remaining arguments raised by Olivarez and find them to be without merit. The judgment is affirmed.
[¶ 18] GERALD W. VANDE WALLE, C.J., WILLIAM A. NEUMANN, DALE V. SANDSTROM, and CAROL RONNING KAPSNER, JJ., concur. | 01-03-2023 | 06-09-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919230/ | 106 B.R. 745 (1989)
In re Peter F.K. BARABAN a/k/a Peter Frederic Kurz Baraban, Peter Baraban, Debtor.
Bankruptcy No. 85-00050-BKC-TCB.
United States Bankruptcy Court, S.D. Florida.
September 18, 1989.
*746 Irving E. Gennet, Boca Raton, Fla., trustee.
Daniel L. Bakst, West Palm Beach, Fla.
Jerry Markowitz, Miami, Fla., Fine, Jacobson, Schwartz, Nash, Block & England, Anthony J. Carriuolo, Ft. Lauderdale, Fla., for debtor.
ORDER SUPPLEMENTING JULY 17 ORDER ALLOWING FEES
THOMAS C. BRITTON, Chief Judge.
The July 17 Order Allowing Fees (CP 267) entered in this 1985 bankruptcy, approved a fee of $291 for Fine, Jacobson, Schwartz, Nash, Block & England, former co-counsel for the debtor, and approved compensation of $20,000 for Irving E. Gennet, the bankruptcy trustee.
That Order provided that more specific findings and considerations supporting those conclusions would be prepared and filed at the request of any party if received by the court within 10 days after the entry of the order. Fine, Jacobson has made such a request, which was timely. (CP 268).
Gennet also made such a request, dated August 11 and received by this court on August 16, 30 days after the entry of the order.
This Order addresses these two requests.
Fine, Jacobson
The fee application for Fine, Jacobson (CP 117) requested $13,975.10. The employment of the firm by the debtor was authorized on January 16, 1985, five days after this bankruptcy was filed.
Notwithstanding the requirements of Bankruptcy Rule 2016(a) for "a detailed statement of (1) the services rendered, time expended and expenses incurred," this applicant merely attached copies of eight billing statements covering the period between *747 January 9, 1985 (before its employment was authorized) and September 30, 1985, each of which identifies the work performed as "foreclosure".
Services furnished by this eminent law firm as described in these invoices were not shown to relate in any way to the administration of this bankruptcy case. For that reason, as well as the applicant's failure to comply with the Rule, the charges reflected in those records were disregarded by this court.
One additional invoice (No. 21566) covering the period between July 2, 1985 and September 25, 1985, for the services of Attorney Brooks and reflecting a charge of $291 was identified as being "re Bankruptcy". This invoice was allowed in full.
This applicant withdrew as debtor's co-counsel on October 30, 1985 (CP 118), nine months after its employment was authorized.
It was and is this court's finding and conclusion that this applicant failed to carry its burden of demonstrating its entitlement to any more compensation than was authorized in this court's order.
This applicant has explained that it assisted in reducing a 1978 IRS claim. The debtor's accountant, Levi, who subsequently became the trustee's accountant, had previously claimed and has been paid for accomplishing the same result. (CP 127).
It should also be noted that this debtor was also represented (throughout the duration of this case) by Mr. Markowitz, a very experienced bankruptcy specialist.
Irving E. Gennet, Trustee
The trustee's application (CP 248) requested $73,790, the statutory maximum permissible compensation, without any explanation, justification or detail.
Bankruptcy Rule 2016 is as applicable to a bankruptcy trustee as it is to all other fee applicants. In re Beverly Mfg. Corp., 841 F.2d 365, 369-70 (11th Cir.1988); York Int'l Bldg. Inc. v. Chaney, 527 F.2d 1061, 1069 (9th Cir.1975). The burden is on a fee applicant to justify his application. This court cannot evaluate the services of a fee applicant, except upon the record provided by the application submitted.
The "Limitation on Compensation of Trustee" provided at 11 U.S.C. § 326(a), is, of course, a ceiling and, therefore, furnishes no predicate for minimum compensation.
The applicant although previously instructed by this court, in another case[1], to do so, has maintained no contemporaneous time record to document his actual effort in this case. Instead, he has estimated the time spent by him to be 164 hours. Based upon that estimate, he has applied for compensation at the rate of $450 per hour. This figure is absurd. There is no attorney, to my knowledge, within this Circuit and only a handful in Washington and New York who value their time at this rate; I am aware of none who valued their time in 1985 at this rate.
Although there are many able trustees within this District, none values his time at anywhere near that rate. The services performed by this trustee consisted essentially of conferences and correspondence with his attorney, monitoring the hearings, pleadings and correspondence in this case, the filing of required periodic reports, and the deposit of money into interest-bearing accounts. None of these services demanded unusual skill and no unusual skill was displayed in this case by this trustee.
The fee awarded this trustee, assuming his own very generous estimate of the time he spent, compensates him for that time at the rate of $122 per hour, which should be sufficient to attract and retain the services of competent laymen trustees. This trustee's employment of an experienced bankruptcy attorney as his counsel was approved by this court and that attorney's compensation for his services has not been questioned.
DONE and ORDERED.
NOTES
[1] In re Execuselling Corp., No. 83-00329 (Bankr. S.D.Fla. July 29, 1986 and June 27, 1986). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919232/ | 106 B.R. 481 (1989)
In re Leon S. HEARD, Debtor.
Bankruptcy No. B89-1778.
United States Bankruptcy Court, N.D. Ohio, E.D.
November 7, 1989.
*482 Marvin A. Sicherman, Dettelbach, Sicherman & Baumgart Co., L.P.A., Cleveland, Ohio, Trustee.
Edward R. Bohnert, Lyndhurst, Ohio, for Federal Nat. Mortg. Ass'n.
MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
I.
This matter came on for hearing on June 1, 1989 upon the motion to show cause and a motion for sanctions filed by Federal National Mortgage Association (FNMA), a creditor of Leon S. Heard (Debtor). On June 6, 1989 this Court ordered Debtor to pay $1,500.00 as adjudged sanctions on or before July 31, 1989, for attorney fees and costs incurred by FNMA as a result of the filing of this Chapter 7 petition, which filing was in violation of a previous order of this Court.
The matter is once more before this Court on Creditor's motion for an order on the Debtor to appear and show cause why further sanctions should not issue due to his failure to pay FNMA by the appointed time. A hearing was scheduled on September 14, 1989. Upon the Debtor's request, the hearing was adjourned to September 28, 1989. At the adjourned hearing Debtor represented that he was not prepared to pay the amount ordered. He gave no excusable grounds for his failure to do so.
II.
The Debtor and/or his spouse have filed since 1981 a total of eight bankruptcy petitions, including the instant case. This total includes four Chapter 13 petitions and four Chapter 7 petitions. Each of the Chapter 13 petitions was dismissed either after relief from stay was obtained by FNMA on the Debtor's failure to maintain current mortgage payments, or on objections to confirmation filed by FNMA, or for failure to prosecute. The last two Chapter 7 petitions, (not including the instant case) one each by the Debtor and his spouse, were dismissed by the Court on motion of either the Panel trustee or the United States Trustee. Sanctions were awarded relative to each of these two dismissals. Finally, in an order dated September 15, 1988 in the last Chapter 7 case of Debtor Leon S. Heard, said Debtor was specifically enjoined from filing any further bankruptcy proceedings on behalf of himself before this Court.
The chronology of the various bankruptcy filings is remarkable. The first Chapter 7 petition was jointly filed by Debtor Leon S. Heard and his spouse, Bobi Heard, in 1981, Case No. B81-2436. The Debtors therein were granted a discharge on October 15, 1981, and the applicable debt obligation to FNMA was reaffirmed. A foreclosure action was subsequently filed by FNMA on August 19, 1982. FNMA v. Heard, Guy. Co. Ct. Comm. Pleas, CV-No. 47478, Nov. 11, 1983. The first sheriff's sale was scheduled for January 17, 1984.
*483 On January 17, 1984, the instant Debtor's spouse, Bobi Heard aka McCauley, filed a Chapter 13 petition (Case No. B84-114). On October 15, 1984, final relief from stay was granted to FNMA, as a result of the debtor's failure to maintain current payments. Again, foreclosure proceedings were commenced with the second sheriff's sale scheduled for December 30, 1985.
On December 30, 1985 the Debtor filed a Chapter 13 petition, the same being Case No. B85-3315. Again, relief from stay was granted to FNMA on May 21, 1986, as a result of the Debtor's failure to maintain current mortgage payments. On June 18, 1986, the Debtor filed a motion for reconsideration which was granted on August 8, 1986. Again, relief from stay was granted on October 20, 1986, as a result of Debtor's failure to make a payment ordered previously in the journal entry granting the motion for reconsideration. The third sheriff's sale was thereupon scheduled in the foreclosure action for January 20, 1987.
On January 20, 1987 the Debtor's spouse, Bobi Heard aka McCauley, filed a Chapter 13 petition, Case No. B87-162. On May 6, 1987, said Chapter 13 case was dismissed as a result of objections to confirmation filed by FNMA. The fourth sheriff's sale was scheduled in the foreclosure action for November 23, 1987.
On November 23, 1987 the Debtor's spouse, Bobi J. Heard, filed another Chapter 13 petition, Case No. B87-4216. On February 17, 1988, said Chapter 13 case was dismissed as a result of failure to prosecute, i.e., nonappearance at a § 341 first meeting of creditors. The fifth sheriff's sale in the foreclosure action was thereupon scheduled for June 6, 1988.
On June 6, 1988 the Debtor filed a Chapter 7 petition, Case No. B88-2039. FNMA obtained an order of abandonment and relief from stay relative to the subject real property on August 22, 1988. The Chapter 7 petition was dismissed, with prejudice, on September 15, 1988 pursuant to an order granting a motion of the interim Trustee for sanctions and for dismissal of the case with prejudice. In addition, said order enjoined the Debtor from filing any further bankruptcy cases on behalf of himself before this Court. That order was directly violated by the filing of the instant petition. The sixth sheriff's sale in the foreclosure action was thereupon scheduled for December 12, 1988.
On December 12, 1988, the Debtor's spouse, Bobi J. Heard, filed a Chapter 7 petition, Case No. B88-4660. On February 14, 1989, an order was entered authorizing the abandonment of the subject real property and relief from stay in favor of FNMA. On April 13, 1988, the U.S. Trustee's Motion to Dismiss and for Sanctions was granted therein. The seventh sheriff's sale was scheduled in the foreclosure action for May 8, 1989 but was withdrawn as a result of the filing of the Debtor's present Chapter 7 case.
III.
The Debtor filed the present Chapter 7 petition, pro se, in direct violation of the Court's Order entered in his previously filed Chapter 7 petition, which enjoined him from filing any further bankruptcy cases on his own behalf. The instant petition was not accompanied by a Schedule of Current Income And Expenses or by a statement of financial affairs and other documents required by Rule 1007(b), Bankr.R. These forms were never filed nor was a filing fee ever paid. Bankruptcy Rule 9011 mandates that a filing cannot have any improper purpose, such as harassment or delay. It is clear from the history of this Debtor that the multiple filings by Debtor and his spouse have had as their primary purpose the thwarting of the justifiable attempts of FNMA to foreclose on the Debtor's property, and not the purpose of achieving any legitimate goal designed by Congress in enacting this Chapter. It is uncontested that the subject mortgage loan is now delinquent for over five years. The Debtor and his spouse have continued to use the property. Debtor, a bankruptcy attorney, has misused his knowledge of the Bankruptcy Code to cause continuing expense to FNMA and to prevent it from foreclosing on the subject property. Further, *484 the Debtor's conduct was nothing less than a blatant abuse of the bankruptcy process.
Even when an attorney represents himself in a pro se capacity, he does not lose the aura of an officer of the court. If the Debtor was represented by counsel, his counsel would be subject to the same duties and responsibilities that the Debtor is subject to. If the Debtor acted on advice of counsel, such counsel would likewise be held responsible for the advice he had given. In the present situation, the Debtor has violated his duty as an officer of this Court and as a petitioner having invoked the jurisdiction of the Court.
One hundred years ago the U.S. Supreme Court described the professional obligation of attorneys as follows:
They are officers of the law, as well as the agents of those by whom they are employed. Their fidelity is guaranteed by the highest considerations of honor and good faith, and to these is superadded the sanction of an oath. The slightest divergence from rectitude involves the breach of all these obligations. None are more honored or more deserving than those of the brotherhood who, uniting ability with integrity, prove faithful to their trusts and worthy of the confidence reposed in them. Courts of justice can best serve both the public and the profession by applying firmly upon all proper occasions the salutary rules which have been established for their government in doing the business of their clients.
Baker v. Humphrey, 101 U.S. 494, 502, 25 L.Ed. 1065 (1879).
Measured by this standard, the Debtor falls woefully short of the norm of professional responsibility.
Since this norm was articulated in 1879, the American Bar Association has, in its Code of Professional Responsibility, provided substantial guidance to federal courts in evaluating the conduct of attorneys appearing before them. Brennan's, Inc. v. Brennan's Restaurants, Inc., 590 F.2d 168, 172 n. 5 (5th Cir.1979). Therein, Canon 1 provides:
A Lawyer Should Assist in Maintaining the Integrity and Competence of the Legal Profession.
DR 1-102(A)(5) provides:
A lawyer shall not engage in conduct that is prejudicial to the administration of justice.[1]
See Disciplinary Counsel v. Hastie, 29 Ohio St.3rd 28, 505 N.E.2d 261 (1987), as cited in In re Derryberry, 72 B.R. 874 (Bankr.N.D.Ohio 1987). Debtor's conduct not only was in direct violation of this Court's order, it also was in violation of the Code of Professional Responsibility. Further, a debtor who invokes the protection of the Bankruptcy Court must assume the responsibilities attendant to this protection. In re MacDonald, 73 B.R. 254 (Bankr.N.D. Ohio 1987). The Debtor, in failing to carry out these responsibilities, has demonstrated conduct which undermines the integrity of the bar and of this Court.
Rule 9011, Bankr.R., allows no discretion in the application of sanctions when a court is faced with a violation of that Rule (The court "upon motion or upon its own initiative shall impose an appropriate sanction . . .") (emphasis added). For this reason sanctions were issued against the Debtor, and his present bankruptcy case was dismissed by court order on June 6, 1989.
Now, the Debtor is before the Court for failure to comply with the Court's previous order imposing sanctions. The Court has authority under § 105(a) to issue any order necessary or appropriate to carry out the provisions of the Bankruptcy Code. That section, in pertinent part, provides as follows:
The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. [11 U.S.C. 105(a)]
See also, Matter of Lowe, 18 B.R. 20, 25 (Bankr.N.D.Ga.1981).
*485 In view of the abusive filings cited herein and the Debtor's failure to adhere to this Court's previous sanctions order, sufficient cause has been demonstrated for an imposition of further sanctions.
Accordingly, in addition to the sanctions previously imposed herein, the Debtor, Leon S. Heard, as a bankruptcy law practitioner, is hereby suspended from practicing law before this Court for a period of one (1) year.
IT IS SO ORDERED.
NOTES
[1] The ABA's Code of Professional Responsibility was adopted by the Ohio Supreme Court on October 5, 1970. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919234/ | 106 B.R. 299 (1989)
In re Lamar M. JOLLY, Debtor.
Bankruptcy No. 89-00121-3P7.
United States Bankruptcy Court, M.D. Florida, Jacksonville Division.
October 15, 1989.
*300 Michael S. May, Jacksonville, Fla., for debtor.
Robert E. Meek, Jacksonville, Fla., for movant.
Charles W. Grant, Jacksonville, Fla., trustee.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This case is before the Court upon motion of creditor Cardinal Service Corporation of Richmond's ("movant") objecting to venue and requesting transfer of the case. An evidentiary hearing was held on August 9, 1989, and upon the evidence submitted, the Court enters the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
1. Lamar M. Jolly ("debtor") has resided in Florida since July of 1988.
2. The debtor has maintained a checking account in New Smyrna Beach, Florida, since July 1988.
3. The debtor filed his petition for relief under Chapter 7 on January 17, 1989.
4. The debtor became a registered voter in Florida after filing his petition but prior to the motion objecting to venue and requesting transfer of the case.
5. The debtor's principal asset is his home in New Smyrna Beach, Florida.
6. The debtor's occupation requires extensive travel throughout the Southeastern United States.
7. The debtor demonstrated his intent to become a resident of Florida as evidenced by a memorandum sent to his accountant dated August 15, 1989.
8. Of the sixteen creditors listed in the schedules, eight are located in Virginia, six in other states, and two in Florida.
9. Of the fourteen lawsuits involving the debtor, eight are in Virginia, and two are in Florida.
10. The debtor's primary non-exempt asset is a lawsuit filed in the Circuit Court for the City of Williamsburg, Virginia.
11. The discharge in this case was entered on July 12, 1989.
CONCLUSIONS OF LAW
1. This motion is brought pursuant to Bankruptcy Rule 1014(a)(1) which provides in relevant part:
If a petition is filed in a proper district, on timely motion of a party in interest, and after hearing on notice to the petitioners and other entities as directed by the court, the case may be transferred to any other district if the court determines that the transfer is in the interest of justice or for the convenience of the parties.
Statutory authority is set forth in 28 U.S.C. § 1412.
2. This Court must begin its analysis from the premise that a court should exercise its power to transfer cautiously and that the party moving for the transfer has the burden of proving that the transfer would be in the interest of justice and for the convenience of the parties. In re One-Eighty Investments, Ltd., 18 B.R. 725, 728 (Bankr.E.D.Ill.1981) citing In re Commonwealth Oil Refining Co., 596 F.2d 1239 (5th Cir.1979) cert denied, 444 U.S. 1045, 100 S.Ct. 732, 62 L.Ed.2d 731 (1980).
3. The principal criteria identified by bankruptcy courts in the relatively few published cases dealing with similar motions are: (i) proximity of creditors and the debtor to the court; (ii) proximity of witnesses necessary to the administration of the estate; (iii) location of the assets; (iv) *301 the economic and efficient administration of the estate. In re Walter, 47 B.R. 240, 241 (Bankr.M.D.Fla.1985); In re Almeida, 37 B.R. 186 (Bankr.E.D.Pa.1984); In re Pubco Corp., 27 B.R. 139 (Bankr.E.D.Pa. 1983).
4. Clearly, the proximity of the debtor to this Court is beyond question as is the lack of proximity of the majority of the creditors.
5. As to the proximity of witnesses necessary to the administration of the estate, it is undisputed that the debtor's wife and accountant live in Virginia. However, venue for an adversary proceeding may be transferred without transfer of the related bankruptcy case.
6. The debtor's only non-exempt asset is a lawsuit filed in the Circuit Court for the City of Williamsburg, Virginia.
7. As to the efficient and economic administration of the estate, it is difficult to see how a Virginia trustee would be in a better position to administer this estate. The Court notes the discharge has already been entered.
CONCLUSION
It is the practice of this Court to give great weight to the presumption that the debtor is entitled to file and retain the case in the venue in which he has resided for the greater part of the required time.
Although the movant has made a plausible case for transfer, it has not overcome the presumption that the debtor is entitled to file and maintain his case in the venue in which he lawfully filed it.
Based on the foregoing, a separate order will be entered denying Cardinal Service Corporation of Richmond's motion objecting to venue and requesting transfer of the case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1019201/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 03-4307
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
WALTER ANTHONY WEST,
Defendant - Appellant.
On Remand from the Supreme Court of the United States.
(S. Ct. No. 04-6135)
Submitted: February 15, 2006 Decided: May 4, 2006
Before MICHAEL, TRAXLER, and KING, Circuit Judges.
Affirmed in part; vacated and remanded in part by unpublished per
curiam opinion.
James Wyda, Federal Public Defender, Beth M. Farber, Assistant
Federal Public Defender, Greenbelt, Maryland, for Appellant.
Gretchen C. F. Shappert, United States Attorney, Thomas R. Ascik,
Assistant United States Attorney, Asheville, North Carolina, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
This case is before the court on remand from the United
States Supreme Court. We previously affirmed Walter Anthony West’s
conviction and sentence for conspiracy to manufacture and
distribute methamphetamine, in violation of 21 U.S.C. §§ 841, 846
(2000). United States v. West, No. 03-4307 (4th Cir. June 3, 2004)
(unpublished). The Supreme Court vacated our decision and remanded
West’s case for further consideration in light of United States v.
Booker, 125 S. Ct. 738 (2005).
A Sixth Amendment error occurs when a district court
imposes a sentence greater than the maximum permitted based on
facts found by a jury or admitted by the defendant. Booker, 125 S.
Ct. at 756. Because West did not raise a Sixth Amendment challenge
or object to the mandatory application of the Sentencing Guidelines
in the district court, our review is for plain error. United
States v. Hughes, 401 F.3d 540, 547 (4th Cir. 2005).
The jury’s verdict supports a factual finding that West
was responsible for at least fifty grams of a mixture containing
methamphetamine.1 This factual finding corresponds to a base
1
Although the district court concluded that West was
responsible for “pure meth—actual meth,” the jury verdict form
specifies “more than 50 grams of a mixture or substance containing
a detectable amount of methamphetamine.” (J.A. at 795, 800). The
jury’s verdict thus supports a base offense level of 26 pursuant to
USSG § 2D1.1(c)(7), rather than a base offense level of 32 under
USSG § 2D1.1(c)(4) (for offenses involving at least 50 but no more
than 150 grams of methamphetamene (actual)).
- 2 -
offense level of twenty-six. See U.S. Sentencing Guidelines Manual
§ 2D1.1(c)(7) (providing offense level for between 50 and 200 grams
of a mixture containing methamphetamine). When combined with
West’s criminal history category of II, this results in a
sentencing range of seventy to eighty-seven months’ imprisonment.
USSG Ch. 5, Pt. A, table. The district court imposed a sentence of
240 months, which exceeds this range. Because this amounts to
error that affects West’s substantial rights, we conclude it is
plainly erroneous.2 See Hughes, 401 F.3d at 547-48.
Accordingly, we vacate the sentence imposed by the
district court and grant West’s motion to remand for resentencing
in accordance with Booker. Although the Sentencing Guidelines are
no longer mandatory, Booker makes clear that a sentencing court
must still “consult [the] Guidelines and take them into account
when sentencing.” 125 S. Ct. at 767. On remand, the district
court should first determine the appropriate sentencing range under
the Guidelines, making all factual findings appropriate for that
determination. See Hughes, 401 F.3d at 546. The court should
consider this sentencing range along with the other factors
described in 18 U.S.C. § 3553(a) (2000), and then impose a
sentence. Id. If that sentence falls outside the Guidelines
range, the court should explain its reasons for imposing a non-
2
Just as we noted in Hughes, 401 F.3d at 545 n.4, “[w]e of
course offer no criticism of the district judge, who followed the
law and procedure in effect at the time” of West’s sentencing.
- 3 -
Guidelines sentence as required by 18 U.S.C. § 3553(c)(2) (2000).
Id. The sentence must be “within the statutorily prescribed range
and . . . reasonable.” Id. at 546-47. We affirm West’s
convictions for the reasons stated in our opinion of June 3, 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 IN PART;
VACATED AND REMANDED IN PART
- 4 - | 01-03-2023 | 07-04-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1019227/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-4902
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
LEBERT GEORGE HINDS, a/k/a Benjamin Lamar
Douglas, a/k/a Lebert George Hines,
Defendant - Appellant.
Appeal from the United States District Court for the Western
District of North Carolina, at Statesville. Richard L. Voorhees,
District Judge. (CR-03-29)
Submitted: April 19, 2006 Decided: May 3, 2006
Before WILKINSON, WILLIAMS, and DUNCAN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Matthew A. Victor, VICTOR, VICTOR & HELGOE, L.L.P., Charleston,
West Virginia, for Appellant. Amy Elizabeth Ray, OFFICE OF THE
UNITED STATES ATTORNEY, Asheville, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Lebert George Hinds pled guilty to possession with intent
to distribute fifty grams or more of crack cocaine, in violation of
21 U.S.C. § 841(a)(1) (2000). The district court sentenced him as
a career offender to a 262-month term of imprisonment. Hinds’
counsel filed a brief pursuant to Anders v. California, 386 U.S.
738 (1967), challenging Hinds’ sentence but stating that, in his
view, there are no meritorious issues for appeal. Hinds has filed
a pro se supplemental brief. We affirm.
Hinds asserts that the district court erred in
classifying him as a career offender under U.S. Sentencing
Guidelines Manual § 4B1.1 (2003). Because Hinds did not object in
the district court, this court’s review is for plain error. United
States v. Harp, 406 F.3d 242, 245 (4th Cir.) (stating standard of
review), cert. denied, 126 S. Ct. 297 (2005). We conclude that the
district court properly designated Hinds as a career offender. See
id. (discussing elements of USSG § 4B1.1(a)).
Citing United States v. Booker, 543 U.S. 220 (2005),
Hinds asserts that his career offender sentence violates his Sixth
Amendment rights because the prior convictions were not admitted by
him or submitted to a jury. Because Hinds did not raise this issue
in the district court, our review is for plain error. See United
States v. Hughes, 401 F.3d 540, 547 (4th Cir. 2005). Hinds’
argument is foreclosed by our decision in United States v. Collins,
- 2 -
412 F.3d 515, 521-23 (4th Cir. 2005) (holding that application of
career offender enhancement falls within exception for prior
convictions where facts were undisputed, making it unnecessary to
engage in further fact finding about prior conviction). Thus,
there is no Sixth Amendment error in this case.
In accordance with Anders, we have reviewed the entire
record for any meritorious issues and have found none.
Accordingly, we affirm Hinds’ conviction and sentence. This court
requires that counsel inform his client, in writing, of his right
to petition the Supreme Court of the United States for further
review. If the client requests that a petition be filed, but
counsel believes that such a petition would be frivolous, then
counsel may move in this court for leave to withdraw from
representation. Counsel’s motion must state that a copy thereof
was served on the client. 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/1019181/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-4651
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
MAHENDRA SHAH, a/k/a Mike Shah,
Defendant - Appellant.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Benson Everett Legg, Chief District Judge.
(CR-02-560)
Submitted: April 12, 2006 Decided: May 5, 2006
Before WILKINSON, NIEMEYER, and MOTZ, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Clarke F. Ahlers, CLARK F. AHLERS, P.C., Columbia, Maryland,
Michael D. Montemarano, MICHAEL D. MONTEMARANO, P.A., Elkridge,
Maryland, Joseph Murtha, MILLER, MURTHA & PSORAS, L.L.C.,
Lutherville, Maryland, for Appellant. Rod J. Rosenstein, United
States Attorney, Barbara S. Sale, James G. Warwick, Assistant
United States Attorneys, Baltimore, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Mahendra Shah appeals his convictions and 180-month
sentence imposed for eight counts of mail fraud, in violation of 18
U.S.C. § 1341 (2000); one count of wire fraud, in violation of 18
U.S.C. § 1343 (2000); two counts of arson, in violation of 18
U.S.C. § 844(i),(h) (2000); four counts of engaging in a money
transaction in criminally derived property, in violation of 18
U.S.C. § 1957(a) (2000); and one count of use of a fire to commit
a felony, in violation of 18 U.S.C. § 844(h) (2000). Finding no
error, we affirm.
Shah asserts the district court abused its discretion
when it admitted evidence under Fed. R. Evid. 404(b) of Shah’s
involvement in a 1996 fire, an event for which Shah filed no
insurance claim, and therefore was purportedly inadmissible to
prove a plan to defraud his insurance company. Evidence of prior
acts is admissible under Fed. R. Evid. 404(b) and Fed. R. Evid. 403
if the evidence is: (1) relevant to an issue other than the
general character of the defendant, (2) necessary, (3) reliable,
and (4) if the probative value of the evidence is not substantially
outweighed by its prejudicial effect. United States v. Queen, 132
F.3d 991, 997 (4th Cir. 1997). The evidence at issue here, the
1996 fire, was critical to establish Shah’s plan to defraud, and
satisfies the criteria enumerated in Queen. We therefore find the
- 2 -
district court did not abuse its discretion in admitting this
evidence.
Shah next alleges the evidence was insufficient to
support his convictions. A jury’s verdict must be upheld on appeal
if there is substantial evidence, taking the view most favorable to
the government, to support it. Glasser v. United States, 315 U.S.
60, 80 (1942). Substantial evidence is defined as “that evidence
which ‘a reasonable finder of fact could accept as adequate and
sufficient to support a conclusion of a defendant’s guilt beyond a
reasonable doubt.’” United States v. Newsome, 322 F.3d 328, 333
(4th Cir. 2003) (citation omitted). We review both direct and
circumstantial evidence and permit “the government the benefit of
all reasonable inferences from the facts proven to those sought to
be established.” United States v. Tresvant, 677 F.2d 1018, 1021
(4th Cir. 1982). Construing all inferences in favor of the
Government, we find the evidence against Shah was abundant.
Shah finally argues that his statutorily-mandated
sentence violated United States v. Booker, 543 U.S. 220 (2005).
Shah contends that his sentence should be remanded as Booker vests
sentencing discretion in the trial court and causes the factors in
18 U.S.C.A. § 3553(a) (West 2000 & Supp. 2005) to trump all
mandatory statutes. This argument lacks merit. See United States
v. Green, 436 F.3d 449, 456 n* (4th Cir. 2006) (citing 28 U.S.C.
§ 3553(e) (2000)); United States v. Robinson, 404 F.3d 850, 862
- 3 -
(4th Cir. 2005) (acknowledging, in the context of determining
whether a sentence is reasonable, that “[t]he statutory limits for
both maximum and minimum sentences must be honored except as
statute otherwise authorizes”).
We therefore affirm Shah’s convictions and sentence. 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/2343565/ | 377 F. Supp. 806 (1974)
Homer Lee SLATTER
v.
AETNA FINANCE COMPANY.
Civ. A. No. 18279.
United States District Court, N. D. Georgia, Atlanta Division.
June 27, 1974.
*807 E. Lundy Baety, Hill, Jones & Farrington, Atlanta, Ga., for plaintiff.
J. Norwood Jones, Jr., Atlanta, Ga., for defendant.
ORDER
O'KELLEY, District Judge.
This is an action brought pursuant to the Truth-in-Lending provisions of the Federal Consumer Credit Protection Act [hereinafter the Act], 15 U.S.C. § 1601 et seq. and the regulations adopted pursuant thereto published at 12 CFR 226 and commonly referred to as "Regulation Z," seeking to recover statutory damages, reasonable attorney's fees and costs. Plaintiff charges defendant with three violations of the Act, to wit: (1) failure to disclose the loan fee as a "prepaid finance charge," (2) inadequate identification of the security listed on the disclosure statement, and (3) inadequate disclosure of insurance purchased in connection with the credit extension. The matter was submitted to a Bankruptcy Judge of this Court, sitting as Special Master where plaintiff filed a motion for summary judgment and a brief in support thereof, and defendant filed no motion or brief in opposition. In his recommendations as Special Master, the Bankruptcy Judge found two violations of the Act: (1) when defendant failed to use the term "prepaid finance charge" in describing the fee imposed pursuant to Ga.Code Ann. § 25-315(b) for the extension of credit, relying on Grubb v. Oliver Enterprises, Inc., 358 F. Supp. 970 (N.D.Ga.1972); and (2) when the cost of insurance purchased in connection with the credit extension was not included in the finance charge since its disclosure was found to be inadequate, relying on Philbeck v. Timmers Chevrolet, Inc., 361 F. Supp. 1255 (N.D. Ga.1973). The Bankruptcy Judge did not rule on the alleged inadequacy of identification of the security listed on the disclosure statement.
In making his first conclusion of law, the special master's reliance on Grubb, supra was misplaced. Ga.Code Ann. § 25-315(b) authorizes lenders to charge a "fee" for making a loan. This section is permissive; it allows the lender the option of receiving or collecting the loan fee "at the time the loan is made" or of merely charging for the loan fee at the time the loan is made and adding it to the principal amount for collection along with the loan payments.[1] In Grubb, the loan fee so allowed was actually withheld from the proceeds of the credit extended by the creditor at the time the loan was made, while in the present case, the loan fee was charged and added to the amount financed to become part of the total payments due which were to be repaid in 24 equal monthly installments. This distinction is critical for the determination of whether the "loan fee" must always be denoted as a "prepaid finance charge."
"Regulation Z" requires certain disclosures from creditors and provides for uniform terminology so as "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit *808 terms available to him . . . ." 15 U.S.C. § 1601. In implementing this, 12 CFR §§ 226.8(d) and (e)(1) require that "any finance charge paid separately, in cash or otherwise, directly or indirectly to the creditor . . . or withheld by the creditor from the proceeds of the credit extended" must be disclosed using the term "prepaid finance charge." The question thus becomes one of whether or not the loan fees permitted by Ga.Code Ann. § 25-315(b) are required to be labelled as "prepaid finance charge" within the provisions of those sections.
In the present case, the loan fee and the interest comprise part of the "finance charge."[2] This finance charge is added to the "amount financed" to arrive at the face amount of the note which is synonymous with the "total of payments." The "amount financed" is the amount of credit of which the customer will have the actual use or, in other words, the actual proceeds from the credit extended. Section 226.2(d). It is this "amount financed" upon which the finance charge is imposed.
Where the loan fee is "added to" the amount financed to become part of the total of payments, the fee is not "paid separately in cash or otherwise . . . or withheld by the creditor from the proceeds of the credit extended" as required by § 226.8(e)(1) and therefore, does not fall within the definition in § 226.8(d)(2) requiring its disclosure as a "prepaid finance charge." In Grubb, the loan fee was actually withheld at the time of the consummation of the loan so it then came within § 226.8(e)(1). In the present case, in contrast to Grubb, the "loan fee" was not withheld or separately paid but was added to the amount financed to become part of the total payments due which were to be repaid in 24 equal monthly installments, therefore, it does not come within § 226.8(e)(1).
There is no merit in the contention that the loan fee permitted under Ga.Code Ann. § 25-315(b) is constructively "prepaid" because it is paid in total if the loan is prepaid prior to maturity. As this court said in Hamilton v. G. A. C. Finance Corp., Civ. No. 18163 (N.D.Ga. May 22, 1974):
The court notes that the time of prepayment of the loan prior to the due date is a circumstance after the credit is extended which is controlled exclusively by the Borrower. Such possible future contigency of prepayment cannot at the time the loan is made be considered as a finance charge paid separately or withheld from the credit extended as defined by Regulation Z, § 226.8(d)(2).
This court's interpretation of Regulation Z as it pertains to the prepaid finance charge is supported by the Federal Reserve Board's Interpretative ruling of August 23, 1973 (12 CFR § 226.819) which states in part that "[t]he concept of prepaid finance charges was adopted to insure that the `amount financed' reflected only that credit which the customer had the actual use," and further that "[p]recomputed finance charges which are included in the face amount of the obligation are not the type contemplated by the `prepaid' finance charge disclosure concept."
The Grubb decision in connection with this decision should make it clear that in most instances under the Georgia Industrial Loan Act, Ga.Code Ann. § 25-315, whether the loan fee and/or interest payments fall within the definition of "prepaid finance charges" so as to require disclosure depends on how the lender elects to collect such fee, i. e. whether he elects to add it on to the *809 amount financed or collect it at the time the loan is consummated.[3] The latter must be disclosed as "prepaid finance charges," the former does not.
In the instant case, there was no violation of the disclosure provisions of Regulation Z with respect to the loan fee and this court reverses the Special Master's ruling on this issue.
Plaintiff also contends that there is a violation of § 226.8(b)(5) in that there was an inadequate identification of the property subject to a security interest on the disclosure statement. The security interest was described by checking a box indicating that there was a security agreement on all of the "Household Goods belonging to the borrowers at their address shown above." The Special Master did not rule on this issue so the question to be determined is whether this identification satisfies § 226.8(b) which requires disclosure of the following items:
(b)(5). A description or identification of the type of any security interest held . . . and a clear identification of the property to which the security interest relates . . . . In any such case where a clear identification of such property cannot be properly made on the disclosure statement due to the length of such identification, the note, other instrument evidencing the obligation, or separate disclosure statement shall contain reference to a separate pledge agreement, or a financing statement, mortgage, deed of trust, or similar document evidencing the security interest, a copy shall be furnished to the customer by the creditor as promptly as practicable. (emphasis supplied).
Did the disclosure in this case constitute a "clear identification of the property to which the security interest relates?" The basic purpose behind § 226.8(b)(5) is to give notice to the borrower; to make "a meaningful disclosure," so he can make a comparison of credit terms available to him. 15 U.S.C. § 1601. If the identification on the disclosure is of such a nature that it is sufficient to clearly notify the borrower of the identification of the property covered by the security interest, then the requirement of this section is satisfied. This court is of the opinion that "all Household Goods belonging to the borrower located at their address" sufficiently notifies the borrower of the property that is subject to the security interest. Conyers v. Dixie Furniture, Civ. No. 15779 (N.D.Ga. March 28, 1973), relied on by plaintiff, is not in conflict with this view. In Conyers, there existed a contract which provided that a security interest was retained not only in the property purchased under that contract but also in all property purchased under any previous or subsequent contracts with the creditor. A dining room suite had been purchased under a previous contract so it came under the latter contract's clause retaining a security interest. There was no identification of the dining room suite in the latter contract at all; nothing to tell the borrower the type of property covered or its location. In the present case, the type of property (household goods) is identified as well as its location (at the address of borrowers). Conyers is thus distinguishable as there was insufficient notice to the borrower of the property covered by the security interest. The notice in the present case was sufficient.
Finally, it is contended by plaintiff that there was inadequate disclosure of insurance purchased in connection with *810 the credit extension in accordance with § 226.4(a)(5)(i & ii). That section requires insurance costs to be included in the finance charge unless
(5)(i) the insurance coverage is not required by the creditor and this fact is conspicuously disclosed in writing to the customer; and (ii) any customer desiring such insurance coverage gives specific dated and separately signed affirmative written indication of such desire after receiving written disclosure to him of the cost of such insurance.
In contending that the present disclosure of insurance was inadequate, plaintiff relies on Philbeck v. Timmers Chevrolet, Inc., 361 F. Supp. 1255 (N.D.Ga. 1973) which held that when the credit insurance is not required under (5)(i) above, then to satisfy the requirement of disclosure of the "cost" of the insurance under (5)(ii) above, that disclosure must also include a statement of the type and term of the insurance. Philbeck recognized that the express wording of § 226.4(a)(5)(ii) seemed only to require a disclosure of the "cost" without including the "type and term" of the insurance but felt constrained to follow the Federal Reserve Board's interpretative ruling, 12 CFR § 226.402, which required such additional disclosures to satisfy the "cost" disclosure requirement. The Philbeck decision has been appealed to the United States Court of Appeals, Fifth Circuit. That case has been argued and is awaiting decision. This Court will not rule on this issue but will stay such a determination pending the decision of the Fifth Circuit in the Philbeck case.
In view of this Court's finding that there was no violation of the Act relative to the "loan fee" not being denoted as a "prepaid finance charge" and to the identification of the property subject to the security interest; and since no ruling will be made as to the insurance disclosure until Philbeck is decided by the Fifth Circuit, this Court needs make no ruling as to the Special Master's finding of reasonable attorney's fees.
The final decision of this case is hereby stayed pending a decision of the United States Court of Appeals, Fifth Circuit in Philbeck v. Timmers Chevrolet, Inc.
NOTES
[1] This section with respect to the loan fee is different from § 25-315(a) dealing with the treatment of basic interest charges. Section 25-315(a) provides that interest charges on loan contracts of 18 months or less, "may be discounted in advance" but that on contracts repayable over a period greater than 18 months, the "interest shall be added to the principal amount of the loan." (emphasis supplied). Section 25-315(a) is thus compelling as to interest charges repayable over a period greater than 18 months, requiring them to be "added on," while § 25-315(b) is completely permissive as to whether the "loan fee" is added on to the principal or collected at the time of the loan. As far as § 25-315(b) (the loan fee provision) is concerned, whether the period of repayment is greater than or less than 18 months is immaterial.
[2] The charges for credit life, accident, health, a loss of income insurance may also constitute part of the finance charge in this case if the provisions of § 226.4(a)(5) (i & ii) were not satisfied. See infra. The finance charge is defined in 226.2(q) as the "cost of credit determined in accordance with § 226.4."
[3] The lender has the option with respect to how the loan fee is collected. The lender also has the option, with respect to how the basic interest is collected on loans repayable in 18 months or less but the lender must add on the interest for loans repayable over a period in excess of 18 months. In this latter instance the basic interest fee will never be required to be denoted as "prepaid finance charge" while in the two former instances, it will depend on how the lender collects the loan fee and/or basic interest. See note 1, supra, see also Ga.Code Ann. § 25-315(a) & (b). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1019241/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-1782
JAMES D. HABURN; STEFANIE A. RODEN,
Plaintiffs - Appellants,
versus
JOHN F. KILBY; THE BANK OF FINCASTLE;
JOHN/JANE DOE, Owners/Co-owners,
Defendants - Appellees.
Appeal from the United States District Court for the Western
District of Virginia, at Roanoke. James C. Turk, Senior District
Judge. (CA-04-336-7)
Submitted: December 16, 2005 Decided: May 3, 2006
Before WILKINSON, NIEMEYER, and MOTZ, Circuit Judges.
Vacated and remanded by unpublished per curiam opinion.
James D. Haburn, Stefanie A. Roden, Appellants Pro Se. C. Jacob
Ladenheim, Fincastle, Virginia, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
James D. Haburn and Stefanie A. Roden appeal the district
court’s order dismissing their civil rights claim that the Bank of
Fincastle excessively fined their partnership’s bank account. The
district court found that they lacked standing because they did not
establish an interest in the bank account and granted the Bank’s
summary judgment motion to dismiss the case. Finding error, we
vacate the district court’s order and remand for further
proceedings.
We review the grant or denial of summary judgment de
novo. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986).
Haburn, Stefanie Roden, and Deirdre Roden formed a partnership.
The partners agreed that Deirdre Roden would open and manage their
bank account. The bank account was in the partnership name. In
Virginia, each partner is an agent of the partnership for the
purpose of its business. Va. Code Ann. § 50-73.91 (2005). “An act
of a partner, including the execution of an instrument in the
partnership name . . . binds the partnership.” Id. Thus, the acts
of Deirdre Roden were acts of the partnership. Further, while
Deirdre Roden was the only authorized name on the account, Haburn
and Stefanie Roden both made deposits and withdrawals from the
account on several occasions. The money in the account was
partnership money and “property acquired by a partnership is
- 2 -
property of the partnership and not of the partners individually.”
Va. Code Ann. § 50-73.89 (2005).
Moreover, in Virginia, “all partners are liable jointly
and severally for all obligations of the partnership.” Va. Code
Ann. § 50-73.96 (2005). As a consequence, Haburn and Stefanie
Roden were liable for the obligations of the partnership, which
included any debts or fees incurred by the bank account. We thus
conclude that Haburn and Stefanie Roden had an interest in the bank
account as partners and had standing to raise their claims.
Accordingly, we vacate the district court’s order and remand for
further proceedings.* 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.
VACATED AND REMANDED
*
Although Haburn and Stefanie Roden have argued the merits of
their claims on appeal, those claims are more properly addressed in
the first instance by the district court. Our disposition of this
appeal does not indicate any view as to the nature or outcome of
the proceedings on remand.
- 3 - | 01-03-2023 | 07-04-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1589378/ | 972 So.2d 181 (2008)
CLARK
v.
STATE
No. 2D07-4195.
District Court of Appeal of Florida, Second District.
January 4, 2008.
Decision without published opinion. Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1019368/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-4607
UNITED STATES OF AMERICA,
Plaintiff - Appellant,
versus
LARRY ANTHONY CLYBURN, a/k/a Shoan Clyburn,
Defendant - Appellee.
No. 05-4631
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
LARRY ANTHONY CLYBURN, a/k/a Shoan Clyburn,
Defendant - Appellant.
Appeals from the United States District Court for the Western
District of Virginia, at Abingdon. James P. Jones, Chief District
Judge. (CR-04-50)
Argued: March 17, 2006 Decided: May 17, 2006
Before GREGORY and DUNCAN, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Reversed and remanded in part; affirmed in part by unpublished
opinion. Judge Duncan wrote the opinion, in which Senior Judge
Hamilton joined. Judge Gregory wrote a separate concurring
opinion.
ARGUED: John L. Brownlee, United States Attorney, Roanoke,
Virginia, for Appellant/Cross-Appellee. Michael Allen Bragg,
Abingdon, Virginia for Appellee/Cross-Appellant. ON BRIEF: Jean B.
Hudson, Assistant United States Attorney, OFFICE OF THE UNITED
STATES ATTORNEY, Charlottesville, Virginia, for Appellant/Cross-
Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
2
DUNCAN, Circuit Judge:
The government appeals from the district court's grant of
Larry Clyburn's Motion for Judgment of Acquittal on Count Six of a
seven-count indictment: possessing a firearm in furtherance of a
drug trafficking crime in violation of 18 U.S.C. § 924(c)(1).
Clyburn cross-appeals from the district court's denial of his
Motion for Judgment of Acquittal on Count One of the indictment:
conspiracy to manufacture fifty grams or more of a mixture or
substance containing a detectable amount of methamphetamine in
violation of 21 U.S.C. § 841(a)(1). Because, based on the evidence
adduced at trial, a rational trier of fact could find the essential
elements of both crimes beyond a reasonable doubt, we reverse the
grant of judgment of acquittal as to Count Six of the indictment
and affirm the denial of judgment of acquittal as to Count One of
the indictment.
I.
On August 11, 2003, law enforcement officers executed a search
warrant on Clyburn's residence. In addition to baggies containing
methamphetamine, the officers found multiple items associated with
the manufacture of methamphetamine, including Sudafed tablets,
plastic tubing, coffee filters with red residue, flasks and a Pyrex
dish. The greatest concentration of these items was found in the
master bedroom.
3
The officers also found a Mossberg 20-gauge shotgun behind the
door of the master bedroom. The shotgun was loaded with six shells
containing "seven and a half shot."1
The officers arrested Clyburn, who agreed to talk to DEA
special agent Brian Snedeker. Clyburn stated that he had learned
to manufacture methamphetamine from an individual named George
Harper. Clyburn also stated that he had manufactured
methamphetamine, employing the so-called "red phosphorous" method,
every one to two weeks for six months, using 200 thirty milligram
tablets, or six grams, of pseudoephedrine on each occasion.
According to Snedeker's testimony at trial, the red phosphorous
method yields 0.59 to 0.78 grams of methamphetamine from every gram
of pseudoephedrine.
On June 2, 2004, law enforcement officers returned to
Clyburn's residence, where Snedeker observed empty cold medicine
packs on top of trash cans located outside the back door. Clyburn
admitted to Snedeker that he had manufactured methamphetamine five
or six times since his arrest in August 2003, including once on May
30, 2004, at the residence of James and Joy Lovell. Clyburn was
arrested again.
1
Although shotguns, like rifles and handguns, can fire a
single projectile, shotgun ammunition typically consists of a shell
containing a load of small pellets. These pellets, which become
projectiles when the shotgun is fired, are available in several
sizes. "Seven and a half shot" refers to a pellet size used
primarily for hunting small birds and rabbits.
4
That same day, law enforcement officers executed a search
warrant on the Lovells' residence. The officers found multiple
items associated with the manufacture and use of methamphetamine,
including filters, plastic tubing, matchbooks with the striker
plates removed and glass pipes used for smoking methamphetamine.
The grand jury returned a seven-count indictment. Count One
charged Clyburn with conspiring, from on or about February 11,
2003, until on or about May 30, 2004, with the Lovells and others
known and unknown to the grand jury to manufacture fifty grams or
more of a mixture or substance containing a detectable amount of
methamphetamine in violation of 21 U.S.C. 841(a)(1). Count Six
charged him with on or about August 11, 2003, knowingly using and
carrying a firearm during and in relation to, and possessing a
firearm in furtherance of a drug trafficking crime in violation of
18 U.S.C. 924(c)(1).
Clyburn received a jury trial. At the close of the
government's case, he moved for acquittal and directed verdict as
to Count Six. The district court took this motion under
advisement. At the close of the evidence, Clyburn moved for
judgment of acquittal as to Count One. The district court denied
this motion. The jury returned a verdict of guilty on all seven
counts of the indictment.
Clyburn subsequently moved for judgment of acquittal
notwithstanding the verdict for Counts One and Six, claiming that
5
the evidence was insufficient to sustain the convictions. The
district court denied the motion as to Count One and granted the
motion as to Count Six.
II.
Where, as here, a motion for judgment of acquittal is based
upon insufficiency of the evidence, we review the district court's
decision de novo regardless of whether the district court granted
or denied the motion. See United States v. Lentz, 383 F.3d 191,
199 (4th Cir. 2004) (review of grant of judgment of acquittal based
upon insufficiency of the evidence), cert. denied, 125 S. Ct. 1828
(2005); United States v. Gallimore, 247 F.3d 134, 136 (4th Cir.
2001) (review of denial of judgment of acquittal based upon
insufficiency of the evidence). In doing so, if, viewing the
evidence in the light most favorable to the government, any
rational trier of fact could find the essential elements of the
crime beyond a reasonable doubt, we must sustain the fact finder's
verdict. See Lentz, 383 F.3d at 199; United States v. Lomax, 293
F.3d 701, 705 (4th Cir. 2002).
6
A.
The government claims that, because it presented sufficient
evidence in its case-in-chief2 from which the jury could have found
beyond a reasonable doubt that Clyburn possessed a firearm in
furtherance of a drug trafficking crime, the district court erred
in granting Clyburn's motion as to Count Six. We agree.
The elements of a § 924(c) violation are the commission of a
crime of violence or a drug trafficking crime and either (1) using
or carrying a firearm during and in relation to the crime or (2)
possessing a firearm in furtherance of the crime. 18 U.S.C.
§ 924(c). The jury found Clyburn guilty of Counts One through Five
of the indictment, each of which constitutes a drug trafficking
crime under § 924(c).3 Clyburn does not challenge those
2
Where, as here, the district court reserves its decision on
a motion of judgment of acquittal made at the close of the
government's evidence, it "must decide the motion on the basis of
the evidence at the time the ruling was reserved." Fed. R. Crim. P.
29(b). An appellate court must base its review of the district
court's decision on the same evidence. See United States v.
Brodie, 403 F.3d 123, 133 (3d Cir. 2005); Fed. R. Crim. P. 29
advisory committee's note (1994 Amendments).
3
As used in § 924(c), "the term 'drug trafficking crime' means
any felony punishable under the Controlled Substances Act (21
U.S.C. 801 et seq.), the Controlled Substances Import and Export
Act (21 U.S.C. 951 et seq.), or the Maritime Drug Law Enforcement
Act (46 U.S.C. App. 1901 et seq.)." 18 U.S.C. § 924(c)(2).
Clyburn does not dispute that each of the following counts of
the indictment, being a felony punishable under the Controlled
Substances Act, constitutes a drug trafficking crime: (1)
conspiring to manufacture fifty grams or more of methamphetamine in
violation of 21 U.S.C. 841(a)(1); (2) manufacturing fifty grams or
more of methamphetamine in violation of 21 U.S.C. § 841(a)(1); (3)
possessing pseudoephedrine with the intent to manufacture
7
convictions, and the government does not argue that he used or
carried the firearm during those crimes. Thus, the only question
is whether any rational trier of fact could find that Clyburn
possessed the shotgun in furtherance of one or more of the drug
trafficking crimes.
The mere presence of a firearm at the scene of a drug
trafficking offense is insufficient to establish this element of a
§ 924(c) violation. United States v. Ceballos-Torres, 218 F.3d
409, 414 (5th Cir. 2000). Rather, the government must present
evidence indicating that the possession "furthered, advanced or
helped forward a drug trafficking crime." Lomax, 293 F.3d at 705.
When considering the evidence, however, the fact finder may take
into account any of the myriad ways that a firearm might further or
advance the drug trafficking crime, including, for example,
providing a defense against the theft of drugs, or reducing the
probability that such a theft might be attempted. Id. Moreover,
this court has recognized a nonexclusive list of factors that might
lead a fact finder to conclude that a firearm was possessed in
furtherance of a drug trafficking crime:
"the type of drug activity that is being conducted,
accessibility of the firearm, the type of weapon, whether
methamphetamine in violation of 21 U.S.C. §§ 841(c)(1) and (2); (4)
maintaining a place for the purpose of manufacturing
methamphetamine in violation of 21 U.S.C. § 856(a)(1); and (5)
knowingly and intentionally creating a substantial risk of harm to
human life while manufacturing methamphetamine in violation of 21
U.S.C. § 858.
8
the weapon is stolen, the status of the possession
(legitimate or illegal), whether the gun is loaded,
proximity to drugs or drug profits, and the time and
circumstances under which the gun is found."
Id. (quoting Ceballos-Torres, 218 F.3d at 414-15).
Because a rational trier of fact could find that Clyburn
possessed the shotgun in furtherance of a drug trafficking crime,
we must sustain the jury's verdict and reverse the district court's
grant of judgment of acquittal. Law enforcement officers found the
loaded shotgun in a home used for the manufacture of
methamphetamine. The shotgun was located in close proximity to
both methamphetamine and many of the materials and equipment used
for its manufacture. In fact, the shotgun was in the same room as
the bulk of the items associated with the manufacture of
methamphetamine. Moreover, the jury could infer that the shotgun
was readily accessible to anyone who knew of its location behind
the bedroom door. Finally, Clyburn's possession of the shotgun was
illegal because he was an unlawful user of a controlled substance.4
See 18 U.S.C. § 922(g)(3). A rational trier of fact could readily
find, for instance, that Clyburn possessed the shotgun to protect
the drugs that he had manufactured, as well as the place and the
means to perform the manufacturing operation.
4
Count Seven of the indictment charged Clyburn with, and the
jury found him guilty of, knowingly possessing a firearm as an
unlawful user of a controlled substance in violation of 18 U.S.C.
§ 922(g)(3).
9
Clyburn argues that the factors cited in Lomax do not support
the jury's finding. He notes that neither the evidence adduced at
trial nor common knowledge suggests that methamphetamine
manufacturers making the drug for their own use, rather than
distribution, arm themselves for protection. He admits that the
shotgun was accessible,5 loaded, and in the same room as the
methamphetamine, but points out that it is not the type of weapon
normally associated with drug trafficking, that it was loaded with
"bird-shot,"6 and that the methamphetamine was in closed
containers. The weapon was not stolen, and Clyburn contends that
the fact that his possession was illegal because he was a drug user
does not aid the analysis of whether the firearm was used in
5
Clyburn subsequently argues that the fact that he made no
effort to retrieve the shotgun when law enforcement officers
entered his home is proof that it was not accessible. Clyburn's
inaction does not prove inaccessibility. Trial testimony
established that the law enforcement officers announced their
presence before entering the home and finding Clyburn in the bed
with a female companion. In light of those circumstances,
scenarios other than inaccessibility exist to explain Clyburn's
failure to retrieve the shotgun, including the failure to notice
the officers' presence in time and the decision not to confront law
enforcement officers with a loaded firearm.
6
The shells in the shotgun contained seven and a half shot,
ammunition used primarily for bird and rabbit hunting. However,
the shotgun was not configured for hunting. Virginia law requires
that a shotgun, when being used for hunting, contain a plug, a
device designed to limit its capacity to a total of three shells.
Va. Code Ann. § 29.1-519(A)(2). Clyburn's shotgun did not have a
plug and was loaded with six shells. Although Virginia law does
not require that a plug limiting the shotgun's capacity to three
shells be installed unless the weapon is being used for hunting,
the jury was entitled to consider the shotgun's configuration when
considering the purpose of Clyburn's possession.
10
furtherance of a drug trafficking crime. Finally, Clyburn notes
that the shotgun was found during a raid on his home in a rural
part of southwest Virginia, an area where households typically
contain firearms, at a time when no drug manufacturing or use was
taking place.
The facts cited by Clyburn do not compel the conclusion that
he possessed the shotgun for purposes other than furthering his
drug trafficking crimes, even if they could support such a
conclusion. Although a 20-gauge shotgun may not be the firearm of
choice for individuals engaged in drug trafficking, a jury could
conclude that a loaded shotgun, even one loaded with bird shot,
would serve to protect Clyburn's operation. It could also conclude
that Clyburn would be more likely to risk conviction for illegal
possession of a firearm--a conviction he ultimately received--to
protect his manufacturing operation and the product thereof than to
engage in recreational hunting. Finally, the fact that the
methamphetamine was in closed containers with no drug manufacturing
or use taking place when the law enforcement officers executed the
search warrant does not mean that the shotgun was not being used to
protect the methamphetamine. "'[I]f the evidence supports
different, reasonable interpretations, the jury decides which
interpretation to believe.'" Lentz, 383 F.3d at 199 (quoting
United States v. Wilson, 118 F.3d 228, 234 (4th Cir. 1997)). In
the present case, the jury decided to believe that Clyburn
11
possessed the shotgun in furtherance of a drug trafficking crime,
and this was a reasonable interpretation of the evidence.
B.
On cross-appeal, Clyburn claims that the district court erred
in denying his motion as to Count One because the government
presented insufficient evidence from which the jury could have
found beyond a reasonable doubt that Clyburn engaged in a
conspiracy to manufacture fifty grams or more of a mixture or
substance containing a detectable amount of methamphetamine.
Clyburn concedes that the government carried its burden of proof
with respect to the existence of a conspiracy between him and the
Lovells. At oral argument, Clyburn's counsel further conceded that
Clyburn had manufactured more than fifty grams of methamphetamine.
Clyburn argues only that the government failed to adduce sufficient
evidence to prove that the conspiracy's purpose was to manufacture
at least fifty grams of methamphetamine. We disagree.
The relevant evidence is undisputed. Clyburn admitted that he
had been taught to manufacture methamphetamine by an individual
named George Harper and had been manufacturing the drug for
approximately six months before the search warrant was executed at
his home in August 2003. He also admitted that he had obtained
additional information about manufacturing methamphetamine from his
ex-girlfriend and her acquaintances. Finally, he admitted that,
12
after his arrest in August 2003, he had told the Lovells what he
needed to manufacture methamphetamine, that they had provided the
materials, and that he had manufactured methamphetamine using the
materials provided by them on multiple occasions.
Based on this evidence, the jury reasonably could have
concluded that all of the individuals who knowingly assisted
Clyburn, by providing either knowledge or materials, engaged in a
single conspiracy with the common objective of manufacturing
methamphetamine. A conspiracy can exist without every member of
the conspiracy knowing its full scope or all of the other members
and without every member participating in all of its activities or
for the entire length of its existence. United States v. Burgos,
94 F.3d 849, 858 (4th Cir. 1996) (en banc). Therefore, the jury
reasonably could have concluded that the conspiracy to manufacture
methamphetamine began when Harper taught Clyburn the manufacturing
method and continued through Clyburn's interactions with his ex-
girlfriend, her acquaintances and the Lovells, with Clyburn acting
as the linchpin for the conspiracy. The result of that conspiracy
was the manufacture of more than fifty grams of methamphetamine.7
7
Although Clyburn did not concede at trial that he had
manufactured more than fifty grams of methamphetamine, the jury
reasonably could have reached that conclusion based on Snedeker's
testimony as to the frequency with which Clyburn engaged in the
manufacturing process, the amount of pseudoephedrine he used each
time and the yield of the manufacturing method.
13
The jury reasonably could have inferred that the object of the
conspiracy was to manufacture that amount of methamphetamine.8
III.
For the foregoing reasons, we reverse the district court's
grant of Clyburn's motion for judgment of acquittal notwithstanding
the verdict as to Count Six of the indictment and remand to the
district court to reinstate the jury's verdict of guilty. We
affirm the district court's denial of Clyburn's motion for judgment
of acquittal notwithstanding the verdict as to Count One of the
indictment.
REVERSED AND REMANDED IN PART;
AFFIRMED IN PART
8
This conclusion does not, as suggested in the concurring
opinion, constitute impermissible speculation. It simply points,
in response to a challenge to the sufficiency of the evidence, to
evidence adduced at trial from which the jury could have concluded
that Clyburn and those individuals who provided him with knowledge
and materials for his manufacturing operation engaged in a single
conspiracy, the intent of which was the manufacture of
methamphetamine for the use of the individuals involved.
14
GREGORY, Circuit Judge, concurring:
I write separately to express my reasons for affirming
Clyburn’s conviction for conspiracy to manufacture fifty grams or
more of a mixture containing a detectable amount of methamphetamine
under Count One. Clyburn concedes that he engaged in a conspiracy
with the Lovells to manufacture methamphetamine on May 30, 2004,
and only challenges the amount attributable to that conspiracy.
According to Clyburn’s trial testimony, the Lovells asked him to
make methamphetamine for a party they were hosting at their
residence. J.A. 191-92. The Lovells supplied Clyburn with two
boxes of matches and four boxes of thirty-milligram Sudafed pills.
Clyburn cooked and gassed the pseudoephedrine contained in the
pills into a liquid form at his own residence. J.A. 213-14.
Clyburn admitted that he then brought over a bottle filled with
approximately 500 grams of “water which contained a detectable
amount of methamphetamine.” J.A. 192, 203, 213-14.* Thus,
Clyburn’s direct testimony supported the jury’s finding that he
manufactured at least fifty grams of a mixture containing a
detectable amount of methamphetamine as part of a conspiracy with
the Lovells. I would therefore resolve the merits of this claim on
that testimony alone.
*
Although Clyburn claimed that the methamphetamine contained
in the water was not usable, he admitted he frequently injected
methamphetamine into his arm or leg with a syringe filled with
water and methamphetamine. J.A. 172, 203-04.
15
The majority proceeds, however, to delve into other
conspiracies that may have occurred during the six-month period in
which Clyburn manufactured methamphetamine. In so doing, the
majority impermissibly veers toward speculation by attributing the
total amount of methamphetamine (approximately fifty to ninety
grams) Clyburn had manufactured during this six-month period to an
overarching conspiracy between Clyburn, his various girlfriends,
his girlfriends’ unidentified acquaintances, Harper, and the
Lovells. There was no evidence to support the theory that Clyburn
was the “lynchpin” of these numerous, smaller conspiracies, which
began and ended at various times during the six-month period. In
effect, the majority simply collapses distinct instances of
Clyburn’s methamphetamine production with unrelated individuals
into a single conspiracy between all of these individuals based
solely on the fact that they occurred during the six-month period.
Cf. United States v. Barsanti, 943 F.2d 428, 439 (4th Cir. 1991)
(“A single conspiracy exists where there is one overall agreement,
. . . or one general business venture. . . . Whether there is a
single conspiracy depends upon the overlap of [the] main actors,
methods and goals.” (internal quotation marks and citations
omitted)).
I otherwise concur in the opinion and the judgment.
16 | 01-03-2023 | 07-04-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1019366/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-4630
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
JERMAINE R. WOODBURY,
Defendant - Appellant.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Alexander Williams, Jr., District Judge.
(CR-03-501-AW)
Argued: March 17, 2006 Decided: May 17, 2006
Before NIEMEYER, LUTTIG,1 and KING, Circuit Judges.
Dismissed by unpublished per curiam opinion.
ARGUED: Michael Alan Wein, Greenbelt, Maryland, for Appellant.
Barbara Suzanne Skalla, Assistant United States Attorney, OFFICE OF
THE UNITED STATES ATTORNEY, Greenbelt, Maryland, for Appellee. ON
BRIEF: Allen F. Loucks, United States Attorney, Baltimore, Maryland,
Deborah A. Johnston, Assistant United States Attorney, Greenbelt,
Maryland, for Appellee.
1
Judge Luttig heard oral argument in this case but resigned
from the court prior to the time the decision was filed. The
decision is filed by a quorum of the panel pursuant to 28 U.S.C. §
46(d).
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
-2-
PER CURIAM:
Jermaine R. Woodbury pleaded guilty, pursuant to a plea
agreement, to distribution of 50 grams or more of cocaine base
(crack), in violation of 21 U.S.C. § 841(a), and the district court
sentenced him as a career offender to a term of 151 months
imprisonment.2 The court also imposed an alternative discretionary
sentence of 151 months imprisonment under 18 U.S.C. § 3553(a),
taking the Sentencing Guidelines as advisory. Under the terms of
his plea agreement, Woodbury waived his right to “appeal whatever
sentence was imposed, including any issues that relate to the
establishment of the guideline range, reserving only the right to
appeal from an upward or downward departure from the guideline range
that is established at sentencing.” He also reserved the right to
appeal a sentence that exceeded the maximum term provided by
statute.
Despite the waiver, Woodbury now seeks to appeal his career
offender status, arguing that the waiver is not enforceable in light
of the Supreme Court’s subsequent decision in Shepard v. United
States, 544 U.S. 13 (2005) (holding that Apprendi3 exception for
fact of a prior conviction limits sentencing court to charging
2
The district court departed downward from the Sentencing
Guidelines range of 262-327 months under U.S.S.G. § 4A1.3, p.s.
(2003) (departure for overstated criminal history), and U.S.S.G. §
5K1.1, p.s. (departure for substantial assistance).
3
Apprendi v. New Jersey, 530 U.S. 466, 490 (2000).
-3-
document, plea agreement and colloquy, statutory definition, or
defendant’s admissions to determine a disputed fact about a prior
conviction). We dismiss the appeal.
We review the validity of a waiver de novo, United States v.
Brown, 232 F.3d 399, 403 (4th Cir. 2000), and will uphold a waiver
of appellate rights if the waiver is valid and the issue being
appealed is within the scope of the waiver. United States v. Attar,
38 F.3d 727, 731-33 (4th Cir. 1994). A waiver is valid if the
defendant’s agreement to the waiver was knowing and voluntary.
United States v. Marin, 961 F.2d 493, 496 (4th Cir. 1992); United
States v. Wessells, 936 F.2d 165, 167 (4th Cir. 1991). Generally,
if the district court fully questions a defendant regarding the
waiver of his right to appeal during the colloquy under Federal Rule
of Criminal Procedure 11, the waiver is both valid and enforceable.
Wessells, 936 F.2d at 167-68. In United States v. Blick, 408 F.3d
162 (4th Cir. 2005), a case involving a waiver virtually
indistinguishable from the waiver in this case, we held that a
waiver of the right to appeal contained in a plea agreement that was
accepted before the Supreme Court’s decision in United States v.
Booker, 543 U.S. 220 (2005), was not invalidated by the change in
the law effected by Booker because the waiver was valid and the
issue raised was within the scope of the waiver. Blick, 408 F.3d
at 172-73.
-4-
Here, the record reveals that the district court conducted a
thorough Rule 11 inquiry and specifically questioned Woodbury about
whether he understood that he was waiving his appellate rights.
Despite Woodbury’s limited education and intellectual ability, the
record reveals that he was able to understand the consequences of
the waiver. We conclude that the waiver is valid.
Woodbury contends that his waiver of appeal rights is not
enforceable, first, because he did not agree to a sentence that he
views, post-Shepard, as an incorrect, unconstitutional, and illegal
application of the Sentencing Guidelines and the “Career Offender
Statute.”4 He also contends that certain provisions of his plea
agreement preclude a valid waiver of the district court’s
determination that he is a career offender. Finally, he contends
that the waiver does not preclude a challenge to his sentence on
constitutional grounds, citing Attar, 38 F.3d at 732.
Woodbury’s arguments are foreclosed by Blick, which rejected
the defendant’s claim that he could not have knowingly waived his
rights under Booker before it was decided. Blick, 408 F.3d at 170-
71. Like the defendant in Blick, Woodbury was sentenced under the
pre-Booker and pre-Shepard guidelines, exactly as contemplated in
his plea agreement. Blick, 408 F.3d at 172-73. In Blick, we
4
Woodbury is referring to 28 U.S.C. § 994(h), which directs
the Sentencing Commission to assure that the guidelines specify a
sentence at or near the maximum authorized prison term for adults
who commit a third felony drug offense or violent crime.
-5-
distinguished the defendant’s situation from the one presented in
Attar and United States v. Broughton-Jones, 71 F.3d 1143 (4th Cir.
1995), where “the errors allegedly committed by the district courts
were errors that the defendants could not have reasonably
contemplated when the plea agreements were executed.” Blick, 408
F.3d at 172.
Woodbury agreed to forego his right to appeal the district
court’s determination of his career offender status, agreed to give
up his right to appeal “whatever sentence is imposed, including any
issues that relate to the establishment of the guideline range,” and
reserved only the right to appeal a departure or a sentence that
exceeded the statutory maximum. Woodbury’s claim that the district
court erred in sentencing him as a career offender falls squarely
within the scope of his waiver.
Accordingly, we dismiss the appeal.
DISMISSED
-6- | 01-03-2023 | 07-04-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1019367/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-4505
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
EUGENE BERNARD MOSS,
Defendant - Appellant.
Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte. Richard L. Voorhees,
District Judge. (CR-04-160-V)
Submitted: April 19, 2006 Decided: May 17, 2006
Before TRAXLER, SHEDD, and DUNCAN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
James E. Gronquist, NIXON, PARK, GRONQUIST & FOSTER, P.L.L.C.,
Charlotte, North Carolina, for Appellant. Gretchen C. F. Shappert,
United States Attorney, Keith M. Cave, Assistant United States
Attorney, Charlotte, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Eugene Bernard Moss pled guilty without a plea agreement
to one count of possession of a firearm by a convicted felon, in
violation of 18 U.S.C. § 922(g)(1) (2000). The district court
sentenced him to 115 months in prison. Moss timely appeals his
sentence.
Moss first contends that his sentence violates the Sixth
Amendment, pursuant to United States v. Booker, 543 U.S. 220
(2005). As Moss correctly notes, Booker held that the mandatory
application of the federal sentencing guidelines to impose
sentencing enhancements based on facts found by the court by a
preponderance of the evidence violated the Sixth Amendment. Id. at
233-34. However, the district court treated the guidelines as
advisory in determining Moss’ sentence and the use of the
preponderance of the evidence standard while applying the
guidelines as advisory does not violate the Sixth Amendment.
United States v. Morris, 429 F.3d 65, 72 (4th Cir. 2005).
Moss also argues that the district court erred by
allocating two criminal history points under U.S. Sentencing
Guidelines Manual §§ 4A1.1(b) and 4A1.2(e) (2003) for an unlawful
concealment adjudication that occurred when he was eleven years
old. We find that such an adjudication did not constitute a
“juvenile status offense” under USSG § 4A1.2(c)(2) and that his
commitment to the Office of Juvenile Justice for violating
probation for that adjudication amounted to confinement under USSG
- 2 -
§ 4A1.2(d)(2). Consequently, the unlawful concealment adjudication
was properly included in Moss’ criminal history calculation.
For these reasons, we affirm Moss’ sentence. 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/251207/ | 279 F.2d 334
M. P. APPLEBY, Jr., Appellant,v.KEWANEE OIL COMPANY, Appellee.
No. 6251.
United States Court of Appeals Tenth Circuit.
May 28, 1960.
G. C. Spillers, Jr., Tulsa, Okl. (G. C. Spillers and Jack R. Givens, Tulsa, Okl., on the brief), for appellant.
Robert D. Hudson, Tulsa, Okl. (W. Perry Dornaus, Tulsa, Okl., on the brief), for appellee.
Before MURRAH, Chief Judge, and BRATTON and LEWIS, Circuit Judges.
MURRAH, Chief Judge.
1
Appellant Appleby brought this diversity suit to collect $20,000 allegedly promised him for services rendered in providing information leading to the purchase of certain Texas oil and gas leases.
2
Appleby claimed that in February 1958, he offered to procure for Kewanee the leases, then owned by Bell Oil & Gas Company, for $675,000, and to furnish engineering data on the leases, all for the sum of $20,000 if Kewanee decided to purchase them; that Kewanee accepted the offer and Appleby furnished the data, after which Kewanee informed Appleby that they were not interested; and that Kewanee did purchase the same leases directly from Bell for $675,000 about a month later. Kewanee denied liability on the grounds that Appleby did not inform them that he was acting as agent for one Pringle in the transaction,1 nor that he had any interest in the properties. The issues were submitted to a jury who returned a $20,000 verdict for Appleby, after which the trial court rendered judgment n. o. v. for Kewanee on the grounds that while acting as broker representing Kewanee, Appleby attempted to realize a secret profit from the transaction, and did not disclose to Kewanee that he was also agent for Pringle in the same transaction; in short, that he was an unfaithful agent of Kewanee and therefore could not recover his bounty.
3
As the case thus comes to us on appeal, we must assume that it was properly submitted to the jury on the issue of agency.2 In any event, it is sufficient for our purposes that the judgment n. o. v. rests squarely upon the hypothesis that Appleby was, as a matter of law, the unfaithful agent of Kewanee. And it is axiomatic that as an unfaithful agent, he could not recover on his agency contract. See Miller v. Dittmeier, Okl., 290 P.2d 765; Restatement, Agency 2d § 469. And since Appleby undeniably stood to reap a secret profit from the transaction, it is equally clear that if he was Kewanee's agent, he was an unfaithful one. The only question then was whether Appleby was Kewanee's agent in the transaction, and this is for the jury unless reasonable minds could reach but one conclusion from the evidence. See Mitton v. Granite State Fire Ins. Co., 10 Cir., 196 F.2d 988; Wells v. Mayer, 185 Okl. 355, 91 P.2d 784; 2 Am.Jur., Agency § 454. Since the trial court concluded as a matter of law in the face of a contrary verdict that Appleby was Kewanee's agent, our function on appeal is to sift the evidence and the inferences to be drawn therefrom to determine if there is any reasonable basis for concluding otherwise. See Lopez v. Denver & Rio Grande Western R. Co., 10 Cir., 1960, 277 F.2d 830; Kippen v. Jewkes, 10 Cir., 258 F.2d 869.
4
The agency relationship exists if the conduct of the parties manifests that "* * * one of them is willing for the other to act for him subject to his control, and that the other consents so to act." Farmers Nat. Grain Corp. v. Young, 187 Okl. 298, 102 P.2d 180, 181, Syl. 1; and see also Restatement, Agency 2d § 1. Appellee's argument that one may be a broker without being under the principal's control misconceives the meaning of "control" by limiting it to its physical, master-servant sense, which to be sure is inapplicable to brokers. We know, however, that a broker is but a species of agent who may also be an independent contractor. See Restatement, Agency 2d § 1, Comment e; 8 Am. Jur., Brokers §§ 2, 4, 14, 85. And, a cornerstone of the agency relationship is the right of the principal "to give lawful directions which the agent is under a duty to obey if he continues to act as such." Restatement, Agency 2d § 14, Comment b. A few selections from the evidence will suffice, we think, to demonstrate a reasonable factual basis for saying that Kewanee lacked this requisite right of control.
5
Nothing was ever put into writing between Appleby and Kewanee. According to the testimony of a Kewanee agent, Appleby offered to "deliver the properties" on a "take it or leave it basis." And, there was evidence that Kewanee knew that title would come to them from Pringle. Kewanee was anxious for Appleby to show some sort of written authority to procure the leases, e. g., that he had purchased an option for them, and Appleby never produced any such authority, though at one point he falsely told them that he had an option. After negotiations between Appleby and Kewanee had proceeded for about a month, Kewanee contacted Bell to determine if Appleby had authority to offer the leases for sale, and were informed that he did not. Within a few days thereafter, Kewanee told Appleby that they were no longer interested in the leases, but that if they did later purchase them, they would pay Appleby his $20,000.3 Kewanee did in fact purchase the leases from Bell soon thereafter.
6
To be sure, most of these evidential facts are controverted, but if believed, they constitute a reasonable basis for concluding that Appleby was not representing Kewanee's interests in the transaction, i. e., was not acting under the guidance, direction, or right of control by Kewanee. Rather it may be concluded that he was acting freely and independently in his own interest, without duty to Kewanee, and that he was guided by Kewanee's interests only to the extent that he hoped to present them a deal which they would take rather than leave. See also Jameson v. Goodwin, 66 Okl. 146, 170 P. 241; King v. Coombs, 36 Okl. 396, 122 P. 181; Restatement, Agency 2d § 14K. And thus the cases of Brockman v. Delta Mfg. Co., 184 Okl. 357, 87 P.2d 968; Levy v. Gross, 46 Okl. 626, 149 P. 237; and Plotner v. Chillson & Chillson, 21 Okl. 224, 95 P. 775, are inapplicable, because in each of those cases it was uncontested on appeal that the middleman was in fact a broker or agent.
7
The judgment is accordingly reversed and remanded with directions to reinstate the verdict.
Notes:
1
It is an established fact that prior to dealing with Kewanee, Appleby had called Pringle's attention to the leases; that Pringle had arranged to buy them from Bell for $600,000, and that he and Pringle had agreed to split any profit they could make by reselling at a greater price. Appleby claimed that he informed Kewanee that ownership of the leases would go from Bell to Pringle and from Pringle to Kewanee, but said nothing of the profit he and Pringle expected to make on the exchange
2
According to appellee's brief, the court instructed the jury that: "If you find by a fair preponderance of the evidence that a responsible officer or agent of the defendant company agreed with the plaintiff to pay plaintiff $20,000.00 if plaintiff could and would deliver title to the lease properties in question for the sum of $675,000.00; and that defendant after making such agreement and after plaintiff had lived up or could have lived up to the promises he made, but for defendant's conduct, went on to purchase such properties from Bell directly and refused to pay plaintiff the commission, then such would constitute a breach of contract by the defendant and plaintiff would be entitled to a verdict for $20,000.00."
3
Such promises to pay for services previously rendered may be of binding effect. See Kaiser v. Fadem, Okl., 280 P.2d 728 | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/270132/ | 354 F.2d 491
Alice H. BOTSFORD and J. R. Goodwin, Appellants,v.The CITY OF NORMAN, Oklahoma, a municipal ocrporation, Appellee.
No. 7972.
United States Court of Appeals Tenth Circuit.
Dec. 30, 1965.
Charles Huddleston, Enid, Okl. (W. J. Otjen, Frank Carter and W. J. Otjen, Jr., Enid, Okl., on the brief), for appellants.
William F. Collins, Oklahoma City, Okl., John M. Luttrell and Fielding D. Haas, Norman, Okl. (Luttrell, Luttrell & Pendarvis, Norman, Okl., McClelland, Collins, Sheehan, Bailey, Bailey & Short, Oklahoma City, Okl., and Gorsuch, Kirgis, Campbell, Walker & Grover, Denver, Colo., on the brief), for appellee.
Before PICKETT, LEWIS and HILL, Circuit Judges.
HILL, Circuit Judge.
1
This is an action under the Declaratory Judgment Act, 28 U.S.C. 2201, seeking to nullify certain ordinances of the City of Norman, Oklahoma, whereby property belonging to the appellants was annexed to the City of Norman.1 Jurisdiction is based upon diversity of citizenship, 28 U.S.C. 1332. Both appellants (plaintiffs below) are residents of California and the appellee defendant is an Oklahoma Municipal Corporation. The matter was tried to the court below largely upon the pleadings, stipulation and exhibits of the parties. The trial court held the annexation ordinances to be valid2 and from that judgment the plaintiffs have appealed.
2
The City of Norman, Oklahoma, is populated by about 34,000 inhabitants exclusive of the student body of the University of Oklahoma which numbers about 12,000 resident students. The appellants are owners of land located approximately thirteen miles east of the City of Norman and, at the time of the annexation in question, the appellants' property was used exclusively for farm and ranching enterprises.
3
The essential facts are undisputed. In early 1961, it was determined that a reservoir, to be known as the Little River Reservoir, would be constructed approximately twelve to fourteen miles east of the City of Norman. The purpose of the reservoir was to provide domestic water for the cities of Norman, Midwest City and Del City, Oklahoma. Concern soon arose by the interested parties over the best way to protect the water and the watershed of this new reservoir. An attempt was first made by the City of Norman to enlist the help of the county officials of Cleveland County in which the watershed and the City of Norman are located, but no suitable agreement could be reached. Thereafter the Norman City Commission decided the only practical way to assure the protection of the watershed and the reservoir was to annex the entire reservoir and watershed area which comprises approximately 112,000 acres and thereafter subject that area to the controls and ordinances of the City of Norman.
4
The Norman City Commission on October 18, 1961, annexed by city ordinance #1311 a thin strip of land 67 feet wide extending from the lower east edge of the old city limits, approximately fourteen miles due east and then five miles north. The 67 foot wide strip of land annexed comprises the southern and eastern boundary of the disputed land area which was eventually annexed. The strip was annexed in reliance upon a 'Petition for Annexation' signed on October 18, 1961, by the owners of the strip of land. Ordinance #1311 recited it was an 'Emergency Ordinance' in accordance with the City Charter, Article 12, 5, and therefore became effective immediately rather than the customary thirty days after its enactment.3
5
Thereafter, having annexed the southern and eastern boundaries of the entire lend area sought, and by virtue of the old city limits bordering the desired land on the west, the Norman City Commission in reliance upon 11 O.S.A. 481, which generally speaking allows annexation without consent of undeveloped land which is adjacent to city limits on three sides, proceeded in rapid succession to pass ordinances #1312 through #1320 which completed the annexation of the entire watershed reservoir area. All of the property included in these ordinances comprised a contiguous tract of land. With the exception of ordinances #1311, 1315 and 1316, the land annexed was not taken in with the consent of the owners of the majority of the whole number of acres. Appellant Goodwin's land was annexed under #1312 and Botsford's under #1314. All the latter ordinances, i.e., 1312 through 1320 were like #1311, emergency ordinances and became effective immediately.
6
The key provision with which we are here concerned is 11 O.S.A. 481 which provides:
7
'Authority to change city limits-- Consent of owners-- Certain tracts not subject to city taxes
8
The city council, in its discretion, may add to the city such other territory adjacent to the city limits as it may deem proper, and shall have power to increase or diminish the city limits in such manner as in its judgment and discretion, may redound to the benefit of the city: Provided, that in no case shall any additional territory, except when subdivided into tracts or parcels of less than five acres with more than one residence thereon, be added to the city limits without the consent in writing of the owners of a majority of the whole number of acres owned by residents of the territory to be added, except that when three sides of such additional territory is adjacent to, or abutting on, property already within the city limits, such territory may be added to the city limits without the consent hereinbefore mentioned: Provided, Further, that where the territory sought to be added is separated from the city limits by an intervening strip less than four rods in width upon the land so detached by such strip shall be considered as adjacent or abutting within the meaning of this section; And Provided, Further, that tracts of land in excess of forty acres shall not be subject to city taxes.'4
9
Notice the opening clause of the above provision is unconditional and places no restriction on a city's annexation of property except that the property must be adjacent. However we are not specifically concerned with that clause. The parties stipulated that prior to the annexation, none of the appellants' property had been subdivided into tracts or parcels of less than five acres with more than one resident thereon. Hence, in light of the above statute, it is abundantly clear that the property annexed could only have been included within the city boundaries by the consent of the owners of a majority of the whole number of acres of the property taken or if three sides of the property sought to be taken were bounded by property within the city limits.
10
It is unquestionably true that the annexation of territory by a municipality is a pure legislative function granted to municipalities by the legislature of the State. The primary judicial function upon review of this municipal function is to insure that the municipality has acted within the scope of the legislative authority and that such action is reasonable. Discretionary matters involving economic or political considerations are outside judicial cognizance. See City of Bethany v. District Court of Okl. County, 200 Okl. 49, 191 P.2d 187; 37 Am.Jur., Municipal Corporations, 24 and 25.
11
We then turn here to the facts to see if the annexations did meet the statutory requirements. Ordinance #1311 was enacted after the city had secured the consent of the owners of the strip of land included in it and the parties stipulated to this fact. Therefore the only prerequisite necessary to validate this annexation ordinance was that the land it encompassed be adjacent to the then existing boundaries. The trial court found that it was and we agree. True, the 67 foot wide strip of land did extend for many miles in an easterly direction away from the old city; nevertheless it was adjacent where it joined the eastern boundary of the city and that connection is enough to meet the adjacent requirements. See Sharp v. Oklahoma City, 181 Okl. 425, 74 P.2d 383. In the latter case, the Oklahoma Supreme Court made it clear that the law does not require the territory added be in compact form or in any particular shape. Furthermore it is stated in 37 Am.Jur., Municipal Corporations, 27, that: 'While the general rule is that land cannot be annexed to a city or town unless it is contiguous thereto, it is not necessary that each and every tract of land sought to be annexed shall be contiguous to the municipality. If all of the tracts are contiguous to each other, and one of them is contiguous to or adjoins the municipality, that is sufficient.' Therefore it seems to us the Norman city Commission properly adhered to the requirements of 11 O.S.A. 481 in annexing the strip of land contained in ordinance #1311. Appellants however argue that the consent of the landowners was not 'consent' to such annexation but instead a 'Petition for Annexation' under 11 O.S.A. 482,5 and therefore necessitated the publication of notice requirements of 11 O.S.A. 484 before the annexation became valid.6 This question was again answered in the Sharp case, supra, where the court stated that the consent sought by the city commission may be shown by petition or any other writing.
12
The next question to decide is when ordinance #1311 took effect. The ordinance recited that it was an emergency ordinance and by virtue of Article X, 3, of the City Charter would take effect immediately. There is a requirement in Article X, 3, of publication, supra Note 3, but in the case of emergency ordinances, this is not a prerequisite to its immediate validity. Appellants do not stress 11 O.S.A. 579 which provides inter alia, '* * * and no ordinance having any object beyond the bare appropriation of money shall be in force until published as herein provided.' In any event however, 11 O.S.A. 564 provides that validly enacted city charters will control over other conflicting laws even state laws and that would seem to answer the question. See Whitson v. City of Ada, 171 Okl. 491, 44 P.2d 829. All the ordinances in issue were eventually published according to the requirements in the City Charter. Therefore, we must conclude that ordinance #1311 was properly enacted and became effective immediately upon adoption.
13
The remaining ordinances, #1312-1320, which brought the larger remaining area into the city were enacted subsequent to ordinance #1311 and are directly dependent upon #1311 for their own validity.7 After the land included within ordinance #1311 was included, the remaining land to be annexed was bordered on the west by the city limits of Norman and on the south and east by the 67 foot strip of land previously annexed by #1311.
14
The situation presented therefore is that contemplated in 11 O.S.A. 481 where it authorizes the annexation of land even without consent where the land is adjacent to present city limits on three sides. Furthermore, contrary to appellants' contentions, it is obvious that the City Commission considered the entire land area in this watershed as a whole and not as individual tracts even though they used several ordinances to annex the land.8
15
After examining all the ordinance in question, we are convinced, as was the trial court, that the City Commission annexed the land in question in conformity with 11 O.S.A. 481. In addition, municipal need must be liberally construed and the need here to protect the city's water supply seems quite reasonable. Cf. City of Sugar Creek v. Standard Oil Co., 8 Cir., 163 F.2d 320. But even assuming this, appellants urge one more point. They contend that municipalities exist as governmental subdivisions to provide local services to the residents thereof; and where such municipality purports to extend its boundaries to encompass territory and residents for whom these services cannot be extended, then such attempted annexation is void. Assuming arguendo this is a correct statement, the facts do not support its application. The trial court expressly found, based upon the uncontroverted testimony of various Norman city officials, that since the date of annexation, the city has furnished police and fire protection, street and road assistance and many other services to the annexed area. Additionally, the city planner of Norman expressly stated that this area is included in future plans of expansion of the city. Far from being clearly wrong, the trial court's finding in this regard appears to be correct.
16
Other issues raised by the appellants have been examined and found to be without merit.
17
Affirmed.
1
The defendant city did not raise the issue of plaintiffs' capacity to bring this action and therefore that issue is waived. City of Ada v. Whitaker, 202 Okl. 249, 212 P.2d 482
2
226 F.Supp. 258
3
City Charter, Article X, 3, provides:
'All ordinances passed by the Commission, except Emergency Ordinances, shall take effect and become valid at the end of thirty days from the date of passage of such ordinance. All ordinances shall be published either in a daily or weekly newspaper, published and of general circulation in the City of Norman, such publication to be within ten days from the passage of the ordinance, except as otherwise provided by the Constitution and laws of this State.'
City Charter, Article XII, 5, provides:
'EMERGENCY ORDINANCES: an emergency ordinance is an ordinance which in the judgment of the Commission is necessary for the immediate preservation of the peace, health, or safety, and which should become effective prior to the time an ordinance would become effective. Every such ordinance shall contain, as a part of its title, the words 'and declaring an emergency', and in a separate section herein called the emergency section, shall declare the emergency. The Commission shall vote on the emergency section separately and must adopt the section by vote of at least 6/7 of all members of the Commission, which vote shall be by yeas and nayes and shall be entered in the journal. An emergency ordinance shall take effect upon passage unless it specifies a later time.'
4
This provision was amended in 1963 but only in regard to taxation of some annexed property
5
'Annexation or petition of three-fourths of voters and property owners
On petition in writing signed by not less than three-fourths of the legal voters an by the owners of not less than three-fourths (in value) of the property in any territory contiguous to any incorporated city or town and not embraced within the limits thereof, the city council of the city or the board of trustees of the town, as the case may be, shall by ordinance annex such territory to such city or town upon filing a copy of such ordinance with an accurate map of the territory annexed (duly certified by the mayor of the city or the president of the board of trustees of the town), in the office of the register of deeds of the county where the annexed territory or the greater portion of it is situated, and having the same recorded therein.'
6
11 O.S.A. 484 provides:
'Publication of notice
No final action shall be taken by the city council or the board of trustees, as the case may be, upon any petition presented in pursuance of the provisions of the two preceding sections 1 until notice of the presentation of such petition has been given by the petitioners by publication at least once in each week for two successive weeks in some newspaper published in the city or town where the petion has been presented; or if no newspaper be published in such city or town, then in the newspaper published nearest to such city or town.
1
Sections 482 and 483 of this title.'
7
Appellants rely on Chickasha Cotton Oil Co. v. Rogers, 160 Okl. 164, 16 P.2d 112, to defeat this type of annexation. A careful reading of that case reveals that the second ordinance was defeated not because of its dependency upon the first ordinance but because, as the court so carefully pointed out, the first ordinance under the laws at that time had not yet become effective when the second ordinance was passed
8
Ordinance #1311 through #1314 which includes all of the appellants' land were enacted on October 18, 1961. The remaining ordiances were passed on October 21, 1961 | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/547482/ | 913 F.2d 108
James F. BOYER and Mary R. Boyer,v.SNAP-ON TOOLS CORPORATION, Kenneth Baldwin and Keith A. Kaiser.Appeal of James F. BOYER and Mary R. Boyer.
No. 90-5221.
United States Court of Appeals,Third Circuit.
Argued Aug. 2, 1990.Decided Sept. 5, 1990.
Harry W. Reed (argued), Davis, Katz, Buzgon, Davis, Reed & Charles, Lebanon, Pa., for appellants.
John F. Dienelt (argued), Gordon W. Hatheway, Jr., Lisa S. Garbowitz, Reed, Smith, Shaw & McClay, Washington, D.C., Robert B. Hoffman, Reed, Smith, Shaw & McClay, Harrisburg, Pa., for appellees.
Before SLOVITER, SCIRICA and ALITO, Circuit Judges.
OPINION OF THE COURT
SLOVITER, Circuit Judge.
1
This is an appeal by a former dealer of Snap-on Tools Corporation of the district court's grant of summary judgment for defendants Snap-on and two of its employees. We must consider at the outset whether there was subject matter jurisdiction on the basis of diversity of citizenship and whether the district court erred in denying the plaintiffs' motion to remand.
I. Procedural Background and Facts
2
Appellant James Boyer and Snap-on Tools Corporation, a corporation which sells automotive hand tools to a nationwide network of dealers for resale to automechanics, entered into a Dealership Agreement (Agreement) in July, 1985. In meetings leading to the signing of the agreement, Boyer met with appellee Kenneth Baldwin, a branch manager at Snap-on, and Keith Kaiser, a Snap-on field manager. Boyer invested more than $40,000 in his dealership, had an inventory of more than $29,000 worth of Snap-on tools, and mortgaged his home in order to borrow money to invest in the dealership. By late 1987 and early 1988, the dealership proved unprofitable for Boyer and Snap-on, and Boyer was orally advised by Snap-on personnel at a January 14, 1988 meeting that he would be terminated.
3
The Snap-on Agreement provided that on termination of a dealership "with the consent of the Company, the Dealer may sell to the Company at the price paid by the Dealer any of the Products which have been purchased by the Dealer and which remain in its possession in new, saleable condition." App. at 52. In accordance with this provision, Boyer participated in a two-day inventory and turn-in of his tools at the Snap-on branch office in Harrisburg on February 11 and 12, 1988. On the first day, Baldwin presented Boyer with a Termination Agreement that included a release clause which specified, inter alia, that "both parties to this Agreement freely waive any and all claims they may have against each other arising out of the Dealership terminated by this Agreement." App. at 149.
4
Boyer averred in an affidavit and testified on deposition that he was told by a Snap-on employee, Michael Brown, on the first day of the inventory turn-in that if he did not sign the termination agreement (which contained the above release), Snap-on would not pay Boyer for the turned-in tools or other funds allegedly owed by Snap-on to Boyer, that Brown repeated this the second day of the tool turn-in, and that Boyer signed the Agreement later that day based on Brown's representations, because he believed that he would otherwise lose his home and car. Boyer testified that he consulted with his wife, but not an attorney, between the first and second days of the tool turn-in.
5
The Boyers,1 residents of Pennsylvania, filed this complaint on December 13, 1988 in the Court of Common Pleas of Lebanon County, Pennsylvania, against Snap-on, a Delaware Corporation with its principal place of business in Wisconsin, and Baldwin and Kaiser, both residents of Pennsylvania. The complaint alleged fraud and deceit, fraudulent conspiracy, interference with contract, wrongful termination of dealership, violation of Pennsylvania Unfair Trade Practices and Consumer Protection Law, and intentional infliction of emotional distress.
6
In his detailed 47-page complaint, Boyer alleges five broad aspects of defendants' fraud and misrepresentations. First, Boyer contends that Snap-on through its written materials and through oral statements of Kaiser misrepresented the profitability of the dealership and the risk of failure during the period of time leading up to the signing of the Agreement. Second, he contends that they fraudulently misrepresented the number of customers in Boyer's territory in an inaccurate survey. Third, he alleges that both Kaiser and Baldwin misrepresented the amount of initial capital needed to begin a dealership and that his dealership was bound to fail because he was undercapitalized.
7
Fourth, Boyer alleges that while he was a dealer Snap-on engaged in a fraudulent scheme through its "Promotional Tools Program" which involved a mandatory shipment of tools selected by Snap-on, initially represented to be $200 to $300 weekly but which increased by 1987 to $1,112 per week. Because he did not fulfill all of the requirements of that program, he was penalized by being barred from placing orders for his customers during 56 weeks of his dealership. Finally, Boyer alleges wrongful termination of his dealership. In addition to fraud, the complaint alleges breach of contract and warranties against Snap-on.
8
The defendants filed a removal petition on January 9, 1989. Although on the face of the complaint there was no federal question or complete diversity of citizenship because the Boyers and the individual defendants were Pennsylvania citizens, the removal petition alleged that Baldwin and Kaiser were "fraudulently and improperly joined" because the complaint does not state a cause of action against the individual defendants, because these defendants were alleged to have acted only in the interests of Snap-on and were therefore privileged under Pennsylvania law, and because Boyer signed a release against the individual defendants.
9
The Boyers filed a motion to remand under 28 U.S.C. Sec. 1447(c). The district court, without expressly holding that Baldwin and Kaiser were sham defendants, denied the motion to remand on the ground that the "in-state defendants would prevail in a motion for summary judgment for failure to state a cause of action by reason of the release in the termination agreement." App. at 160.
10
The defendants thereafter moved for summary judgment, primarily relying on the release clause in the Termination Agreement. The Boyers opposed the motion, arguing that the release was procured through fraud, economic duress, or in violation of Snap-on's fiduciary duty; that the release covered claims of which the Boyers were unaware; that at the time the Boyers signed the release they were unaware of the alleged fraudulent practices, which they first learned of in July 1988, when they saw an NBC television news story and a Forbes Magazine article detailing Snap-on's practices; and that Mary Boyer, who did not sign the release, had an independent action against the defendants.
11
The district court granted the motion for summary judgment. The court rejected Boyer's claim of economic duress and fraud in the procurement of the release, and held that the release was broad enough to cover undiscovered fraud. The Boyers filed a timely appeal.
II. Discussion
12
A fortiori, we do not reach the propriety of the district court's grant of summary judgment unless we are satisfied that the district court had subject matter jurisdiction. That, in turn, is dependent upon its decision to disregard the presence of the two individual defendants whose citizenship would destroy diversity.
13
As a general proposition, plaintiffs have the option of naming those parties whom they choose to sue, subject only to the rules of joinder of necessary parties. While the plaintiffs' decision in this regard may have repercussions for purposes of diversity jurisdiction, there is no reason for a court to interfere with this inevitable consequence of a plaintiff's election unless the plaintiff had impermissibly manufactured diversity or used an unacceptable device to defeat diversity.
14
There are substantially more cases dealing with a plaintiff's attempt to manufacture diversity than to destroy it. The first Judiciary Act of 1789, 1 Stat. 73, sought to restrain manufactured diversity jurisdiction by virtue of assignment of the plaintiff's claim, and a more general effort to avoid collusively created diversity was enacted in 1875. See Pub.L. No. 61-7031, 36 Stat. 1087, 1098. The current version of that statute, codified at 28 U.S.C. Sec. 1359, requires the federal court to dismiss or remand a suit in which any party, by assignment or otherwise, has been improperly or collusively joined to invoke federal diversity jurisdiction. See generally Kramer v. Caribbean Mills, Inc., 394 U.S. 823, 89 S.Ct. 1487, 23 L.Ed.2d 9 (1969).
15
In contrast, until 1988 there was no statutory ban directed to the avoidance of federal diversity jurisdiction.2 As the commentary in the highly regarded ALI Study of the Division of Jurisdiction between State and Federal Courts (1969) notes, "[t]here is ... a qualitative difference between a device designed to invoke federal jurisdiction and one designed to avoid it. In the former instance, the already overburdened federal courts are being asked to adjudicate a case that, in the absence of the device, would fall outside their statutory, and perhaps their constitutional, competence. In the latter, if the device succeeds, a case depending on state law merely remains in the state court." Id. at 160. Of course, we recognize, as did the ALI Reporter, that "[s]o long as federal diversity jurisdiction exists ... the need for its assertion may well be greatest when the plaintiff tries hardest to defeat it." Id. However, that concern cannot defeat plaintiff's right to retain as defendants those parties properly joined, even if the consequence is that defendants must litigate in state court.
16
Defendants removed Boyer's action from state court pursuant to 28 U.S.C. Sec. 1441. Plaintiffs' motion to remand was filed pursuant to 28 U.S.C. Sec. 1447(c) which provides, in relevant part, that "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. Sec. 1447(c) (1988). The removal statutes "are to be strictly construed against removal and all doubts should be resolved in favor of remand." Steel Valley Auth. v. Union Switch and Signal Div., 809 F.2d 1006, 1010 (3d Cir.1987) (citing Abels v. State Farm Fire & Cas. Co., 770 F.2d 26, 29 (3d Cir.1985)), cert. dismissed sub nom. American Standard v. Steel Valley Auth., 484 U.S. 1021, 108 S.Ct. 739, 98 L.Ed.2d 756 (1988). Because a party who urges jurisdiction on a federal court bears the burden of proving that jurisdiction exists, a removing party who charges that a plaintiff has fraudulently joined a party to destroy diversity of jurisdiction has a "heavy burden of persuasion." Steel Valley, 809 F.2d at 1010, 1012 n. 6 (quoting B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir.1981)).
17
This court has recently stated that joinder is fraudulent "where there is no reasonable basis in fact or colorable ground supporting the claim against the joined defendant, or no real intention in good faith to prosecute the action against the defendant or seek a joint judgment." Abels, 770 F.2d at 32 (quoting Goldberg v. CPC Int'l, 495 F.Supp. 233, 239 (N.D.Cal.1980)); see also 1A Moore's Federal Practice, p 0.161 at 274-76 (2d ed. 1989). A district court must resolve all contested issues of substantive fact in favor of the plaintiff and must resolve any uncertainties as to the current state of controlling substantive law in favor of the plaintiff. See B., Inc., 663 F.2d at 549; Carriere v. Sears, Roebuck and Co., 893 F.2d 98, 100 (5th Cir.1990), petition for cert. filed, 58 U.S.L.W. 3802 (May 31, 1990) (No. 89-1885). "If there is even a possibility that a state court would find that the complaint states a cause of action against any one of the resident defendants, the federal court must find that joinder was proper and remand the case to state court." Coker v. Amoco Oil Co., 709 F.2d 1433, 1440-41 (11th Cir.1983).
18
Turning to this case, we note first that there is no suggestion by defendants that plaintiffs have falsely alleged their Pennsylvania citizenship or that of Baldwin and Kaiser. In other words, this is not a situation where "there has been outright fraud in the plaintiff's pleadings of jurisdictional facts." B., Inc., 663 F.2d at 549; see Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir.1983), cert. denied, 464 U.S. 1039, 104 S.Ct. 701, 79 L.Ed.2d 166 (1984).
19
Second, this is not a case where the action against the individual defendants is defective as a matter of law. See 1A Moore's Federal Practice p 0.161 at 274 ("The joinder may be fraudulent if the plaintiff fails to state a cause of action against the resident defendant, and the failure is obvious according to the settled rules of the state."). Under Pennsylvania law there is a cause of action against employees whose fraud and misrepresentations contributed to plaintiff's damages, even if these actions were taken in the course of their employment. See Loeffler v. McShane, 372 Pa.Super. 442, 446-47, 539 A.2d 876, 878 (1988) (quoting Wicks v. Milzoco Builders, Inc., 503 Pa. 614, 621, 470 A.2d 86, 90 (1983)) ("officer of a corporation who takes part in the commission of a tort by the corporation is personally liable therefor"); see also Village at Camelback Property Owners' Ass'n v. Carr, 371 Pa.Super. 452, 462-63, 538 A.2d 528, 533-34 (1988), aff'd, 572 A.2d 1 (1990); Moy v. Schreiber Deed Sec. Co., 370 Pa.Super. 97, 101-03, 535 A.2d 1168, 1170-72 (1988); Shonberger v. Oswell, 365 Pa.Super. 481, 530 A.2d 112 (1987). Thus, there is no basis to analogize this case to Tedder v. F.M.C. Corp., 590 F.2d 115 (5th Cir.1979) (per curiam), cited by defendants, where the court held that joinder of non-diverse fellow employees could be disregarded because there was no reasonable basis under which plaintiffs could avoid the state's broad grant of immunity conferred on fellow employees.
20
Defendants argue that the court may pierce the pleadings to determine whether there has been a fraudulent joinder. Assuming some piercing is appropriate to decide whether plaintiffs have asserted a "colorable" ground supporting the claim against the joined defendant, that inquiry is far different from the summary judgment type inquiry made by the district court here. The limited piercing of the allegations to discover fraudulent joinder is illustrated by Smoot v. Chicago, Rock Island & Pac. R.R. Co., 378 F.2d 879 (10th Cir.1967), where the non-diverse employee of defendant railroad had uncontestedly discontinued his employment with the railroad 15 months before the accident in question. See also Lobato v. Pay Less Drug Store, Inc., 261 F.2d 406 (10th Cir.1958) (absence of allegations that individual non-diverse defendants participated in tortious acts alleged).
21
In this case, we need not decide the extent of permissible inquiry into the validity of the release of Boyer's claims against Baldwin and Kaiser, the non-diverse defendants, because that issue, which the district court stated "is likely to be dispositive of plaintiffs' claims against Baldwin and Kaiser," is equally applicable to Snap-on. In fact, ultimately, that is what the district court decided when it granted summary judgment. Thus, the district court, in the guise of deciding whether the joinder was fraudulent, stepped from the threshold jurisdictional issue into a decision on the merits. As the Supreme Court held in Chesapeake & Ohio Ry. v. Cockrell, 232 U.S. 146, 34 S.Ct. 278, 58 L.Ed. 544 (1914), this it may not do.
22
Because Cockrell is directly applicable, the underlying facts and the procedural posture are significant. The administrator of an estate, who was a Kentucky citizen, sued a Virginia railroad company and its engineer and fireman, who were citizens of Kentucky, for negligently causing the death of the intestate. The defendants removed the case to federal court on the ground that the charges of negligence against the employees were fraudulently made, thereby vesting the federal court with jurisdiction over the diverse parties, the railroad and administrator. The Supreme Court, after noting first that under Kentucky law employees were jointly liable with the employer for negligent acts committed by the employees, held that removal was improper.
23
The railroad had sought removal on the ground that the charges of negligence against the employees were false and untrue and made for the sole and fraudulent purpose of affording a basis for the fraudulent joinder. The Court stated that while this contention "may have disclosed an absence of good faith on the part of the plaintiff in bringing the action at all ... it did not show a fraudulent joinder of the engineer and fireman." Id. at 153, 34 S.Ct. at 280. The Court continued:
24
As no negligent act or omission personal to the railway company was charged, and its liability, like that of the two employes, was, in effect, predicated upon the alleged negligence of the latter, the showing manifestly went to the merits of the action as an entirety and not to the joinder; that is to say, it indicated that the plaintiff's case was ill founded as to all the defendants.... As [the two employees] admittedly were in charge of the movement of the train and their negligence was apparently the principal matter in dispute, the plaintiff had the same right, under the laws of Kentucky, to insist upon their presence as real defendants as upon that of the railway company.
25
Id. (emphasis added).
26
Although Snap-on seeks to distinguish Cockrell on the ground that the Boyers asserted certain allegations against Snap-on which were not asserted against the non-diverse employees, we find Cockrell indistinguishable because the dispositive defense, that based on the release, was raised by all three defendants. Similarly, the Boyers' arguments that the release was invalid involve identical legal and factual issues applicable to the individual defendants and Snap-on. Informed by Cockrell, we hold that where there are colorable claims or defenses asserted against or by diverse and non-diverse defendants alike, the court may not find that the non-diverse parties were fraudulently joined based on its view of the merits of those claims or defenses. Instead, that is a merits determination which must be made by the state court.
III. Conclusion
27
For the reasons set forth above, we will vacate the entry of summary judgment entered against the plaintiffs because the district court was without jurisdiction; we will reverse the district court's order denying the plaintiffs' motion to remand; and we will remand to that court with directions to remand this case to the state court.
1
Mary Boyer, James Boyer's wife, was not a party to the dealership agreement. Her claims are largely derivative. References to "Boyer" will include her claims where applicable
2
The 1988 amendment curtailed the practice of naming fictitious defendants to destroy diversity. See 28 U.S.C. Sec. 1441(a) (1988) (as amended) | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/778104/ | 294 F.3d 768
FiveCAP, Inc., Petitioner/Cross-Respondent,v.NATIONAL LABOR RELATIONS BOARD, Respondent/Cross-Petitioner.
No. 00-2162.
No. 00-2390.
No. 00-2398.
No. 01-1058.
United States Court of Appeals, Sixth Circuit.
Argued: April 24, 2002.
Decided and Filed: June 28, 2002.
COPYRIGHT MATERIAL OMITTED COPYRIGHT MATERIAL OMITTED COPYRIGHT MATERIAL OMITTED Richard D. McNulty (argued and briefed), Cohl, Stoker & Toskey, Lansing, MI, for Petitioner.
Jill Griffin (argued and briefed), National Labor Relations Board, Office of the General Counsel, Washington, DC, Aileen A. Armstrong (briefed), Dep. Asso. Gen. Counsel, Charles P. Donnelly, Jr. (briefed), National Labor Relations Board, Appellate Court Branch, Washington, DC, for Respondent in No. 00-2162 and 00-2390.
Aileen A. Armstrong (briefed), Dep. Asso. Gen. Counsel, Charles P. Donnelly, Jr. (briefed), National Labor Relations Board, Appellate Court Branch, Washington, DC, for Respondent in No. 00-2398.
David Habenstreit, National Labor Relations Board, Office of the General Counsel, Deirdre Fitzpatrick (argued and briefed), National Labor Relations Board, Appellate Court Branch, Washington, DC, Meredith L. Jason (briefed), National Labor Relations Board, Washington, DC, for Respondent in 00-2398 and 01-1058.
Before: MARTIN, Chief Circuit Judge; COLE, Circuit Judge; SHARP, District Judge.*
OPINION
COLE, Circuit Judge.
1
This case involves events arising out of a union organizing campaign by the General Teamsters, Local No. 406 ("the Union"), at FiveCAP, Inc. ("FiveCAP"), a non-profit corporation. The National Labor Relations Board ("NLRB" or "the Board") petitions for enforcement of two orders against FiveCAP. First, the NLRB seeks enforcement of an August 25, 2000 Decision and Order finding that FiveCAP engaged in anti-union activity in violation of Sections 8(a)(1), 8(a)(3), 8(a)(4), and 8(a)(5) of the National Labor Relations Act ("NLRA" or "the Act," which correspond to Sections 158(a)(1), 158(a)(3), 158(a)(4), and 158(a)(5) of Title 29 of the United States Code). Second, the NLRB seeks enforcement of an October 31, 2000 Decision and Order finding that FiveCAP committed further violations under Sections 8(a)(1), 8(a)(3), 8(a)(4), and 8(a)(5) of the Act while labor proceedings were pending against FiveCAP. For the following reasons, this Court ENFORCES both orders, except as to the temporary layoff of Art Burkel.
Factual Background
FiveCAP
2
FiveCAP is a non-profit corporation that administers general welfare programs in four impoverished counties in Michigan. In particular, FiveCAP maintains an energy assistance program, also called a "weatherization" program, Head Start educational assistance programs, housing programs, and meal assistance programs. Mary Trucks ("Trucks") serves as FiveCAP's executive director and works in FiveCAP's principal office in Scottsville, Michigan. In the past, Trucks has openly opposed the organization of FiveCAP employees by unions.
3
FiveCAP receives federal funding from the Community Services Block Grant Act ("CSBG"). See 42 U.S.C. §§ 9901-26. Pursuant to the CSBG and analogous Michigan law1, FiveCAP is required to maintain a tripartite board of directors: one-third of its members are elected public officials or their representatives; one-third are selected from the private sector; and one-third are "persons chosen in accordance with democratic selection procedures adequate to assure that [they] are representative of low income individuals and families in the neighborhood served." 42 U.S.C. § 9910. As to this third category of members, any member of the community can be considered for the board by submitting a petition with the signatures of twenty low-income residents. In practice, however, Trucks often hand-picked individuals to serve on the board and asked FiveCAP employees to obtain the necessary signatures from FiveCAP clients.
The Union's Campaign
4
In the fall of 1994, the Union initiated an organizational campaign among FiveCAP employees. On December 22, 1994, Marv Holland, a business representative at the Union, wrote a letter to Trucks notifying her of the Union's intention to "organize most FiveCAP employees." On January 20, 1995, the Union filed a petition seeking to represent FiveCAP employees. In furtherance of this petition, the Union held a representation hearing on February 10, 13, and 14. Dale Smith, Tom Belongia, David Monton, Verna Fugere, Bruce Kent, Melissa Kukla, and Amanda Lange were asked by the Union to attend the hearing and potentially testify. Smith, Belongia, Monton, Fugere, and Kukla, among other FiveCAP employees, actually testified at the hearing.
5
On March 31, 1995, the Regional Director of the Union issued a Decision and Direction of Election ("Decision"), stating that, with the exception of FiveCAP coordinators and supervisors, all other categories of positions would be included in the bargaining unit. The Decision also stated that a Union election would be held on April 28, 1995. At that election, the majority of FiveCAP employees voted in favor of representation by the Union. The Union was certified as the representative for FiveCAP on May 8, 1995.
After the Union Campaign
6
The NLRB concluded that during this period of time, Trucks openly expressed disdain towards Union representation of FiveCAP employees and outwardly threatened retaliation for those "untrustworthy" employees that became involved in Union activities. Trucks had told various FiveCAP employees that "if the Union was voted in, she would just fire everybody, she had done it once, and she can do it again." Trucks also stated that those employees that testified at the representation hearing could "kiss their jobs goodbye." Trucks stated that certain employees who testified at the representation hearings, namely Smith and Belongia, could no longer be trusted because of their involvement in the Union.
7
In making these findings, the NLRB concluded that despite official statements by FiveCAP that employees supporting the Union would not be treated differently, Trucks's threats constituted interference with the right to organize, as proscribed by Section 8(a)(1) of the NLRA.2 FiveCAP does not challenge that conclusion here.
8
Trucks's open disdain towards the organization of FiveCAP employees was only the first of several charges filed against FiveCAP for unfair labor practices. The facts relevant to each alleged violation of the Act are recounted in detail below.3 In general, the first Complaint Order filed by the General Counsel ("FiveCAP I") alleges that ten FiveCAP employees were unlawfully discharged, laid off without recall, or reprimanded based upon their involvement in the Union in violation of Sections 8(a)(1), 8(a)(3)4, 8(a)(4).5 The Complaint further alleges that FiveCAP failed to bargain with the Union regarding compensation terms for bus drivers under 8(a)(5).6 In addition, a second Complaint Order filed by the General Counsel (FiveCAP II) alleges that while the proceedings against FiveCAP before the NLRB were taking place, FiveCAP constructively discharged one employee who testified against FiveCAP in violation of Sections 8(a)(3) and (4). The General Counsel also alleges that FiveCAP failed to bargain with the Union over the elimination of two employee positions in violation of Section 8(a)(5).
Procedural Background
FiveCAP I
9
After investigating the charges filed against FiveCAP, the NLRB's General Counsel issued a Complaint Order alleging that FiveCAP violated the NLRA by unlawfully discharging, laying off, and failing to recall ten Union supporters and bypassing the Union by negotiating directly with employees. The Union presented its case before Administrative Law Judge ("ALJ") Stephen Fish over the course of nine days from January 29, 1996 to February 8, 1996. On January 31, 1997, the ALJ issued a decision and recommended order concluding that FiveCAP had committed multiple violations of the NLRA. In particular, the ALJ concluded that FiveCAP had, in violation of Sections 8(a)(1), 8(a)(3), and, where applicable, 8(a)(4),7 of the Act: (1) unlawfully discharged Dale Smith from the weatherization department; (2) unlawfully discharged Tom Belongia from the weatherization department; (3) unlawfully failed to recall Art Burkel and David Monton from the weatherization department; (4) unlawfully discharged community support worker Verna Fugere; (5) unlawfully eliminated the Home Start program, and in so doing, unlawfully failed to recall Home Start teachers Melissa Kukla, Amanda Lange, Karen Sandstedt, and Jane Myers; (6) unlawfully reprimanded Bruce Kent for the manner in which he recorded his time; and (7) unlawfully bypassed the Union by negotiating directly with bus drivers about compensation policies. FiveCAP timely filed exceptions to the ALJ's decision. On August 25, 2000, the Board issued a Decision and Order affirming the findings of the ALJ. FiveCAP filed a petition to review the Board's order on October 6, 2000. The Board filed a cross-application for enforcement on November 22, 2000.
Five CAP II
10
The NLRB's General Counsel issued a second Complaint Order on January 30, 1998, alleging that FiveCAP had committed further violations of the Act, including the unlawful constructive discharge of Melissa Kukla as well as the failure to bargain with the Union over the elimination of two employee positions. The Union presented its case before ALJ James Rose on various days between May 11 through June 8, 1998. On December 17, 1998, the ALJ issued a decision and recommended order concluding that FiveCAP had: (1) unlawfully harassed and retaliated against Kukla for her participation in Union activities and caused her constructive discharge in violation of Sections 8(a)(1), 8(a)(3), and 8(a)(4); and (2) failed to notify and bargain with the Union regarding the elimination of the data entry position and the consolidation of the Head Start classrooms in violation of Sections 8(a)(1) and 8(a)(5). On October 31, 2000, the Board issued a Decision and Order affirming the findings of the ALJ. FiveCAP filed a petition to review the Board's order on November 28, 2000. The Board filed a cross-application for enforcement on January 5, 2001.8
Standard of Review
11
This Court reviews NRLB decisions using three standards of review. First, this Court reviews the Board's factual determinations as well as the Board's application of law to these facts under a substantial evidence standard. See ITT Auto. v. NLRB, 188 F.3d 375, 384 (6th Cir.1999). Under this standard, the Board's decisions must only be supported by "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Id. (quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 83 L.Ed. 126 (1938)). "That is, if the record viewed as a whole provides sufficient evidence for a reasonable factfinder to reach the conclusions the Board has reached, the court will not disturb those findings." Peters v. NLRB, 153 F.3d 289, 294 (6th Cir.1998). This Court defers to the Board's reasonable inferences and credibility determinations, even if we would conclude differently under de novo review. See ITT Auto., 188 F.3d at 384; see also NLRB v. Taylor Mach. Prods., Inc., 136 F.3d 507, 514 (6th Cir.1998) ("We afford even more deference to Board determinations of credibility and will not normally set aside the Board's choice between conflicting testimony.").
12
This Circuit also applies two additional standards when reviewing the Board's conclusions of law. Where the Board interprets the NLRA, this Court engages in deferential Chevron review and reviews all other legal conclusions de novo. The Board's interpretations of the NLRA are reviewed according to the two-step process articulated in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), under which the court first must determine "whether Congress has directly spoken to the precise question at issue." Id. at 842, 104 S.Ct. 2778. If Congress has directly addressed the issue, then the court must give effect to the statutory text. Id. at 842-43, 104 S.Ct. 2778. If Congress has not spoken directly, this Court must determine whether the Board's interpretation is based on a permissible interpretation of the statute. Id. at 843, 104 S.Ct. 2778. Under this standard, the Board's reading of the statute need only be reasonable; it need not be the best interpretation. See Holly Farms Corp. v. NLRB, 517 U.S. 392, 409, 116 S.Ct. 1396, 134 L.Ed.2d 593 (1996) ("For the Board to prevail, it need not show that its construction is the best way to read the statute; rather, courts must respect the Board's judgment so long as its reading is a reasonable one."). Finally, questions of law outside of the NLRA are reviewed de novo. See Meijer, Inc. v. NLRB, 130 F.3d 1209, 1212 (6th Cir.1997).
Jurisdiction
13
This Court retains jurisdiction to review final orders of the Board pursuant to 29 U.S.C. §§ 160(e) and (f).
14
In the proceedings below, FiveCAP argued that it was not subject to the jurisdiction of the NLRB because it is a "political subdivision" exempt from the terms of the NLRA. We concur in the NLRB's finding that FiveCAP is in fact an "employer" subject to the jurisdiction of the NLRA and is not a "political subdivision." A political subdivision must be "either (1) created directly by the state, so as to constitute departments or administrative arms of the government, or (2) administered by individuals who are responsible to public officials or to the general electorate." NLRB v. Natural Gas Util. Dist. of Hawkins County, Tenn., 402 U.S. 600, 604-05, 91 S.Ct. 1746, 29 L.Ed.2d 206 (1971) (adopting in part the Board's construction of the statutory term "political subdivision."). An entity can only satisfy the second prong of Hawkins County by ensuring that a majority of its board of directors are directly responsible to the general electorate. See Econ. Sec. Corp., 299 NLRB 562, 1990 WL 272722 (1990). Though one-third of FiveCAP's board of directors consist of politically elected individuals and their designees, and another third are selected "in accordance with democratic selection procedures" sufficient to assure that they represent the low-income community that FiveCAP serves, we agree with the Board that this does not mean that FiveCAP's board is administered by individuals who are responsible to the general electorate. See Enrichment Servs. Program, Inc., 325 NLRB 818, 819, 1998 WL 271620 (1998) ("An `electorate' of all poor persons or groups thereof does not include all individuals in the area served who would be eligible to vote in general political elections. Accordingly, we find that the Employer's directors who are `elected by the poor' are not `responsible ... to the general electorate' within the meaning of the Hawkins County test."). Because this portion of FiveCAP's board of directors cannot be considered responsible to the general electorate, FiveCAP cannot be considered a political subdivision.
Discussion
15
I. The Discharge, Constructive Discharge, Lay Off, Failure to Recall, and Reprimand of Ten FiveCAP Employees
16
In determining whether an employer has unlawfully terminated or laid off an employee on the basis of anti-union animus, this Court applies the test enunciated in Wright Line, 251 NLRB 1083, 1980 WL 12312 (1980). See NLRB v. Transp. Mgmt. Corp., 462 U.S. 393, 103 S.Ct. 2469, 76 L.Ed.2d 667 (1983) (adopting the Wright Line test). Under Wright Line, the NLRB's General Counsel must establish a prima facie case of discrimination by setting forth evidence that supports an inference that the employee's protected activities were a motivating factor in the employer's decision. In particular, the General Counsel must demonstrate that (1) the employee was engaged in protected activity; (2) that the employer knew of the employee's protected activity; and (3) that the employer acted as it did on the basis of anti-union animus. NLRB. v. Gen. Fabrications Corp., 222 F.3d 218, 226 (6th Cir.2000) (quoting ITT Auto. v. NLRB, 188 F.3d 375, 388 (6th Cir.1999)). As to this third prong, we have held that evidence of an employer's anti-union animus can be purely circumstantial, and that many factors can contribute to a finding of an anti-union motive, including the company's expressed hostility towards unionization combined with knowledge of the employees' union activities; inconsistencies between the proffered reason for discharge and other actions of the employer; disparate treatment of certain employees compared to other employees with similar work records or offenses; a company's deviation from past practices in implementing the discharge; and proximity in time between the employees' union activities and their discharge.
17
W.F. Bolin Co. v. NLRB, 70 F.3d 863, 871 (6th Cir.1995). Once the General Counsel has made out a prima facie case of anti-union animus, "the burden shifts to the employer to prove by a preponderance of the evidence that it would have taken the same action even in the absence of protected conduct." NLRB v. Gen. Sec. Servs. Corp., 162 F.3d 437, 442 (6th Cir.1998).
18
A. The Discharge of Employees in the Weatherization Department
19
FiveCAP's weatherization initiative assists low-income residents in minimizing energy costs by inspecting homes and installing energy-saving apparatus. At the time that the Union was conducting its organizational campaign, the weatherization department consisted of five employees: Paula Clark, the director; Tom Belongia, the field supervisor; Dale Smith, the inspector; David Monton, crew leader; and Art Burkel, laborer.
1. The Layoff and Subsequent Discharge of Dale Smith
20
On April 28, 1995, the same day of the Union election, Paula Clark resigned, effective immediately. At that time, both Belongia and Burkel were away on sick leave. That same evening, Dale Smith, who was an observer at the Union election, received a phone call from Russell Pomeroy, FiveCAP's fiscal officer. Pomeroy told Smith that because Clark had resigned and Belongia and Burkel were on sick leave, Smith would be temporarily laid off. Smith also received a letter to this effect, dated April 28, indicating that with three out of five employees absent, Smith would be laid off for two weeks or less. Clark testified before the ALJ, however, that upon her resignation she left three weeks worth of scheduled work for both the inspectors and laborers. Smith also testified that he could have performed Belongia's tasks while he was on sick leave. Smith told Pomeroy over the phone that he wished to complete one such outstanding project in order to get paid. After speaking with Trucks, Pomeroy permitted Smith to come in to complete this project.
21
Smith returned to work on May 4 to complete his outstanding project. While he was working on the project, he received a phone call from a woman named Sandra Fraley. Fraley was a friend of Darlene Pietz, a client of FiveCAP. Fraley asked Smith when he would be able to assist Pietz with her weatherization projects. Smith explained to Fraley that he was temporarily laid off and did not know when Pietz's project could be completed. He suggested that Fraley or Pietz call the local FiveCAP contact person or speak with Trucks directly.
22
Later that day, Trucks received a phone call from Lutheran Social Services, indicating that they had received a complaint from Fraley about the timeliness of the weatherization department's work on Pietz's mobile home. Trucks testified that in speaking with Lutheran Social Services, she realized that Smith had violated FiveCAP's confidentiality policy by discussing the business of a client with a non-client. That afternoon, Trucks called Smith into her office and angrily reprimanded Smith for violating FiveCAP's confidentiality policy. Smith asked Trucks if she was going to fire him. Trucks ultimately responded, "you are going to be fired, but not right now." Smith and Trucks continued to angrily exchange words, and Smith continued to ask if he was fired. Trucks ordered Smith to leave the building; when he refused, Trucks ordered her secretary to call the police. Smith then left, telling Trucks that he would be in touch with her in the form of a lawsuit.
23
That same day, Trucks sent Smith a letter indicating that he had been terminated because of his behavior in their meeting. She testified that she did not have any intention of discharging Smith when she called him into her office, but his conduct during their meeting was inappropriate and merited termination.
24
Mindful of the factors relevant to a finding of anti-union animus, we find that substantial evidence exists to support the Board's determination that the layoff and subsequent firing of Smith was unlawful. Smith was known by Trucks to be an avid supporter of the Union: he testified at the representation hearing and also observed the Union election that took place the same day he was laid off. The Board appropriately found suspicious the haste with which Smith was laid off, particularly given the backlog of weatherization projects left by Clark upon her departure. Moreover, the severity of Trucks's punishment of Smith, first by laying him off and next by terminating him, relative to the insignificance of his acts also contributes to a finding that Trucks was acting out of anti-union animus. Indeed, the Board found incredible Trucks's justification for the termination of Smith. Finally, the fact that all of these events transpired within days of the union election certainly supports the Board's finding of unfair labor practices. See Adair Standish Corp. v. NLRB, 912 F.2d 854, 861 (6th Cir.1990) ("More importantly, Adair's decision to post the tardiness policy (along with the union authorization revocation notice) immediately after the union election belies the company's assertion that the posted policy was nothing more than a formal statement of existing protocol."). The NLRB concluded on the basis of substantial evidence that Trucks acted based upon her disdain for the Union rather than any legitimate employer-related reason.
2. The Discharge of Tom Belongia
25
In May, Belongia, an active Union supporter, returned to FiveCAP after a period of sick leave. Shortly thereafter, several FiveCAP employees, including Paula Clark, initiated a petition drive seeking the removal of Trucks and Pomeroy for "improper management, unfair labor practices, and breach of fiduciary duties." At the end of May, Trucks and Pomeroy realized that such a petition was being circulated and immediately began interviewing employees about their knowledge and involvement in the petition. On May 31, Trucks called Belongia into her office to ask him if he had any knowledge of the petition. Belongia reluctantly admitted to having seen the petition, but refused to say anything further about it. Trucks told Belongia that in the future it was important that he tell her of anything he knew about the petition. Belongia told Trucks that if he knew of someone trying to harm FiveCAP, he would bring it to her attention, but that the petition was simply supporting the Union, and he would not report others' involvement in it. Trucks said that if Belongia truly felt that way, it might be "a good time for him to go." Belongia told Trucks that he was looking for another job, and he might have another job in a month. Trucks told Belongia that he could stay on at FiveCAP for thirty days, during which he could find another job, on the condition that he share any information he discovered regarding the petition. If he failed to comply with this condition, Trucks told him, "I can assure you, your ass is grass. And I'm warning you, I will not tolerate it." On June 2, Trucks sent Belongia a memorandum summarizing their meeting, including the fact that Belongia agreed to leave in thirty days, on the condition that he report to her anything he heard about petitions against management.
26
On June 7, Trucks called Belongia into her office to request a report that she had assigned to him on the day before. Belongia replied that he had understood that the report was due the next day, that the report was only partially completed, and that he needed to leave at 5:30 that day for personal reasons. Trucks told Belongia that if he did not complete the report that day, he should not come back to work.
27
Belongia ignored Trucks's statement and returned to work the next day. Upon his arrival, Trucks stopped him from signing in and told him to leave. The two then began to argue. Belongia told Trucks that if he was fired, he wanted her to put it in writing. Trucks told Belongia that he would receive something in the mail, but he should leave immediately. Belongia refused to leave, stating that he wished to retrieve his personal belongings. Trucks told her secretary to call the police and told Belongia not to retrieve his belongings. When the police officer arrived, Trucks told him that she had asked Belongia to leave five times, and he had refused to do so. Belongia explained that he was an employee, and Trucks responded, "Not anymore." The police officer asked Belongia to leave, and he complied. The next day, Trucks sent a letter to Belongia indicating that he had been terminated for his conduct in their meeting on June 8, namely his use of insults and threats of violence.
28
We agree with the Board that there exists substantial evidence that the discharge of Belongia was unlawful. As an initial matter, we agree with the Board's finding that Trucks suggested that Belongia resign because of his support of the Union and, by extension, his unwillingness to report to Trucks the activities of fellow Union supporters. Furthermore, we assign the requisite deference to the Board's finding that Trucks was disingenuous when she insisted that she had no intention of terminating Belongia until he acted as he did in their June 8 meeting. Given Trucks's haste in firing Belongia and her hostile behavior towards him in their meeting, as well as her concession that Belongia's skills were very much needed in the weatherization department, the Board's conclusion is sound. Indeed, it appears that the heated exchange between Trucks and Belongia was an extension of the larger conflict between the two, namely that Belongia was unwilling to help her sabotage activity among FiveCAP Union supporters. That Trucks clearly acted on the basis of anti-union animus is more than supported by substantial evidence.
3. The Layoffs of David Monton and Art Burkel
i. The Layoff of Burkel from August 3 until August 17
29
After both Smith and Belongia were terminated, Monton and Burkel continued to perform their work in the weatherization department as crew leader and laborer, respectively. In mid-July, 1995, Monton suffered a non-work related injury, causing him to take sick leave. As the sole member of the weatherization department, Burkel continued to work on several projects by himself, though sometimes Pomeroy would assist him. On August 3, Burkel was notified that because Monton was on sick leave, it would be unsafe for him to complete projects on his own. Burkel was then laid off, from August 3 until August 17, when Monton returned from sick leave.
30
The Board conducted a two-step analysis in determining that the layoff of Burkel from August 3 through 17 was unlawful. First, the NLRB concluded that FiveCAP carried its burden under Wright Line in demonstrating that there was a legitimate reason for laying off Burkel from August 3 through August 17, namely that it would be unsafe for Burkel to complete projects by himself. However, the NLRB concluded that because the unlawful discharge of Smith and Belongia were the proximate cause of the absence of employees available to accompany Burkel, his layoff was also unlawful.9 The NLRB reasoned that even assuming Burkel was a `neutral' employee,
31
his layoff was the direct result of action that the Respondent clearly took for an unlawful motive. In this regard, Burkel's situation was not unlike that of employees who are discharged or otherwise disciplined as the result of a facially unlawful rule or a rule or change in policy which an employer institutes for unlawful reasons.
32
The Board reasoned that regardless of whether Burkel himself was a target of anti-union animus, the fact that his layoff was a result of unlawful action makes it likewise unlawful as a sort of "fruit of the poisonous tree."
33
We find that the latter portion of the Board's analysis lacks substantial factual support and does not satisfy the test in Wright Line. Because the Board found that FiveCAP possessed a legitimate reason for laying off Burkel, the burden remains with the General Counsel to demonstrate that FiveCAP nonetheless acted on the basis of anti-union animus. See NLRB v. Wright Line, 662 F.2d 899, 906-07 (1st Cir.1981) (enforcing Wright Line, 251 NLRB 1083, 1980 WL 12312 (1980)) ("With respect to this ultimate question of a determining causal link between the bad motive and the discharge, the burden of persuasion remains always with the General Counsel."). However, the Board did not require this of the General Counsel; it merely imputed the burden that the General Counsel carried with respect to Smith and Belongia. Once the Board determined that FiveCAP possessed a legitimate reason for laying off Burkel, thus satisfying its burden under Wright Line, the General Counsel is required make a particularized showing that FiveCAP nonetheless acted on the basis of anti-union animus. The Board cannot simply infer such animus from separate acts involving other employees, particularly here, where there exists a neutral fact heavily contributing to Burkel's layoff: Monton's absence due to sick leave. The record indicates that Monton and Burkel regularly completed projects together and continued to do so without the assistance of either Smith or Belongia for six weeks prior to Monton's absence. Moreover, once Monton recovered, both he and Burkel were recalled, albeit temporarily, to work. Therefore, the unlawful discharge of Smith and Belongia, without more, is insufficient to sustain the General Counsel's burden under Wright Line. As such, the Board's determination is not supported by substantial evidence and will not be enforced.
ii. The Layoffs of Burkel and Monton On and After August 17
34
On August 16, Monton called Pomeroy to tell him that he was ready to return to work; Pomeroy suggested that both Burkel and Monton return the next day. However, when Monton arrived at work on August 17, Pomeroy told him that he could not recommence work. Pomeroy explained that Trucks decided that because they had just appointed a new weatherization director, they wanted the director to have a chance to "get on his feet" before Monton and Burkel could return.
35
Monton and Burkel ultimately were recalled to work on January 26, 1996, three days before the hearing before the ALJ. Pomeroy explained that while Trucks had hired a new director, James Mason, on August 4, Mason resigned on September 5. Trucks subsequently hired Chad Van Atter to take over as weatherization director on September 28. However, Trucks and Pomeroy did not recall Burkel and Monton until almost four months later.
36
The Board found incredible Pomeroy's testimony that he and Trucks wanted to wait to recall Monton and Burkel in order to allow Mason, and then Van Atter, time to acclimate to the position of director. Rather, the ALJ found the last-minute decision to be a ploy on the part of Trucks to prolong Burkel's and Monton's layoffs. Moreover, while the ALJ acknowledged that Pomeroy testified that he sent recall letters to Burkel and Monton on January 26, 1996, the ALJ also found relevant the fact that these letters were sent three days before the hearing. The ALJ concluded that FiveCAP sent the letters at that time "in an attempt to lend some credence to its purported defense that lack of supervision was responsible for the layoff." The NLRB concurred in the ALJ's conclusion that these layoffs were unlawful.
37
FiveCAP challenges the Board's determination as to the post-August 17 layoffs of Burkel and Monton only as to the period of time from August 17 through September 28, the date on which Trucks hired Van Atter. FiveCAP argues that it demonstrated a legitimate reason for failing to recall Burkel and Monton during this time period, namely that Mason needed time to acclimate to his post, and, after he resigned, the department was in need of yet another director. FiveCAP also argues that any back pay order emanating from its failure to recall Monton and Burkel should be tolled as of January 26, the date on which Monton and Burkel were recalled.
38
FiveCAP's arguments lack merit. The Board correctly concluded that there was substantial evidence of anti-union animus on the part of FiveCAP, and that the search for a director was pretextual. As stated previously, this Court is required to give substantial deference to credibility determinations by the ALJ, and thus we must credit the ALJ's conclusion that Pomeroy was disingenuous about FiveCAP's reasons for waiting to recall Burkel and Monton. Notwithstanding this finding, however, the record seems to indicate that other motives were at play. In particular, Burkel and Monton had managed without a director for several months, as Clark resigned on April 28. Moreover, both Burkel and Monton testified that there was plenty of backlogged work that the two of them could have done together without the assistance of a director. These facts contribute to a substantial showing of anti-union animus.
39
As to the tolling of the backpay order, we are likewise bound to the Board's finding that the backpay order was merely an attempt to save face days before the hearing. Thus, we join in the Board's finding that the backpay order was not tolled as of January 26, 1996.
B. The Discharge of Community Support Worker Verna Fugere
40
Upon her departure as weatherization director, Clark, along with a number of other former employees, dissatisfied with the state of affairs at FiveCAP, formed a group called "Concerned Citizens for a Better FiveCAP" ("Concerned Citizens"). Notwithstanding FiveCAP's no-solicitation policy, under which employees are prohibited from circulating petitions or any other materials without prior approval from management, Concerned Citizens initiated a petition drive. The drive sought the removal of Trucks and Pomeroy from their respective positions at FiveCAP. Concerned Citizens accused Trucks and Pomeroy of mishandling FiveCAP funds by cutting programs yet according themselves raises; terminating needed employees without replacing them; and using FiveCAP's funds to deter the Union's campaign. The group also began picketing outside of FiveCAP's Scottsville office, garnering attention from the local press. Two articles appeared in the Ludington Daily News on June 1 and 19, 1995, both of which chronicled the activities of Concerned Citizens and the pending unfair labor charges that had been filed by the NRLB against FiveCAP. Trucks was quoted in the article as saying that the activities of Concerned Citizens were mostly a ploy by the Union to elevate its bargaining position. Moreover, she stated that the Union had always intended to remove her from her position at FiveCAP.
41
In late May, 1995, Clark gave a copy of this petition to Fugere, a community support worker in FiveCAP's Mason office. Fugere in turn circulated the petition to several fellow employees, urging them to support the petition because Trucks is anti-union. Once Trucks became aware of the petition, she called Fugere into her office to meet with herself and Pomeroy; Trucks told Fugere that she would be tape-recording their conversation. Trucks told Fugere that she had breached FiveCAP's anti-solicitation policy and advised her to hire an attorney.
42
The next day, when Fugere arrived at work, Pomeroy handed Fugere a typed transcript of her conversation with Trucks and asked Fugere to sign it. Fugere refused to sign the document, stating that she would first like to consult an attorney. Trucks told Fugere that she was fired; when Fugere asked for a reason, Trucks told her to read the transcript of their conversation. A few days later, Fugere received a letter from Trucks, indicating that Fugere had been terminated for gross insubordination, arising out of Fugere's actions regarding the petition.
43
Section 7 of the NLRA grants employees the right to engage in "concerted activities for the purpose of collective bargaining or other mutual aid or protection." An employer violates Sections 8(a)(1) and (3) of the Act wherever it hinders or interferes with an employee's participation in activities encompassed by Section 7. As a rule of thumb, protected activity must regard "employees' relations with their employer and thus constitute a manifestation of a `labor dispute.'" NLRB v. Leslie Metal Arts Co., Inc., 509 F.2d 811, 813 (6th Cir.1975). Where employee activity involves the circulation of a petition, that petition must regard in some way the conditions of employment — otherwise it is not considered protected activity. Id. See also Joanna Cotton Mills Co. v. NLRB, 176 F.2d 749 (4th Cir.1949) (circulation of a petition by an employee for the removal of a foreman for personal reasons is not protected activity). However, where the petition seeks the amelioration of work-related conditions, the circulation of a petition is considered protected activity. See NLRB. v. Pyromatics, Inc., 677 F.2d 24, 26 (6th Cir.1982) ("There is substantial evidence to support a finding that the principal reason or dominant motive for the discharge of Willis was his protected activity of circulating the petition [for increased vacation time].").
44
We find no error in the Board's conclusion that the discharge of Fugere was wholly unlawful. It is readily apparent that the petition was related to the working conditions at FiveCAP. By its very terms, the petition sought the removal of Trucks and Pomeroy for their failure to manage FiveCAP properly. Moreover, local press coverage of the petition drive reflected both Concerned Citizens' and Trucks's understanding that the petition drive was related to the Union and alleged unfair labor practices at FiveCAP. That the petition explicitly and implicitly regarded management-employee relationships, and that Trucks understood it to be so, is representative of substantial evidence that Fugere was engaging in protected activity and thus was unlawfully terminated in violation of Sections 8(a)(1) and (3).
45
C. The Elimination of the Home Start Program and the Failure to Recall Melissa Kukla, Amanda Lange, Karen Sandstedt, and Jane Meyers
46
FiveCAP maintains a federally-funded Head Start program, a child development program that operates in eight centers in FiveCAP's four county area. As part of this program, FiveCAP also maintains a Home Start program, through which home-visit teachers travel to the homes of preschool children and their parents on a weekly basis to provide educational support. The Home Start program runs during the course of a regular school year; at the close of the school year, home-visit teachers are laid off until the beginning of the next school year.
47
Kukla, Lange, Sandstedt, and Myers, active Union supporters, were all Home Start teachers for the 1994-95 school year in Manistee County and Lake County and, as usual, laid off at the end of the school year. That summer, Trucks did not apply for funding for the Home Start programs in Manistee County and Lake County for the 1995-96 school year. As a result, the four teachers were not recalled to their positions as Home Start teachers.
48
Trucks testified that she did not apply for Home Start funding because of changes in Michigan welfare laws that mandated that welfare recipients, including those with small children, work twenty hours per week as a condition of receiving welfare benefits. Because the Home Start program required parents to be home when the home-visit teacher is present, scheduling around work obligations became too tedious and thus the program was canceled. Trucks also testified that she did not apply for funding because the Home Start program was not well received by the parents.
49
The Home Start teachers tell a different story, however. Sandra Rotzein, the Home Start supervisor, testified before the ALJ that parents were pleased with the Home Start programs in Manistee and Lake Counties. Rotzein also testified that while pre-enrollment was down from prior years, there were still a relatively significant number of children enrolled and parents interested in keeping their children in the program. Furthermore, all four teachers testified that the new welfare laws would not be prohibitive of running the Home Start program; the teachers were all willing to work around parents' schedules so as to accommodate their jobs and their need for educational assistance. The General Counsel alleged that Trucks's failure to apply for further Home Start funding thus was a ploy to eliminate avid Union supporters; indeed, Trucks once stated during the union campaign that "she was not going to fight for funding for jobs of people that she couldn't trust."
50
Upon finding that they were not to be recalled for the upcoming school year, all four teachers separately inquired about alternative teaching positions that they could fill. Melba White, the supervisor in charge of Head Start, notified each teacher that there were no available jobs for them in any of the Head Start facilities, other than positions for which they were unqualified. However, between August 1995 and January 1996, FiveCAP advertised for a number of teaching and teacher's aide positions through their Head Start program at the various centers. Kukla, Lange, Sandstedt, and Myers each applied for numerous of these positions and were neither interviewed nor hired for any of these positions.
51
We agree with the NLRB's finding that FiveCAP's failure to recall Kukla, Lange, Sandstedt, and Meyers to either the Home Start program or some analogous position was unlawful. FiveCap challenges the Board's conclusion, and in particular, the ALJ's factual finding that the new welfare laws were not a legitimate reason for eliminating the Home Start program. The testimony of the Home Start teachers as to their perceived ability to accommodate families despite the changes in welfare law, argues FiveCAP, is insufficient to support a finding that FiveCAP's reasons were pretextual. However, the Board did not find FiveCAP's actions to be unlawful on the basis of the Home Start teachers' ability to adjust to the welfare law changes. Rather, the Board found two factors to be relevant: first, that Trucks continued to change her testimony as to the reasons for eliminating the program; and second, that Trucks failed to even consider any of the home-visit teachers for other positions after the Home Start program was eliminated. The deference given to the ALJ's credibility findings and other factual findings suggests that substantial evidence exists to support the Board's determination that FiveCAP's failure to recall the home-visit teachers was not the simple result of changed welfare policies, but in fact a deliberate tactic to keep Union supporters from returning to FiveCAP. We thus must enforce the Board's finding as to this claim.
D. The Reprimand of Bruce Kent
52
FiveCAP policy provides that bus drivers are to be compensated from the time they pick up their first child of the day. Bus drivers are not paid for their driving time to and from their first pick up and last drop off. As a matter of practice, however, bus drivers who ride the so-called "Irons route," which includes a thirty-mile distance to the first pick-up, are permitted to charge for the drive from their homes to the home of the first child. This unwritten exception was enforced under Diane Smolinski, a bus driver supervisor.
53
Kent is employed at FiveCAP as a Head Start bus driver. Kent was an active supporter of the Union and testified at the representation hearing. In September 1995, Kent began driving the Irons route four times a week. After submitting his time sheets, White asked him why he was charging for time prior to when the first child was picked up. Kent explained the unwritten "Irons route" exception that he had always followed under Smolinski. He invited White to speak to Smolinski, who had since left FiveCAP. White called Smolinski, who confirmed that this was the standard practice. Nonetheless, White issued Kent a written reprimand for overcharging his time. White instructed Kent to charge his time pursuant to the written policy.
54
Substantial evidence supports the NLRB's conclusion that the reprimand of Kent was likely the result of anti-union animus rather than any legitimate employee policy. In doing so, we point to the finding by the ALJ that notwithstanding her discussion with Smolinski, White issued the reprimand to Kent without first issuing a warning or a notice of change in policy. Moreover, we find reasonable the Board's conclusion that FiveCAP did not proffer a credible legitimate reason for the reprimand. Given this set of facts, the Board did not err in determining that FiveCAP had violated Sections 8(a)(1) and (3) of the Act by issuing the reprimand.
55
E. The Constructive Discharge of Melissa Kukla
56
An employee can bring a claim for constructive discharge based upon anti-union animus under Section 8(a)(3), and, where applicable, 8(a)(4), of the NLRA where she can demonstrate that her employer "makes working conditions so unbearable because of the employee's Union activity or demotes an employee because of Union activity and the employee is thus induced or forced to resign." Montgomery Ward & Co. v. NLRB, 377 F.2d 452, 459 (6th Cir.1967). In determining whether work conditions are "unberable," this Court applies an objective standard, under which the conditions must be so undesirable that a reasonable person in the same situation would choose to resign. See Wilson v. Firestone Tire & Rubber Co., 932 F.2d 510 (6th Cir.1991) (quoting Yates v. Avco Corp., 819 F.2d 630, 636-37 (6th Cir.1987)).
57
While the labor charges against FiveCAP were pending, Melissa Kukla sought a preliminary injunction ordering FiveCAP to reinstate her to a vacant teaching position. FiveCAP ultimately complied, assigning her to a classroom position at FiveCAP's Fountain Child Development Center ("Fountain Center"). Once Kukla was reinstated, the General Counsel alleges that she was made subject to several humiliating and harassing incidents as a result of her support for the Union and participation in proceedings brought against FiveCAP. The General Counsel argued, and the Board agreed, that each of these incidents violates Sections 8(a)(3) and 8(a)(4), and that the cumulation of these events ultimately caused her constructive discharge. We now consider these incidents, both to the extent that they violate the Act in and of themselves, and to the extent they contribute to a showing of constructive discharge.
1. Enforcing Unreasonable Preconditions to Taking Time Off
58
FiveCAP's leave policy requires that an employee provide a doctor's note after an absence of three consecutive days. Kukla was subpoenaed to testify before the NLRB regarding FiveCAP's labor practices on October 15. The following day, she called in sick due to back pains. When she returned to work, White refused to allow Kukla to work without first producing a copy of the NLRB subpoena as well as a doctor's note, notwithstanding FiveCAP's written policy. When Kukla finally produced these documents, White issued a reprimand to Kukla for her failure to provide them timely.
59
We conclude that the Board did not err in finding that White's treatment of Kukla amounted to a violation of Sections 8(a)(3) and 8(a)(4). This seemingly arbitrary "subpoena rule" was not present in any of FiveCAP's employee manuals, and FiveCAP policy regarding doctor's notes did not require Kukla to provide a written doctor's note for being absent for just one day. We also place weight upon the fact that the subpoena in question sought Kukla's testimony regarding FiveCAP's unfair labor practices. Finally, we note that the Board rejected as incredible White's contention that she was acting pursuant to company policy. The Board's conclusion is supported by substantial evidence, and thus must be enforced by this court.
2. Accusing Kukla of Theft
60
On Friday, February 6, the Fountain Center received a donation of 95 carpet samples. On Saturday, while in the Fountain Center preparing for classes, Kukla and her teaching assistant discovered the carpet samples and took several to her classroom to replace the old carpet. They placed the old samples in the basement, along with the remaining new samples.
61
Later that afternoon, April Foley, a Head Start supervisor, arrived at the Fountain Center and found that several of the carpet samples were missing. She also noted that Kukla had been at the Fountain Center that day, and noticed that Kukla had used some of the new carpet samples. Foley phoned White, who told Foley to follow company policy and call the sheriff. The sheriff asked Foley whether she saw any signs of forced entry, and if she knew if anyone else had been in the building that day. Foley replied that it looked like Kukla had been in the building. Foley immediately had the locks changed on the building.
62
The next day, a sheriff's deputy went to Kukla's home to question her about the missing carpet samples. Kukla told the deputy that she had used some of the carpet samples, and that she had placed the remainder in the basement. She offered to show the deputy where she left the samples; however, when they arrived at the Fountain Center, the locks had been changed, and Kukla was unable to enter using her key. On Monday, February 11, the deputy returned to the Fountain Center, concluded that the samples were mostly accounted for, and did not pursue the matter any further. Kukla was not made subject to any formal disciplinary action by FiveCAP.
63
When Kukla returned to work on Monday, Foley notified Kukla that she must leave her door open at all times when children were not present, so that Foley could "keep an eye on her." Foley testified that this was because the classroom teachers often congregated in Kukla's classroom to chat and would not get their work done. The General Counsel alleged, however, that this measure was meant to humiliate Kukla for the "investigation" of the alleged "theft."
64
We find that the NLRB correctly concluded that FiveCAP violated the NLRA, both by essentially reporting Kukla to the authorities and by forcing her to leave her classroom open. We agree with the Board that Foley acted with unreasonable haste upon finding the carpet samples missing. Foley testified that she realized that Kukla had been in the Fountain Center earlier that day and had used several of the carpet samples. This fact seems to indicate that Foley could easily surmise the location of the carpet samples by speaking with Kukla, and that she had no reason to believe that they had been stolen. Furthermore, even though Foley did not directly tell the sheriff's office that she thought that Kukla stole the carpet samples, this was certainly the implication of her telling the sheriff that Kukla was the only person to have been in the building that day. Moreover, the NLRB found incredible White's testimony that FiveCAP policy mandated that they contact the police for any theft. These facts cumulatively constitute substantial evidence that FiveCAP acted unlawfully.
65
We find no error in the Board's conclusion that Foley's insistence that Kukla leave her door was motivated by anti-union animus. Assigning the requisite deference to the ALJ's credibility determination that Foley was disingenuous in stating that the open-door measure was simply intended to reduce the amount of employee chatter, and considering that the measure was instituted the Monday after Foley called the sheriff and would likely humiliate Kukla, it appears that the Board acted on the basis of substantial evidence in concluding that FiveCAP unlawfully harassed Kukla because of her support for the Union.
3. Reassigning Kukla to Teaching Assistant
66
The Fountain Center is comprised of three classrooms of students, ranging from ages three to four and a half. The children were divided by age into the three classrooms. Kukla, who had the most teaching experience, taught a class of the oldest children; Pam Jolly taught the next oldest children, and Foley taught the youngest children.
67
Shortly after the theft incident, on February 19, FiveCAP management consolidated the three classrooms at the Fountain Center into two classrooms. As a result, Kukla was relinquished of her duties as a classroom teacher and reassigned as Foley's teaching assistant. Kukla's pay and benefits remained the same.
68
FiveCAP alleged before the Board that the decision to consolidate the classrooms was made because enrollment at the center was particularly low that year: while the center had received funding for 52 students, only 34 were enrolled. This low number of students did not require three classrooms. When asked why the consolidation took place eleven weeks before the close of the school year, Foley stated that she had continually told the Fountain Center staff that if the enrollment did not increase, people would have to be laid off. However, Foley privately told two volunteers that the decision to consolidate was a matter of "good business judgment" and was not a "matter of money."
69
Substantial evidence supports the Board's finding that the decision to consolidate the classrooms at the Fountain Center and relinquish Kukla's teaching duties was not supported by any legitimate purpose and was instead motivated by anti-union animus. We find persuasive the fact that the Board found that FiveCAP failed to proffer a credible reason for consolidating the classrooms eleven weeks prior to the close of the school year. Rejecting Foley's explanation that the layoff was necessary due to low enrollment, the Board pointed to the fact that other Head Start centers were lacking in enrollment, yet only the Fountain Center classrooms were consolidated. Moreover, even if this were true, it is unclear why Kukla, who had the most teaching experience, should have been demoted to teaching assistant. Given Kukla's active Union support, and Foley's prior treatment of Kukla, we find that there existed substantial evidence that Kukla was removed from her position as classroom teacher on the basis of anti-union animus.
4. Constructive Discharge Claim
70
Shortly after FiveCAP consolidated the classrooms at the Fountain Center, Kukla resigned, stating that she could no longer work under the conditions placed upon her by the Head Start supervisors. The General Counsel alleges that the previously discussed incidents ultimately created unbearable work conditions, thus causing Kukla's constructive discharge. The Board agreed that FiveCAP facilitated a pattern of harassment and humiliation against Kukla, one that would induce any reasonable person to resign. Substantial evidence exists to support this finding. It is clear from the record that Kukla was made subject to a repeated series of incidents intended to harass and humiliate her. Moreover, it is equally clear that these events were a result of Kukla's involvement in the Union, and in particular, her involvement in proceedings regarding pending unfair labor charges against FiveCAP. Finally, we find it self-evident that any reasonable person subjected to similar conditions — reprimands for failing to comply with contrived policies, false accusations of theft, and demotion despite extensive experience — would be compelled to resign. This unquestionably satisfies this court's constructive discharge standard under the NLRA.
II. Failure to Bargain
71
Section 8(a)(5) of the NLRA requires that employers notify and bargain with the Union over changes in the terms and conditions of its employees. "[U]nilateral action with respect to any mandatory subject of bargaining is prohibited, for it is a circumvention of the duty to negotiate which frustrates the objective of section 8(a)(5) much as does a flat refusal." NLRB v. Plainville Ready Mix Concrete Co., 44 F.3d 1320, 1325 (6th Cir.1995) (quoting NLRB v. Katz, 369 U.S. 736, 82 S.Ct. 1107, 8 L.Ed.2d 230 (1962)). Failure to bargain with and notify the union regarding such changes minimizes the importance and effectiveness of the employer-union relationship. Id. at 1325 ("If an employer changes wages or other terms without affording the Union an opportunity for adequate consultation, it minimizes the influence of organized bargaining and emphasizes to the employees that there is no necessity for a collective bargaining agent." (quoting May Dep't Stores v. NLRB, 326 U.S. 376, 385, 66 S.Ct. 203, 90 L.Ed. 145 (1945))).
72
However, the NLRA mandates that employers are required to bargain only over matters concerning "wages, hours, and other terms and conditions of employment." 29 U.S.C. § 158(a)(5). The Supreme Court has held that an employer has no duty to bargain over matters relating to fundamental changes in the business enterprise. First Nat'l. Maint. Corp. v. NLRB, 452 U.S. 666, 676, 101 S.Ct. 2573, 69 L.Ed.2d 318 (1991) ("[In enacting 8(a)(5)] Congress had no expectation that the elected union representative would become an equal partner in the running of the business enterprise in which the union's members are employed."). The First National Court held that courts must make a distinction between those changes that relate simply to the employer-employee relationship and those managerial decisions that relate to the fundamental alteration of a profitable business. Employers are only required to bargain over matters pertaining to the former category of changes. Thus, where an employer makes a fundamental business change based solely on economic reasons, that employer is not required to bargain over the terms of these changes.
73
The General Counsel alleges that FiveCAP failed to bargain over three changes in the terms and conditions of employment of three classes of employees: Head Start bus drivers, a data entry position, and Head Start teachers at the Fountain Center.
74
A. The Compensation of Head Start Bus Drivers
75
On October 4, in the midst of uncompleted bargaining negotiations with the Union over the compensation policies for bus drivers, FiveCAP unilaterally notified bus drivers that they would no longer be able to drive their buses to their homes at night; instead, all buses would be parked at a centralized location at which bus drivers would meet every day. Under this new policy, drivers would be compensated from the time they left the centralized location until they returned. On October 9, FiveCAP modified this policy such that drivers could choose between two policies: this new policy and the former policy, under which drivers were compensated from fifteen minutes before their first pick up until fifteen minutes after their last dropoff. FiveCAP did not notify the Union that it was instituting any of these policies, nor did it offer the Union the opportunity to discuss these policies, outside of the uncompleted bargaining negotiations.
76
The Board did not err in concluding that FiveCAP's failure to discuss these policies with the Union constitutes a failure to bargain under Section 8(a)(5). The terms of payment for Head Start bus drivers clearly fall within the scope of 8(a)(5), and FiveCAP's decision to bypass the Union and institute a compensation scheme without completing negotiations constitutes substantial evidence of a failure to bargain.
77
B. Head Start Classroom Consolidation and the Elimination of the Data Entry Position
78
As stated above, in February 1998, FiveCAP, without consulting the Union, decided to consolidate the Head Start classrooms at the Fountain Center, thus eliminating the position of one Head Start teacher. During this same period of time, after purchasing a common computer network for all FiveCAP centers, FiveCAP eliminated the position of data entry clerk. Prior to the installment of the common network, the data entry clerk was responsible for entering information from the various FiveCAP centers onto a centralized computer.
79
The General Counsel alleges that FiveCAP's failure to bargain over the elimination of these two positions clearly amounts to a failure to bargain under Section 8(a)(5). On appeal, FiveCAP vehemently disagrees, stating that these changes were part and parcel to fundamental economic changes at FiveCAP. In the case of the consolidation of the Head Start classrooms, FiveCAP argues that this change was a financial necessity due to low enrollment. As to the elimination of the data entry position, FiveCAP insists that this change was necessary due to a fundamental change in the way in which data was entered into the FiveCAP computers. Under a First Nat'l analysis, argues FiveCAP, it was not required to bargain over the elimination of either of these positions.
80
We find this argument to be without merit and agree with the NLRB that the elimination of these positions constitutes a failure to bargain under Section 8(a)(5). While FiveCAP rightly points out that decisions only peripheral to the terms and conditions of employment are not encompassed by Section 8(a)(5), see, e.g., NLRB v. Plymouth Stamping Div., Eltec Corp., 870 F.2d 1112, 1115 (6th Cir.1989), the line that is to be drawn between "conditions of employment" and fundamental business changes is a fairly bold one. In general, "[a] guideline to follow ... is whether requiring bargaining over this sort of decision will advance the neutral purposes of the Act, namely promotion of labor-management relations and the collective-bargaining process without unduly burdening management's right freely to choose the basic direction of a corporate enterprise." Id. at 1115 (quoting First Nat'l, 452 U.S. at 681, 101 S.Ct. 2573 and Fibreboard Paper Prods. Corp. v. NLRB, 379 U.S. 203, 223, 85 S.Ct. 398, 13 L.Ed.2d 233 (1964) (Stewart, J., concurring)). Deferring to the Board's factual finding that the changes made by FiveCAP were not fundamental operational changes, we find that these changes did not alter the direction or scope of FiveCAP's "business" as required under First Nat'l. Indeed, the decision to purchase a common computer network, while perhaps causing changes to aspects of FiveCAP's infrastructure, cannot be considered to alter the services and capabilities of FiveCAP from a business perspective. Similarly, the decision to consolidate three Head Start classrooms into two likewise does not effect the type of alteration required by First Nat'l. Indeed, nothing in the record suggests that these changes were related to a partial shut down of FiveCAP's operations or some fundamental change in the services that FiveCAP offers. Because these changes are not of the magnitude contemplated in First Nat'l, and instead are wholly related to the terms and conditions of Union employees, the changes are well within the scope of Section 8(a)(5). We thus find no error in the Board's conclusion that FiveCAP has violated this section by failing to bargain with the Union prior to instituting these changes.
III. Uncontested Violations
81
FiveCAP does not appeal nor challenge the Board's conclusions regarding a number of violations of Sections 8(a)(1), 8(a)(3), and 8(a)(4). Therefore, FiveCAP has essentially "admitted the truth of those findings." NLRB v. Gen. Fabrications Corp., 222 F.3d 218, 232 (6th Cir.2000) (quoting NLRB v. Kentucky May Coal Co., 89 F.3d 1235, 1241 (6th Cir.1996)). This court is obliged to summarily enforce the Board's order as to those findings. See Gen. Fabrications Corp., 222 F.3d at 232; NLRB v. Autodie Int'l, Inc., 169 F.3d 378, 381 (6th Cir.1999).
Conclusion
82
For the aforementioned reasons, we ENFORCE the Board's orders, except as to its determination of the layoff of Art Burkel from August 3 until August 17.
Notes:
*
The Honorable G. Kendall Sharp, United States District Judge for the Middle District of Florida, sitting by designation
1
See Mich. Comp. Laws § 400.1111(1) ("One-third of the members shall be low income, elderly, or consumers with disabilities residing in the service area of the community action agency. One-third of the members shall be representatives of the units of local government and public agencies within the service area of the community action agency. One-third of the members shall represent the private sector, including representatives of business and industry, agriculture, labor, and religious and civic organizations located within the service area of the community action agency.")
2
"It shall be an unfair labor practice for an employer (1) to interfere with, restrain, or coerce employees in the exercise of rights guaranteed in section 157 of this title" 29 U.S.C. § 158(a)(1)
3
The claims alleged in FiveCAP I are discussed in sections I(A), I(B), I(C), I(D), and II(A)infra. The claims alleged in FiveCAP II are discussed in sections I(E) and II(B) infra.
4
"It shall be unfair labor practice for an employer ... (3) by discrimination in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization...." 29 U.S.C. § 158(a)(3)
5
"It shall be unfair labor practice for an employer ... (4) to discharge or otherwise discriminate against an employee because he has filed charges or given testimony under this subchapter." 29 U.S.C. § 158(a)(4)
6
"It shall be unfair labor practice for an employer (5) to refuse to bargain collectively with the representatives of his employees...." 29 U.S.C. § 158(a)(5)
7
Smith, Belongia, Monton, Fugere, and Kukla testified at the representation hearing, entitling them to protection under Section 8(a)(4)
8
The Union also alleged a number of events that the Board concluded were not unlawful. Because the parties do not challenge these conclusions, they are not at issue here
9
Member Brame dissented from this portion of the Board's decision | 01-03-2023 | 04-18-2012 |
https://www.courtlistener.com/api/rest/v3/opinions/1019428/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-4038
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
LAWRENCE LEO HAWKINS, JR.,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk. Raymond A. Jackson, District
Judge. (CR-04-60)
Submitted: March 29, 2006 Decided: May 25, 2006
Before WILKINSON, MICHAEL, and KING, Circuit Judges.
Affirmed by unpublished per curiam opinion.
J. Edgar Demps, J. EDGAR DEMPS, P.L.L.C., Portsmouth, Virginia, for
Appellant. Paul J. McNulty, United States Attorney, Michael J.
Elston, William D. Muhr, Assistant United States Attorneys,
Norfolk, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Lawrence Leo Hawkins, Jr., appeals his conviction for
possession with intent to distribute cocaine base, in violation of
21 U.S.C. § 841(a)(1), (b)(1)(B)(iii) (2000), and felon in
possession of a firearm, in violation of 18 U.S.C. § 922(g)(1)
(2000).* He asserts that the district court erred in denying in
part his motion to suppress evidence. We have reviewed the
parties' briefs, the joint appendix, the transcript of the district
court's ruling from the bench, and the court's order partially
denying the suppression motion. Finding no reversible error, we
affirm.
The record provides sufficient support for the district
court’s conclusion that Hawkins voluntarily consented to the search
of his hotel room and vehicle. See United States v. Mendenhall,
446 U.S. 544, 558 (1980) (finding that courts should consider age,
maturity, and intelligence of defendant in determining whether
consent to search was voluntary); United States v. Lattimore, 87
F.3d 647, 650 (4th Cir. 1996) (en banc) (noting that “conditions
under which the consent to search was given” are relevant). We
reject Hawkins’ argument that his encounter with law enforcement
officials amounted to a seizure under the Fourth Amendment. See
Ornelas v. United States, 517 U.S. 690, 699 (1996) (stating
*
Hawkins apparently waived his right to challenge his sentence
on appeal. J.A. 120.
- 2 -
standard of review for denial of motion to suppress); Florida v.
Bostick, 501 U.S. 429, 436-37 (1991) (providing standard to
determine whether police-citizen encounter amounts to seizure);
United States v. Weaver, 282 F.3d 302, 309-10 (4th Cir. 2002)
(same). Finally, as to the storage facility, the court granted the
motion to suppress the firearm found during the search. Hawkins
points to no other incriminating evidence that was found during the
search of the storage facility. We thus conclude that the district
court did not err in finding that Hawkins voluntarily consented to
the search of his hotel room and automobile, and in denying in part
his motion to suppress.
Accordingly, we affirm Hawkins’ conviction. We deny
Hawkins’ motion for substitute counsel, and his request to file a
pro se supplemental brief. 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 |
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